SEC v. Lemelson

SEC v. Lemelson

Opinion

MEMORANDUM AND ORDER

Saris, D.J.

INTRODUCTION

The Securities and Exchange Commission ("SEC") brought a civil enforcement action against Defendants Gregory Lemelson ("Lemelson") and Lemelson Capital Management, LP ("LCM") for violations of the Securities Exchange Act and the Investment Advisers Act of 1940 (the "Advisers Act"). Following a trial, the jury returned a mixed verdict on November 5, 2021, finding Lemelson liable for three false statements and not liable under a scheme liability theory and the Advisers Act. The SEC now moves for entry of final judgment (Dkt. 244). The SEC requests this Court order: (1) an injunction permanently restraining and enjoining Defendants from violating Section 10(b) of the Securities Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5]; (2) a $656,500 civil penalty against Lemelson; (3) a $775,000 [*2]  civil penalty against LCM; (4) $656,500 in joint and several disgorgement against Lemelson and LCM; and (5) prejudgment interest of $208,624. Lemelson opposes all five components of the proposed order (Dkt. 260). After hearing, the Court enters the following final judgment: Defendants are enjoined from violating Section 10(b) of the Exchange Act and Rule 10b-5 for a period of five years, and Lemelson is ordered to pay a Tier III civil penalty in the amount of $160,000.

FACTUAL BACKGROUND

I. The Charged Conduct

Lemelson served as Chief Investment Officer of LCM in 2014. Lemelson managed the Amvona Fund through LCM, and he "made all investment decisions for that fund." Dkt. 246-5 (Parties' Agreed-to Facts), ¶ 5. Beginning in May 2014, the Amvona Fund took a short position in shares of Ligand Pharmaceuticals, Inc. Lemelson and LCM took a short position on behalf of the Amvona Fund on thirteen dates between May 2014 and October 2014. The total short position from this period was $5,082,334.60. Between June and August of that year, Lemelson published five reports concerning Ligand. In a report published July 3, 2014, Lemelson represented that Viking Therapeutics, Inc., ("Viking"), a company that signed a licensing [*3]  deal with Ligand, "does not intend to conduct any preclinical studies or trials and does not own any products or intellectual property or manufacturing abilities and leases space from Ligand." Dkt. 246-11 at 7. Lemelson wrote that "Viking appears to be a single-purpose vehicle created to raise more capital from public markets for its sponsor, Ligand Pharmaceuticals." Id. In the same report, Lemelson mused that Viking had a "curious relationship" with its accounting firm and stated that Viking "has not yet even consulted with the firm on any materials issues" and "[t]he financial statements provided on the S1 accordingly are unaudited." Id. at 9-10.

Between June and October, Lemelson also gave four interviews on Benzinga Premarket Prep Shows ("Benzinga"). During his interview with Benzinga on June 19, 2014, Lemelson described a phone call with Bruce Voss, Ligand's investor relations firm representative. Lemelson said "It's literally going to go away, I mean, I had discussions with [Ligand] management just yesterday — excuse me, their [Ligand's] IR [investor relations] firm. And they basically agreed. They said, 'Look, we understand Promacta's going away.'" Dkt. 246-5, ¶ 14. Lemelson [*4]  and LCM covered the short position on five dates, for a total of $3,785,690.19. The Amvona Fund profited $1,296,644.41 from the short position in Ligand.

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