Short the Stock, Then Lie About the Company

DOCUMENTED This is the oldest playbook in financial crime, and Gregory Lemelson ran it with the confidence of someone who had never expected to face consequences. In May 2014, Lemelson’s hedge fund, the Amvona Fund, began building a short position in Ligand Pharmaceuticals, Inc. — a small biotech company. A short position means you borrow shares, sell them at the current price, and profit when the price drops and you can buy them back cheaper. To make money, the stock has to fall. So Lemelson needed Ligand’s stock to fall. And he set about making that happen.

Between June and August 2014, Lemelson published a series of online reports and gave media interviews attacking Ligand’s finances, management, and business prospects. He claimed Ligand faced an existential threat to its primary product, Promacta — a drug approved to treat disorders including side effects from hepatitis C treatment — due to competition from another drug called Sovaldi. That kind of market commentary, even aggressive criticism, sits within legal bounds. What Lemelson did next did not.

FRAUD He fabricated evidence. He misrepresented public documents. He lied — with specificity and with intent — about facts that were directly contradicted by materials he admitted to having read carefully. The SEC brought a civil enforcement action. The jury found him liable on three counts of making untrue statements of material fact. Both the district court and the U.S. Court of Appeals for the First Circuit upheld that verdict. He then petitioned the U.S. Supreme Court for review, advancing arguments the SEC and the U.S. Solicitor General described as arguments “neither presented to nor passed on by the court of appeals” and “lacking merit.”

Understand the structure here. A wealthy fund manager builds a financial instrument designed to profit from a company’s failure. He then uses his platform as a published “analyst” and media commentator to spread false information about that company to the investing public. The stock declines. Regular investors — people who owned Ligand stock in their retirement accounts, their brokerage accounts, their long-term portfolios — lost money. Lemelson’s fund made money. That is the transaction this case is about.

Lemelson’s defense throughout this entire legal journey has been a study in escalating audacity. At trial, his team argued his Viking statements were opinions, not facts, and thus constitutionally protected. The jury rejected that. On appeal, he argued the same. The First Circuit rejected that too, finding a reasonable jury could have concluded the statements “expressed certainty about things” and were thus actionable statements of fact under the Supreme Court’s own precedent. Then, at the Supreme Court petition stage, he abandoned that argument entirely and invented two new ones that he had never raised before — claiming false statements in securities markets deserve “breathing space” under the First Amendment and that his conduct didn’t technically meet the definition of fraud. The SEC’s legal team pointed out bluntly that these new arguments had never been presented to any lower court, and that Lemelson himself had previously argued the opposite in the appeals court.

A Fraud in Four Acts: The Timeline

The Non-Financial Ledger: What the Fine Doesn’t Cover

ACCOUNTABILITY There are two stories inside every securities fraud case. The first is the one that gets prosecuted: the rule violations, the statutes, the jury instructions, the appellate record. The second story — the one that never appears in a civil penalty order — is the story of who actually paid for what happened. In this case, the answer is not Gregory Lemelson. He profited. The people who paid were the ordinary investors holding Ligand Pharmaceuticals stock who watched its value drop after a self-styled “activist investor” with a radio platform and a publishing channel lied to the market.

Think about who holds shares in a small-cap biotech like Ligand Pharmaceuticals. The hedge funds with sophisticated research teams can see through a hit piece in real time. They have the resources to pull the Viking S-1 filing, read it, compare it to Lemelson’s claims, and recognize the discrepancies within hours. The people who cannot do that are the individual investors — the person who put a few hundred dollars into a biotech fund because they read something promising about royalty-based pharmaceutical business models, the retiree whose IRA holds a diversified basket that includes small-cap healthcare names, the young investor who bought shares directly. These are the people whose holdings declined while Amvona covered its short at a profit.

The betrayal here operates on multiple levels. On one level, there is the obvious financial harm: money lost, returns diminished, trust in market information eroded. But on another level, what Lemelson did was parasitic on the entire architecture of public market disclosure. The securities markets function because investors are supposed to be able to rely on publicly available information to make decisions. That is the foundational premise of the disclosure-based regulatory system the SEC administers. When a fund manager uses his credibility as a “published analyst” and “activist investor” to disseminate fabricated information — to tell a radio audience that Ligand’s own investor relations team had confirmed Promacta was “going away,” when in fact they said nothing of the sort — he is not just committing fraud on a transaction level. He is degrading the informational environment that everyone who invests in public markets depends upon.

The dig at Lemelson’s character runs deeper than the financial mechanics. Consider what he actually did on June 18 and 19, 2014. He called Ligand’s investor relations representative, Bruce Voss, the day before a radio interview. On that call, Lemelson told Voss that he believed Promacta’s sales were disappearing, then asked Voss “don’t you agree?” — a rhetorical question designed to solicit validation. Voss did not agree. Voss testified that he predicted Promacta had a “bright future.” The next day, on the radio, Lemelson told his audience that Ligand management had “basically agreed” and had said “look, we understand Promacta is going away.” He transformed a rejection of his thesis into fabricated confirmation of it and broadcast that fabrication to everyone listening. That is a particular kind of dishonesty. It uses the credibility of the source he contacted — and the implicit trust audiences place in people who claim to have spoken directly with company management — to launder a lie into the information stream.

Then there are the Viking statements. Lemelson published a report on July 2, 2014, claiming Viking Therapeutics was a “shell company” and a “single-purpose vehicle” used to inflate Ligand’s balance sheet with fake paper profits. To support that narrative, he stated that Viking’s financial statements were unaudited. Viking’s S-1 — filed two days before Lemelson’s report, and a document Lemelson admitted at trial he had read and “carefully researched” — said the financial statements were audited. He also stated that Viking did not intend to conduct any preclinical studies or clinical trials. Viking’s S-1 repeatedly stated that it would conduct such studies, relying on third parties to do so. Lemelson knew what the document said. He had read it. He wrote the opposite. For a small biopharmaceutical company in its early development stages, being labeled a worthless shell company in a widely distributed analyst report is not a minor inconvenience. It is an attack on the company’s access to capital, on its relationships with partners, and on the confidence of its early investors.

Lemelson has described himself throughout this proceeding as a “self-described ‘activist investor.'” The activist investor framing is important to examine. Legitimate short sellers and activist investors perform a real function in markets: they research companies, identify overvaluation or fraud, and publish their findings, accepting the legal risk that comes with publishing research while holding short positions. That function has genuine social value. What Lemelson did was different. He did not find real problems with Ligand and Viking and report them. He invented problems, cited fabricated evidence, and misrepresented documents he had personally verified. The “activist investor” label, in this case, is a costume placed over straightforward market manipulation. The dignity cost belongs to every investor who made a decision based on his reports, and to every company employee at Ligand and Viking whose work was publicly smeared by someone betting against their company’s survival.

Legal Receipts: What the Documents Actually Say

PRIMARY SOURCE Every quote below is taken verbatim from the U.S. Supreme Court Brief for the Respondent in Opposition, No. 23-98, filed by the Securities and Exchange Commission with the support of the U.S. Solicitor General in November 2023. These are the government’s own words, citing the trial record, the jury verdict, and the appellate rulings.

The Cost of the Scheme: What He Made vs. What He Paid

CONTEXT The source document does not disclose the precise profit Lemelson extracted from his short position. What it confirms is that a profit was made, that the stock price declined, and that those declines were caused at least in part by false statements Lemelson knowingly published. The $160,000 civil penalty figure comes from the headline framing of this investigation, not from the brief itself, which does not specify the penalty amount in the text available. What the brief does confirm is that the penalty was a “civil penalty” — a fine, not a criminal sentence, not prison time, and not disgorgement of all profits.

The five-year injunction against further violations sounds significant until you consider what it actually means: for five years, Lemelson Capital Management is barred from violating securities law. That is not a structural remedy. It does not return money to the investors who lost it. It does not compensate Ligand Pharmaceuticals or Viking Therapeutics for reputational harm. It expires. And after it expires, the structural incentive that made this scheme attractive — the ability to profit enormously while paying a fraction of those profits in civil penalties if caught — remains fully intact.

Societal Impact Mapping: Who Else Gets Hurt When Rich People Lie

Environmental Degradation

ANALYSIS The direct environmental dimension of this specific case is not found in toxic waste or pollution permits. The environmental harm here is systemic and structural: when financial predators are permitted to manipulate the stock prices of early-stage biopharmaceutical companies with impunity, the cost is borne partly by the development pipeline for drugs that treat real diseases in real people.

Ligand Pharmaceuticals’ business model, as described in the source document, was to “acquire the economic rights to new drug candidates, license those candidates to other companies for development, and partner with other entities to manufacture and market approved drugs.” Viking Therapeutics, targeted in Lemelson’s fraudulent report, was a biopharmaceutical development company relying on Ligand’s royalty structure to fund drug development. Ligand’s primary product in 2014 was Promacta, approved to treat disorders including side effects from hepatitis C treatment. When Lemelson’s false reports drove Ligand’s stock price down, the resulting damage to investor confidence in the company’s valuation affected its ability to attract capital for its pipeline of drug candidates. Small biotech companies live and die by their share price because it directly influences their ability to raise funds for research, clinical trials, and commercialization.

Hepatitis C is a disease with documented disproportionate prevalence among vulnerable populations, including people experiencing housing instability and people who use intravenous drugs. The drugs that Ligand was developing royalty positions around included treatments with genuine public health significance. Every time a manipulative short seller degrades confidence in a legitimate biotech company through fabricated research, they impose a cost on the development timeline of treatments that people who cannot afford private care depend on. That cost is diffuse, invisible in any individual court record, and never appears in a civil penalty calculation. It is real nonetheless.

Public Health

ANALYSIS The public health dimension of securities fraud in pharmaceutical markets is underreported and largely invisible in financial journalism. The source document establishes that Ligand Pharmaceuticals was built on a royalty model: it acquired rights to drug candidates and licensed them out for development. This is a capital-dependent business. Investor confidence in the valuation of royalty-based pharma companies directly affects how much capital flows into the development of the drugs those companies hold rights to.

Promacta, Ligand’s primary asset in 2014, was approved to treat thrombocytopenia — a condition characterized by abnormally low platelet counts — and to manage side effects from hepatitis C treatment. Ligand’s licensing agreement with Viking Therapeutics was structured to develop additional drug candidates through Ligand’s royalty-acquisition model. Lemelson’s false report specifically targeted the Ligand-Viking deal as a sham, calling Viking a “single-purpose vehicle” and a “shell company” and claiming its financial statements were fraudulent and its development plans were fabricated. None of this was true. But it was published, cited by a person claiming insider access to Ligand management, and distributed to a market audience.

The downstream effect of this kind of fabricated attack on a small biotech’s credibility can be significant. Early-stage biotechs depend on retail investor confidence and small institutional investor participation to maintain valuations that allow them to raise additional capital for clinical trials. A hit piece that successfully drives a stock price down — even temporarily — disrupts the capital-raising environment the company operates in. For Ligand, whose model was specifically built around licensing revenue and royalty rights, a damaged valuation translates directly into reduced capacity to acquire new drug candidates and maintain its development pipeline. Patients awaiting treatments in that pipeline pay the price nobody accounts for.

There is a further public health cost in the erosion of trust in published financial research. When fraudulent “analyst reports” are indistinguishable from legitimate critical research — because they look identical on the surface, cite real company documents, and are presented by people with credentials and platforms — investors and the public lose the ability to distinguish between real whistleblowing and market manipulation. That informational degradation matters for public health because it affects how pharmaceutical companies are valued, how capital flows through the drug development system, and ultimately whose diseases get funding and whose do not.

Economic Inequality

STRUCTURAL HARM This case is, at its core, a story about who the securities markets actually serve. The structural reality of short selling combined with fraudulent research is that the profit flows to people with existing capital — hedge fund managers with the leverage to build large short positions and the platform to distribute market-moving commentary — while the losses flow to people who hold long positions: ordinary investors, pension funds, and retail market participants who cannot afford teams of analysts to fact-check every report within hours of publication.

Please click on this link to get to the press release from the SEC’s website: https://www.sec.gov/enforcement-litigation/litigation-releases/lr-25353

You can also find a legal document about this scammy nonsense from the Department of Justice’s website: https://www.justice.gov/d9/2024-06/23-98_lemelson_et_al._v._sec.pdf

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