Hedge Fund Fraud Cases: Adviser is Accused of Short-and-Distort Scam and Digital Asset Manager Faces Misrepresentation Allegations

The SEC has filed fraud charges against hedge fund adviser Gregory Lemelson and his Massachusetts based investment advisory firm Lemelson Capital Management LLC. The regulator is accusing them of illegally profiting over $1.3M from an alleged short-and-distort scheme that involved Ligand Pharmaceuticals.

According to the hedge fund fraud allegations, Lemelson and his investment advisory firm put out false information about the San Diego-based pharmaceutical company after the hedge fund adviser took a short position in Ligand for The Amvona Fund. Lemelson is a part owner and advisor of this other hedge fund.

The SEC’s complaint said that Lemelson’s false statements were meant to rattle investor confidence in Ligand, drive its stock price down, and increase his short-position’s value. He allegedly used interviews, written reports, and social media to disperse the false claims.

Among the “untrue claims” was that Ligand was on the verge of bankruptcy and that its investor relations firm was in agreement with him that the company’s flagship drug, Promacta, was headed toward obsoletion. Lemelson also allegedly misled investors when he claimed that a European doctor had “negative views” about Promacta without disclosing that the doctor was Amvona’s biggest investor and stood to profit financially if Ligand’ stock price were to drop.

Short-sellers typically stand to make money when a stock’s price goes down.

Now, the SEC wants ill-gotten gains returned, plus interest. It also wants to impose monetary penalties against Lemelson and his investment advisory firm.

SEC Accuses Digital Asset Hedge Fund Manager of Raising More Than $3.6M With False Claims

The SEC has submitted an order finding that Crypto Asset Management LP (CAM) and its principal Timothy Enneking raised over $3.6M in four months from 44 investors last year when it offered a fund that it falsely marketed as the first crypto asset fund in the US to be regulated by the Commission.

The SEC contends that since the public offering was, in fact, unregistered, non-exempt, and had invested over 40% of its assets in digital asset securities, the hedge fund manager had caused the fund to run as an unregistered investment company.

CAM has since put an end to its public offering. It said that it will issue buy backs to investors that were impacted by its alleged actions.

The fund and Enneking have consented to the SEC’s order. They also have agreed to the censure and to paying a $200K penalty. However, they are not denying or admitting to the findings.

This is the first time that the Commission has brought an enforcement action against a hedge fund manager over digital asset investments.

Hedge Fund Fraud

Hedge funds are not suitable for all investor and some of them can be very risky. Unfortunately, inadequate oversight enables hedge fund fraud to happen and it is investors that suffer when it does. At Shepherd Smith Edward and Kantas, LLP, our hedge fund fraud lawyers represent investors in helping them to recoup their losses. Contact our investor fraud law firm today.

The SEC Complaint in the Lemelson Case (PDF)

The SEC Order in the Crypto Asset Management Case (PDF)

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