Hedge Fund Adviser Charged In ‘Short-and-Distort’ Scheme

The SEC accuses Gregory Lemelson of making false statements about Ligand Pharmaceuticals after taking a short position in May 2014.
William SprouseSeptember 13, 2018
Hedge Fund Adviser Charged In ‘Short-and-Distort’ Scheme

The Securities and Exchange Commission has charged hedge fund adviser Gregory Lemelson and his firm, Lemelson Capital Managemnet, of illegally profiting from a short-and-distort scheme to drive down the price of Ligand Pharmaceuticals.

The SEC accused Lemelson, in charges filed in federal court in Massachusetts, of making more than more than $1.3 million from the scheme, which involved making false statements about Ligand after taking a short position in May 2014 on behalf of the Amvona Fund, a hedge fund he advised and partly owned.

“While short-sellers are free to express their opinions about particular companies, they may not bolster those opinions with false statements, which is what we allege Lemelson did here,” David Becker, an Assistant Director in the SEC’s Division of Enforcement, said.

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Lemelson allegedly spread untrue claims that Ligand was on the verge of bankruptcy and its Hepatitis C drug would become obsolete. Ligand’s stock lost more than a third of its value during the scheme, the SEC alleged.

In a statement, Lemelson, who is a Greek Orthodox priest as well as chief investment officer of the firm, denied the allegations.

“The Commission chose to bring this case based upon its enforcement staff’s personal feelings and facts be damned, win-at-any-cost ambitions which have allowed it to ‘make up the rules’ as they go along,” Lemelson said. “The government’s claims are false and will be proven to be so.”

Lemelson said the action was an effort to “destroy the reputation of a whistleblower” who provided information about accounting fraud at Ligand. He said Ligand was sued for $3.8 billion by a group of investors in July.

“We are looking forward to defending this matter, exploring the possibility of bringing a complaint against the SEC and to setting a precedent that will prevent this sort of meritless action from being brought in the future,” Lemelson said.

The SEC’s complaint charges Lemelson and Lemelson Capital Management with fraud and seeks to have them return allegedly ill-gotten gains with interest and pay monetary penalties.

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