Priest shorting biotech stock owes SEC $160,000, faces lifetime ban

Rev. Emmanuel Lemelson exits the federal courthouse in Boston, Massachusetts, U.S. November 3, 2021. Picture taken November 3, 2021. REUTERS/Nate Raymond
  • Judge rejects SEC's request for larger penalty against Rev. Emmanuel Lemelson
  • SEC can seek lifetime investment advisor bar based on five-year injunction

(Reuters) - A Greek Orthodox priest who manages a hedge fund has been penalized $160,000 for making false statements about a biotech company while betting against its stock in a ruling that could result in him being barred from working as an investment advisor.

U.S. District Judge Patti Saris in Boston on Wednesday declined to force Rev. Emmanuel Lemelson and his investment firm Lemelson Capital Management to pay the $2.21 million the U.S. Securities and Exchange Commission sought after a jury found him liable for making false statements.

That November verdict was mixed, Saris noted, with jurors rejecting the SEC's main argument that Lemelson engaged in a "short and distort" scheme in 2014 by shorting Ligand Pharmaceuticals Inc's stock and then manipulating its price through lies.

Jurors instead only found Lemelson liable for making three false, material statements during the course of his shorting campaign. Short-sellers profit when a stock price declines, and the hedge fund he managed, The Amvona Fund, made $1.3 million.

Saris faulted Lemelson for a "particularly egregious" false claim during a radio interview that Ligand's flagship hepatitis C drug, Promacta, was "literally going to go away" and that company representatives "basically agreed with him."

But while the judge declined to endorse the SEC's proposal for how much Lemelson should pay in penalties and disgorged profits, she concluded his conduct merited a five-year injunction barring him from further securities violations.

Lemelson's lawyers had argued against such an order, saying an injunction of any length would allow the SEC to justify imposing a lifetime bar on him serving as an investment advisor, which the agency's lawyers say it will pursue administratively.

But Saris said a temporary injunction was warranted as Lemelson "continues to unabashedly defend his actions" and that "he has not learned his lesson."

SEC enforcement director Gurbir Grewal in a statement welcomed the ruling, saying the regulator pursues cases like Lemelson's in part to "enable the commission to decide whether those who commit fraudulent acts should be removed from the securities industry."

Lemelson's lawyer, Douglas Brooks of Libby Hoopes Brooks, declined to comment. He has said Lemelson plans to appeal the verdict and that he had made the statements at issue in good faith.

Lemelson's lawyers have called the lawsuit the SEC filed in 2018 an effort by Ligand to "squash" him, saying the agency only opened a case after then-Representative Duncan Hunter, who represented Ligand’s California district, wrote a letter recommending an investigation.

"I spoke the truth about Ligand Pharmaceuticals," Lemelson said during a February hearing.

The case is U.S. Securities and Exchange Commission v. Lemelson, et al, U.S. District Court for the District of Massachusetts, No. 18-cv-11926.

For the SEC: Alfred Day and Marc Jones of the SEC.

For Lemelson: Thomas Hoopes, Douglas Brooks and Brian Sullivan of Libby Hoopes Brooks

(NOTE: This story has been updated with a comment from the SEC.)

Read more:

Jury in SEC case finds priest shorting biotech's stock made false statements

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Nate Raymond reports on the federal judiciary and litigation. He can be reached at nate.raymond@thomsonreuters.com.