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Case 1:18-cv-11926-PBS Document 124 Filed 09/30/20 Page 1 of 4

UNITED STATES DISTRICT COURT


FOR THE DISTRICT OF MASSACHUSETTS

)
SECURITIES AND EXCHANGE COMMISSION, )
)
Plaintiff )
)
v. )
)
GREGORY LEMELSON and LEMELSON CAPITAL )
MANAGEMENT, LLC, ) Civil Action No. 1:18-cv-11926-PBS
)
Defendants, )
)
and )
)
THE AMVONA FUND, LP, )
)
Relief Defendant )
)

DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT

Pursuant to Fed. R. Civ. P. 56 and Local Rule 56.1, Defendants Father Emmanuel

Lemelson (identified in the Complaint as “Gregory Lemelson”), Lemelson Capital Management,

LLC and the Amvona Fund, LP, move this Honorable Court to grant summary judgment in their

favor on all claims asserted by Plaintiff Securities and Exchange Commission in this so-called

“short-and-distort” case.

In support of this Motion, Defendants state that the Commission’s case is based on four

statements made by Fr. Emmanuel that (i) are each either demonstrably true or constitute opinion

commentary protected by the First Amendment, (ii) had no impact on the subject company’s

stock price and therefore were immaterial as a matter of law; and (iii) were made without the

requisite scienter.

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Case 1:18-cv-11926-PBS Document 124 Filed 09/30/20 Page 2 of 4

The Commission has failed to present any evidence of any material impact to the stock

price of Ligand (the subject of the alleged misstatements in this case). In fact, the stock price for

Ligand went up on all but one of the days of the challenged statement and the undisputed record

shows that both parties agree the one day on which the stock price rose was not statistically

significant. This makes the statements immaterial as a matter of law and is fatal to the

Commission’s claims.

Additionally, the undisputed record shows that Fr. Emmanuel believed in the veracity of

the four opinions being challenged: one based on a mathematically correct calculation, which the

Commission charges was misleading because Fr. Emmanuel’s chosen metric (of which it

disapproves) made Ligand “look[] really bad”; two statements about a different company than

the one he shorted; and one statement based on a telephone call in which the other participant

essentially conceded the truth of Fr. Emmanuel’s statement and for which Fr. Emmanuel’s real-

time notes corroborate his statement. And Fr. Emmanuel’s actions were in direct opposition to

the hallmarks of a typical “short-and-distort” case, as Fr. Emmanuel (1) published all his reports

under his own name; (2) expressly disclosed at the beginning of each report that he had taken a

short position in Ligand and that he was only expressing his opinions; (3) specifically cited all

source materials giving rise to his commentary concerning Ligand; and (4) held on to his short

position for months after he issued his reports. Thus, the Commission has failed to prove

scienter and cannot sustain a claim based on the four alleged misstatements as they are protected

opinions under the First Amendment.

In addition, the Commission’s novel attempt to use Rule 206 of the Investment Advisers

Act in the context of an alleged market-manipulation case based on allegedly false statements

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Case 1:18-cv-11926-PBS Document 124 Filed 09/30/20 Page 3 of 4

fails both because there was no fraud, and because the Commission has provided no evidence

that Fr. Emmanuel defrauded his own investors.

Defendants further rely on their Memorandum of Law in Support of Their Motion for

Summary Judgment and accompanying affidavits and exhibits.

WHEREFORE, Defendants respectfully request that the Court enter Summary Judgment

in favor of Defendants.

Respectfully Submitted,

REV. FR. EMMANUEL LEMELSON,


LEMELSON CAPITAL MANAGEMENT,
LLC, and THE AMVONA FUND, LP

By: /s/ Douglas S. Brooks


Douglas S. Brooks (BBO No. 636697)
Brian J. Sullivan (BBO No. 676186)
LIBBY HOOPES BROOKS, P.C.
399 Boylston Street
Boston, MA 02116
Tel.: (617)-338-9300
dbrooks@lhblaw.com
bsullivan@lhblaw.com

Dated: September 30, 2020

CERTIFICATION PURSUANT TO LOCAL RULE 7.1(a)(2)

I hereby certify that Defendants’ counsel conferred with counsel for the Securities and
Exchange Commission in an attempt to resolve or narrow the issues but was unable to do so.

/s/ Douglas S. Brooks


Douglas S. Brooks

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Case 1:18-cv-11926-PBS Document 124 Filed 09/30/20 Page 4 of 4

REQUEST FOR ORAL ARGUMENT

Pursuant to Local Rule 7.1(d), Defendants request to be heard at oral argument on their
Motion for Summary Judgment.

CERTIFICATE OF SERVICE

I hereby certify that this document filed through the ECF system will be sent
electronically to the registered participants as identified on the Notice of Electronic Filing (NEF)
and paper copies will be sent to those indicated as non-participants on September 30, 2020.

/s/ Douglas S. Brooks


Douglas S. Brooks

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Case 1:18-cv-11926-PBS Document 125 Filed 09/30/20 Page 1 of 45

UNITED STATES DISTRICT COURT


FOR THE DISTRICT OF MASSACHUSETTS

)
SECURITIES AND EXCHANGE COMMISSION, )
)
Plaintiff )
)
v. )
) Civil Action No. 1:18-cv-11926-PBS
GREGORY LEMELSON and LEMELSON CAPITAL )
MANAGEMENT, LLC, ) Leave to File in Excess of Pages Permitted by
) Local Rule 7.1(b)(4), Granted September 21,
Defendants, ) 2020, Dkt. No. 119
)
and )
)
THE AMVONA FUND, LP, )
)
Relief Defendant )
)

DEFENDANTS’ MEMORANDUM IN SUPPORT OF THEIR


MOTION FOR SUMMARY JUDGMENT
Case 1:18-cv-11926-PBS Document 125 Filed 09/30/20 Page 2 of 45

TABLE OF CONTENTS
Pages
Table of Contents....................................................................................................... i

Table of Authorities................................................................................................... iv

I. INTRODUCTION ......................................................................................... 1

II. FACTUAL BACKGROUND........................................................................ 2

A. The Amvona Fund.............................................................................. 2

B. Fr. Emmanuel’s Short Position and Reports Regarding Ligand.. 3

1. June 16, 2014 Report................................................................ 3

2. June 19, 2014 Interview........................................................... 4

3. July 3, 2014 Report and Viking’s July 1, 2014 S-1................. 6

4. August 4, 2014 Report............................................................. 8

5. August 14 and August 22, 2014 Report.................................. 8

C. Negative Commentary About Ligand Between June and August


2014 From Other Securities Analysts............................................... 10

D. Ligand’s Requests to the Commission to Investigate Fr.


Emmanuel........................................................................................... 11

E. The Commission’s Complaint........................................................... 12

F. The Commission Failed to Produce the Expert Evidence


Required to Support its Market-Manipulation Claim................... 13

III. ARGUMENT.................................................................................................. 14

A. Legal Standard................................................................................... 14

B. The Commission Has Failed to Meet its Burden of Establishing a


Rule 10b-5 Claim Based on the Four Challenged Statements........ 14

1. The Commission has Failed as a Matter of Law to Establish


That Any of the Four Challenged Statements Were Material.. 15

i
Case 1:18-cv-11926-PBS Document 125 Filed 09/30/20 Page 3 of 45

Pages
i. The Commission’s Failure to Produce Evidence that
the Four Challenged Statements Caused Ligand’s Stock
Price to Decrease is Fatal to its Claims.......................... 15

ii. Fr. Emmanuel’s Disclosure of his Short Position and


Other Cautionary Language Renders Them Immaterial
as a Matter of Law.......................................................... 21

iii. The Undisputed Facts Regarding the Challenged


Statements Further Demonstrate that the Commission
Has Failed to Show Materiality...................................... 22

a. June 19, 2014 Statement that Ligand’s IR


Firm “Basically Agreed” Promacta was Going
Away ............................................................... 22

b. July 3, 2014 Statements that Viking Did Not


Consult with its Auditors and Did Not
Conduct Pre-Clinical Studies........................... 23

c. August 14 and 22, 2014 Statements ................ 24

2. The Commission’s Rule 10b-5 Claim Also Fails Because the


Commission Did Not Produce Any Evidence to Establish
Scienter..................................................................................... 24

i. The Absence of the Hallmarks of an Actual Short-and-


Distort Scheme Demonstrate the Commission Cannot
Prove Scienter................................................................. 24

ii. The First Challenged Statement Fails for Lack of


Scienter for Additional Reasons...................................... 28

3. Each of the Four Challenged Statements is Either


Demonstrably True or Constitutes Opinion Commentary
Protected by the First Amendment....................................... 29

i. The First Amendment Protects Opinions Unless They


are Both Objectively Wrong and Subjectively Not
Believed by the Author.................................................... 29

a. June 19, 2014 Statement that Ligand’s IR


Firm “Basically Agreed” Promacta was Going
Away ............................................................... 31

ii
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Pages
b. July 3, 2014 Statement that Viking Did Not
Consult with Its Auditors on Material Issues
and the Financial Statements Were
Unaudited……………………………………. 31

c. July 3, 2014 Statement that Viking Did Not


Conduct Pre-Clinical Studies……………….. 32

d. August 14 and 22, 2014 Statements


Regarding Ligand’s Debt-to-Tangible Equity
Ratio………………………………………… 33

C. The Commission Has Failed to Provide Evidence to Support its


IAA Claim........................................................................................ 34

IV. CONCLUSION............................................................................................... 35

iii
Case 1:18-cv-11926-PBS Document 125 Filed 09/30/20 Page 5 of 45

TABLE OF AUTHORITIES

Cases

Case Pages

Aaron v. SEC, 446 U.S. 680 (1980).................................................................... 24

Agora, Inc. v. Axxess, Inc., 90 F. Supp. 2d 697 (D. Md. 2000).......................... 31, 33

Ahmed v. Johnson, 752 F.3d 490 (1st Cir. 2014)................................................ 14

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986)....................................... 14

Aurelius v. Bofl Fed. Bank, No. MC 16–71 DSF (FFM), 2016 WL 8925145
25, 26
(C.D. Cal. Sept. 20, 2016)..................................................................................

Basic v. Levinson, 485 U.S. 224 (1988)............................................................. 15, 23 n.7

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975)....................... 23 n.7

Brumbaugh v. Wave Systems Corp., 416 F. Supp. 2d 239 (D. Mass. 2006)..... 16, 19

Chapin v. Knight-Ridder, Inc., 993 F.2d 1087 (4th Cir. 1993)......................... 31, 33

City of Dearborn Heights Act 345 Police & Fire Retirement Sys. v.
26
Waters Corp., 632 F.3d 751 (1st Cir. 2011).......................................................

Doe v. SEC, No. C 11-80209, 2011 WL 5600513


26
(N.D. Cal. Nov. 17, 2011)...................................................................................

Emerson v. Genocea Biosciences, Inc. 353 F. Supp. 3d 28 (D. Mass. 2018)..... 15, 16, 19

Fait v. Regions Fin. Corp., 655 F.3d 105 (2d Cir. 2011)................................... 29, 31, 33

Fire & Police Pension Ass’n of Colo. v. Abiomed, Inc., 778 F.3d 228
(1st Cir. 2015).................................................................................................... 24 n.9, 26

Geffon v. Micrion Corp., 249 F.3d 29 (1st Cir. 2001)........................................ 25

Goldberg v. Meridor, 567 F.2d 209 (2d Cir. 1977)............................................ 14, 15

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Case 1:18-cv-11926-PBS Document 125 Filed 09/30/20 Page 6 of 45

Case Pages

Greebel v. FTP Software, Inc., 194 F.3d 185 (1st Cir. 1999)............................ 24 n.9, 26 n.10

Gross v. Summa Four, Inc., 93 F.3d 987 (1st Cir. 1996)................................... 14

In re Biogen Sec. Litig., 179 F.R.D. 25 (D. Mass. 1997)................................... 15, 16, 20

In re Boston Technology Inc. Sec. Litig., 8 F. Supp. 2d 43 (D. Mass. 1998)...... 22, 23

In re Burlington Coat Factory Securities Litig., 114 F.3d 1410


16, 19
(3rd Cir. 1997).....................................................................................................

In re Credit Suisse First Boston Corp. Sec. Litig., No. 97 CIV. 4760 (JGK),
26 n.10
1998 WL 734365 (S.D.N.Y. Oct. 20, 1998).......................................................

In re Longtop Fin. Techs. Ltd. Sec. Litig., 910 F. Supp. 2d 561


25
(S.D.N.Y. 2012)..................................................................................................

In re Northern Telecom Sec. Litig., 116 F. Supp. 2d 446 (S.D.N.Y. 2000)........ 20, 21

In Re Polymedica Corp. Sec. Lit., 432 F.3d 1 (1st Cir. 2005)............................ 19

In Re Vivendi Universal, SA. Sec. Litig., 634 F. Supp. 2d 352


20
(S.D.N.Y. 2009)..................................................................................................

In Re Xcelera.com Securities Litig., 430 F.3d 503 (1st Cir. 2005)..................... 15, 19

Immuno AG. v. Moor–Jankowski, 77 N.Y.2d 235 (N.Y. 1991) ......................... 30 n.14

Ingram v. Brink's, Inc., 414 F.3d 222 (1st Cir. 2005)......................................... 14

Lowe v. SEC, 472 U.S. 181 (1985)..................................................................... 29

Maraj v. Massachusetts, 953 F. Supp. 2d 325 (D. Mass. 2013)......................... 13 n.4

Mayer v. Mylod, 988 F.2d 635 (6th Cir. 1993)................................................... 30

Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5 (1st Cir. 1990)........ 25

Mehta v. Ocular Therapeutix, Inc., 955 F.3d 194 (1st Cir. 2020)...................... 26

v
Case 1:18-cv-11926-PBS Document 125 Filed 09/30/20 Page 7 of 45

Case Pages
MHC Mut. Conversion Fund v. Sandler O’Neill Partners, L.P.,
29, 30
761 F.3d 1109 (10th Cir. 2014)...........................................................................

Milton v. Van Dorn, 961 F.2d 965 (1st Cir. 1992).............................................. 15

Miss. Pub. Emps. Ret. Sys. v. Boston Sci. Corp., 649 F.3d 5 (1st Cir. 2011)..... 24 n.9

Moldea v. New York Times Co., 15 F.3d 1137 (D.C. Cir.1994)......................... 31, 33

Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000)................................................... 24 n.9

Oran v. Stafford, 226 F.3d 275 (3d Cir. 2000)................................................... 16

Parnes v. Gateway 2000, Inc., 122 F.3d 539 (8th Cir. 1997)............................. 22

Partington v. Bugliosi, 56 F.3d 1147 (9th Cir. 1995)......................................... 30, 31, 33, 34

Phantom Touring, Inc. v. Affiliated Publications, 953 F.2d 724


33
(1st Cir. 1992)....................................................................................................

Reliance Ins. Co. v. Barron’s, 442 F. Supp. 1341 (S.D.N.Y. 1977)................... 27

Ryan v. Smith, 904 F.2d 112 (1st Cir. 1990)....................................................... 14

Saltzberg v. TM Sterling/Austin Assoc., Ltd., 45 F.3d 399 (11th Cir. 1995)....... 21

SEC v. Aly, No. 16 Civ. 3853 (PGG), 2018 WL 1581986


18, 27
(S.D.N.Y. Mar. 27, 2018)....................................................................................

SEC v. Berlacher, No. 07-3800, 2010 WL 3566790


16, 20
(E.D. Pa. Sept. 13, 2010).....................................................................................

SEC v. Berliner, No. 1:08-cv-03859-JES (S.D.N.Y. Apr. 24, 2008).................. 27

SEC v. Butler, No. 00-1827, 2005 WL 5902637 (W.D. Pa. Apr. 18, 2005)....... 17

SEC v. Curshen, 372 Fed. App’x 872, No. 09-1196, 2010 WL 1444910
26
(10th Cir. Apr. 13, 2010).....................................................................................

SEC v. Dubovoy, No. 15-6076, 2016 WL 5745099 (D.N.J. Sept. 29, 2016)...... 27

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Case Pages
SEC v. Fife, 311 F.3d 1 (1st Cir. 2002).............................................................. 15

SEC v. Garcia, No. 10 CV 5268, 2011 WL 6812680


17
(N.D. Ill. Dec. 28, 2011).....................................................................................

SEC v. Goldstone, CIV 12-0257 JB/LFG, 2016 WL 3135651


18, 19
(D.N.M. May 10, 2016)......................................................................................

SEC v. Hamdan, SEC Lit. Rel. No. 23470, (Feb. 17, 2016)............................... 26, 27

SEC v. Hoover, 903 F. Supp. 1135 (S.D. Tex. 1995)......................................... 17

SEC v. Leslie, No. C 07-3444, 2010 WL 2991038


18
(N.D. Cal. July 29, 2010)....................................................................................

SEC v. Mangan, 598 F. Supp. 2d 731 (W.D.N.C. 2008).................................... 17, 18, 20

SEC v. Tambone, 417 F. Supp. 2d 127 (D. Mass. 2006).................................... 14

SEC v. Ustian, No. 16 C 3885, 2019 WL 7486835 (N.D. Ill. Dec. 13, 2019).... 17, 18

SEC v. World Radio Mission, 544 F.2d 535 (1st Cir. 1976)............................... 24

SEC v. Ficken, 546 F.3d 45 (1st Cir. 2008)........................................................ 25

Shaw v. Digital Equip. Corp., 82 F.3d 1194 (1st Cir. 1996).............................. 22

Silvercorp Metals Inc. v. Anthion Mgmt., LLC, 959 N.Y.S.2d 92 30


(Sup. Ct. 2012) (table).........................................................................................

Sturm v. Marriot Marquis Corp., 26 F. Supp. 2d 1358


(N.D. Ga. Nov. 16, 1998).................................................................................... 21, 22

Testa v. Wal-Mart Stores, Inc., 144 F.3d 173 (1st Cir. 1998)............................. 28 n.13

Veleron Holding, B.V. v. Stanley, 117 F. Supp. 3d 404 (S.D.N.Y. 2015)........... 21

Virginia Bankshares v. Sandberg, 501 U.S. 1083 (1991)................................... 29, 31, 33

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Case 1:18-cv-11926-PBS Document 125 Filed 09/30/20 Page 9 of 45

Statutes, Rules, and Regulations

15 U.S.C. § 77q(a) ……………………………………………………………… 14

17 C.F.R. § 240.10b–5 …………………………………………………………… 14

Fed. R. Civ. P. 56(a) ……………………………………………………………... 14

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Case 1:18-cv-11926-PBS Document 125 Filed 09/30/20 Page 10 of 45

I. INTRODUCTION

The Securities and Exchange Commission has never brought an enforcement action

remotely resembling its case against Defendant Father Emmanuel Lemelson (f/k/a Gregory

Lemelson). And for good reason. The Commission seeks to punish Fr. Emmanuel in this so-

called “short-and-distort” case based on four statements he made that (i) are each either

demonstrably true or constitute opinion commentary protected by the First Amendment, (ii) had

no impact on the subject company’s stock price and therefore were immaterial as a matter of law;

and (iii) were made without the requisite scienter.

From June to August 2014, Fr. Emmanuel published five reports, consisting of 56 pages,

and gave two internet radio interviews expressing his opinions as to why Ligand

Pharmaceuticals, a publicly traded company, was overvalued. Of the large number of

statements and opinions Fr. Emmanuel made concerning Ligand, the Commission cherry-picks

just two as allegedly being false or misleading. Curiously, the other two challenged statements

involve a different company entirely, in which Fr. Emmanuel did not hold a short position. On

the days the challenged statements were made, Ligand’s stock price actually increased, and the

Commission has failed to produce any evidence (expert or otherwise) that Fr. Emmanuel’s

statements negatively impacted Ligand’s stock price. As this Court (and others) have previously

held, this renders the four challenged statements immaterial as a matter of law.

Moreover, this case lacks all the hallmarks of a true short-and-distort scheme,

distinguishing it from all others the Commission has ever brought. For example, Fr. Emmanuel

(1) published all his reports under his own name; (2) expressly disclosed at the beginning of each

report that he had taken a short position in Ligand and that he was only expressing his opinions;

(3) specifically cited all source materials giving rise to his commentary concerning Ligand; and

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(4) held on to his short position for months after he issued his reports. Because the Commission

has failed to produce any evidence of scienter, the absence of these short-and-distort hallmarks is

fatal to its case. Indeed, there are no facts in the undisputed record upon which a factfinder could

infer that Fr. Emmanuel intentionally or recklessly defrauded the market.

In addition, the Commission’s novel attempt to use Rule 206 of the Investment Advisers

Act in an alleged market-manipulation case based on allegedly false statements fails because the

Commission has provided no evidence that Fr. Emmanuel defrauded his own investors.

In short, in the face of the undisputed facts that Fr. Emmanuel lacked any intent to

defraud, the Commission challenges four statements (which were each demonstrably true or

opinion commentary protected by the First Amendment) that had no impact on Ligand’s stock

price: one based on a mathematically correct calculation, which the Commission charges was

misleading because Fr. Emmanuel’s chosen metric (of which it disapproves) made Ligand

“look[] really bad”; two statements about a different company than the one he shorted; and one

statement based on a telephone call in which the other participant essentially conceded the truth

of Fr. Emmanuel’s statement and for which Fr. Emmanuel’s real-time notes corroborate his

statement. To say this enforcement action is unprecedented is a gross understatement. Indeed,

the Commission’s case, taken after years of lobbying by Ligand and its counsel, is not only

frivolous but if not disposed of on summary judgment, it will have a dangerously chilling impact

given its brazen attack on the First Amendment.

II. FACTUAL BACKGROUND

A. The Amvona Fund

In 2012, Fr. Emmanuel created the Amvona Fund LP. Defendants’ Concise Statement of

Undisputed Material Facts in Support of Their Motion for Summary Judgment (“SOF”) ¶ 1.

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Lemelson Capital Management is the general partner of Amvona. SOF ¶ 2. Throughout its

existence, Amvona has mostly held long positions in stocks, but has also occasionally taken short

positions. SOF ¶ 3. Since 2010 (even before launching Amvona), Fr. Emmanuel has published

approximately 200 academic research and commentary pieces discussing economics,

securitization fraud, and high-level security analysis of common stocks—none of which, apart

from Ligand, has been challenged by the Commission. SOF ¶ 4.

B. Fr. Emmanuel’s Short Position and Reports Regarding Ligand

1. June 16, 2014 Report

In 2014, Fr. Emmanuel identified Ligand as a company whose stock he believed was

overvalued and accordingly took a short position in the company. SOF ¶ 6. On June 16, 2014,

consistent with his prior practice, Fr. Emmanuel issued a 25-page opinion commentary

concerning his Ligand thesis. SOF ¶ 7. Fr. Emmanuel qualified his report with cautionary

language, including full disclosure that he was “shorting” Ligand. 1 SOF ¶ 8. Indeed, starting

with the first sentence of his first report on Ligand, and continuing in every one of the

reports at issue, Fr. Emmanuel disclosed that “Lemelson Capital is short shares

of (NASDAQ:LGND).” SOF ¶ 8 (emphasis added); SOF ¶ 36; SOF ¶ 59; SOF ¶ 63. Fr.

Emmanuel additionally disclosed that “[a]ll content in this report represents the opinions of

Lemelson Capital.” SOF ¶ 9 (emphasis added). This report also included the following:

All expressions of opinion are subject to change without notice, and Lemelson
Capital does not undertake to update or supplement this report or any information
contained herein . . . . Lemelson Capital may benefit from any change in the
valuation of any other companies, securities, or commodities discussed in this
document.

SOF ¶ 10.

1
As far as the undersigned are aware, Fr. Emmanuel’s disclosure that he was short Ligand distinguishes this case
from all other short-and-distort actions brought by the Commission.

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Among his many opinions in the June 16, 2014 report, Fr. Emmanuel stated Ligand’s

largest royalty-generating drug, Promacta, faced an imminent threat from a new drug, which he

believed would “virtually eliminate demand for Promacta.” SOF ¶ 11. Ligand’s stock price fell

on the date Fr. Emmanuel published this first 25-page report; however, the Commission is not

challenging any statements contained in it. SOF ¶¶ 12, 13.

2. June 19, 2014 Interview

Following the publication of Fr. Emmanuel’s June 16, 2014 report, high-ranking Ligand

personnel exchanged emails with the company’s Investor Relations (“IR”) representative, Bruce

Voss, expressing anger about the report and discussing whether to speak with Fr. Emmanuel

about it. SOF ¶ 14. Ligand decided to have Mr. Voss call Fr. Emmanuel. SOF ¶¶ 14, 15.

Ligand’s CEO, John Higgins, specifically instructed Mr. Voss not to “jump into content or a

rebuttal” on the call with Fr. Emmanuel. SOF ¶ 14.

On June 18, 2014, Mr. Voss and Fr. Emmanuel spoke by phone. SOF ¶ 15. According

to Mr. Voss’ handwritten notes, the call lasted from 12:56 p.m. ET to 1:16 p.m. ET. SOF ¶ 15.

Fr. Emmanuel took extensive electronic notes of the call, which reflect that Mr. Voss agreed

with his opinion that Promacta was going away. SOF ¶ 16. The metadata from these notes

shows that Fr. Emmanuel created them at 1:21 p.m. ET and completed them at 1:42 p.m. ET.

SOF ¶ 17.

For his part, according to his real-time emails, Mr. Voss followed his client’s express

instructions and did not engage in any rebuttal of Fr. Emmanuel’s opinions during this call. SOF

¶ 18. Specifically, according to Mr. Voss, Fr. Emmanuel stated his opinion that Promacta was

going away and then asked Mr. Voss, “don’t you agree?” SOF ¶¶ 18-20. Mr. Voss stated that he

did not respond to this question; instead he remained silent. SOF ¶ 20.

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The following day, June 19, 2014, Fr. Emmanuel was interviewed by an internet radio

outlet called Benzinga. SOF ¶ 21. There is no evidence of the number of people that listened to

this interview. SOF ¶ 22. The interview lasted approximately 22 minutes, only five of which

included a discussion of Fr. Emmanuel’s thesis on Ligand. SOF ¶¶ 23, 24. When the topic of

Ligand was first raised around the 15-minute mark of the interview, Fr. Emmanuel disclosed he

had a short position in Ligand. SOF ¶ 25. At approximately the 16-minute mark, Fr. Emmanuel

stated that he had spoken to Ligand—and then corrected himself by saying he spoke to Ligand’s

IR firm—which had “basically agreed” with his thesis concerning Promacta. SOF ¶ 26. This

statement, which did not appear in any of Fr. Emmanuel’s four subsequent reports, is the first of

the four challenged statements. SOF ¶ 29. Ligand’s stock price closed higher on the day of the

interview than it had the previous day. SOF ¶ 34.

After the interview, Mr. Higgins and Mr. Voss spoke by phone that same day about both

Mr. Voss’s discussion with Fr. Emmanuel and the radio interview. SOF ¶ 30. Thereafter, Mr.

Higgins and Mr. Voss continued their conversation in writing. SOF ¶¶ 31-32. In an email

written the day after the interview, Mr. Voss explained his position as to what transpired on the

call: “As I wrote last night, he [Fr. Emmanuel] made the statement with a rhetorical ‘don’t you

agree’ and I moved on to the next subject as we had more to cover and his statement was

ridiculous.” SOF ¶ 31 (emphasis added). Critically, the writing that Mr. Voss refers to from the

previous night is missing. SOF ¶ 31. Ligand claims it cannot find it. SOF ¶ 31.

In response to (i) their initial telephone conversation; (ii) the missing written document;

and (iii) the email that Ligand did produce, Mr. Higgins sent an email to Mr. Voss expressing his

anger that Mr. Voss remained silent and left Fr. Emmanuel with the impression of a “tacit

agreement” with Fr. Emmanuel’s thesis. SOF ¶ 32. Specifically, Mr. Higgins stated:

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Also, if he [Lemelson] said the CEO beats his employees would you just move on
because “there were more things to cover.” Or would you take a moment to stick
up for the CEO? Promacta is a big deal, and a big part of our value and business
model. He knows it too. He gave you a softball and you just moved on? Even 1
minute of soft info would have left him with a different impression than tacit
agreement.

SOF ¶ 32 (emphasis added).

In other words, based on his multiple communications with Mr. Voss, Mr. Higgins

agreed with Fr. Emmanuel that Mr. Voss had “basically” (or in Mr. Higgins’ words, “tacit[ly]”)

agreed with Fr. Emmanuel’s thesis. Mr. Voss responded to Mr. Higgins’ contention of a tacit

agreement not by claiming Fr. Emmanuel lied, but instead by stating that Fr. Emmanuel took

“that piece of the dialogue out of context.” SOF ¶ 33 (emphasis added).

3. July 3, 2014 Report and Viking’s July 1, 2014 S-1

On July 3, 2014, Fr. Emmanuel issued his second report on Ligand. SOF ¶ 35. This

report included a critical discussion of a company called Viking Therapeutics, with whom

Ligand had just entered into a licensing agreement. SOF ¶ 37. Fr. Emmanuel did not hold a

short position in Viking (a private, pre-operational company) at the time. SOF ¶ 41. Moreover,

contrary to the Commission’s patently false allegations in both its Complaint and Amended

Complaint, Ligand did not own any portion of Viking at this time. SOF ¶¶ 39-40. Two of the

Commission’s four challenged statements in this case are based on Fr. Emmanuel’s statements

about Viking (not Ligand) contained in this report. SOF ¶ 38.

In his July 3, 2014 report, Fr. Emmanuel disclosed that the basis for his comments

concerning Viking came solely and directly from his analysis of Viking’s publicly filed Form S-1

Registration Statement, and he cited to the document so that readers could review the document

for themselves. SOF ¶¶ 42-45. In its S-1, Viking disclosed that it had terminated its auditor one

month after hiring it and then disclosed the following concerning the new auditor:

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Effective as of April 7, 2014, our board of directors appointed Marcum LLP, or


Marcum, as our independent registered public accounting firm to audit our
financial statements as of and for the fiscal years ended December 31, 2012 and
2013, and for the fiscal year ending December 31, 2014. From September 24,
2012 (Inception) through April 7, 2014, neither we nor anyone on our behalf
consulted with Marcum regarding (1) the application of accounting principles to a
specified transaction, either completed or proposed, (2) the type of audit opinion
that might be rendered on our financial statements, or (3) any matter that was
either the subject of a disagreement, as described in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions thereto, or a “reportable event” as
described in Item 304(a)(1)(v) of Regulation S-K.

SOF ¶ 44. Immediately after quoting the above passage and expressly sourcing it as coming

from Viking’s publicly filed S-1, Fr. Emmanuel opined: “In other words, Marcum was merely

hired, but the company has not yet even consulted with the firm on any material issues. The

financial statements provided on the S1 accordingly are unaudited.” SOF ¶ 45 (emphasis added).

In fact, the S-1 contained a combination of audited and unaudited statements. 2 SOF ¶ 46.

Notwithstanding that, at worst, this statement was merely an incomplete interpretation of

publicly-filed information, it serves as the first of the Commission’s two challenged statements

about Viking. SOF ¶ 42.

Viking’s S-1 also disclosed details concerning that company’s total inexperience

conducting preclinical studies and clinical trials. For example, the company disclosed that, “All

clinical trials, preclinical studies and other analyses performed to date with respect to our drug

candidates have been conducted by Ligand. Therefore, as a company, we do not have any

experience in conducting clinical trials for our drug candidates.” SOF ¶ 50 (emphasis added).

Viking further disclosed, IN BOLD, “We intend to rely on third parties to conduct our

preclinical studies and clinical trials and perform other tasks for us.” SOF ¶ 49 (emphasis in

original). Based on these disclosures, Fr. Lemelson correctly concluded in his July 3, 2014

2
The term “unaudited” appears 56 times in the S-1, while the term “audited” appears only seven times. SOF ¶ 46.

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report that: “Viking does not intend to conduct any preclinical studies or trials ….” SOF ¶ 48

(emphasis added). This is the second challenged statement from the July 2014 report. Id.

There is no evidence that any investor of Ligand or Viking raised concerns about either

of these statements. SOF ¶¶ 47, 53. Moreover, Viking’s CEO, Brian Lian, testified that he does

not recall if he even read Fr. Emmanuel’s July 3, 2014 report, did not speak with any investor

about this report in any depth, and does not recall any of his colleagues expressing any concern

about the statements. SOF ¶ 54. Ligand’s stock price closed higher on the day this report came

out than it did the previous day. SOF ¶ 57.

4. August 4, 2014 Report

On August 4, 2014, Fr. Emmanuel published his third report on Ligand. SOF ¶ 58. The

Commission is not challenging any of Fr. Emmanuel’s statements contained in the August 4,

2014 report. SOF ¶ 60. On that date, Ligand’s share price skyrocketed, closing 9% higher than

it did the previous trading day. SOF ¶ 61.

5. August 14 and August 22, 2014 Reports

On August 14 and 22, 2014, Fr. Emmanuel published his fourth and fifth reports on

Ligand. SOF ¶ 62. These last two reports discussed, inter alia, $245 million in new debt that

Ligand was incurring through a publicly announced bond offering. SOF ¶ 66. Among the many

points he made in analyzing the bond offering, in the August 14 Report, he wrote:

Tangible equity: On August 4, 2014, Ligand released their Q2 earnings report


and financial statements in which the company boasted that it was debt free. Prior
to this August 4 release, the company’s liabilities exceeded tangible assets,
meaning the company was insolvent. With the August 4, 2014 earnings release
and its updated financials, the company presented tangible equity of just $21,000
upon which rested an extraordinary market capitalization of approximately $1.1
billion.

SOF ¶ 67 (emphasis in original).

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In the August 22, 2014 Report, Fr. Emmanuel continued his analysis of the bond

offering based on his review of Ligand’s recent publicly filed 8-K, writing:

On August 18 [2014], Ligand filed a form 8-K with the Securities and Exchange
Commission (SEC) revealing that the company had issued $245 million in new
debt against the company’s tangible equity of jut $21,000, giving rise to a debt to
tangible equity ratio of 11,667-to-1 (that is to say, $11,667 dollars in debt for
every $1 dollar in tangible common shareholder equity).

SOF ¶ 68.

Fr. Emmanuel then concluded his analysis of the bond offering as follows:

There is no question that the cost of this preferential treatment of a few large
Ligand shareholders at the expense of remaining investors places a burden on
Ligand and its shareholders that is both unsustainable and further deepens the
company’s insolvency and likelihood of liquidation or reorganization under
Chapter 7 or Chapter 11 of the bankruptcy code under which remaining Ligand
common shareholders have only the protection of $21,000 in tangible equity to
shield them from $245 million in debt.

SOF ¶ 69.

In its original Complaint, the Commission based its final challenged statement on Fr.

Emmanuel’s calculation of Ligand’s debt-to-tangible equity ratio. SOF ¶ 70. Specifically, the

Commission falsely claimed the calculation was wrong because Fr. Emmanuel failed to include

the cash from the loan proceeds as part of shareholder tangible equity, notwithstanding that cash

proceeds of a loan do not constitute equity (tangible or otherwise). 3 SOF ¶¶ 70-71. After the

Court dismissed this claim from the original Complaint, the Commission re-plead it, now

arguing not that the calculation was wrong but that despite being true and accurate, it was (along

with the accompanying discussion) somehow “misleading.” SOF ¶¶ 72-73.

In making his debt-to-tangible equity ratio calculation, Fr. Emmanuel explained to his

readers that he was comparing only Ligand’s tangible equity to its debt (and therefore expressly

3
Notably, this exact same erroneous allegation was contained in both presentations Ligand and its counsel made to
the Commission, which are discussed further below. SOF ¶¶ 100, 112.

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excluded the company’s intangible assets from his analysis). SOF ¶¶ 74-75. Further, in both the

August 14 and 22 Reports, Fr. Emmanuel told readers that the figures he used in making his

calculation came directly from Ligand’s publicly available regulatory filings, and therefore his

calculation of the debt-to-tangible equity ratio and related commentary did not constitute any

new information not previously available to investors. SOF ¶¶ 74-75.

On August 14, 2014, Ligand’s stock price closed higher than it did the previous day.

SOF ¶ 64. On August 22, 2014, Ligand’s stock price closed down slightly (a statistically

insignificant amount). SOF ¶¶ 65, 133.

Notably, despite the Commission’s dubious claim that Fr. Emmanuel’s constitutionally-

protected decision to exclude Ligand’s intangible assets from his calculation and his related

discussion of “tangible equity” amounted to securities fraud, these concepts were not unique to

his financial analysis of Ligand. He had previously questioned the value of intangible assets

when analyzing other companies. SOF ¶¶ 80-82. For example, just a few months earlier in

March 2014, when discussing WWE, Fr. Emmanuel wrote, “Intangible assets (the kind you can’t

sell easily when things turn south) increased from roughly 100 k in 2010 to just under 27 M in

2013, an increase of 268 fold in 3 years – these ‘ghost assets’ of course can bolster a balance

sheet nicely. . . . Current price exceeds tangible book [a synonym for “tangible equity”] by a

factor of nearly 10x.” SOF ¶ 81 (brackets added). Similarly, in Fr. Emmanuel’s published

analysis concerning Geospace Technologies, Fr. Emmanuel noted that he believed Geospace was

undervalued because of its significant tangible assets. SOF ¶ 82.

C. Negative Commentary About Ligand Between June and August 2014 From
Other Securities Analysts

Meanwhile, on July 22 and August 5, 2014—within the time period that Fr. Emmanuel

published the reports and gave the interviews on Ligand at issue—a research firm called Empire

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Asset Management issued two reports, which were extremely critical of Ligand. SOF ¶ 83. On

the date of the first, Ligand’s stock price plunged by approximately 4.5%—more movement of

the stock price than on any day Fr. Emmanuel published one of his reports (except for the day

the stock went up by more than 9%). SOF ¶ 84. On the date of the second Empire report,

Ligand’s stock sank more than 2%. SOF ¶ 85.

Also, on July 15, 2014, then-Federal Reserve Chair Janet Yellen made statements about

valuations of biotech stocks being “substantially stretched.” SOF ¶ 86. On that date, Ligand’s

stock price fell by more than 4.5%. SOF ¶ 87. Internal Ligand emails reflect that company

personnel believed Ms. Yellen’s statements—not Fr. Emmanuel’s opinion commentary— may

have been the cause of negative movement in Ligand’s stock during this time. SOF ¶ 88.

D. Ligand’s Requests to the Commission to Investigate Fr. Emmanuel

To this day, Ligand has never made a public statement contesting anything Fr. Emmanuel

has written or said about the company, despite a NASDAQ rule suggesting it should do so if it

believed his statements were false and impacted its stock price. SOF ¶¶ 90-92. Instead, Ligand

engaged two large international law firms in an effort to silence Fr. Emmanuel by persuading the

Commission to bring an enforcement action against him. SOF ¶¶ 93-94, 104-109.

On September 25, 2014, Ligand and its first law firm met with the Commission’s Boston

regional office. SOF ¶ 93. Ligand made a 60-slide PowerPoint presentation to the Commission,

including offensive references to, and photographs of, Fr. Emmanuel’s faith and religious

practice, in addition to false and baseless allegations that Fr. Emmanuel engaged in an “affinity

fraud,” misrepresented the performance of the Amvona Fund, and had a “questionable personal

history.” SOF ¶¶ 95-96. Notably, the PowerPoint presentation made no mention whatsoever of

the first three challenged statements. SOF ¶¶ 97-98. As to the fourth challenged statement, the

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PowerPoint erroneously claimed that the debt-to-tangible equity ratio was wrong, because Fr.

Emmanuel failed to include the cash proceeds from the loan in his calculation. SOF ¶ 99. This

is the same false allegation that the Commission included in its original Complaint. SOF ¶ 70.

Sometime after the September 25, 2014 meeting, the Boston regional office informed

Ligand that it would not be opening an investigation concerning Fr. Emmanuel. SOF ¶ 104.

As a result, Ligand hired new counsel, who had previously served as a high-ranking

employee at the Commission in Washington, D.C. SOF ¶¶ 105-107. This new attorney arranged

a second meeting, this time with his former colleagues at the Commission’s Washington, D.C.

regional office, on June 8, 2015—nine months after Ligand’s first, failed meeting. SOF ¶ 107.

Ligand again made a PowerPoint presentation to the Commission, this time containing 62 slides.

SOF ¶ 108. And again, Ligand made no mention of either of the two challenged statements

concerning Viking. SOF ¶ 112. Also, once again, Ligand included the false contention

concerning Fr. Emmanuel’s calculation of its debt-to-tangible equity ratio. SOF ¶ 113.

E. The Commission’s Complaint

On September 12, 2018, more than four years after Fr. Emmanuel published his final

report on Ligand, the Commission filed this enforcement action. SOF ¶ 117. On March 21,

2019, the Commission filed the operative Amended Complaint. SOF ¶ 118. Based on the four

challenged statements, the Commission brought claims under 10b-5 (both for the statements

themselves and claiming “scheme” liability, even though the Commission has not identified any

alleged fraud outside the challenged statements). SOF ¶¶ 119-121. The Commission also

alleged a violation of Section 206 of the Investment Advisers Act (“IAA”), based on the

completely novel (and unsupportable) theory that Fr. Emmanuel defrauded his own investors by

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not disclosing that the profits from the Ligand short were allegedly the result of the four

challenged statements. SOF ¶ 122.

F. The Commission Failed to Produce the Expert Evidence Required to Support


its Market-Manipulation Claim

Given the fact that Ligand’s stock price increased on all but one of the five dates on

which he made the four challenged statements, and the fact that there were other negative reports

about the company during the relevant timeframe (which appear to have directly corresponded

with Ligand’s stock price decreasing), Defendants sought discovery on the Commission’s theory

that Fr. Emmanuel’s statements caused Ligand’s stock price to drop. SOF ¶¶ 124. Among this

discovery, Fr. Emmanuel served an interrogatory seeking the basis for the Commission’s

contention that Defendants’ statements influenced or otherwise impacted the stock price for

Ligand. SOF ¶ 125. The Commission objected to the interrogatory as “a premature request for

matter that may be the subject of expert testimony.” SOF ¶ 126. The Commission made the

same objection to Fr. Emmanuel’s request for documents supporting the Commission’s position

that he caused Ligand’s stock price to drop. SOF ¶¶ 127-128.

Notwithstanding the Commission’s discovery responses and its customary use of expert

event studies to prove its theories in similar cases (discussed further below), the Commission,

incredibly, did not designate an affirmative expert witness in this case. 4 SOF ¶ 129.

4
The Commission did designate a rebuttal expert in response to Defendants’ expert who had conducted an event
study, SOF ¶ 130, and determined the four challenged statements did not impact Ligand’s stock price; however,
pursuant to well-established caselaw, the testimony of the rebuttal witness cannot be considered for purposes of
summary judgment. See Maraj v. Massachusetts, 953 F. Supp. 2d 325, 328 (D. Mass. 2013) (granting summary
judgment because “there is no need to consider rebuttal evidence” in order to create a genuine issue of material fact).

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III. ARGUMENT

A. Legal Standard

Summary judgment is appropriate “if the movant shows that there is no genuine dispute

as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a); Ahmed v. Johnson, 752 F.3d 490, 495 (1st Cir. 2014). A genuine issue of material fact

“does not spring into being simply because a litigant claims that one exists. Neither wishful

thinking nor mere promises to produce admissible evidence at trial, nor conclusory responses

unsupported by evidence, will serve to defeat a properly focused Rule 56 motion.” Ryan v.

Smith, 904 F.2d 112, 115 (1st Cir. 1990) (internal citations omitted). In opposition, the

Commission may not rest on the pleadings but must present “significant probative evidence”

demonstrating that a genuine dispute of material fact exists. Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 249-51 (1986) (presenting a mere “scintilla of evidence” is insufficient).

“Summary judgment cannot be defeated by relying on improbable inferences, conclusory

allegations, or rank speculation.” Ingram v. Brink's, Inc., 414 F.3d 222, 228–29 (1st Cir. 2005).

B. The Commission Has Failed to Meet its Burden of Establishing a Rule 10b-5
Claim Based on the Four Challenged Statements

To prevail on its Rule 10b–5 claim, the Commission must prove that Fr. Emmanuel: “(1)

engaged in fraudulent conduct; (2) in connection with the purchase or sale of securities; (3)

through the means or instruments of transportation or communication in interstate commerce or

the mails; (4) with the requisite scienter.” SEC v. Tambone, 417 F. Supp. 2d 127, 131 (D. Mass.

2006); 15 U.S.C. § 77q(a); 17 C.F.R. § 240.10b–5. In addition, the Commission must establish

that each of the four challenged statements was material. See Gross v. Summa Four, Inc., 93

F.3d 987, 992 (1st Cir. 1996) (superseded by statute on other grounds); Goldberg v. Meridor,

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567 F.2d 209, 220 (2d Cir. 1977) (stating the test for materiality is no different in SEC

enforcement actions than in a private action).

1. The Commission has Failed as a Matter of Law to Establish That Any of


the Four Challenged Statements Were Material

A statement “is material if there is a substantial likelihood that a reasonable investor

would consider it important in deciding whether or not to invest his money in a particular

security.” SEC v. Fife, 311 F.3d 1, 9 (1st Cir. 2002) (citing Basic v. Levinson, 485 U.S. 224,

231-32 (1988)). A statement is only material if it “significantly altered the ‘total mix’ of

information.” Basic, 485 U.S. at 232. The fact that “an investor might find information

interesting or desirable is not sufficient to satisfy the materiality requirement.” Milton v. Van

Dorn, 961 F.2d 965, 969 (1st Cir. 1992).

i. The Commission’s Failure to Produce Evidence that the Four


Challenged Statements Caused Ligand’s Stock Price to Decrease
is Fatal to its Claims

As both the First Circuit and this Court have recognized, in cases like the present

involving the alleged manipulation of a publicly-traded company operating in an efficient

market, materiality is proven or disproven by the impact the alleged statements have on the

price of the company’s stock. 5 “In an efficient market, the defendant’s misrepresentations are

absorbed into, and reflected by, the market price.” In Re Xcelera.com Securities Litig., 430 F.3d

503, 507 (1st Cir. 2005). Following this principle, in Emerson v. Genocea Biosciences, Inc., this

Court dismissed a securities fraud case on the ground that disclosure of the allegedly material

information did not impact the company’s stock price, and therefore plaintiffs could not establish

materiality as a matter of law. 353 F. Supp. 3d 28, 41 (D. Mass. 2018) (Saris, J.). See also In re

5
Both Defendants’ affirmative expert and Plaintiff’s rebuttal expert agree that the market for Ligand was efficient
during the relevant time period. SOF ¶ 132.

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Biogen Sec. Litig., 179 F.R.D. 25, 35 (D. Mass. 1997) (noting defendants can rebut presumption

of materiality if they can show “‘the market price was not affected by their misrepresentations’”)

(Saris, J.) (internal citation omitted); Brumbaugh v. Wave Systems Corp., 416 F. Supp. 2d 239,

254-55 (D. Mass. 2006) (“[t]he concept of materiality translates into information that alters the

price of the firm's stock); (quoting In re Burlington Coat Factory Securities Litig., 114 F.3d

1410, 1425 (3d Cir. 1997)) (“In the context of an ‘efficient’ market, the concept of materiality

translates into information that alters the price of the firm’s stock. . . . This is so because efficient

markets are those in which information important to reasonable investors (in effect, the market,

is immediately incorporated into stock prices”)) (internal citations omitted); Oran v. Stafford,

226 F.3d 275, 282 (3d Cir. 2000) (Materiality “may be measured post hoc by looking to the

movement ... of the price of the firm's stock.”); SEC v. Berlacher, No. 07-3800, 2010 WL

3566790, at *7 (E.D. Pa. Sept. 13, 2010) (“As opposed to guessing what a reasonable investor

would find important or what could alter the total mix of information in the market, the United

States Court of Appeals for the Third Circuit has adopted a concrete method of measuring the

materiality of information... [i]f there is no movement in the stock price, then the disclosed

information is immaterial as a matter of law”).

This Court’s decision in Emerson, decided three months after the Commission filed this

case, is both dispositive and instructive. 353 F. Supp. 3d 28. There, plaintiff asserted that a

company’s failure to disclose six-month post-dosing clinical trials of genital herpes

immunotherapy treatment on viral shedding process was a material omission from an otherwise

positive announcement about the clinical trial that violated Rule 10b-5. Id. at 38. The company

later released the 12-month viral shedding results, and the company’s stock price increased on

the day it released the data. Id. at 40-41. This Court held, in deciding a motion to dismiss, “[t]he

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release of the negative twelve month viral shedding results without consequence is fatal to

Plaintiffs’ allegations.” Id. at 41 (emphasis added). The same result must follow here

(especially at the summary judgment stage), where Ligand’s stock price also increased on the

days of the alleged misstatements, reflecting that reasonable investors in the marketplace did not

consider the statements to be material as a matter of law. Id.

Moreover, the Court should disregard any argument the SEC might make to the contrary,

because when it suits the Commission’s needs, the Commission argues that stock price

movement proves materiality. See, e.g., SEC v. Ustian, No. 16 C 3885, 2019 WL 7486835, at

*27 (N.D. Ill. Dec. 13, 2019) (expert retained by SEC opined that stock at issue traded in

efficient market meaning any news would be reflected in stock within one day and considered

whether announcement at issue had material impact); SEC v. Garcia, No. 10 CV 5268, 2011 WL

6812680, at *13 (N.D. Ill. Dec. 28, 2011) (SEC questioned defendant’s explanations for trading

activity by noting that stock traded in efficient market and so reports published before defendant

made his investment and that defendant claimed to have relied upon would have already been

incorporated into market price); SEC v. Butler, No. 00-1827, 2005 WL 5902637, at *11-12

(W.D. Pa. Apr. 18, 2005) (SEC argued that evidence of efficient market and quick market

reaction supported finding of materiality); SEC v. Mangan, 598 F. Supp. 2d 731, 733 (W.D.N.C.

2008) (SEC expert opined that stock traded in efficient market, and the SEC argued that the

movement in stock proved materiality); SEC v. Hoover, 903 F. Supp. 1135, 1144 (S.D. Tex.

1995) (SEC argued in insider trading case that the negative market reaction to an 8-K disclosure

showed that an earlier, non-public projection was material).

Given the required correlation between changes in stock price and materiality, and the

Commission’s historical reliance on that correlation to prove materiality, it is not surprising that

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in market-manipulation cases like the present, the Commission routinely relies on event-study

analyses (expert reports that identify and isolate the causes of changes in market prices) to prove

materiality. See, e.g., SEC v. Aly, No. 16 Civ 3853, 2018 WL 1581986, at *15-16 (S.D.N.Y

March 27, 2018) (SEC permitted to present evidence of expert’s event study to prove

materiality); Mangan, 598 F. Supp. 2d at 735 (SEC sought to avoid summary judgment by

submitting expert event window analysis that concluded movement in stock price showed

materiality); SEC v. Goldstone, CIV 12-0257 JB/LFG, 2016 WL 3135651, at *46 (D.N.M. May

10, 2016) (SEC successfully argued for its expert’s event study to be admitted to prove

materiality); Ustian, 2020 WL 416289, at *10 (SEC successfully argued for the admission of its

expert’s event study to prove materiality); SEC v. Leslie, No. C 07-3444, 2010 WL 2991038, at

*11-14 (N.D. Cal. July 29, 2010) (addressing SEC’s argument in favor of admitting its expert’s

event study to prove materiality). Such evidence would have been especially important under

the factually unique circumstances of this case, where there were no sudden or calamitous drops

in Ligand’s share price on the days Fr. Emmanuel made his challenged statements (a fact present

in every other short-and-distort case as far as the undersigned are aware).

In fact, in response to Defendants’ discovery requests concerning the impact Fr.

Emmanuel’s statements had on Ligand’s stock price, the Commission suggested it would be

providing expert evidence in response. SOF ¶¶ 124-128. However, the Commission

subsequently failed to designate an affirmative expert to provide an event-study analysis

here or otherwise opine on the impact the challenged statements had on the stock price.

SOF ¶ 129. This failure is telling given the Commission’s discovery responses and its

customary practice of doing so in similar cases, and is itself fatal to its claims.

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Admittedly, the Circuits are split on whether event studies in securities fraud cases are

mandatory for plaintiffs to prove materiality or whether they are merely “almost obligatory.”

While the First Circuit has not directly ruled on the issue, it has cited the “mandatory” cases with

approval, and its decisions (and those from this Court) finding that the impact of misstatements is

reflected in the movement of a company’s stock price, strongly indicate it believes event studies

are mandatory. Regardless, in light of the complete absence of other evidence of materiality in

this case (both with respect to stock price movement as set forth above, and more generally as set

forth below), no matter which line of cases the Court decides to follow, the Commission’s

conspicuous failure not to offer an affirmative event study provides an additional reason why the

Commission has failed to establish the required element of materiality as a matter of law.

The Third Circuit “has essentially made event studies mandatory” to prove materiality in

securities fraud cases. Goldstone, 2016 WL 3135651, at *46 (citing Burlington Coat Factory

Factory, 114 F.3d at 1425). The First Circuit has cited Burlington Coat Factory with approval.

See In Re Polymedica Corp. Sec. Lit., 432 F.3d 1, 13-14 (1st Cir. 2005) (adopting definition of

efficient market from Burlington Coat Factory, i.e., that the market price of a stock fully reflects

all publicly available information, and noting that Third Circuit held the concept of materiality in

an efficient market translates into information that alters the firm’s stock). Moreover, the First

Circuit’s holding in In Re Xcelera.com that “in an efficient market, the defendant’s

misrepresentations are absorbed into, and reflected by, the market price,” only makes sense if

event studies are mandatory, at least in cases like the present where there are multiple statements

with no immediate and obvious drop in the share price. 430 F.3d at 507. The same is true of this

Court’s holdings in Emerson, In re Biogen, and Brumbaugh, supra.

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In addition, the lack of an event study is dispositive here, because it means the

Commission failed to provide evidence that Fr. Emmanuel’s alleged misstatements, as opposed

to any other market forces, caused a drop in Ligand’s stock price. See Berlacher, 2010 WL

3566790, at *8 (finding SEC failed to prove materiality where defendant presented event study

concluding that information was not material, and the court declined to credit and rely upon the

SEC’s expert, who failed to submit an event study, because his proposed methodology did not

account for stock’s volatility or isolate alleged misconduct); Mangan, 598 F. Supp. 2d at 735-36

(granting defendant’s motion for summary judgment where SEC failed to present sufficient

evidence regarding materiality where expert’s analysis did not distinguish cause of drop in

market price from leakage of information at issue and other market forces). This is a particularly

glaring deficiency here, where Ligand’s own disclosures noted it had a history of stock price

volatility, SOF ¶ 102, and Ligand’s stock price fell by as much as 30 percent over a one-month

period between March and April 2014, just a few months prior to Fr. Emmanuel’s reports. SOF

¶ 103. Accordingly, by failing to produce affirmative expert evidence of an event study showing

that the four challenged statements negatively impacted Ligand’s stock price, the Commission

has failed to meet its burden on materiality as a matter of law.

Moreover, even if this Court were to determine an event study is not mandatory in all

market-manipulation cases, Defendants would still be entitled to summary judgment here,

because the Commission has presented no other evidence to show that any of the alleged

misstatements were material. While the Second Circuit, for example, has not adopted a per se

requirement as has the Third Circuit, courts in that Circuit have noted that event study analyses

are nonetheless “almost obligatory.” In Re Vivendi Universal, SA. Sec. Litig., 634 F. Supp. 2d

352, 364 (S.D.N.Y. 2009). Indeed, in In re Northern Telecom Sec. Litig., 116 F. Supp. 2d 446,

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460 (S.D.N.Y. 2000), the court granted defendants summary judgment because plaintiffs’

expert’s testimony was “fatally deficient in that he did not perform an event study or similar

analysis to remove the effects on stock price of market and industry information...” In other

words, the exception to the event-study requirement (in Circuits where its use is not mandatory)

arises when a securities plaintiff provides significant other evidence of materiality. See Veleron

Holding, B.V. v. Stanley, 117 F. Supp. 3d 404 (S.D.N.Y. 2015) (finding plaintiff’s failure to

present event study not dispositive on materiality because “plenty of evidence” of materiality

based on testimony concerning non-public information used by short seller). For the reasons set

forth below, the Commission has entirely failed to do so here.

ii. Fr. Emmanuel’s Disclosure of his Short Position and Other


Cautionary Language Renders Them Immaterial as a Matter of
Law

In addition to the absence of evidence (expert or otherwise) that Fr. Emmanuel’s

challenged statements impacted Ligand’s stock price, the Commission’s claims fail because Fr.

Emmanuel disclosed his short position and included cautionary language that his reports

constituted opinion commentary. See, e.g., Saltzberg v. TM Sterling/Austin Assoc., Ltd., 45 F.3d

399, 400 (11th Cir. 1995) (“The context in which a statement is made is important. When an

offering documents’ projections are accompanied by meaningful cautionary statements and

specific warnings of the risks involved, that language may be sufficient to render the alleged

omissions immaterial as a matter of law.”); Sturm v. Marriot Marquis Corp., 26 F. Supp. 2d

1358, 1366 (N.D. Ga. 1998) (granting defendant’s motion to dismiss 10b-5 claims because the

defendants adequately disclosed their conflicts of interest, noting that “[g]iven these disclosures,

the difference between what is said ... and what the Plaintiffs say should have been said ... would

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not alter the total mix of facts available to an investor.”). Given Fr. Emmanuel’s disclosures, his

commentary could not alter the total mix of information available. 6

iii. The Undisputed Facts Regarding the Challenged Statements


Further Demonstrate that the Commission Has Failed to Show
Materiality

Even if the Court ignores that (i) the Commission failed to produce an event-study

analysis; (ii) the Commission failed to produce any other evidence that the challenged statements

negatively impacted Ligand’s stock price; (iii) the stock price rose on the days of three of the

four challenged statements and only decreased negligibly on the date of the fourth, which its own

rebuttal expert concedes was not statistically significant; (iv) Fr. Emmanuel disclosed his short

position and included other cautionary language in his reports, and (v) the Commission failed to

produce any other evidence (as opposed to bare allegations) of materiality, summary judgment is

still warranted, because the statements themselves do not support a finding of materiality.

a. June 19, 2014 Statement that Ligand’s IR Firm “Basically


Agreed” Promacta was Going Away

Without more, this statement itself is too vague to support a claim that it was material.

Fr. Emmanuel said only that some unidentified individual at an unidentified investor relations

firm “basically agreed” that Promacta was “going away” at some unspecified date in the future.

See Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1217 (1st Cir. 1996) (noting statements lacking

specificity or clearly constituting the opinions of the speaker are considered immaterial as a

matter of law); Parnes v. Gateway 2000, Inc., 122 F.3d 539, 547-48 (8th Cir. 1997) (finding

statement lacking specificity immaterial as a matter of law); In re Boston Technology Inc. Sec.

Litig., 8 F. Supp. 2d 43, 70-71 (D. Mass. 1998) (finding analyst’s statement that problem with

6
Fr. Emmanuel even went so far as to disclose opposing opinions that contradicted his own in his reports, SOF ¶ 56,
another fact that distinguishes this case from any the Commission has previously brought.

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product order cancellation was an aberration and corporation’s comments about exciting new

opportunities to be too vague to be material).

b. July 3, 2014 Statements that Viking Did Not Consult with


its Auditors and Did Not Conduct Pre-Clinical Studies

The Commission has presented no evidence to support its allegation that the two alleged

misstatements in Fr. Emmanuel’s report about Viking, a start-up company with no operations 7

had a material impact on Ligand. Tellingly, Ligand failed to mention either of these alleged

misstatements in its two separate presentations to the Commission. SOF ¶¶ 98, 112.

Additionally, Viking’s CEO does not recall if he even read Fr. Emmanuel’s July 3, 2014 report,

did not speak with any investor about this report in depth, and does not recall anyone at Viking

expressing any concern about these statements. SOF ¶ 54. When questioned, Ligand’s CEO

also could not offer any explanation as to how these statements were material. SOF ¶ 55.

The lack of materiality of the two Viking statements is further underscored by Ligand’s

second presentation to the Commission, which included a (cherrypicked) selection of time

periods in which Ligand claimed Fr. Emmanuel’s statements caused Ligand’s stock price to

decrease, 8 but conspicuously excluded the period from June 24, 2014 to July 13, 2014 (which

covers the nine days before the two Viking statements and the 10 days thereafter). SOF ¶ 116.

Finally, the Commission all but conceded the lack of materiality as to the Viking

statements when it alleged in its Amended Complaint—in order to support its claim of

7
These statements were made before Viking was publicly traded and neither Fr. Emmanuel nor his entities owned or
shorted any Viking securities at the time (an impossibility at any rate for a private company with no operations). In
addition to not being material, these statements are also not “in connection with the purchase or sale of securities.”
See Basic, 485 U.S. at 261 (White, J. concurring) (doubting Rule 10b-5’s requirement that a statement is “in
connection with purchase or sale of securities” was satisfied where defendants did not purchase or sell securities at
issue during the relevant time period and noting that “in previous cases, we had recognized that Rule 10b–5 is
concerned primarily with cases where the fraud is committed by one trading the security at issue”) (citing Blue Chip
Stamps v. Manor Drug Stores, 421 U.S. 723, 736 n.8 (1975)).
8
The Commission did not adopt Ligand’s argument in this regard.

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materiality—that Ligand owned nearly half of Viking at the time the statements were made.

SOF ¶ 39. This contention was false, as Ligand did not own any part of Viking. SOF ¶ 40.

c. August 14 and 22, 2014 Statements

The Commission apparently takes umbrage at Fr. Emmanuel’s debt-to-tangible-equity

ratio because it claims it was improper to exclude Ligand’s intangible assets. However, Fr.

Emmanuel expressly disclosed that he was only considering Ligand’s tangible assets, and thus

reasonable investors (whether they agreed with him or not) understood the components of his

financial analysis and were free to disregard it. Indeed, if Fr. Emmanuel’s chosen metric was, as

the Commission claims, irrelevant given Ligand’s particular business model, no reasonable

investor would have relied upon it in deciding whether to purchase or sell Ligand stock.

2. The Commission’s Rule 10b-5 Claim Also Fails Because the Commission
Did Not Produce Any Evidence to Establish Scienter

i. The Absence of the Hallmarks of an Actual Short-and-Distort


Scheme Demonstrate the Commission Cannot Prove Scienter

To prove scienter, the Commission must prove Fr. Emmanuel acted with “a mental state

embracing intent to deceive, manipulate, or defraud.” Aaron v. SEC, 446 U.S. 680, 686 n.5

(1980). 9 In other words, the Commission must show that Fr. Emmanuel had the “intent to say

something ... that is not believed to be true.” SEC v. World Radio Mission, 544 F.2d 535, 540

(1st Cir. 1976) (emphasis added). While the issue of scienter is usually a jury question, summary

judgment is appropriate “if the nonmoving party rests merely upon conclusory allegations,

9
Proof of “a high degree of recklessness” is also enough. Miss. Pub. Emps. Ret. Sys. v. Boston Sci. Corp., 649 F.3d
5, 20 (1st Cir. 2011). However, recklessness in this context “does not include ordinary negligence but is closer to
being a lesser form of intent.” Fire and Police Pension Ass’n of Colo. v. Abiomed, Inc., 778 F.3d 228, 240 (1st Cir.
2015) (quoting Greebel v. FTP Software, Inc., 194 F.3d 185, 188 (1st Cir. 1999) (recklessness is “a highly
unreasonable omission, involving not merely simple, or even inexcusable, negligence, but an extreme departure
from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known
to the defendant or is so obvious the actor must have been aware of it”). See also Novak v. Kasaks, 216 F.3d 300,
312 (2d Cir. 2000) (recklessness is “a state of mind ‘approximating actual intent, and not merely a heightened form
of negligence”’).

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improbable inferences, and unsupported speculation.’” SEC v. Ficken, 546 F.3d 45, 51 (1st Cir.

2008) (quoting Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990)).

That is precisely what the Commission does here.

The undisputed factual record demonstrates that the Commission’s only potential

argument is that scienter should be inferred based on Fr. Emmanuel having held a short position

in Ligand, which would have benefitted from a drop in the company’s stock price. Such

evidence is legally inadequate. “[C]learly evidence of mere motive and opportunity cannot

suffice against a motion for summary judgment on the issue of scienter.” Geffon v. Micrion

Corp., 249 F.3d 29, 36 (1st Cir. 2001) (granting summary judgment to defendants in securities

fraud case because “[e]ven if the statements at issue were material and false or misleading, the

evidence does not support a finding that defendants knew the statements would materially

mislead the investing public”) (emphasis in original).

Here, not only has the Commission failed to produce any evidence to support scienter,

but all the hallmarks of an actual short-and-distort scheme that might otherwise allow a

factfinder to infer scienter are conspicuously absent. First, Fr. Emmanuel disclosed his short

position in all of his reports and during the internet radio interview at issue. “Short sellers

operate by speculating that the price of a security will decrease. They can perform a useful

function by bringing information that securities are overvalued to the market. However, they

have an obvious motive to exaggerate the infirmities of the securities in which they speculate.”

In re Longtop Fin. Techs. Ltd. Sec. Litig., 910 F. Supp. 2d 561, 577 (S.D.N.Y. 2012) (granting

motion to dismiss Rule 10b-5 claims). Applying this logic, multiple courts have found that

identification of a short position or other conflict of interest, and fulsome disclosures generally,

militate against liability for alleged securities violations. See, e.g., Aurelius v. Bofl Fed. Bank,

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No. MC 16–71 DSF (FFM), 2016 WL 8925145, at *3 (C.D. Cal. Sept. 20, 2016) (granting

motion to quash subpoena and reasoning that defendant “stated in each of his articles that he was

‘short’ Bofl stock. It would seem unlikely for [defendant] to make such a proclamation if he

were part of a scheme to manipulate the market.”); Mehta v. Ocular Therapeutix, Inc., 955 F.3d

194, 208 (1st Cir. 2020) (reasoning that disclosure of FDA Form 483 in same filing that stated

company was using good manufacturing practices “undercut any inference that defendants

intentionally or recklessly misled investors”); Abiomed, Inc., 778 F.3d at 243-44

(finding scienter was undercut by company’s disclosure to investors of correspondence with the

FDA and potential consequences of the agency's negative determination); City of Dearborn

Heights Act 345 Police & Fire Retirement Sys. v. Waters Corp., 632 F.3d 751, 760 (1st Cir.

2011) (“[A]ttempts to provide investors with warnings of risks generally weaken the inference

of scienter”). 10

Second, Fr. Emmanuel published his reports in his own name, something a short seller

with an intent to defraud would not do. Compare Doe v. SEC, No. C 11-80209, 2011 WL

5600513, at *1 (N.D. Cal. Nov. 17, 2011) (denying motion to quash SEC’s subpoena to Google

seeking the identity of anonymous email account suspected to be involved in pump-and-dump

scheme); SEC v. Curshen, 372 Fed. App’x 872, No. 09-1196, 2010 WL 1444910, at *7-10 (10th

Cir. Apr. 13, 2010) (affirming liability and injunction against individual that shared false

information about company by anonymous postings); SEC Lit. Rel. No. 23470, SEC v. Hamdan

(Feb. 17, 2016), available at https://www.sec.gov/litigation/litreleases/2016/lr23470.htm (noting

10
Compare Greebel, 194 F.3d at 196 (listing examples of evidence that can be used to raise inference of scienter
and including personal interest of corporate executives not to inform others of impending sale of stock); In re Credit
Suisse First Boston Corp. Sec. Litig., No. 97 CIV. 4760 (JGK), 1998 WL 734365, at *10 (S.D.N.Y. Oct. 20, 1998)
(reasoning that a reasonable trier of fact could conclude failure to disclose short position was evidence of scienter).

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settlement with defendant who manipulated market prices through multiple postings and

employing numerous tactics to hide his true identity).

Third, the SEC also establishes scienter in a typical short-and-distort case by showing

that after making a false statement aimed at driving down the stock, the offender covered his

short position almost immediately before the market had a chance to discover the truth. See, e.g.,

Complaint, SEC v. Berliner, No. 1:08-cv-03859-JES (S.D.N.Y. Apr. 24, 2008) (SEC alleged

defendant acted intentionally because he sold short 10,000 shares of stock “within minutes” of

disseminating false information); Aly, 2018 WL 1581986, at *23 (establishing scienter based on

temporal proximity of defendant filing Schedule 13D with false information and then selling his

call options within 10 minutes); SEC v. Dubovoy, No. 15-6076, 2016 WL 5745099, at *2, 5

(D.N.J. Sept. 29, 2016) (finding intent to trade on hacked information supported by temporal

proximity of closing positions within minutes or hours after information released publicly). In

stark contrast here, Fr. Emmanuel held on to a substantial portion of his short position in Ligand

until October 13, 2014 (SOF ¶ 89)—almost four months after he published his initial report

regarding Ligand and almost two months after he published his final one. See Reliance Ins. Co.

v. Barron’s, 442 F. Supp. 1341, 1353 (S.D.N.Y. 1977) (granting summary judgment in part

because defendants did not purchase or sell any of the subject securities at or about the time of

the offending article). 11

ii. The First Challenged Statement Fails for Lack of Scienter for
Additional Reasons

The Commission’s first challenged statement differs from the others in that it arises from

11
In addition, at the outset of the Commission’s investigation, Fr. Emmanuel voluntarily turned over his entire hard
drive to the Commission—including all attorney-client privileged communications—in an effort to be as transparent
as possible. SOF ¶ 135. This, too, is entirely inconsistent with someone whose goal was to intentionally defraud the
market.

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a radio interview as opposed to a written report and is based on a disputed conversation

involving only two people, Fr. Emmanuel and Mr. Voss. 12 The Commission must prove that Fr.

Emmanuel knowingly lied when he stated that Mr. Voss “basically agreed” that Promacta was

going away. The undisputed facts, however, demonstrate the Commission has failed to produce

any evidence that he did not believe his statement was true; all the evidence is to the contrary.

First, Fr. Emmanuel took real-time notes (years before he knew this statement would be

the subject of a Commission action against him) of his phone call with Mr. Voss, which state that

Mr. Voss agreed with his thesis about Promacta. SOF ¶¶ 16-17.

Second, Mr. Voss and Ligand’s CEO John Higgins’ real-time discussions demonstrate

that, at minimum, Mr. Voss left Fr. Emmanuel with the reasonable belief that he “basically

agreed” with Fr. Emmanuel’s concerning Promacta. In fact, that is the very impression with

which Mr. Voss left Mr. Higgins. Mr. Voss claims that Fr. Emmanuel stated that Promacta was

going away and asked Mr. Voss, “don’t you agree?” Rather than voicing any disagreement as

one would expect if he in fact disagreed, Mr. Voss claimed he remained silent. SOF ¶ 20.

Indeed, after Mr. Voss described the conversation to Mr. Higgins (both by phone and in writing),

the latter wrote an email that chastised Mr. Voss for leaving Fr. Emmanuel with the impression

of a “tacit agreement.” 13 SOF ¶ 32. In response, Mr. Voss did not disagree with Mr. Higgins’

assessment; instead, he claimed that Fr. Emmanuel took the “piece of dialogue out of context.”

SOF ¶ 33 (emphasis added). Indeed, to succeed with respect to this challenged statement, the

12
The undersigned are unaware of any other case where the Commission alleges securities fraud based on a disputed
“he said/he said” oral conversation involving only the defendant and one other person with no other witnesses.
13
In an email, Mr. Voss refers to another writing that he sent to Mr. Higgins on the day of the Benzinga interview
about his conversation with Fr. Emmanuel that Ligand has failed to produce. SOF ¶ 31. A factfinder is permitted to
draw a negative inference against Ligand for the failure to produce this document. See Testa v. Wal-Mart Stores,
Inc., 144 F.3d 173, 177 (1st Cir. 1998) (“[w]e have held with some regularity that a trier of fact may (but need not)
infer from a party’s obliteration of a document relevant to a litigated issue that the contents of the document were
unfavorable to that party”).

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Commission would effectively need to prove that Ligand’s own CEO was lying when he

stated—based on his conversations with Mr. Voss—that Mr. Voss tacitly agreed with Fr.

Emmanuel’s thesis concerning Promacta.

Third, the recording of the statement and the context in which it was made demonstrate

the lack of scienter. The interview with Benzinga lasted approximately 22 minutes. SOF ¶ 23.

Ligand was not even mentioned until nearly the 15-minute mark, and Fr. Emmanuel’s statement

that Ligand’s IR firm “basically agreed” with his thesis that Promacta was going away was made

at around the 16-minute mark. SOF ¶¶ 24-26. Fr. Emmanuel initially attributed the statement to

Ligand, before correcting himself to clarify he spoke with Ligand’s IR representative. SOF ¶ 26.

Such a correction is not consistent with an intent to defraud. Further, Fr. Emmanuel did not

include this statement in his subsequent reports as he would have presumably done if he

fabricated it for the purposes of trying to cause Ligand’s stock price to plummet.

3. Each of the Four Challenged Statements is Either Demonstrably True or


Constitutes Opinion Commentary Protected by the First Amendment

i. The First Amendment Protects Opinions Unless They Are Both


Objectively Wrong and Subjectively Not Believed by the Author

The First Amendment’s protection of free speech applies to statements analyzing

securities. See Lowe v. SEC, 472 U.S. 181, 210 n.58 (1985) (“because we have squarely held

that the expression of opinion about a commercial product such as a loudspeaker is protected by

the First Amendment . . . it is difficult to see why the expression of an opinion about a

marketable security should not also be protected”) (internal citation omitted). While “matters of

belief and opinion are not beyond the purview of” the securities laws, “liability lies only to the

extent that the statement was both objectively false and disbelieved by the defendant at the time

it was expressed.” Fait v. Regions Fin. Corp., 655 F.3d 105, 110 (2d Cir. 2011) (citing Virginia

Bankshares v. Sandberg, 501 U.S. 1083, 1095-96 (1991)) (emphasis added); MHC Mut.

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Conversion Fund v. Sandler O’Neill Partners, L.P., 761 F.3d 1109, 1113 (10th Cir. 2014) (“To

warrant liability on this view, then, a plaintiff must show both that the defendant expressed an

opinion that wasn’t his real opinion (sometimes called ‘subjective disbelief’) and that the opinion

didn’t prove out in the end (sometimes called ‘objective falsity’)”) (emphasis in original); Mayer

v. Mylod, 988 F.2d 635, 639 (6th Cir. 1993) (“Material statements which contain the speaker’s

opinion are actionable under Section 10(b) of the Securities Exchange Act if the speaker does not

believe the opinion and the opinion is not factually well-grounded.”) (citations omitted).

In determining whether a statement is a fact or a constitutionally protected opinion, the

Court must look at the context it was made. Where a short seller discloses his short position, the

readers know he is not disinterested, and this weighs in favor of the statement being one of

opinion. Silvercorp Metals Inc. v. Anthion Mgmt., LLC, 959 N.Y.S.2d 92, *9 (Sup. Ct. 2012)

(table) (dismissing securities fraud case on New York State First Amendment grounds against

short sellers who disclosed their short position and provided the basis for their conclusions about

the subject company). 14 The First Amendment protects even false and libelous opinions

provided that the facts supporting the opinions are provided. See id; Partington v. Bugliosi, 56

F.3d 1147, 1156 (9th Cir. 1995) (“[W]hen a speaker outlines the factual basis for his conclusion,

his statement is protected by the First Amendment”).

a. June 19, 2014 Statement that Ligand’s IR Firm


“Basically Agreed” Promacta was Going Away

As set forth above, the Commission cannot prove scienter with respect to the first

challenged statement. Even analyzing this statement in the light most favorable to the

Commission, at worst, Fr. Emmanuel formed an opinion that Mr. Voss “basically” agreed with

14
The New York Court of Appeals has observed that the New York State Constitution provides broader speech
protections than does the United States Constitution. See Immuno AG. v. Moor–Jankowski, 77 N.Y.2d 235, 243
(1991).

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his thesis concerning Promacta when Mr. Voss admittedly failed to challenge it after Fr.

Emmanuel asked him to do so. The Commission has failed to produce any evidence that Fr.

Emmanuel did not believe this opinion, and therefore not only does it fail for lack of scienter, but

it is also protected by the First Amendment. Fait, 655 F.3d at 110 (citing Virginia Bankshares,

501 U.S. at 1095-96)).

b. July 3, 2014 Statement that Viking Did Not Consult with


its Auditors on Material Issues and the Financial
Statements Were Unaudited

Fr. Emmanuel’s statement about Viking not consulting with its auditors on any material

issues and the financial statements in Viking’s publicly available S-1 therefore being unaudited

was a conclusion he drew from the disclosures in the S-1 itself. SOF ¶¶ 43-45. Moreover, he

cited to and specifically identified for his readers the particular language in the S-1 that led to his

conclusion. Accordingly, any reasonable investor could have reviewed the S-1 to see that while

many of the statements were unaudited (as Fr. Emmanuel correctly stated), certain others were

audited. This statement, therefore, is shielded from liability by the First Amendment. See

Partington, 56 F.3d at 1156; Agora, Inc. v. Axxess, Inc., 90 F. Supp. 2d 697, 704 (D. Md. 2000)

(“[t]he principle that opinions based on disclosed facts are protected is well established”);

Chapin v. Knight-Ridder, Inc., 993 F.2d 1087, 1093 (4th Cir. 1993) (stating that when “the bases

for the ... conclusion are fully disclosed, no reasonable reader would consider the term anything

but the opinion of the author drawn from the circumstances related”); Moldea v. New York Times

Co., 15 F.3d 1137, 1144–45 (D.C. Cir.1994) (“Because the reader understands that such

supported opinions represent the writer's interpretation of the facts presented, and because the

reader is free to draw his or her own conclusions based upon those facts, this type of statement is

not actionable in defamation”). Further, Fr. Emmanuel’s statement that Viking had not consulted

with its auditors on any “material” issues is clearly a protected opinion.


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c. July 3, 2014 Statement that Viking Did Not Conduct


Pre-Clinical Studies

Fr. Emmanuel’s statement that Viking did not intend to conduct pre-clinical studies or

trials is objectively and demonstrably true. In its publicly available S-1, Viking disclosed that as

a company, it had no experience conducting pre-clinical studies. It then disclosed, in bold, “We

intend to rely on third parties to conduct our preclinical studies and clinical trials and

perform other tasks for us.” SOF ¶ 49 (emphasis in original). Based on these disclosures, Fr.

Emmanuel, whose theory in the report was that the licensing agreement with Viking made no

sense for Ligand shareholders, and that Viking was essentially an alter-ego of Ligand, accurately

concluded that Viking would not be conducting preclinical studies and clinical trials. SOF ¶ 52.

Viking’s CEO has confirmed this statement to be true. SOF ¶¶ 51.

Nonetheless, the Commission has argued that the statement was misleading because it

could have been interpreted to mean that nobody was going to conduct preclinical studies and

clinical trials on Ligand’s drugs. This argument must fail. First, it is far too speculative to

survive summary judgment. Second, it is completely undermined by the plain context of the

report, in which Fr. Emmanuel opined that Viking offered no value to Ligand shareholders, and

Ligand’s transaction with Viking appeared to be for the purpose of shifting various liabilities to

another entity for financial/accounting reasons. SOF ¶ 52. Nothing in Fr. Emmanuel’s thesis as

set forth in the report even came close to touching upon the issue of whether Ligand or Viking

were pushing drugs to the market without conducting any preclinical studies and clinical trials

(something that would be an impossibility in any event).

Similarly, at the motion to dismiss hearing, the Commission argued that Fr. Emmanuel’s

statement was false because Viking—while not actually conducting the preclinical studies and

trials itself—was going to use third parties for this purpose. This argument too must fail,

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because it ignores the large elephant in the room that Viking itself felt this distinction was so

important it needed not only to disclose it in the S-1, but to do so in bold text. Clearly, Viking

did not agree with the Commission’s position that this was a distinction without a difference.

In addition, even if the Court determines that this statement is not capable of being

deemed demonstrably true, it would be barred as protected opinion by the First Amendment for

at least three reasons. First, at minimum, the statement reflects Fr. Emmanuel’s reasonable

opinion that if Viking was going to rely on third parties to actually conduct the studies and trials,

it was fair to point out that Viking was not going to conduct those studies and trials. (Again,

Viking felt this was an important enough difference to highlight it in bold to the readers of its S-

1). Second, Fr. Emmanuel expressly disclosed that he was relying on the publicly filed S-1 as

the basis for his statement in his July 3 report, which readers could easily review for themselves.

See Phantom Touring, Inc. v. Affiliated Publications, 953 F.2d 724, 731 n.13 (1st Cir. 1992);

Partington, 56 F.3d at 1156; Agora, 90 F. Supp. 2d at 704; Chapin, 993 F.2d at 1093; Moldea,

15 F.3d at 1144–45. Third, the Commission has produced no evidence that Fr. Emmanuel

subjectively believed his opinion to be false. See Fait, 655 F.3d at 110 (citing Virginia

Bankshares, 501 U.S. at 1095-96).

d. August 14 and 22, 2014 Statements Regarding Ligand’s


Debt-to-Tangible-Equity Ratio

The Commission originally alleged that Fr. Emmanuel’s calculation of Ligand’s debt-to-

tangible-equity ratio was knowingly false, because he did not include the cash proceeds from the

loan. SOF ¶ 70. In fact, it was the Commission’s contention that was false, because proceeds

from a loan do not constitute equity, and the Commission has not presented any evidence of any

accounting principle to the contrary. The Court dismissed the Commission’s original claim, and

the Commission replead it, no longer claiming that Fr. Emmanuel’s correct calculation was false,

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but instead that it was somehow misleading despite being mathematically infallible. SOF ¶ 73.

The Commission’s claim fails for a number of reasons.

First, the undisputed facts in this case show that Fr. Emmanuel’s calculation of Ligand’s

debt-to-tangible equity was accurate. No witness has challenged the accuracy of the actual

calculation (as opposed to the chosen metric). SOF ¶ 76. Second, Fr. Emmanuel expressly

explained to his readers that he was comparing only Ligand’s tangible assets to its debt. The

Commission’s claim that the statement was misleading notwithstanding that the calculation was

correct and that Fr. Emmanuel accurately explained the components of the ratio cannot stand

First Amendment scrutiny. Certainly, the Commission cannot tell individuals what metrics and

ratios they can and cannot use when analyzing securities without utterly destroying the First

Amendment. Third, Fr. Emmanuel disclosed all the facts underlying his calculations. See

Partington, 56 F.3d at 1156. Fourth, Fr. Emmanuel has historically disregarded the value of

intangible assets when analyzing other companies, SOF ¶¶ 80-82, eliminating any inference that

he subjectively believed he was misleading his readers by excluding from his calculation

Ligand’s intangible assets here.

C. The Commission Has Failed to Provide Evidence to Support its IAA Claim
The Commission’s theory behind its entirely unprecedented IAA claim is that the alleged

misstatements that form the basis of the Commission’s Rule 10b-5 claims rendered all Fr.

Emmanuel’s communications with his investors or potential investors misleading. Am. Compl.

¶¶ 62-64. For the reasons discussed above, the Commission has failed to present adequate

evidence to support its Rule 10b-5 claim, which destroys the entire premise of their IAA claim.

In addition, the Commission has failed to provide any evidence that Fr. Emmanuel

defrauded his investors. Incredibly, despite investigating this matter for more than three years,

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based on the discovery provided to Defendants, it appears the Commission brought its novel

IAA claim without bothering even to speak with any of Fr. Emmanuel’s investors. SOF ¶ 123.

After bringing its baseless IAA claim, the Commission deposed Fr. Emmanuel’s longest

and largest investor, a liver transplant specialist and hospital director. SOF ¶¶ 139-140. The

investor testified that he never has had any concern about Fr. Emmanuel’s candor or truthfulness.

SOF ¶ 140. In addition, the physician-investor testified that based on his own analysis of

Promacta and the market in 2014, he agreed with Fr. Emmanuel’s thesis that Promacta was going

away. SOF ¶ 141.

Further, Fr. Emmanuel worked with an editor on all the Ligand reports. SOF ¶ 137. The

Commission deposed the editor who testified unequivocally that Fr. Emmanuel believed in all

his opinions. SOF ¶ 138. (“I never sensed in any way there was any conscious effort to

misrepresent anything”); (“I will say that Father Emmanuel felt very adamant about [Ligand],

that it was not just overvalued but may have actually no material value”); (“He passionately

believed these – in each one of these stocks, whether it was long or short, that he was adamantly

correct. . . . But I had no firsthand, at least, observation of anything that even brushed up against

a violation of any securities laws, at least as I understand securities laws”).

IV. CONCLUSION

For the foregoing reasons, Defendants respectfully request that the Court grant them

summary judgment on all counts of the Amended Complaint.

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Case 1:18-cv-11926-PBS Document 125 Filed 09/30/20 Page 45 of 45

Respectfully Submitted,

REV. FR. EMMANUEL LEMELSON,


LEMELSON CAPITAL MANAGEMENT,
LLC, and THE AMVONA FUND, LP

By: /s/ Douglas S. Brooks


Douglas S. Brooks (BBO No. 636697)
Brian J. Sullivan (BBO No. 676186)
LIBBY HOOPES BROOKS, P.C.
399 Boylston Street
Boston, MA 02116
Tel.: (617)-338-9300
dbrooks@lhblaw.com
bsullivan@lhblaw.com

Dated: September 30, 2020

CERTIFICATE OF SERVICE

I hereby certify that this document filed through the ECF system will be sent
electronically to the registered participants as identified on the Notice of Electronic Filing (NEF)
and paper copies will be sent to those indicated as non-participants on September 30, 2020.

/s/ Douglas S. Brooks


Douglas S. Brooks

36
Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 1 of 22

UNITED STATES DISTRICT COURT


FOR THE DISTRICT OF MASSACHUSETTS

)
SECURITIES AND EXCHANGE COMMISSION, )
)
Plaintiff )
)
v. )
)
GREGORY LEMELSON and LEMELSON CAPITAL )
MANAGEMENT, LLC, ) Civil Action No. 1:18-cv-11926-PBS
)
Defendants, )
)
and )
)
THE AMVONA FUND, LP, )
)
Relief Defendant )
)

DEFENDANTS’ CONCISE STATEMENT OF UNDISPUTED MATERIAL FACTS IN


SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT

Pursuant to Local Rule 56.1, the Defendants hereby provide the following statement of

undisputed facts in support of their motion for summary judgment.

I. The Amvona Fund’s Origins and Routine Business Practices

1. Fr. Emmanuel formed a hedge fund, the Amvona Fund LP, in 2012. Affidavit of

Douglas S. Brooks (“Brooks Aff.”) Exhibit (“Ex.”) 1 at 32:4-13.

2. Lemelson Capital Management is the general partner of the Amvona Fund.

Brooks Aff. Ex. 1 at 32:4-13.

3. Throughout its existence, Amvona has mostly held long positions in stocks, but

has also occasionally taken short positions. Brooks Aff. Ex. 1 at 239:17-22; Affidavit of Fr.

Emmanuel Lemelson (“Lemelson Aff.”) ¶ 3.


Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 2 of 22

4. Since 2010, Fr. Emmanuel has published approximately 200 research and

commentary pieces discussing economics, securitization fraud, and high-level security analysis

of common stocks. Lemelson Aff. ¶ 4. See also, Amvona Economic Analysis, available at

https://www.amvona.com/economic-analysis.

5. Fr. Emmanuel’s regular course of business was to include disclosures in all of his

published reports about the positions he had in the securities being discussed and that the reports

contained Fr. Emmanuel’s opinions based on public information, and that he may not necessarily

publish updated opinions if circumstances changed. Lemelson Aff. ¶ 5. See also, e.g., Brooks

Aff. Ex. 2 at 4 (disclosing position held in company being discussed and providing disclaimer

that “THIS REPORT INCLUDES INFORMATION BASED ON DATA FOUND IN FILINGS

WITH THE SECURITIES AND EXCHANGE COMMISSION, INDEPENDENT INDUSTRY

PUBLICATIONS AND OTHER SOURCES. ALTHOUGH WE BELIEVE THAT THE DATA

IS RELIABLE, WE HAVE NOT SOUGHT, NOR HAVE WE RECEIVED, PERMISSION

FROM ANY THIRD-PARTY TO INCLUDE THEIR INFORMATION IN THIS

PRESENTATION. MANY OF THE STATEMENTS IN THIS PRESENTATION REFLECT

OUR SUBJECTIVE BELIEF”); Brooks Aff. Ex. 3 at 2-3(same); Brooks Aff. Ex. 4 at 2

(disclosing that Lemelson Capital had no position in stock being discussed and including same

disclosure as above).

II. Fr. Emmanuel’s Short Position and Reports Regarding Ligand

A. June 16, 2014 Report

6. In 2014, Fr. Emmanuel identified Ligand as a company whose stock he believed

was overvalued. Based on this belief, Fr. Emmanuel took a short position in Ligand. Brooks

Aff. Ex. 1 at 239:19-22; Brooks Aff. Ex. 5 at 44:24-45:1.

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7. On June 16, 2014, Fr. Emmanuel published a 25-page opinion commentary

concerning his thesis on Ligand. Brooks Aff. Ex. 6.

8. In the first sentence of his June 16, 2014 report on Ligand, Fr. Emmanuel

disclosed that “Lemelson Capital is short shares of (NASDAQ:LGND).” Brooks Aff. Ex. 6 at 1.

9. Fr. Emmanuel additionally disclosed that “[a]ll content in this report represents

the opinions of Lemelson Capital.” Brooks Aff. Ex. 6 at 24 (emphasis added).

10. The June 16, 2014 report also included the following disclosure language:

All expressions of opinion are subject to change without notice, and Lemelson
Capital does not undertake to update or supplement this report or any information
contained herein . . . . The information included in this document . . . reflects
prevailing conditions and Lemelson Capital’s views as of this date, all of which
are accordingly subject to change. Lemelson Capital’s opinions and estimates
constitute a best efforts judgment and should be regarded as indicative,
preliminary and for illustrative purposes only . . . . This report’s estimated
fundamental value only represents a best efforts estimate of the potential
fundamental valuation of a specific security, and is not expressed as, or implied
as, assessments of the quality of a security, a summary of past performance, or an
actionable investment strategy for an investor . . . . Lemelson Capital may benefit
from any change in the valuation of any other companies, securities, or
commodities discussed in this document.

Brooks Aff. Ex. 6 at 24.

11. Among his many opinions in the June 16, 2014 report, Fr. Emmanuel stated

Ligand’s largest royalty-generating drug, Promacta, faced an imminent threat from a new drug,

which he believed would “virtually eliminate demand for Promacta.” Brooks Aff. Ex. 6 at 4.

12. The Commission is not challenging any statements contained in the June 16, 2014

report. See Brooks Aff. Ex. 7; Brooks Aff. Ex. 8 at 2-3.

13. Ligand’s stock price fell on the date Fr. Emmanuel issued this report. Brooks Aff.

Ex. 14 at 31.

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B. June 19, 2014 Interview

14. Following the publication of Fr. Emmanuel’s first report on Ligand, on June 17,

2014, Ligand’s Investor Relations representative, Bruce Voss, exchanged a number of emails

with high-ranking personnel at Ligand discussing Fr. Emmanuel’s report and whether and how to

speak with Fr. Emmanuel about the report. Brooks Aff. Ex. 9. In the course of these email

exchanges, John Higgins, the CEO of Ligand, instructed Mr. Voss to not “jump into content or a

rebuttal” on the call with Fr. Emmanuel. Brooks Aff. Ex. 9 at EPROD-SEC-LIT-E-000000940.

15. Mr. Voss and Fr. Emmanuel spoke over the phone on June 18, 2014. According

to Mr. Voss’ handwritten notes, the call lasted from approximately 12:56 p.m. ET until 1:16 p.m.

ET. Brooks Aff. Ex. 10 at 34:20-35:3, 113:5-20; Brooks Aff. Ex. 11 at 1.

16. Fr. Emmanuel took notes of the call, which stated that Mr. Voss agreed with his

opinion that Promacta was going away. Brooks Aff. Ex. 12 at EPROD-SEC-LIT-E-00589567.

17. The metadata from these notes shows that they were drafted June 18, 2014 at 1:21

p.m. ET and last modified that day at 1:42 p.m. ET. Brooks Aff. Ex. 12 at 3-4.

18. Mr. Voss’ emails indicated that he listened to Mr. Higgins’ instruction not to

engage in any rebuttal of Fr. Emmanuel’s opinions during this call. Brooks Aff. Ex. 13 at

EPROD-SEC-LIT-E-000000407.

19. Mr. Voss testified that he did not engage in any rebuttal of Fr. Emmanuel’s

opinions during this call. Brooks Aff. Ex. 10 at 99:15-100:9.

20. Mr. Voss recalled that Fr. Emmanuel asked multiple times if Mr. Voss agreed

with his positions and, specifically that Fr. Emmanuel stated that he believed Promacta was

going away and then asked, “don’t you agree?” Brooks Aff. Ex. 10 at 131:1-23. Mr. Voss

admitted that he remained silent in response to this question. Brooks Aff. Ex. 10 at 146:1-15.

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21. On June 19, 2014, Fr. Emmanuel was interviewed by an outlet called Benzinga.

Brooks Aff. ¶ 15.

22. There is no evidence of the number of people that listened to this interview.

23. The June 19, 2014 interview lasted approximately 21 minutes, 41 seconds. See

Brooks Aff. ¶ 15.

24. About five minutes of the interview discussed Fr. Emmanuel’s short thesis

regarding Ligand. Specifically, the interview first mentions Father Emmanuel’s short position in

Ligand at the 14 minute, 40 second mark in the interview and the discussion regarding Ligand

ended at approximately the 19 minute, 30 second mark in the interview. Brooks Aff. ¶ 15.

25. When the topic of Ligand was first raised on the interview, Fr. Emmanuel stated

that he had taken a short position in Ligand’s stock. Brooks Aff. ¶ 15.

26. At approximately the 16-minute mark of this interview, Fr. Emmanuel initially

stated that he had spoken to Ligand, and then corrected himself to say that he spoken to Ligand’s

Investor Relations (“IR”) firm which had “basically agreed” with his thesis concerning Promacta

“that Promacta was going away.” Brooks Aff. ¶ 15.

27. There is no evidence that any individual decided to sell his or her Ligand shares

as a result of this statement.

28. Bruce Voss, the referenced representative of the IR firm, denies having made this

statement. Brooks Aff. Ex. 7 ¶ 38.

29. This is the first of the Commission’s four challenged statements. Brooks Aff. Ex.

7 ¶¶ 36-43; Brooks Aff. Ex. 8 at 3.

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Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 6 of 22

30. Subsequent to the June 19, 2014 interview, Mr. Voss spoke with Ligand

executives John Higgins and Matthew Foehr about his conversation with Fr. Emmanuel on June

18, 2014 and Fr. Emmanuel’s June 19, 2014 interview. Brooks Aff. Ex. 10 at 152:11-23.

31. There is an email on June 20, 2014 that refers to a written summary shared by Mr.

Voss regarding the phone conversation between Mr. Voss and Fr. Emmanuel on June 19, 2014.

Specifically, Mr. Voss wrote “As I wrote last night, he made that statement with a rhetorical

‘don’t you agree’ and I moved on to the next subject as we had more to cover and his statement

was ridiculous.” No such document was produced in this litigation. Ligand’s counsel stated that

they looked for the document but could not locate it. Brooks Aff. Ex. 13 at EPROD-SEC-LIT-E-

000000407; Brooks Aff. Ex. 10 at 146:5-147:20.

32. Subsequent to the June 19, 2014 interview, Mr. Voss and Mr. Higgins exchanged

emails regarding the June 18, 2014 conversation between Mr. Voss and Fr. Emmanuel. In one of

those emails, Mr. Higgins expressed that he was upset that Mr. Voss remained silent and left Fr.

Emmanuel with the impression of “tacit agreement” with Fr. Emmanuel’s thesis regarding

Promacta going away. Specifically, Mr. Higgins stated:

Also, if he [Lemelson] said the CEO beats his employees would you just move on
because “there were more things to cover.” Or would you take a moment to stick
up for the CEO? Promacta is a big deal, and a big part of our value and business
model. He knows it too. He gave you a softball and you just moved on? Even 1
minute of soft info would have left him with a different impression than tacit
agreement.

Brooks Aff. Ex. 13 at EPROD-SEC-LIT-E-000000407.

33. In response to that email from Mr. Higgins, Mr. Voss replied by writing, inter

alia, “[t]he comment about Promacta was not a legitimate question but rather it was made in

passing and then he chose to take that piece of the dialogue out of context.” Brooks Aff. Ex. 13

at EPROD-SEC-LIT-E-000000407.

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34. Ligand’s stock price closed higher on the day of the interview than it had the

previous day. Brooks Aff. Ex. 14 at 31.

C. July 3, 2014 Report

35. On July 3, 2014, Fr. Emmanuel issued his second analysis report discussing

Lemelson Capital Management’s short position on Ligand. Brooks Aff. Ex. 15.

36. This report also included the disclosure that Fr. Emmanuel had taken a short

position in Ligand, that Fr. Emmanuel was expressing his own opinions, and that Fr. Emmanuel

may not necessarily amend his opinions if circumstances changed. Brooks Aff. Ex. 15 at 1-2.

37. The July 3, 2014 report included a discussion of a company called Viking

Therapeutics, with whom Ligand had just entered into a licensing agreement. Brooks Aff. Ex.

15 at 7-10.

38. Two of the Commission’s four challenged statements in this case are based on Fr.

Emmanuel’s statements about Viking contained in the July 3, 2014 report. Brooks Aff. Ex. 8 at

3; Brooks Aff. Ex. 7 ¶¶ 44-50.

39. In both the Original Complaint and the Amended Complaint, the SEC has alleged

that as of May 2014, “Ligand became a 49.8% owner of Viking common stock.” Brooks Aff.

Ex. 16 ¶ 21; Brooks Aff. Ex. 7 ¶ 21.

40. Ligand did not own any portion of Viking at the time this report was published.

Brooks Aff. Ex. 17 at 53:6-18; Brooks Aff. Ex. 18 at 131:24-132:2.

41. Fr. Emmanuel did not hold a short position in Viking at the time these statements

were made. Brooks Ex. 5 at 47:7-14.

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Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 8 of 22

42. The first statement from this report that the Commission challenged is: “the

company [Viking] has not yet even consulted with the firm [auditors] on any material issues.”

Brooks Aff. Ex. 8 at 3; Brooks Aff. Ex. 7 ¶¶ 44-50.

43. In the July 3, 2014 report, Fr. Emmanuel quoted Viking’s S-1 statement and noted

that Viking engaged MaloneBailey to audit their financial statements for the fiscal year ending

December 31, 2012, but then Viking terminated MaloneBailey on April 7, 2014. Brooks Aff.

Ex. 15 at 9.

44. Then, Fr. Emmanuel noted Marcum LLP was hired to perform the audit and

directly quoted Viking’s S-1 again, which stated:

Effective as of April 7, 2014, our board of directors appointed Marcum LLP, or


Marcum, as our independent registered public accounting firm to audit our
financial statements as of and for the fiscal years ended December 31, 2012 and
2013, and for the fiscal year ending December 31, 2014. From September 24,
2012 (Inception) through April 7, 2014, neither we nor anyone on our behalf
consulted with Marcum regarding (1) the application of accounting principles to a
specified transaction, either completed or proposed, (2) the type of audit opinion
that might be rendered on our financial statements, or (3) any matter that was
either the subject of a disagreement, as described in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions thereto, or a “reportable event” as
described in Item 304(a)(1)(v) of Regulation S-K.

Brooks Aff. Ex. 15 at 9; Brooks Aff. Ex. 19 at 162.

45. Fr. Emmanuel then made the statement that the Commission is challenging (“In

other words, Marcum was merely hired, but the company [Viking] has not yet even consulted

with the firm [auditors] on any material issues”) as a summary of this quoted passage. Brooks

Aff. Ex. 15 at 10.

46. Viking’s July 1, 2014 S-1 statement also noted that a number of its financial

statements were unaudited. Brooks Aff. Ex. 19 at 13-14, 56, 60-61, 69-70, 72, 166-69, 171-73,

176-77, 180. Indeed, the term “unaudited” appears 56 times in Viking’s S-1, while the term

“audited” appears seven times. Brooks Aff. ¶ 22.


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47. There is no evidence of any investor of Ligand or Viking raising concerns about

this specific statement.

48. The second statement from the July 3, 2014 report that the Commission

challenged is: “Viking does not intend to conduct any preclinical studies or trials …” Brooks

Aff. Ex. 15 at 7; Brooks Aff. Ex. 7 ¶ 46; Brooks Aff. Ex. 8 at 3.

49. Viking’s S-1 statement stated in bold that “We intend to rely on third parties to

conduct our preclinical studies and clinical trials and perform other tasks for us.” Brooks

Aff. Ex. 19 at 21 (emphasis in original).

50. Viking’s S-1 statement also stated, “All clinical trials, preclinical studies and

other analyses performed to date with respect to our drug candidates have been conducted by

Ligand. Therefore, as a company, we do not have any experience in conducting clinical trials for

our drug candidates.” Brooks Aff. Ex. 19 at 17

51. Viking’s CEO, Brian Lian, testified that Viking did not intend to conduct its own

preclinical studies, but rather “to hire third parties to conduct their experiments.” Brooks Aff.

Ex. 20 at 76:6-77:14.

52. Fr. Emmanuel’s opinion in this section of his report was that Ligand’s transaction

with Viking appeared to be for the purposes of shifting various liabilities to another entity to

portray a more positive accounting perspective for Ligand. Brooks Aff. Ex. 15 at 8-9.

53. There is no evidence of any investor of Ligand or Viking raising concerns about

this specific statement.

54. Viking’s CEO, Brian Lian, testified that he did not recall if he read Fr.

Emmanuel’s July 3, 2014 report, did not speak with any investor about this report in any depth,

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Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 10 of 22

and did not recall any of his colleagues at Viking expressing any concern about these statements.

Brooks Aff. Ex. 20 at 56:6-19, 129:3-132:6.

55. Ligand’s CEO, John Higgins, also could not offer any explanation as to how these

statements were material. Brooks Aff. Ex. 21 at 278:4-279:2.

56. The July 3, 2014 report also acknowledged and addressed a June 17, 2014 report

authored by Joseph Pantginis of Roth Capital that was critical of the June 16, 2014 report.

Brooks Aff. Ex. 15 at 6-7.

57. Ligand’s stock price closed higher on July 3, 2014 than it did the previous day.

Brooks Aff. Ex. 14 at 31.

D. August 4, 2014 Report

58. On August 4, 2014, Fr. Emmanuel published his third report on Ligand. Brooks

Aff. Ex. 22.

59. This report disclosed that Fr. Emmanuel had taken a short position in Ligand,

contained Fr. Emmanuel’s own opinions, and that Fr. Emmanuel may not necessarily amend his

opinions in a published report if circumstances changed. Brooks Aff. Ex. 22 at 1-2.

60. The Commission is not challenging any of Fr. Emmanuel’s statements contained

in the August 4, 2014 report. See Brooks Aff. Ex. 8 at 2-4; Brooks Aff. Ex. 7.

61. On August 4, 2014, Ligand’s share price closed 9% higher than it did the previous

trading day. Brooks Aff. Ex. 14 at 30.

E. August 14 and August 22, 2014 Reports

62. On August 14 and 22, 2014, Fr. Emmanuel published his fourth and fifth reports

on Ligand. Brooks Aff. Ex. 23; Brooks Aff. Ex. 24.

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63. Both of these reports disclosed that Fr. Emmanuel had taken a short position in

Ligand, contained Fr. Emmanuel’s own opinions, and that Fr. Emmanuel may not necessarily

amend his opinions in a published report if circumstances changed. Brooks Aff. Ex. 23 at 3-4;

Brooks Aff. Ex. 24 at 1.

64. On August 14, 2014, Ligand’s stock price closed higher than it did the previous

day. Brooks Aff. Ex. 14 at 30.

65. On August 22, 2014, Ligand’s stock price closed down slightly. Brooks Aff. Ex.

14 at 30.

66. The August 14 and 22, 2014 reports discussed, inter alia, $245 million in new

debt that Ligand was taking on through a publicly announced bond offering. Brooks Aff. Ex. 23

at 2-3; Brooks Aff. Ex. 24 at 2-3.

67. As part of his discussion of the bond offering in the August 14 Report, Fr.

Emmanuel wrote:

Tangible equity: On August 4, 2014, Ligand released their Q2 earnings report


and financial statements in which the company boasted that it was debt free. Prior
to this August 4 release, the company’s liabilities exceeded tangible assets,
meaning the company was insolvent. With the August 4, 2014 earnings release
and its updated financials, the company presented tangible equity of just $21,000
upon which rested an extraordinary market capitalization of approximately $1.1
billion.

Brooks Aff. Ex. 23 at 2 (emphasis in original).

68. As part of his discussion of the bond offering in the August 22 Report, Fr.

Emmanuel wrote:

On August 18 [2014], Ligand filed a form 8-K with the Securities and Exchange
Commission (SEC) revealing that the company had issued $245 million in new
debt against the company’s tangible equity of jut $21,000, giving rise to a debt to
tangible equity ratio of 11,667-to-1 (that is to say, $11,667 dollars in debt for
every $1 dollar in tangible common shareholder equity).

Brooks Aff. Ex. 24 at 3.

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69. Fr. Emmanuel concluded his analysis of the bond offering in the August 22

Report as follows:

There is no question that the cost of this preferential treatment of a few large
Ligand shareholders at the expense of remaining investors places a burden on
Ligand and its shareholders that is both unsustainable and further deepens the
company’s insolvency and likelihood of liquidation or reorganization under
Chapter 7 or Chapter 11 of the bankruptcy code under which remaining Ligand
common shareholders have only the protection of $21,000 in tangible equity to
shield them from $245 million in debt.

Brooks Aff. Ex. 24 at 6.

70. In its original Complaint, the Commission alleged Fr. Emmanuel’s calculation

was wrong, because it failed to include the cash from the loan proceeds as part of shareholder

tangible equity. See Brooks Aff. Ex. 16 ¶ 52.

71. The Commission has not presented any accounting principle that would support

this theory. Brooks Aff. Ex. 25 at 42:11-18.

72. This Court dismissed the claim that Fr. Emmanuel’s calculation was wrong from

the original Complaint, with leave to the Commission to replead it. Brooks Aff. Ex. 26 at 4-5.

73. The Commission amended the allegation to allege that the calculation is false, but

that despite being true, it is misleading. Brooks Aff. Ex. 7 ¶ 52.

74. In presenting this calculation, Fr. Emmanuel explained that he excluded Ligand’s

intangible assets from his calculation and was comparing just Ligand’s tangible equity to its

debts. Brooks Aff. Ex. 24 at 3.

75. Fr. Emmanuel disclosed the numbers he used in making his calculation in his

reports. Specifically, Fr. Emmanuel’s August 14, 2014 report, citing Ligand’s Q2 financial

report, noted that Ligand reported just $21,000 in tangible equity. Brooks Aff. Ex. 23 at 2. Fr.

Emmanuel’s August 22, 2014 report, citing Ligand’s August 18, 2014 8K filing, noted that

Ligand reported issuing $245 million in new debt. Brooks Aff. Ex. 24 at 3. Dividing the
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reported debt of $245 million by the $21,000 in reported tangible equity yields a ratio of 11,667

to 1, as stated in Fr. Emmanuel’s August 22, 2014 report. Brooks Aff. Ex. 24 at 3.

76. No witness has challenged the accuracy of this calculation. Brooks Aff. Ex. 25 at

31:6-11.

77. Internal Ligand emails, dated September 19, 2014, reflected that Ligand

understood this calculation based on reading the reports. Specifically, Todd Pettingill corrected

a PowerPoint presentation regarding Fr. Emmanuel’s statement that originally alleged Fr.

Emmanuel incorrectly stated Ligand had $21,000 in cash assets to properly acknowledge that Fr.

Emmanuel stated Ligand had $21,000 in tangible equity. Brooks Aff. Ex. 27 at

LGND_0047298.

78. At depositions, Ligand representatives did not challenge the calculation itself, but

stated that the metric of a debt-to-tangible equity was not a traditional metric used to evaluate the

value of a security. Brooks Aff. Ex. 21 at 116:20-24; Brooks Aff. Ex. 18 at 82:12-83:7, 84:19-

85:16, 103:2-104:1.

79. The SEC alleged that “Lemelson thus compared an apple (“tangible equity,”

which omitted existing intangible assets) to an orange (the full amount of the new debt, ignoring

the cash proceeds of the issuance) at two different points in time to concoct a ratio that looks

really bad (11,667 dollars of debt for every dollar of shareholder equity) but has no bearing on

the actual financial wherewithal of the Company. Brooks Aff. Ex. 7 ¶ 52.

80. In prior published opinions, Fr. Emmanuel disregarded or diminished the value of

intangible assets in valuating companies. Lemelson Aff. ¶ 6.

81. For example, In discussing his short position in World Wrestling Entertainment in

March 2014, Fr. Emmanuel wrote, “Intangible assets (the kind you can’t sell easily when things

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turn south) increased from roughly 100 k in 2010 to just under 27 M in 2013, an increase of 268

fold in 3 years – these ‘ghost assets’ of course can bolster a balance sheet nicely. . . . Current

price exceeds tangible book by a factor of nearly 10x.” Brooks Aff. Ex. 28 at 11.

82. As another example, in Fr. Emmanuel’s published analysis of his long position in

Geospace Technologies, he noted multiple times that he believed Geospace was undervalued

because of its significant tangible assets, stating: “Given the extraordinary volatility in revenues

and earnings from year to year, it is a more sound approach to focus on the tangible assets

buttressing the share price as consideration for the margin of safety in the commitment. . . .”

Brooks Aff. Ex. 29 at 6.

III. Negative Commentary About Ligand Between June and August 2014 From Other
Securities Analysts

83. On July 22 and August 5, 2014, an entity called Empire Asset Management issued

two reports concerning Ligand. Brooks Aff. Ex. 30; Brooks Aff. Ex. 31.

84. On July 22, 2014, Ligand’s stock price decreased by approximately 4.5%. Brooks

Aff. Ex. 14 at 30.

85. On August 5, 2014, Ligand’s stock price decreased by more than 2%. Brooks

Aff. Ex. 14 at 30.

86. On July 15, 2014, Federal Reserve Chair Janet Yellen made statements about

valuations of biotech stocks being “substantially stretched.” Brooks Aff. Ex. 32 at 20.

87. On that date, Ligand’s stock price fell by more than 4.5%. Brooks Aff. Ex. 14 at

30-31.

88. Internal emails at Ligand reflect that Ligand personnel believed that Ms. Yellen’s

statements may have been the cause of negative movement in Ligand’s stock. Brooks Aff. Ex.

33 at LGND_0000052.

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IV. Timeline of Fr. Emmanuel Covering His Short Position

89. The chart below reflects the relevant dates from June-October 2014 on which Fr.

Emmanuel took and covered short positions on Ligand:

Date # of Shares Covered Total Short Position


(If Applicable)
June 16, 2014 0 68,528
June 19, 2014 4,050 64,478
July 3, 2014 0 65,556
Aug. 4, 2014 0 65,736
Aug. 13, 2014 0 65,736
Aug. 22, 2014 30,729 35,007
Aug. 26, 2014 3,500 31,507
Sept. 16, 2014 0 31,507
Oct. 10, 2014 14,673 16,834
Oct. 13, 2014 16,717 (net) 117

Brooks Aff. Ex. 34.

V. Ligand’s Requests to the Commission to Investigate Fr. Emmanuel

90. Ligand never made a public statement contesting or correcting any of Fr.

Emmanuel’s statements that are now being challenged by the Commission.

91. NASDAQ Rule IM-5250-1 states in pertinent part: “In certain circumstances, it

may also be appropriate to publicly deny false or inaccurate rumors, which are likely to have, or

have had, an effect on the trading in its securities or would likely have an influence on

investment decisions.” Brooks Aff. Ex. 35.

92. Ligand representatives testified that they decided not to issue any such statement

because they viewed Fr. Emmanuel as too marginal of a voice. Brooks Aff. Ex. 10 at 228:15-22;

Brooks Aff. Ex. 18 at 53:20-54:16; Brooks Aff. Ex. 21 at 99:23-100:16.

93. Ligand initially engaged Latham & Watkins as legal counsel and met with the

Commission’s Boston regional office on September 25, 2014. Brooks Aff. Ex. 21 at 212:9-

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213:7; Brooks Aff. Ex. 10 at 274:3-12; Brooks Aff. Ex. 17 at 98:11-99:21; Brooks Aff. Ex. 36 at

LGND_0080678.

94. The purpose of the September 25, 2014 meeting between the Commission and

Ligand (being represented by Latham & Watkins) was for Ligand to convince the Commission to

investigate and bring an enforcement action against Fr. Emmanuel. Brooks Aff. Ex. 36 at

LGND_0080737.

95. Ligand submitted a PowerPoint presentation to the Commission at this September

25, 2014 meeting. Brooks Aff. Ex. 36 at LGND_0080678.

96. Among the allegations in the September 25, 2014 PowerPoint, Ligand accused Fr.

Emmanuel of engaging in an “affinity fraud,” misrepresenting the performance of the Amvona

Fund, and that Fr. Emmanuel had a “questionable personal history.” Brooks Aff. Ex. 36 at

Brooks Aff. Ex. 36 at LGND_0080695; Brooks Aff. Ex. 36 at LGND_0080698-701; Brooks Aff.

Ex. 36 at LGND_0080703-04.

97. The September 25, 2014 PowerPoint did not reference the Commission’s

challenged statement by Fr. Emmanuel in the June 19, 2014 Benzinga interview. See Brooks

Aff. Ex. 36.

98. The September 25, 2014 PowerPoint did not reference either of the statements

about Viking on July 3, 2014 that the Commission is challenging in this litigation. See Brooks

Aff. Ex. 36.

99. The September 25, 2014 PowerPoint from Ligand mentioned Fr. Emmanuel’s

statement about Ligand’s debt to tangible equity ratio, but claimed it was incorrect because the

calculation did not include the cash proceeds from the loan. Brooks Aff. Ex. 36 at

LGND_0080713.

16
Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 17 of 22

100. The September 25, 2014 PowerPoint did not mention the Empire reports

published on July 22 and August 5, 2014. See Brooks Aff. Ex. 36.

101. The September 25, 2014 PowerPoint did not mention Ligand’s historically

volatile stock prices. See Brooks Aff. Ex. 36.

102. Ligand’s own financial disclosures identifies its historically volatile stock prices

as an area of concern. Brooks Aff. Ex. 37 at 45.

103. Ligand’s stock price dropped as much as 30% between March 2014 and April

2014. Brooks Aff. Ex. 14 at 32-33.

104. Sometime after the September 25, 2014 meeting, the Commission’s Boston

regional office informed Ligand that it would not be opening an investigation concerning Fr.

Emmanuel. Brooks Aff. Ex. 25 at 64:3-65:3.

105. Following the September 25, 2014 meeting, Ligand changed counsel to Bradley

Bondi of Cahill Gordon. Brooks Aff. Ex. 17 at 108:2-109:20; Brooks Aff. Ex. 21 at 254:11-

255:10; Brooks Aff. Ex. 10 at 287:22-288:6.

106. Bradley Bondi used to work for the Commission. See Brooks Aff. Ex. 38.

107. Bradley Bondi contacted a former colleague at the Commission and scheduled a

second meeting between Ligand and the Commission’s Washington, D.C. regional office on

June 8, 2015. Brooks Aff. Ex. 39 at E-PROD-SEC-LIT-E-001189144-47.

108. Ligand submitted a PowerPoint presentation to the Commission at this June 8,

2015 meeting. Brooks Aff. Ex. 40.

109. The purpose of the June 8, 2015 meeting between the Commission and Ligand

(being represented by Cahill Gordon) was for Ligand to convince the Commission to investigate

and bring an enforcement action against Fr. Emmanuel. Brooks Aff. Ex. 40 at LGND_0080797

17
Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 18 of 22

110. Among the allegations in the June 8, 2015 PowerPoint, Ligand accused Fr.

Emmanuel of engaging in an “affinity fraud,” misrepresenting the performance of the Amvona

Fund, and that Fr. Emmanuel had a “questionable personal history.” Brooks Aff. Ex. 40 at

LGND_0080752-55.

111. The June 8, 2015 PowerPoint only referenced the Commission’s challenged

statement by Fr. Emmanuel in the June 19, 2014 Benzinga interview on one slide. Brooks Aff.

Ex. 40 at LGND_0080771.

112. The June 8, 2015 PowerPoint did not reference either of the statements about

Viking on July 3, 2014 that the Commission is challenging in this litigation. See Brooks Aff. Ex.

40.

113. The June 8, 2015 PowerPoint from Ligand mentioned Fr. Emmanuel’s statement

about Ligand’s debt to tangible equity ratio, but claimed it was incorrect because the calculation

did not include the cash proceeds from the loan. Brooks Aff. Ex. 40 at LGND_0080788.

114. The June 8, 2015 PowerPoint did not mention the Empire reports published on

July 22 and August 5, 2014. See Brooks Aff. Ex. 40.

115. The June 8, 2015 PowerPoint did not mention Ligand’s historically volatile stock

prices. See Brooks Aff. Ex. 40.

116. The June 8, 2015 PowerPoint identified four periods of time that it claimed Fr.

Emmanuel’s reports caused Ligand’s stock price to decrease. These time periods were: (1) June

16, 2014 to June 24, 2014; (2) July 13, 2014 to July 17, 2014; (3) August 7, 2014; and (4)

August 22, 2014 to August 25, 2014. Brooks Aff. Ex. 40 at LGND_0080763.

V. The Commission’s Complaint

18
Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 19 of 22

117. The Commission filed its original Complaint on September 12, 2018. Brooks

Aff. Ex. 16.

118. The Commission filed its Amended Complaint on March 21, 2019. Brooks Aff.

Ex. 7.

119. The Commission has alleged that Fr. Emmanuel made four misstatements in

violation of Rule 10b-5. See Brooks Aff. Ex. 8 at 2-4; Brooks Aff. Ex. 7 ¶¶ 36-53.

120. The Commission has also alleged a scheme liability theory. Brooks Aff. Ex. 7 ¶¶

58-59.

121. At oral argument, the Commission conceded that they do not have much alleged

behavior beyond the four alleged misstatements to support its scheme liability theory. Brooks

Aff. Ex. 41 at 24:13-25:8.

122. The Commission has also alleged violations of the Investment Advisers Act on

the theory that Fr. Emmanuel did not disclose his alleged misstatements in violation of Rule 10b-

5 to his investors. Brooks Aff. Ex. 7 ¶¶ 63-67.

123. Based on the discovery responses provided by the Commission, it does not appear

the Commission interviewed any of Fr. Emmanuel’s investors prior to filing this claim. Brooks

Aff. ¶ 45.

VI. The Commission Failed to Produce the Expert Evidence Required to Support Its
Market-Manipulation Claim

124. Defendants sought discovery from the Commission seeking any evidence it had

that Fr. Emmanuel’s alleged misstatements caused Ligand’s stock to drop. Brooks Aff. Exs. 42-

43.

125. Specifically, on June 13, 2019, Defendants served the Commission with its First

Set of Interrogatories. Interrogatory No. 3 requested the Commission:

19
Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 20 of 22

State the basis for Your contention that Defendants’ statements influenced or
otherwise impacted the stock price for Ligand, including but not limited to (i) a
detailed description of all data sources and other materials You considered, and (ii)
each alternative cause, influence, or reason for the decline in Ligand’s stock price that
You considered, analyzed, and/or reviewed with a detailed explanation for how you
ruled out that alternative form of causation.

Brooks Aff. Ex. 42 at 4.

126. The Commission objected to this Interrogatory, stating, inter alia, it was “a

premature request for matter that may be the subject of expert testimony.” Brooks Aff. Ex. 44 at

11.

127. Defendants also served the Commission with its First Set of Requests for

Production of Documents on June 13, 2019. Request Nos. 20-21 sought: “All Documents or

Communications relating, concerning, or supporting the position that Fr. Lemelson’s statements

listed in [paragraphs 36 through 50] of the Amended Complaint caused any changes in the price

of Ligand’s stock.” Brooks Aff. Ex. 43 at 5.

128. The Commission objected to these document requests, stating, inter alia, it was “a

premature request for matter that may be the subject of expert testimony.” Brooks Aff. Ex. 45 at

12-13.

129. The Commission did not serve any affirmative expert report. Brooks Aff. ¶ 50.

130. On January 17, 2020, Defendants served the Commission their expert report of

Aaron Dolgoff. Brooks Aff. ¶ 51.

131. On February 28, 2020, the Commission served the Defendants its rebuttal expert

report of Erin Smith. Brooks Aff. ¶ 52.

132. The experts agreed that Ligand traded in an efficient market. Brooks Aff. ¶ 53.

133. The experts also agreed that there was no statistically significant evidence that Fr.

Emmanuel’s statement about the debt to tangible equity ratio, which is the Commission’s fourth

20
Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 21 of 22

alleged misstatement in this case, had any material impact on Ligand’s stock price. Brooks Aff.

¶ 54.

VII. Evidence Regarding Fr. Emmanuel’s Subjective Belief in the Veracity of His
Opinions

134. Fr. Emmanuel has testified consistently that he believed in the veracity of his

opinions when he published them. Brooks Aff. Ex. 1 at 296:8-22; Brooks Aff. Ex. 46 at 391:2-

21; Brooks Aff. Ex. 47 at 772:24-773:2, 774:19-775:2.

135. Fr. Emmanuel produced his entire hard drive to the Commission in this case,

including all communications with counsel to aid in the Commission’s investigation. Brooks

Aff. Ex. 1 at 16:2-19:20; Brooks Aff. Ex. 5 at 106:11-25, 328:2-9; Brooks Aff. Ex. 48 at 51:10-

52:2, 153:8-154:9.

136. There is no document in Fr. Emmanuel’s hard drive that indicates Fr. Emmanuel

did not believe in the veracity of his opinions when he published them.

137. Fr. Emmanuel worked with an editor, Michael Johns, on the five reports

published regarding Ligand. Brooks Aff. Ex. 49 at 27:18-29:10, 49:5-50:1, 55:22-56:21, 64:11-

13.

138. Mr. Johns testified that Fr. Emmanuel believed in the veracity of his opinions

when he published them. Brooks Aff. Ex. 49 at 30:9-24, 59:24-60:21, 115:14-116:10, 117:4-15.

139. Dr. Nicholas Jabbour is Fr. Emmanuel’s largest and longest-standing investor.

Brooks Aff. Ex. 50 at 29:20-23; 34:5-19

140. Dr. Jabbour testified at deposition that he never had any concern about Fr.

Emmanuel’s candor or truthfulness. Brooks Aff. Ex. 50 at 112:23-113:4.

21
Case 1:18-cv-11926-PBS Document 126 Filed 09/30/20 Page 22 of 22

141. Dr. Jabbour testified that based on his own analysis of Promacta and the market in

2014, he agreed with Fr. Emmanuel’s thesis that Promacta was going away. Brooks Aff. Ex. 50

at 85:1-23.

Respectfully Submitted,

REV. FR. EMMANUEL LEMELSON,


LEMELSON CAPITAL MANAGEMENT,
LLC, and THE AMVONA FUND, LP

By: /s/ Douglas S. Brooks


Douglas S. Brooks (BBO No. 636697)
Brian J. Sullivan (BBO No. 676186)
LIBBYHOOPES, P.C.
399 Boylston Street
Boston, MA 02116
Tel.: (617)-338-9300
dbrooks@libbyhoopes.com
bsullivan@libbyhoopes.com

Dated: September 30, 2020

CERTIFICATE OF SERVICE

I hereby certify that this document filed through the ECF system will be sent
electronically to the registered participants as identified on the Notice of Electronic Filing (NEF)
and paper copies will be sent to those indicated as non-participants on September 30, 2020.

/s/ Douglas S. Brooks


Douglas S. Brooks

22
Case 1:18-cv-11926-PBS Document 127 Filed 09/30/20 Page 1 of 9

UNITED STATES DISTRICT COURT


FOR THE DISTRICT OF MASSACHUSETTS

)
SECURITIES AND EXCHANGE COMMISSION, )
)
Plaintiff, )
)
v. )
)
GREGORY LEMELSON and LEMELSON CAPITAL )
MANAGEMENT, LLC, ) Civil Action No. 1:18-cv-11926-PBS
)
Defendants, )
)
and )
)
THE AMVONA FUND, LP, )
)
Relief Defendant )
)

AFFIDAVIT OF DOUGLAS S. BROOKS IN SUPPORT OF DEFENDANTS’


MOTION FOR SUMMARY JUDGMENT

I, Douglas S. Brooks, hereby swear and declare as follows:

1. I am a member in good standing of the Bar of the Commonwealth of

Massachusetts and am counsel to Defendants Rev. Fr. Emmanuel Lemelson (identified in the

Complaint as “Gregory Lemelson”) and Lemelson Capital Management, LLC, and Relief

Defendant The Amvona Fund, LP.

2. Attached hereto as Exhibit 1 is a true and correct copy of selected excerpts from

the July 20, 2016 Deposition Transcript of Fr. Emmanuel Lemelson.

3. Attached hereto as Exhibit 2 is a true and correct copy of “Lemelson Capital

Management announces 10 percent stake in Geospace Technologies (NASDAQ:GEOS), urges

immediate share repurchase,” published by Lemelson Capital Management on December 1,

2017.
Case 1:18-cv-11926-PBS Document 127 Filed 09/30/20 Page 2 of 9

4. Attached hereto as Exhibit 3 is a true and correct copy of “Lemelson Capital

Management announces stake in World Wrestling Entertainment (WWE) and calls on Board to

Pursue New Management or Ownership,” published by Lemelson Capital Management on May

17, 2014.

5. Attached hereto as Exhibit 4 is a true and correct copy of “Update: The Short

Case for World Wrestling Entertainment,” published by Lemelson Capital Management on April

8, 2014.

6. Attached hereto as Exhibit 5 is a true and correct copy of selected excerpts from

the October 16, 2019 Deposition Transcript of Fr. Emmanuel Lemelson.

7. Attached hereto as Exhibit 6 is a true and correct copy of “Ligand

Pharmaceuticals (NASDAQ:LGND) – Severe competitive threat to key royalty program and

‘going concern’ risk drive 100 percent downside,” published by Lemelson Capital Management

on June 16, 2014.

8. Attached hereto as Exhibit 7 is a true and correct copy of Plaintiff’s Amended

Complaint, ECF No. 33.

9. Attached hereto as Exhibit 8 is a true and correct copy of Plaintiff’s Opposition to

Defendants’ Motion to Dismiss Dkt. No. 16.

10. Attached hereto as Exhibit 9 is a true and correct copy of a June 17, 2014 email

exchange between Bruce Voss, John Higgins, and Matt Foehr produced in this litigation at

Bates-pages EPROD-SEC-LIT-E-000000940-42.

11. Attached hereto as Exhibit 10 is a true and correct copy of selected excerpts from

the December 3, 2019 Deposition Transcript of Bruce Voss.

2
Case 1:18-cv-11926-PBS Document 127 Filed 09/30/20 Page 3 of 9

12. Attached hereto as Exhibit 11 is a true and correct copy of Bruce Voss’

handwritten notes from the June 18, 2014 phone call between Mr. Voss and Fr. Emmanuel

produced in this litigation at EPROD-SEC-LIT-E-00000085.

13. Attached hereto as Exhibit 12 is a true and accurate copy of Fr. Emmanuel’s notes

of his conversation with Ligand’s IR firm representative, Bruce Voss, which were produced at

EPROD-SEC-LIT-E-00589566-67, as well as a printout of the associated metadata with the

document. The metadata reflects that the document was created on June 18, 2014.

14. Attached hereto as Exhibit 13 is a true and accurate copy of a June 20, 2014 email

exchange between Bruce Voss, Matthew Foehr, and John Higgins produced in this litigation at

Bates-pages EPROD-SEC-LIT-E-000000407-EPROD-SEC-LIT-E-000000408.

15. Father Emmanuel’s June 19, 2014 pre-market interview with Benzinga is

available at https://www.youtube.com/watch?v=P6ucSfDnO24. The entire length of the

interview is 21 minutes, 40 seconds. The interview first mentions Father Emmanuel’s short

position in Ligand at the 14 minute, 40 second mark in the interview. At the 16-minute mark in

the interview, Father Emmanuel initially stated that he spoke with Ligand and then he corrected

himself to state that he had spoken to Ligand’s IR firm the day before the interview and they

“basically agreed” that they understood Promacta was going away. The discussion regarding

Ligand ended at approximately the 19 minute, 30 second mark in the interview.

16. Attached hereto as Exhibit 14 is a true and accurate printout of the historical stock

prices of Ligand Pharmaceuticals, Inc. (LGND) for 2014. This data was taken from the

NASDAQ historical data available at https://www.nasdaq.com/market-

activity/stocks/lgnd/historical.

3
Case 1:18-cv-11926-PBS Document 127 Filed 09/30/20 Page 4 of 9

17. Attached hereto as Exhibit 15 is a true and correct copy of “Ligand

Pharmaceuticals (NASDAQ: LGND): Appendix Lemelson Capital further increases short stake

and reaffirms100% downside risk in Ligand Pharmaceuticals (NASDAQ:LGND), ancillary

applications for Promacta and Kyprolis not commercially viable, Duavee sales remain

immaterial,” published by Lemelson Capital Management on July 3, 2014.

18. Attached hereto as Exhibit 16 is a true and correct copy of Plaintiff’s Original

Complaint, ECF No. 1.

19. Attached hereto as Exhibit 17 is a true and correct copy of selected excerpts from

the December 5, 2019 Deposition Transcript of Matthew Foehr.

20. Attached hereto as Exhibit 18 is a true and correct copy of selected excerpts from

the December 12, 2019 Deposition Transcript of Todd Pettingill.

21. Attached hereto as Exhibit 19 is a true and correct copy of excerpts of Viking

Therapeutics, Inc.’s Form S-1 Registration Statement filed with the United States Securities and

Exchange Commission as filed on July 1, 2014.

22. The term “unaudited” appears 56 times in Viking’s S-1, while the term “audited”

appears seven times.

23. Attached hereto as Exhibit 20 is a true and correct copy of selected excerpts from

the December 12, 2019 Deposition Transcript of Brian Lian.

24. Attached hereto as Exhibit 21 is a true and correct copy of selected excerpts from

the December 11, 2019 Deposition Transcript of John Higgins.

25. Attached hereto as Exhibit 22 is a true and correct copy of “Update: Lemelson

Capital Further Increases Short Stake in Ligand Pharmaceuticals (NASDAQ: LGND) as LGND

4
Case 1:18-cv-11926-PBS Document 127 Filed 09/30/20 Page 5 of 9

EPS Plunges 76 percent in Q2 2014,” published by Lemelson Capital Management on August 4,

2014.

26. Attached hereto as Exhibit 23 is a true and correct copy of “Lemelson Capital

Says Ligand Pharmaceuticals’ (NASDAQ: LGND) $225M Debt Issuance Solidifies Company’s

Insolvency, Substantially Raises Specter of Bankruptcy,” published by Lemelson Capital

Management on August 14, 2014.

27. Attached hereto as Exhibit 24 is a true and correct copy of “Ligand

Pharmaceuticals (NASDAQ: LGND): Institutional holders wasting no time dumping stock in

response to mounting insolvency and bankruptcy risks,” published by Lemelson Capital

Management on August 22, 2014.

28. Attached hereto as Exhibit 25 is a true and correct copy of selected excerpts from

the August 6, 2020 Deposition Transcript of David Becker, representative of the Securities and

Exchange Commission Pursuant to Rule 30(b)(6) of the Federal Rules of Civil Procedure.

29. Attached hereto as Exhibit 26 is a true and correct copy of this Court’s

Memorandum and Order on Defendants’ Motion to Dismiss, ECF No. 29.

30. Attached hereto as Exhibit 27 is a true and correct copy of a September 19, 2014

email exchange between Todd Pettingill and Nishan de Silva produced in this litigation at Bates-

pages LGND_0047298-99.

31. Attached hereto as Exhibit 28 is a true and correct copy of “The Short Case for

World Wrestling Entertainment,” published on March 17, 2014.

32. Attached hereto as Exhibit 29 is a true and correct copy of “Excerpt From The

Amvona Fund, LP’s 2015 Annual Report On Geospace Technologies,” published on March 26,

2016.

5
Case 1:18-cv-11926-PBS Document 127 Filed 09/30/20 Page 6 of 9

33. Attached hereto as Exhibit 30 is a true and correct copy of the report titled

“Ligand Pharmaceuticals Incorporated (LGND) ‘If something cannot go on forever, it will stop.’

Initiating Coverage with a Sell, $16.00 Price Target” published by Empire Asset Management

Company on July 22, 2014.

34. Attached hereto as Exhibit 31 is a true and correct copy of the report titled

“Ligand Pharmaceuticals Incorporated (LGND) 2Q2014 Results: Maintain our $16.00 Price

Target” published by Empire Asset Management Company on August 5, 2014.

35. Attached hereto as Exhibit 32 is a true and correct copy of an excerpt from the

“Monetary Policy Report” published by the Board of Governors of the Federal Reserve System

on July 15, 2014.

36. Attached hereto as Exhibit 33 is a true and correct copy of a July 7, 2014 to July

20, 2014 email exchange produced in this litigation at Bates-pages LGND_0000051-53.

37. Attached hereto as Exhibit 34 is a true and correct redacted copy of excerpts of

BTIG Statements that include information on Fr. Emmanuel’s short transactions regarding

Ligand from June 2014 through October 2014.

38. Attached hereto as Exhibit 35 is a true and correct copy of NASDAQ Rule IM

5250-1. The rules are available publicly at

https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-5000#nasdaq-rule_5200.

39. Attached hereto as Exhibit 36 is a true and correct copy of Ligand’s PowerPoint

presentation to the Securities and Exchange Commission titled “Ligand Presentation to the

SEC,” dated September 25, 2014, produced in this litigation at Bates-pages LGND_0080678-

737.

6
Case 1:18-cv-11926-PBS Document 127 Filed 09/30/20 Page 7 of 9

40. Attached hereto as Exhibit 37 is a true and correct copy of excerpts from Ligand

Pharmaceuticals Incorporated’s Form 10-Q filed with the United States Securities and Exchange

Commission on August 5, 2014.

41. Attached hereto as Exhibit 38 is a true and correct copy of Bradley J. Bondi’s

Wikipedia page available at https://en.wikipedia.org/wiki/Bradley_J._Bondi. Under the section

titled “Government Service” it states that Mr. Bondi “served three years on the executive staff of

the Securities and Exchange Commission, working as counsel for enforcement actions and

regulatory rule-making to Commissioners Paul S. Atkins and Troy Paredes, the former of whom

Bondi has co-authored op-eds and journal articles on regulatory policy and securities law.”

42. Attached hereto as Exhibit 39 is a true and correct copy of an email exchange

between Bradley Bondi and Scott Friestad of the Securities and Exchange Commission between

May 18, 2015 and May 21, 2015, produced in this litigation at Bates-pages EPROD-SEC-LIT-E-

001189144-47.

43. Attached hereto as Exhibit 40 is a true and correct copy of a PowerPoint

presentation titled “Ligand Presentation to the SEC,” dated June 8, 2015, produced in this

litigation at Bates-pages LGND_0080738 - LGND_0080799.

44. Attached hereto as Exhibit 41 is a true and correct copy of selected excerpts from

the December 6, 2018 Transcript of Motion to Dismiss Hearing in the above-captioned matter.

45. Based on my review of all the materials the Commission has produced in

discovery in this matter, it does not appear that the Commission interviewed any of Fr.

Emmanuel’s investors prior to filing its Complaint on September 12, 2018.

46. Attached hereto as Exhibit 42 is a true and correct copy of excerpts from

Defendants’ First Set of Interrogatories to the Commission, served on June 13, 2019.

7
Case 1:18-cv-11926-PBS Document 127 Filed 09/30/20 Page 8 of 9

47. Attached hereto as Exhibit 43 is a true and correct copy of excerpts from

Defendants’ First Set of Requests for Production of Documents to the Commission, served on

June 13, 2019.

48. Attached hereto as Exhibit 44 is a true and correct copy of excerpts from the

Commission’s Responses and Objections to Defendants’ First Set of Interrogatories to the

Commission, served on July 24, 2019.

49. Attached hereto as Exhibit 45 is a true and correct copy of excerpts from the

Commission’s Responses and Objections to Defendants’ First Set of Requests for Production of

Documents to the Commission, served on July 24, 2019.

50. The Commission did not serve an affirmative expert report in this matter.

51. On January 17, 2020, Defendants served the Commission their expert report of

Aaron Dolgoff.

52. On February 28, 2020, the Commission served the Defendants its rebuttal expert

report of Erin Smith.

53. The experts agreed that Ligand traded in an efficient market.

54. The experts also agreed that there was no evidence that Fr. Emmanuel’s statement

about the debt to tangible equity ratio, which is the Commission’s fourth alleged misstatement in

this case, had any material impact on Ligand’s stock price.

55. Attached hereto as Exhibit 46 is a true and correct copy of selected excerpts from

the July 21, 2016 Deposition Transcript of Fr. Emmanuel Lemelson.

56. Attached hereto as Exhibit 47 is a true and correct copy of selected excerpts from

the July 22, 2016 Deposition Transcript of Fr. Emmanuel Lemelson.

8
Case 1:18-cv-11926-PBS Document 127 Filed 09/30/20 Page 9 of 9

57. Attached hereto as Exhibit 48 is a true and correct copy of selected excerpts from

the November 12, 2019 Deposition Transcript of Fr. Emmanuel Lemelson.

58. Attached hereto as Exhibit 49 is a true and correct copy of selected excerpts from

the November 20, 2019 Deposition Transcript of Michael Johns.

59. Attached hereto as Exhibit 50 is a true and correct copy of selected excerpts from

the November 18, 2019 Deposition Transcript of Nicolas Jabbour.

Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury under the laws of the

United State of America that the foregoing is true and correct.

Executed: September 30, 2020 /s/ Douglas S. Brooks


Douglas S. Brooks

CERTIFICATE OF SERVICE

I hereby certify that this document filed through the ECF system will be sent
electronically to the registered participants as identified on the Notice of Electronic Filing (NEF)
and paper copies will be sent to those indicated as non-participants on September 30, 2020.

/s/ Douglas S. Brooks


Douglas S. Brooks

9
Case 1:18-cv-11926-PBS Document 127-1 Filed 09/30/20 Page 1 of 13

Page 1
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION

In the Matter of: )


) File No. HO-12718-A
TRADING IN THE SECURITIES OF )
LIGAND PHARMACEUTICALS, INC. )

WITNESS: Gregory Lemelson


PAGES: 1 through 360
PLACE: Securities and Exchange Commission
100 F Street, NE
Washington, D.C.
DATE: Wednesday, July 20, 2016

The above-entitled matter came on for hearing,


pursuant to notice, at 9:25 a.m.

Diversified Reporting Services, Inc.


(202) 467-9200
Case 1:18-cv-11926-PBS Document 127-1 Filed 09/30/20 Page 2 of 13

Page 2
1 APPEARANCES:
2
3 On behalf of the Securities and Exchange Commission:
4 VIRGINIA M. ROSADO DESILETS, ESQ.
5 JEFFREY FINNELL, ESQ.
6 SONIA TORRICO, ESQ.
7 Securities and Exchange Commission
8 100 F Street Northeast
9 Washington, D.C. 20549
10 (202) 5510-4955
11
12 On behalf of the Witness:
13 DOUGLAS F. MacLEAN, ESQ.
14 Armor Compliance
15 22 Batterymarch Street
16 Boston, Massachusetts 02109
17 (617) 501-2055
18
19 ALSO PRESENT:
20 LUCY GAUTHIER, Intern
21
22
23
24
25
Case 1:18-cv-11926-PBS Document 127-1 Filed 09/30/20 Page 3 of 13

Page 3
1 C O N T E N T S
2
3 WITNESS EXAMINATION
4 Gregory Lemelson 5
5
6 EXHIBITS DESCRIPTION IDENTIFIED
7 1 Form 1662 7
8 2 Subpoena 8
9 3 Subpoena 15
10 4 Subpoena 15
11 5 Background Questionnaire 25
12 6 Fund Information 110
13 7 E-mail 120
14 8 E-mail 161
15 9 Report 198
16 10 Prequin Ranking 202
17 11 Barron Ranking 203
18 12 Barron Ranking 204
19 13 Barclays Ranking 206
20 14 Descriptions 246
21 15 Summary 261
22 16 Summary 262
23 17 Report 270
24 18 Report 271
25 19 Report 272
Case 1:18-cv-11926-PBS Document 127-1 Filed 09/30/20 Page 4 of 13

Page 4
1 C O N T E N T S (CONT.)
2
3 EXHIBITS DESCRIPTION IDENTIFIED
4 20 Report 274
5 21 Report 275
6 22 E-mail 287
7 23 E-mail 289
8 24 Article 349
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Case 1:18-cv-11926-PBS Document 127-1 Filed 09/30/20 Page 5 of 13

Page 5
1 P R O C E E D I N G S
2 MS. DESILETS: On the record at 9:25 a.m.
3 Can you raise your right hand, please. Do
4 you swear or affirm to tell the truth, the whole truth
5 and nothing but the truth?
6 THE WITNESS: I do.
7 Whereupon,
8 GREGORY LEMELSON
9 was called as a witness and, having been first duly
10 sworn, was examined and testified as follows:
11 EXAMINATION
12 BY MS. DESILETS:
13 Q Please state and spell your full name for
14 the record.
15 A My legal name is Gregory M. Lemelson, but
16 I'm referred to as Father Emmanuel Lemelson, which is
17 my ecclesiastical name or baptismal name.
18 Q You can put your hand down.
19 A Oh, sorry.
20 Q So would you prefer it if we refer to you as
21 Father Lemelson today?
22 A Father Emmanuel.
23 Q My name is Virginia Rosado Desilets. This
24 is Sonia Torrico, and this is Lucy Gauthier.
25 MS. DESILETS: Did I pronounce that right?
Case 1:18-cv-11926-PBS Document 127-1 Filed 09/30/20 Page 6 of 13

Page 16
1 I think, and received on September 1st.
2 Q Have you produced documents to the staff
3 pursuant to the requests in Exhibits 2 through 4 in
4 this later subpoena that we marked earlier?
5 A Yeah, I believe I produced everything that's
6 responsive. If there were any exceptions, I think I
7 noted them in my responses. Sometimes it was
8 difficult to ferret out relevant e-mails, but I think
9 we gave you the entire .pst files from Outlook.
10 Q Have you withheld any documents on the
11 grounds of attorney-client privilege or any other
12 privilege?
13 A No, I think we waived the attorney-client
14 privilege.
15 Q You knowingly and willingly waived the
16 protections of the attorney-client privilege by
17 producing privileged attorney-client communications to
18 us?
19 A I believe we did.
20 Q Can you describe the search that was
21 conducted for the subpoena documents?
22 A You mean like on my computer?
23 Q Did you look anywhere other than your
24 computer for responsive documents?
25 A Well, I -- I have pretty much digital copies
Case 1:18-cv-11926-PBS Document 127-1 Filed 09/30/20 Page 7 of 13

Page 17
1 of everything nowadays, so I don't think I did. I
2 mean anything that's a hard copy would have existed on
3 my Cloud drive or on my hard drive.
4 But to my recollection, it was pretty easy
5 to put together the subpoena materials because my
6 files are fairly organized. And then I just used a
7 search feature in Outlook to search for e-mails, but
8 it became clear it was difficult to move such a large
9 quantity of e-mails. So I asked Doug to just give you
10 the entire folders of the e-mails. Make the .pst
11 files, the data files, which were, I believe, 8 or 9
12 gigabytes or something like that.
13 Q So on your computer -- which computer was
14 this that the documents were on?
15 A My home office.
16 Q Your home office computer?
17 A Yeah.
18 Q And that's the one that you use for all of
19 your Lemelson Capital Management and Amvona Fund
20 business?
21 A That's right.
22 Q And you have folders on that desktop that
23 were organized by topic?
24 A That's right.
25 Q Did you review all of the folders that you
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Page 18
1 thought might have documents responsive to the
2 subpoenas?
3 A Yes.
4 Q And you provided any documents that you
5 thought might be responsive to the subpoenas?
6 A Yes. If there were exceptions, I believe I
7 noted them. For example, in the second subpoena,
8 there was a lot to reference to correspondence
9 regarding the word "SEC," so there was no easy way to
10 figure out -- to eliminate word fragments. So -- but
11 I think, you know, I spot-checked everything I
12 provided -- I mean I didn't read everything I gave
13 you. I just gave it to you wholesale. But I believe
14 mostly everything that is responsive -- it's possible
15 that there are some things that might have had the
16 word "SEC" in it, but chances are it's in an e-mail
17 chain. So I'm sure there's a lot of duplicates
18 because of the e-mail chain format Outlook uses.
19 Q With respect to your initial production, you
20 provided the .pst of your full e-mail account?
21 A I believe so, yes.
22 Q And which e-mail account was that?
23 A It was on my business e-mail accounts.
24 Q Which e-mail addresses are those?
25 A It should be el@lemelsoncapital.com. There
Case 1:18-cv-11926-PBS Document 127-1 Filed 09/30/20 Page 9 of 13

Page 19
1 should be -- there might be some legacy e-mails from
2 gml@lemelsoncapital.com. Could involve the e-mail
3 address cc@lemelsoncapital.com. There could have been
4 e-mails sent from my personal e-mail account,
5 elemelson@outlook.com. I think that's all of them.
6 Q And did you produce the full .pst for each
7 of those accounts?
8 A Well, the way my Outlook is set up is that
9 so anytime someone e-mails me, it goes into my general
10 in box, and then I file everything in folders in
11 Outlook. So everything related to business in the
12 business .pst file I gave you. I have nothing -- so
13 my personal folders would only have things about my
14 personal life, like vendors or electric company or
15 something like that.
16 Q And do you file your sent items as well as
17 received items?
18 A I don't file the sent. They're in the sent
19 folder, but I never delete them either, so they should
20 all be in the .pst file.
21 Q Do you produce the sent items as well as the
22 business folder?
23 A They should all be in the .pst file, yeah.
24 They should all be in the file I gave you. I almost
25 never delete anything ever. I can't think of an
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Page 32
1 I consider myself, I'm referred to as a priest with a
2 lay vocation, and my lay vocation is as a securities
3 analyst and a fund manager.
4 Q Where are you employed in your lay vocation?
5 A In Lemelson Capital Management.
6 Q What is Lemelson Capital Management?
7 A It's the general partner of a fund called
8 the Amvona LP. It's a Massachusetts LLC.
9 Q How long -- did you found Lemelson Capital
10 Management?
11 A Yes, I helped to establish it.
12 Q When was that?
13 A 2012.
14 Q When you say you helped to establish it, who
15 else was involved?
16 A The attorney who helped set up it. His name
17 was Kevin Cott. Initially I was going to form the
18 entity also with my brother, but ultimately it didn't
19 work out that way. I mean my initial thought was to
20 form it, and then he was going to be involved, and
21 then he wasn't going to be involved, and then I just
22 moved forward on my own.
23 Q What is your brother's name?
24 A Jason.
25 Q What is his last name?
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Page 239
1 A Yes. I studied Merrick and GSK, Novartis,
2 their licensees. And then they have in-licensing
3 agreements with other partners. Some of them are
4 opaque.
5 For example, they have an agreement with a
6 company called Biotech Value Fund, which is not easy
7 to get to the bottom of, exactly, what the arrangement
8 is. But I try to read everything I can for all
9 related parties as well. So you build a competence
10 from reading these things, what is going on.
11 Q When did you first hear about Ligand?
12 A I remember very clearly I was sitting in my
13 driveway and I was reading on my iPad and I was
14 looking through some screeners and generally the
15 thought on my mind was that bubbles were being
16 created.
17 The market had been in an upward march for
18 five years, and I began to be of the opinion that it
19 was safer for my investors to be short than to be
20 long. Even though I had not done a lot of shorting,
21 the first issue we really shorted was World Wrestling
22 Entertainment.
23 And I was screening through companies that
24 had really very, very high statistics multiples,
25 things like Enterprise Value EBITDA or
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Page 296
1 I mean, I've been criticized before, going
2 back to 2010. I don't expect people to agree with
3 what I write. Probably a minority agree with what I
4 write. In fact, today I'm sure a minority of people,
5 probably less so after Valeant, but a minority of
6 people probably understand what I've been saying about
7 Ligand for the time being.
8 Q You were surprised that the price went down
9 after you released your negative research reports on
10 Ligand?
11 A I don't think they are negative. I think
12 that they're an accurate, factually accurate and
13 rationale recounting of the flaws I see in the
14 company.
15 Q You are not sure whether these reports are
16 negative about Ligand?
17 A Well, I think what they are doing is
18 negative. I think I'm recounting it and bringing it
19 to light in the reports.
20 Q In a negative light?
21 A I think in an accurate, truthful, and
22 rational light.
23 Q Do you have a negative view of Ligand?
24 A I do.
25 Q Do you think your reports reflect that
Case 1:18-cv-11926-PBS Document 127-1 Filed 09/30/20 Page 13 of 13

Page 359
1 PROOFREADER'S CERTIFICATE
2
3 In the Matter of: TRADING IN THE SECURITIES OF
4 LIGAND PHARMACEUTICALS, INC.
5 Witness: Emmanuel Lemelson
6 File Number: HO-12718-A
7 Date: July 20, 2016
8 Location: Washington, D.C.
9
10
11 This is to certify that I, Nicholas Wagner,
12 (the undersigned), do hereby swear and affirm
13 that the attached proceedings before the U.S.
14 Securities and Exchange Commission were held
15 according to the record and that this is the
16 original, complete, true and accurate transcript
17 that has been compared to the reporting or recording
18 accomplished at the hearing.
19
20
21
22 ____________________ ____________________
23 (Proofreader's Name) (Date)
24
25
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Case 1:18-cv-11926-PBS Document 127-5 Filed 09/30/20 Page 1 of 17

1 UNITED STATES DISTRICT COURT

2 DISTRICT OF MASSACHUSETTS

3 _______________________________
)
4 SECURITIES AND EXCHANGE )
COMMISSION, )
5 )
Plaintiff, )
6 ) Civil Action No.
v. ) 1:18-cv-11926-PBS
7 )
GREGORY LEMELSON and LEMELSON )
8 CAPITAL MANAGEMENT, LLC, )
)
9 Defendants, )
)
10 and )
)
11 THE AMVONA FUND, LP, )
)
12 Relief Defendant. )
_______________________________)
13

14 VOLUME 1

15 VIDEOTAPED DEPOSITION OF GREGORY (EMMANUEL)

16 LEMELSON, taken on behalf of the Plaintiff at the

17 U.S. Securities and Exchange Commission, 33 Arch

18 Street, Boston, Massachusetts, beginning at 9:35

19 a.m. and ending at 4:55 p.m., on Wednesday,

20 October 16, 2019, before Carol H. Kusinitz,

21 Registered Professional Reporter and Notary Public

22 in and for the Commonwealth of Massachusetts.

23

24

25 JOB No. 191016DWA


1

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Case 1:18-cv-11926-PBS Document 127-5 Filed 09/30/20 Page 2 of 17

1 APPEARANCES:
2
For Plaintiff:
3
U.S. Securities and Exchange Commission
4 Boston Regional Office
Division of Enforcement
5 BY: Marc Jones, Esq.
617.573.8947, JonesMarc@sec.gov
6 Alfred A. Day, Esq.
617.573.4537, DAYA@sec.gov
7 33 Arch Street, Suite 2400
Boston, MA 02110
8
- and -
9
U.S. Securities and Exchange Commission
10 Division of Enforcement
BY: Sonia G. Torrico, Esq.
11 202.551.3515, torricos@sec.gov
100 F Street, N.E.
12 Washington, DC 20549
13
For Defendants and Relief Defendant:
14
Libby Hoopes
15 BY: Douglas S. Brooks, Esq.
617.338.9300, dbrooks@libbyhoopes.com
16 399 Boylston Street
Boston, MA 02116
17

18 Also Present: Elyse Elsenbrook


19

20 Videographer: Garner Willis


21

22

23

24

25 * * * *
2

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Case 1:18-cv-11926-PBS Document 127-5 Filed 09/30/20 Page 3 of 17

1 I N D E X
2 WITNESS EXAMINATION PAGE
3 GREGORY (EMMANUEL)
LEMELSON
4
BY MR. JONES 8
5
* * * *
6
E X H I B I T S
7
NO. DESCRIPTION PAGE
8
Exhibit 1 13-page printout from Lemelson 10
9 Capital Management website headed
"Lemelson Capital - History"
10
Exhibit 2 Answer of Defendants to Amended 100
11 Complaint
12 Exhibit 3 Tables and spreadsheets relating to 110
The Amvona Fund, LP, Bates Nos.
13 Amvona_00001-13
14 Exhibit 4 Multi-page Lemelson Capital 172
Management document headed "Document
15 12-1, Ligand Pharmaceuticals
(NASDAQ:LGND)"
16
Exhibit 5 Multi-page Lemelson Capital 172
17 Management document headed "Document
12-2 Ligand Pharmaceuticals (NASDAQ:
18 LGND): Appendix"
19 Exhibit 6 Multi-page Lemelson Capital 172
Management document headed "Document
20 12-3, Update: Lemelson Capital
Further Increases Short Stake in
21 Ligand Pharmaceuticals (NASDAQ:
LGND) as LGND EPS Plunges 76 percent
22 in Q2 2014"
23

24

25
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Case 1:18-cv-11926-PBS Document 127-5 Filed 09/30/20 Page 4 of 17

1 E X H I B I T S (Continued)
2 NO. DESCRIPTION PAGE
3 Exhibit 7 Multi-page Amvona document headed 172
"Document 12-4, Lemelson Capital
4 Says Ligand Pharmaceuticals'
(NASDAQ: LGND) $225M Debt Issuance
5 Solidifies Company's Insolvency,
Substantially Raises Specter of
6 Bankruptcy"
7 Exhibit 8 Six-page document headed "Document 172
12-5, Ligand Pharmaceuticals
8 (NASDAQ: LGND): Institutional
holders wasting no time dumping
9 stock in response to mounting
insolvency and bankruptcy risks"
10
Exhibit 9 Multi-page GSK document headed 208
11 "Press Release, Second quarter 2014,
Issued: Wednesday, 23 July 2014,
12 London U.K."
13 Exhibit 10 Multi-page GSK document headed 215
"Press release, First quarter 2014,
14 Issued: Wednesday, 30 April 2014,
London U.K."
15
Exhibit 11 Multi-page GSK document headed 226
16 "Press Release, Fourth Quarter 2012,
Issued: Wednesday, 6 February 2013,
17 London, U.K."
18 Exhibit 12 Four-page email to Jesse Perkins 261
from Emmanuel Lemelson dated
19 9/6/2014, with list of attachments
20 Exhibit 13 Four-page email to allanrudolf 265
@yahoo.com from Emmanuel Lemelson
21 dated 9/7/2014, with list of
attachments
22
Exhibit 14 Four-page email to johnx99y 266
23 @yahoo.com from Emmanuel Lemelson
dated 9/7/2014, with list of
24 attachments
25
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Case 1:18-cv-11926-PBS Document 127-5 Filed 09/30/20 Page 5 of 17

1 E X H I B I T S (Continued)
2 NO. DESCRIPTION PAGE
3 Exhibit 15 Three-page email to Dimitrios 269
Karakoutas from Emmanuel Lemelson
4 dated 9/17/2014, with list of
attachments
5
Exhibit 16 Three-page email to William Ware 272
6 from Emmanuel Lemelson dated
10/3/2014, with list of attachments
7
Exhibit 17 Five-page email to ruvent@gmail.com 276
8 from Emmanuel Lemelson dated
11/10/2014, with list of attachments
9
Exhibit 18 Email to Edward Gu from Emmanuel 279
10 Lemelson dated 10/9/2014, Bates No.
SEC-Lemelson-E-0366451
11
Exhibit 19 Email to el@lemelsoncapital.com and 286
12 a long list of bcc's from Emmanuel
Lemelson dated 6/16/2014, Bates No.
13 SEC-Lemelson-E-0184019
14 Exhibit 20 Email to el@lemelsoncapital.com and 290
a long list of bcc's from Emmanuel
15 Lemelson dated 6/19/2014, Bates Nos.
SEC-Lemelson-E-0117738 - 7740
16
Exhibit 21 Email chain, the top email to 296
17 Jennifer Bloom from Emmanuel
Lemelson dated 7/2/2014, with list
18 of attachments, Bates Nos.
SEC-Lemelson-E-0117738 - 7740
19
Exhibit 22 Email chain, the top email to Lori 299
20 Schumacher from Emmanuel Lemelson
dated 7/21/2014, Bates Nos.
21 SEC-Lemelson-E-0042035 - 2039
22 Exhibit 23 Email to Emmanuel Lemelson from 304
Michael Johns dated 9/3/2014, Bates
23 Nos. SEC-Lemelson-E-0073067 - 3071
24
25
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Case 1:18-cv-11926-PBS Document 127-5 Filed 09/30/20 Page 6 of 17

1 E X H I B I T S (Continued)

2 NO. DESCRIPTION PAGE

3 Exhibit 24 Lemelson Capital Management letter 305


dated September 4, 2014, headed
4 "Dear Partners," from Emmanuel
Lemelson, with Appendix, Bates Nos.
5 SEC-Lemelson-E-0073131 - 3136

6 Exhibit 25 Multi-page slide deck titled "The 312


Amvona Fund, LP, Long-biased US
7 equity fund"

8 Exhibit 26 Email chain, the top email to Lori 325


Schumacher from Emmanuel Lemelson
9 dated 8/14/2014, Bates Nos.
SEC-Lemelson-E-0119248 - 250 with
10 attached document headed "Section
3 - Investor Signature Page"
11
Exhibit 27 Objections and Responses to 332
12 Plaintiff's First Set of
Interrogatories to Defendants
13
* * * *
14

15 EXHIBITS BOUND SEPARATELY

16

17

18

19

20

21

22

23

24

25
6

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Case 1:18-cv-11926-PBS Document 127-5 Filed 09/30/20 Page 7 of 17

1 P R O C E E D I N G S

2 THE VIDEOGRAPHER: We are now recording and

3 on the record. My name is Garner Willis. I'm a

4 Legal Video Specialist on behalf of Gradillas Court

09:35:27 5 Reporting.

6 Today's date is October 16, 2019, and the

7 time is 9:35 a.m. This is the deposition of Gregory

8 Lemelson in the matter of Securities and Exchange

9 Commission, Plaintiff, versus Gregory Lemelson, et

09:35:44 10 al., Defendant, in the U.S. District Court of

11 Massachusetts, Case No. 1:18-cv-11926-PBS.

12 This deposition is being taken at 33 Arch

13 Street, Boston, Mass. 02110, on behalf of the

14 Plaintiff. The court reporter is Carol Kusinitz of

09:36:12 15 Doris O. Wong and Associates.

16 Counsel will state their appearance, and

17 the court reporter will administer the oath.

18 MR. JONES: Good morning. I'm Marc Jones

19 for the Plaintiff Securities and Exchange

09:36:20 20 Commission.

21 MR. DAY: Al Day for Plaintiff Securities

22 and Exchange Commission.

23 MS. TORRICO: Sonia Torrico for Plaintiff

24 Securities and Exchange Commission.

09:36:30 25 MR. BROOKS: Good morning. Doug Brooks,


7

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Case 1:18-cv-11926-PBS Document 127-5 Filed 09/30/20 Page 8 of 17

1 counsel for Father Emmanuel Lemelson, Lemelson

2 Capital Management and The Amvona Fund.

3 GREGORY (EMMANUEL) LEMELSON

4 a witness called for examination by counsel for the

5 Plaintiff, having been satisfactorily identified by

6 the production of his driver's license and being

7 first duly sworn by the Notary Public, was examined

8 and testified as follows:

9 DIRECT EXAMINATION

09:36:48 10 BY MR. JONES:

11 Q. Good morning.

12 A. Good morning.

13 Q. My name is Marc Jones. I'm a Plaintiff --

14 attorney for the Plaintiff, Securities and Exchange

09:37:01 15 Commission.

16 Are you appearing here today pursuant to a

17 subpoena in this litigation?

18 A. It appears so.

19 Q. Okay. Is that a yes?

09:37:12 20 A. To the best of my knowledge.

21 Q. Okay. And for the course of the day, I'm

22 only going to ask you to the best of your knowledge.

23 I can only ask you what you know, and if you don't

24 know, please tell me.

09:37:24 25 If you don't understand one of my


8

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Case 1:18-cv-11926-PBS Document 127-5 Filed 09/30/20 Page 9 of 17

1 Q. Okay.

2 A. -- fairly clearly.

3 Q. Do you know how risky it is that you would

4 have to return the shares before you're ready?

10:14:51 5 MR. BROOKS: Object to the form.

6 A. As I stated, it's my understanding that it

7 happens almost never.

8 Q. What's that basis of that understanding?

9 A. Speaking with the brokerage firms,

10:15:05 10 research, reading online.

11 Q. Okay. When you engaged in short selling,

12 you would ultimately make a decision to cover.

13 That's what you said?

14 A. Yes.

10:15:21 15 Q. Okay. What goes into a decision -- what

16 goes into your decision on when to cover a short

17 sale?

18 A. Well, it depends on the specific

19 investment. Each investment is different.

10:15:36 20 Q. Okay. Are there factors that you use to

21 make a determination of when to cover?

22 A. Not blanket factors. Each investment's

23 different.

24 Q. Okay. You engaged in a short sale in

10:15:50 25 Ligand in 2014, correct?


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1 A. Yes.

2 Q. And you covered that sale also in 2014?

3 A. We covered the short on the Ligand fraud,

4 yes, in 2014.

10:16:00 5 Q. You invested in a Ligand fraud?

6 A. No, we sold short a Ligand fraud. That's

7 different than investing in --

8 Q. I see. And by "Ligand fraud," what are you

9 referring to?

10:16:10 10 A. I'm referring to the fraud at Ligand

11 Pharmaceuticals.

12 Q. Okay. What are the parameters of that

13 fraud?

14 A. Oh, there's many. As you know, we've

10:16:23 15 issued two letters to Congress about it and

16 published 55 pages of research. I think we've given

17 11 interviews on it, submitted three whistleblower

18 reports to your agency.

19 Q. What were the factors that went into

10:16:40 20 deciding to cover your investment in Ligand?

21 A. Exposing the Ligand fraud was a lot of

22 work, and it became clear eventually that there were

23 a lot of structure around promoting that fraud.

24 There was their investment banks and their what

10:17:05 25 appeared to be paid shills, the participation of


45

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1 new short sale of Ligand?

2 A. Well, I realized the company continued to

3 engage in fraud and that the regulatory bodies like

4 the SEC were not going to do anything about it, and

10:18:24 5 since the company had done nothing to remediate

6 their fraud, I decided to short the company again.

7 Q. Between 2014 and 2019, did you invest in

8 Ligand?

9 A. No.

10:18:39 10 Q. Between 2014 and 2019, did you invest in

11 Viking Pharmaceuticals?

12 A. No.

13 Q. Or Viking Therapeutics, excuse me.

14 A. No.

10:18:54 15 Q. Going back to 2014, you said that your

16 decision to cover the stock was based on, at least

17 in part, the work that you had done to expose the

18 fraud at Ligand; is that correct?

19 A. Yes, the work I did to expose the fraud.

10:19:18 20 Q. And that work -- so you decided that you

21 had finished your work on exposing that fraud, and

22 so it was time to cover?

23 A. Well, I realized that there was a

24 tremendous amount of participants in promoting that

10:19:34 25 fraud, large entities who promoted other frauds, and


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1 actually. I do. And I think it's --

2 Q. You're saying -- what's how I deal with it?

3 A. -- borne out by the transcript. I think

4 when anybody reads that transcript, they can see the

11:33:09 5 tremendous abuses. I'm so glad it's there. Not all

6 of them, but the majority of it is.

7 Q. So what's the connection between you being

8 a whistleblower and you having this securities fraud

9 action brought against you?

11:33:21 10 A. Well, you have to be more specific.

11 Q. Well, you've alleged that there's a

12 connection between you being a whistleblower and

13 having a securities fraud action brought against

14 you. What is it?

11:33:30 15 A. I believe that that's your way of dealing

16 with it. Rather than dealing with the actual fraud

17 at hand, you've chosen to go after the

18 whistleblower.

19 That whistleblower report was filed well in

11:33:39 20 advance of your decision not only to bring charges

21 but even to take my testimony. Plus the fraud was

22 explained to you in no uncertain terms in my

23 testimony and all the documents I provided to you

24 and the Commission, including my entire hard drive,

11:33:52 25 which held nothing back.


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1 A. Yes.

2 Q. Is this a document produced by you and your

3 business in the course of this litigation,

4 investigation and litigation?

16:14:56 5 A. I don't recall specifically producing this

6 email.

7 Q. All right. You don't know whether you did

8 or not?

9 A. I gave the SEC my entire hard drive --

16:15:00 10 Q. Okay.

11 A. -- essentially.

12 Q. Did Mr. Griesemer sign up with The Amvona

13 Fund?

14 A. Yes, he did.

16:15:07 15 Q. Did you execute his subscription agreement?

16 A. I don't recall, but it appears I did if

17 this document is accurate.

18 Q. Looking at the last page of the document,

19 the subscription agreement investor signature page,

16:15:24 20 do you see a signature for you on this page?

21 A. I see a signature from the trustee,

22 Millennium Trust, and then I also see his Trustee ID

23 crossed out, and it appears to be the trust's -- the

24 tax idea of the trust company.

16:15:36 25 Q. Okay.
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1 C E R T I F I C A T E

2 I, Gregory (Emmanuel) Lemelson, do hereby

3 declare under penalty of perjury that I have read

4 the foregoing transcript of my deposition; that I

5 have made such corrections as noted herein, in ink,

6 initialed by me, or attached hereto; that my

7 testimony as contained herein, as corrected, is true

8 and correct.

9 ______ I have made corrections to my deposition.

10 ______ I have NOT made any changes to my deposition.

11

12 EXECUTED this ______ day of ____________, 2019, at

13 ________________________, ___________________.

14 (City) (State)

15

16 _________________________
GREGORY (EMMANUEL) LEMELSON
17 VOLUME 1

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GRADILLAS COURT REPORTERS


(424) 239-2800
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1 ERRATA SHEET
2 Deposition of: GREGORY (EMMANUEL) LEMELSON, VOL. 1
Date taken: October 16, 2019
3 Case: SEC vs. LEMELSON, et al.
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Signed ________________________
25 Dated ________________________
340

GRADILLAS COURT REPORTERS


(424) 239-2800
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1 COMMONWEALTH OF MASSACHUSETTS)

2 SUFFOLK, SS. )

3 I, Carol H. Kusinitz, RPR and Notary Public in

4 and for the Commonwealth of Massachusetts, do hereby

5 certify that there came before me on the 16th day of

6 October, 2019, at 9:35 a.m., the person hereinbefore

7 named, who was by me duly sworn to testify to the

8 truth and nothing but the truth of his knowledge

9 touching and concerning the matters in controversy

10 in this cause; that he was thereupon examined upon

11 his oath, and his examination reduced to typewriting

12 under my direction; and that the deposition is a

13 true record of the testimony given by the witness.

14 I further certify that I am neither attorney or

15 counsel for, nor related to or employed by, any

16 attorney or counsel employed by the parties hereto

17 or financially interested in the action.

18

19 Under Federal Rule 30:

20 X Reading and Signing was requested

21 Reading and Signing was waived

22 Reading and Signing was not requested.

23

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1 In witness whereof, I have hereunto set my hand

2 and affixed my notarial seal this 23rd day of

3 October, 2019.

6 Notary Public

7 Commission expires 5/22/20


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Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 1 of 25
1

Ligand Pharmaceuticals (NASDAQ: LGND)


Severe competitive threat to key royalty program and “going concern” risk drive 100
percent downside

Lemelson Capital is short shares of Ligand Pharmaceuticals (NASDAQ:LGND), a biotechnology


Company, with a business model focused on developing or acquiring revenue generating assets.
A significant portion of Ligand’s business model is based on the goal of partnering with other
pharmaceutical companies to commercialize and market its assets, and therefore a significant
part of its revenue is based largely on payments made to the Company by partners for royalties,
milestones and license fees.

Despite an entirely opaque future, the dwindling of critical revenue streams that will continue to
stress the Company as a “going concern”, Ligand trades at an excessively high PE ratio of 115, a
factor of 4.8x that of financially superior competitors (and 6x that of the S & P 500). Moreover,
Lemelson Capital believes the Company has consistently used persuasive definitions to suppress
important evidence regarding pressures to the Company’s revenue streams and its super-
concentration in both its sole supplier and also its customer base.

Ligand’s press releases and communications with investors paint an exceedingly optimistic picture
of the Company’s future growth. Yet the firm’s SEC filings reveal a business whose key revenue
streams are either in decline, or are likely to diminish entirely. By way of example, collaborative
R & D revenues (a substantial part of Ligand’s overall sales and business model), have already
declined 79 percent in just the last four years, further concentrating the Company’s business into
just two precariously remaining fragile revenue streams.

Above all, the Company faces it biggest existential threat in what is likely to be a momentous
impairment of its largest royalty generating asset, Promacta®, a GlaxoSmithKline therapy that as
recently as Q4 2013 accounted for as much as 72 percent of all royalties received by the Company.

Getting past the Company’s jargon, Ligand’s business is radically simple. The result of 27 years of
operating activity at Ligand is a deficit of $669 million. In the last ten years alone, shareholders
have been diluted by 72 percent. The future of the Company is sold as full of promise, but in reality
there is no evidence to support significant gains in revenue or profitability that would even
vaguely approximate a justification for the Company’s current share price of $66.75 as of June 13,
2014. Further, after losing revenue from collaborative R & D efforts, the Company has gone from
three revenue sources to essentially two, and now appears likely to decline even further to just
one revenue source, resulting in a dangerously undiversified revenue structure.

In light of the extraordinary risks associated with Ligand as a going concern, the imminent threat
to Promacta® royalties and based on superior firms’ far lower valuations, Lemelson Capital
believes that Ligand’s fair value is roughly $0 per share, or 100 percent below the current stock
price.
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 2 of 25
2

Disclaimer

Following publication, Lemelson Capital may transact in the securities of the Company. Lemelson
Capital has obtained all information herein from sources it believes to be accurate and reliable
However, such information is presented “as is,” without warranty of any kind – whether express
or implied. Lemelson Capital makes no representation, express or implied, as to the accuracy,
timeliness, or completeness of any such information or with regard to the results obtained from
its use. All expressions of opinion are subject to change without notice, and Lemelson Capital does
not undertake to update this report or any information contained herein.
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 3 of 25
3

Table of Contents

Disclaimer.................................................................................................................................................. 2
Investment Highlights ............................................................................................................................... 4
Overview ................................................................................................................................................... 4
Company’s Vital Royalty Generating Program “Promacta®” Facing Severe Competitive Threat ............ 5
“Captisol®” Revenue Likely to Remain Immaterial ................................................................................... 8
“Going Concern” Risk ................................................................................................................................ 8
Litigation: An Open-ended Liability .................................................................................................... 10
Collaborative R & D Revenues Declining Rapidly ................................................................................ 11
Net Cash Provided by Operations Immaterial .................................................................................... 11
Management’s Comments Regarding Diversification and Risk Reduction are Materially Misleading .. 12
Fig. 1 Havione Facility, Loures, Portugal ............................................................................................. 13
Persuasive Definitions and Suppressed Evidence ................................................................................... 14
Collaborations: The Red Herring ............................................................................................................ 15
Unscrupulous Stock Promotion Driving ‘Nosebleed’ Valuation ............................................................. 16
Fig. 2 Stock Price and Shares Outstanding Q1 2013 vs. Q1 2014 ....................................................... 16
Fig. 3 Insider Transactions: Number and Volume ............................................................................... 17
Fig. 4 Major Assets .............................................................................................................................. 18
Fig. 5 Business Model .......................................................................................................................... 18
Fig. 6 Ligand Stock Price and Shares Outstanding .............................................................................. 19
Fig. 7 PE Ratio of Competitors ............................................................................................................ 20
Conclusion ............................................................................................................................................... 21
Fig 8 Retained Earnings ....................................................................................................................... 22
Full Disclaimer ......................................................................................................................................... 24
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 4 of 25
4

Investment Highlights

a. Revenue and profits highly concentrated in one (single-sourced) product, and essentially
two royalty agreements, one of which is set to decline precipitously.
b. Based on recent FDA comments, Gilead’s revolutionary Sovaldi® drug will virtually eliminate
demand for Promacta®, which is Ligand’s largest royalty generating asset, accounting for as
much as 72 percent of Ligand royalty revenue as recently as Q4 2013.
c. When backing out intangibles from the balance sheet, net share-holder equity is
approximately minus $4 million.
d. Current stock price represents ~100 percent downside.

Overview

a. Over 70 percent of 2013 revenue was derived from Promacta®, Kyprolis, and Captisol®
programs (including Captisol® material sales). Royalties on Avinza, another major royalty
generating program is quickly deteriorating since the Company’s partner Pfizer notified the
Company that a generic product entered the market.

Promacta® sales, which represented as much as 72 percent of Ligand royalty revenue as


recently as Q4 2013, already have slowed sharply in Q1 surprising management.

b. The only material source of revenue outside of royalty programs is Captisol® sales which,
contrary to the Company’s representations regarding diversification is single sourced. There
are no indications that Captisol® sales will increase materially in the future, and is likely to
become the Company’s only significant source of future revenue.

c. Total revenue for 2013 was ~$49 million. Net Income from continuing operations
for 2013 was just $8.8 million or $0.43 per diluted share. This was less than the income from
continuing operations of $9.7 million, or $0.49 per diluted share, the Company earned in 2011
a year when Captisol® sales were substantially lower, indicating that even with a marked
increase of Captisol® material sales, the Company profitability has declined.

2013 net income would barely cover projected 2014 stock-based compensation expense,
which thus far has essentially been the fiscal purpose of the Company, leaving the Company
exposed to going concern risk.

d. Management has repeatedly made material misrepresentations about the Company’s


diversification and risk exposure. In particular the Company has done this by repeatedly using
persuasive definitions while suppressing evidence regarding the risk to the Company’s
business. The result is that shares have been artificially driven higher for an extended period
of time allowing management and insiders to sell stock.
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 5 of 25
5

Company’s Vital Royalty Generating Program “Promacta®” Facing Severe Competitive


Threat

“Now this past quarter, we saw sales for PROMACTA® dip several percent lower than
the prior quarter to $80 million. That's a bit lower than expected.”

JOHN L. HIGGINS – CEO LIGAND PHARMACEUTICALS


Q1 2014 RESULTS - EARNINGS CALL

In fact, the “$80 million” figure represented above is Ligand partner GlaxoSmithKline’s
(NYSE:GSK) gross revenue from Promacta® sales and not Ligand’s royalty.

Ligand has described their biggest royalty generating asset Promacta® as a:

“…treatment of thrombocytopenia (low blood platelet counts) in patients with


chronic hepatitis C to allow them to initiate and maintain interferon-based
therapy….”

LIGAND PHARMACEUTICALS INCORPORATED


2013 FORM 10-K

On December 6th, 2013 the FDA made the following announcement:

“Sovaldi® is the first drug that has demonstrated safety and efficacy to treat certain
types of HCV infection without the need for co-administration of interferon”

APPROVAL OF SOVALDI® (SOFOSBUVIR) TABLETS FOR THE TREATMENT OF CHRONIC HEPATITIS C


FDA, DEC 6, 2013

There has never been evidence presented that Promacta® will be able to generate significant
revenue now that revolutionary treatments for Hepatitis C are enter mainstream use.
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 6 of 25
6

On April 22nd, 2014 GSK announced that they would be selling the business unit that includes
Promacta®.

NOVARTIS TO BUY GLAXO CANCER DRUGS, SELL ANIMAL HEALTH


April 22, 2014

GSK PLC ANNOUNCES MAJOR THREE-PART TRANSACTION WITH NOVARTIS TO DRIVE SUSTAINABLE SALES GROWTH,
IMPROVE LONG-TERM EARNINGS AND DELIVER INCREASING RETURNS TO SHAREHOLDERS

April 22, 2014

Royalty revenues were $23.6 million in 2013. Importantly the increase in royalty revenue of $9.5
million and $4.9 million for the year ended December 31, 2013 and 2012 respectively, is due to
an increase in Promacta® and Kyprolis royalties with Promacta® being by far the larger royalty
program.

However, the increase was due to timing of customer orders and not an increase in demand, a
point hardly emphasized by the Company.

Gilead’s Sovaldi®, as well as similar drugs coming to market in 2H 2014 from AbbVie
(NASDAQ:ABBV) and Merck (NYSE:MRK) will likely eliminate demand for Promacta®, which is the
largest royalty generating asset, accounting for as much as 72 percent of the firm’s royalties as
recently as Q4, 2013. Sovaldi® and its counterparts are revolutionary treatments for Hepatitis C
that will likely eliminate the need for interferon-based therapies like Promacta® all-together.

It is apparent that these new revolutionary treatments are vastly superior, standing to eliminate
the virus in as little as four to six weeks, thus mitigating damage to the liver. The last point has
serious implication to any ancillary application for Promacta® resulting from damage to the liver
as a result of the Hepatitis C infection, which Ligand has incorrectly suggested would be potentially
a robust market (post Hepatitis C cure) for interferon-based therapies that would involve
applications such as Promacta®.

Vitally, the initial application of the new drugs is in combination with interferon-based therapies,
which is why there has not yet been a significant impairment to Ligand’s Promacta® business.
However, according to both the FDA and leaders in the field, the application is set to change.

The purpose and applicability of Promacta® was discussed with an Associate Clinical Professor of
Medicine and Surgery at one of the largest transplant Hepatology departments at a major U.S.
university hospital and also with the Chief of abdominal surgery and transplantation at a major
European university hospital, with the latter commenting after consultation with his US counter-
part:
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 7 of 25
7

“I spoke to one of my colleague (the chief of transplant Hepatology at the largest liver
transplant program in the US) regarding the future of Hep C treatment: he is very
impressed by the new drug from Gilead (Sovaldi®) in his patients, it is very well
tolerated even in patients with advanced disease (including ones with
thrombocytopenia). Though the drug is used with or without interferon currently he
expects that in the near future with more drugs close to being approved on the
market he sees a shorter treatment cycle without interferon and with even better
tolerance…”

CHIEF OF ABDOMINAL SURGERY AND TRANSPLANTATION


MAJOR EUROPEAN UNIVERSITY HOSPITAL
JUNE 12TH, 2014

Further references on the obsolete nature of supportive care treatments such as Promacta®, that
are made available to patients who are ineligible or poor candidates for interferon-based therapy
are also available in the following publications:

APPROVAL OF SOVALDI® (SOFOSBUVIR) TABLETS FOR THE TREATMENT OF CHRONIC HEPATITIS C


FDA, Dec 6, 2013

WHY MERCK JUST SPENT $4 BILLION ON NEW DRUGS FOR HEPATITIS C


Forbes, June 9, 2014

WHY THE HEPATITIS C COST CUTTERS MAY HAVE ALREADY LOST


Forbes, June 10, 2014

“It's obviously a niche indication”

MATTHEW W. FOEHR – COO LIGAND PHARMACEUTICALS


Q1 2014 RESULTS - EARNINGS CALL
WHEN ASKED ABOUT THE SIZE OF THE APLASTIC ANEMIA OPPORTUNITY

On February 28, 2013 GSK submitted a New Drug Application (NDA) for Promacta® after the FDA
granted breakthrough therapy designation for Promacta® in patients with severe aplastic anemia.
Shares of Ligand jumped 3.6 percent that day on the news. What the news failed to mention,
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 8 of 25
8

however, is that other indications for Promacta®, such as aplastic anemia, are extremely small
and involve as few as 10,000 U.S. patients.

“Captisol®” Revenue Likely to Remain Immaterial

“I mean, we gave our outlook for 2015 revenue several months ago. Our outlook
hasn't change. It was north of $80 million.”

JOHN L. HIGGINS – CEO LIGAND PHARMACEUTICALS


Q1 2014 RESULTS - EARNINGS CALL

Trailing twelve months (TTM) net income at March 31, 2014 was 22.56 percent. If the Company
achieves $80 million in revenue in 2015, it is reasonable to estimate that net income may
approximate all of $18.4 million dollars against a market capitalization of nearly $1.4 billion, a
calculation that does not assume any impairment to the Promacta® business, a threat
management has blithely overlooked.

The Company recorded material sales of Captisol® of $19.1 million in 2013 compared to $9.4
million in 2012 and $12.1 million in 2011. The increase in material sales of $9.7 million for the
year ended December 31, 2013 compared to 2012, however, is due to timing of customer
purchases of Captisol® as well as an increase in customer purchases for use in clinical trials, and,
notably, not an increase in demand. This is yet another fact not immediately obvious from the
Company’s financial statements or public comments. Further, the atypical increase in clinical trial
demand for Captisol® resulted in unusually high margins in 2013 that are not likely to be repeated.

Looking through the Company’s investor presentation released on May 28, 2014, it would appear
that new blockbuster drugs will be delivered in collaboration with major research-based
pharmaceutical manufacturers such as GSK. But the reality is the Company’s Captisol® product is
39 percent of total Company revenues, and there is no evidence that sales are likely to increasing
substantially in the future over the three-year average of just $13.5 million per year.

“Going Concern” Risk

The Company’s recent 10-K contains a buried sentence that stands out – at first glance as an
affirmation that the Company is generating sufficient operating cash flow. But a more careful
read reveals the opposite:
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 9 of 25
9

“We believe that the actions presently being taken to generate sufficient operating
cash flow provide the opportunity for us to continue as a going concern”

LIGAND PHARMACEUTICALS INCORPORATED


2013 FORM 10-K

First is the qualifier “we believe,” which is very different from say, “we are.” The subject is the
actions that are being taken, not the cash flow itself, which at best will only be “sufficient.” Finally,
the actions, are likely to provide only an “opportunity” “to continue as a going concern”.

There are not many companies that raise “going concern” issues in their 10-K filings. Indeed,
reviewing the form 10-K of other financially compromised concerns’ and searching for the term is
a worthwhile exercise because it reveals that the term is rarely used in 10-K or other SEC filings.

“We have incurred significant losses since inception. At December 31, 2013, our
accumulated deficit was $671.3 million and we had negative working capital of $4.1
million.”

“… it is possible that we may be required to seek additional financing. There can be


no assurance that additional financing will be available on terms acceptable to
management, or at all.”

LIGAND PHARMACEUTICALS INCORPORATED


2013 FORM 10-K

Anemic and concentrated cash flow is not the only risk threatening Ligand’s existence as a going
concern. With no tangible assets to buttress the shares, any minor distress that prevented the
Company from issuing more stock or debt, would easily drive the Company into liquidation –
consider for example the following:
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 10 of 25
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Litigation: An Open-ended Liability

If your Company and its CEO are already involved in litigation, avoiding it in the future would be
a top priority. That’s why spelling out ongoing concerns in a 10-K is imperative.

“…the lawsuit also names us and our Chief Executive Officer John Higgins as
additional defendants for allegedly aiding and abetting the Genaera Defendants….”

“…the outcome of this matter is not presently determinable.”

LIGAND PHARMACEUTICALS INCORPORATED


2013 FORM 10-K

Because the US is a litigious society, the quote from Ligand’s 2013 10-K above may not be an
immediate cause for concern. However, the follow up comment “the outcome of this matter is
not presently determinable” however, is hugely notable. Public companies will typically conclude
any discussion of litigation with affirmation that the outcome is not likely to represent a material
impact. Because this litigation may likely represent such a material impact, Ligand has not done
this.

Indeed, the word litigation appears twenty-one times in the Company’s 2013 form 10-K,
including in the following:

“We have product liability insurance that covers our clinical trials up to a $5.0 million
annual limit. If we are sued for any injury caused by our product candidates or any
future products, our liability could exceed our total assets.”

LIGAND PHARMACEUTICALS INCORPORATED


2013 FORM 10-K

Walmart (NYSE: WMT), one of the world’s largest and arguably most sued companies, mentions
the term only eight times in its 2013 10-K.
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 11 of 25
11

Collaborative R & D Revenues Declining Rapidly

As recently as 2009, collaborative research and development at Ligand accounted for 78 percent
of the Company’s revenue.

Between 2009 and 2013, however, collaborative research and development and other revenues
declined at the Company from $30.6 million to just $6.3 million representing a decline of 79
percent in just four years offsetting the nominal gains in royalties and material sales.

The Company has not provided any indication that it expects collaborative research and
development sales to recover, further concentrating what had previously been three distinct
revenue streams into just two (royalties and material sales).

Net Cash Provided by Operations Immaterial

In Q1 2014, total revenue was just $15.9 million with only $7.8 million attributable to royalties
and $5.7 million attributable to materials sales. Net income was just ~$2 million, a sum just ~$600
thousand higher than Q1 2013, which is offset by roughly an additional five percent dilution
through stock issuance over the same period.

Net cash provided by operating activities was just ~$500 thousand higher in Q1 2014 vs. Q1 2013.

Between May 8 2013 when the Company announced its Q1 2013 earnings, and May 7 2014, when
it announced Q1 2014 earnings, the stock price appreciated 149.98 percent. The reward for
earning an additional ~$500 thousand in net cash over twelve months was an astounding ~$840
million increase in market capitalization.

Once the ~$65 million in intangibles padding the balance sheet is backed out, there is
approximately minus $4 million in equity to support the Company’s $1.4 billion market
capitalization.
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 12 of 25
12

Management’s Comments Regarding Diversification and Risk Reduction are Materially


Misleading

“Our risk profile is vastly reduced compared with industry norms owing to the large
number of both partnered and unpartnered assets we have.”

INTERVIEW: LIGAND MANAGEMENT SAYS PRODUCT DIVERSIFICATION REDUCES ITS RISK


JUNE 9, 2014

“Well, the way we look at this, as you know, we quote our portfolio of shots-on-goal,
our fully funded partnerships or programs, and we have over 90. And a rough
estimate, probably 2/3 are Captisol®-related”

JOHN L. HIGGINS – CEO LIGAND PHARMACEUTICALS


Q1 2014 RESULTS - EARNINGS CALL

Suggesting that there is product diversification in the pipeline when 2/3 of the pipeline is in fact
tied to one product is problematic. Not mentioning that accounts receivable from two customers
were 75 percent of total accounts receivable at December 31, 2013 and 87 percent of total
accounts receivable at December 31, 2012 is an even more so.

In the last four years, the Company, rather than diversifying its business, has actually become far
more concentrated with the veritable loss of collaborative research and development revenue
collapsing into precariously fragile royalty payments from basically two partners and both volatile
and insignificant material sales recklessly sourced from a single supplier.

Further, even this partner revenue is by no means guaranteed since the Company’s partners have
a right to terminate collaboration and licensing agreements, as the Company conceded in its 2013
10-K:
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 13 of 25
13

“… The asset was impaired upon receipt of notice from MedImmune that it was
exercising its right to terminate the collaboration and license agreement.”

“…The asset was impaired upon receipt of notice from Merck in October 2011 that it
was exercising its right to terminate the collaboration and license agreement.”

LIGAND PHARMACEUTICALS INCORPORATED


2013 FORM 10-K

Additionally, the Company has tremendous concentration not just on the customer side, but also
on the supplier side with just three products accounting for virtually all of Ligand’s tiny revenue.

“Material sales” are attributable solely to the Company’s Captisol® product and amounted to just
~$19 million in all of 2013. This product is single sourced to a manufacturer named “Hovione”
located in Portugal:

Fig. 1 Havione Facility, Loures, Portugal

If Havione were not able to supply Captisol® for any reason, the Company would be unable to
continue to derive revenues from material sales until it obtained an alternative source, which
would likely take a considerable period of time, a prominent risk since Captisol® represented ~36
percent of the Company’s total Q1 2014 revenue.
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 14 of 25
14

Persuasive Definitions and Suppressed Evidence

Mr. Higgins, the Company’s CEO indicates on the Company’s website

“At Ligand we are Cash-Flow Evangelists”.

HTTP://WWW.LIGAND.COM/MESSAGE-FROM-THE-CEO

Ligand is defining terms in ways that appear on the surface to be straightforward but are in fact
subtly loaded. Further, the Company frequently, as in the case of Promacta®, presents only part
of a piece of evidence that supports their claims while ignoring the parts that contradict the same
claim. For example, discussing the aplastic anemia application for Promacta® (10,000 potential
US patients) while omitting the impending loss of the Hepatitis C application.

Another example of this selective commentary on the Company’s future is evident in the
Company’s May 28, 2014, 29-page investor presentation. The presentation includes an abundant
number of charts and figures. However, none of them relate to cash flow, which seems a peculiar
omission for a company that is a self-professed cash flow “Evangelist.”

Reading Ligand’s annual and interim reports, as well as studying the conference call transcripts, is
a remarkable journey through all the great things that might happen in the future in the
pharmaceutical industry. However, the Company speaks very little about its own financial
realities. For example, there is rarely any mention of GAAP figures in conference calls while stock-
based compensation and changes to contingent liabilities are almost always backed out of any
presentation of the numbers. By the time management is done man-handling the statement of
operations, it is difficult to understand what exactly it is meant to represent.

Most people do not find reading 86 pages of financial reports and largely boiler-plate risk
disclosures to be all that exciting, and it is unlikely any form 10-K will be nominated for a Nobel
Prize in literature. Companies know this, and also know that if a kitchen sink approach to risk
disclosures is taken, and enough are thrown in, at about paragraph #132, the eyes of the casual
reader will begin to glaze over and a hugely critical sentence can be easily misread. This is precisely
the approach that the Company takes in concealing its risks.
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 15 of 25
15

Collaborations: The Red Herring

“There is nothing more deceptive than an obvious fact.”

ARTHUR CONAN DOYLE


THE BOSCOMBE VALLEY MYSTERY

In the end all the Company’s talk of “collaborations” is really just a Red Herring, often disguised
in sports jargon such as “shots on goal”, for a Company that over its entire existence has done
nothing but hemorrhage shareholder capital and now appears set to lose its largest royalty
generating program.

The Company has had 27 years to prove its model. It is hardly a start-up. But in this time, its track
record is both transparent and deeply troubling: It has succeeded in losing $~669M of
shareholders’ capital.

Ligand’s model, far from being a strength or representing any sort of real diversity of risk, is in fact
nothing but an illusion. Ligand’s stock price is a derivative of temporal excitement in an exuberant
market. The Company has no real control over the R&D initiatives or choices of its partners, or
any other aspect of the commercialization of new products.

Take a step back from the Company’s Glossolalia, and consider: Why would some of the largest
and most powerful pharmaceutical companies in the world take all of the risk, lay out all of the
capital and in the end share any substantial part of the kill with tiny 18 man Ligand? If the answer
is intellectual property, is it really plausible that these companies would not just as soon work
around any IP issues knowing full well, Ligand is financial unfit to legally enforce anything when
IP litigation often spans many years and costs many tens of millions of dollars to litigate that the
Company doesn’t have?

There is a saying that is particularly applicable in investing: “A bird in the hand is worth two in the
bush.” For Ligand, they’ve only ever had “two in the bush.”
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 16 of 25
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Unscrupulous Stock Promotion Driving ‘Nosebleed’ Valuation

“We have financed our operations through offerings of our equity securities,
borrowings from long-term debt, issuance of convertible notes…

In October 2013, we filed a universal shelf registration statement with the SEC... This
registration statement provides additional financial flexibility for us to sell shares of
common stock or other equity or debt securities as needed at any time, including
through our at-the-market equity issuance program.”

LIGAND PHARMACEUTICALS INCORPORATED


2013 FORM 10-K

Fig. 2 Stock Price and Shares Outstanding Q1 2013 vs. Q1 2014

Stock Price Shares Outstanding (Diluted) Market Cap.

May 8th 2013 $ 26.86 20300000 $545,258,000


May 7th 2014 $ 65.37 21200000 $1,385,844,000

Delta $840,586,000

As can be seen above, the weighted-average number of common shares-diluted in 2014 increased
by 927,993 to 21,208,203, a 4.6 percent growth, over 2013.

Between December 2009 and March 2014 the Company increased its share count by 8.9 million
shares or 72.4 percent.

In a recent interview, Matthew W. Foehr, the Company’s Executive Vice President and Chief
Operating Officer said:

“From a financial perspective, we are highly profitable…”

INTERVIEW: LIGAND MANAGEMENT SAYS PRODUCT DIVERSIFICATION REDUCES ITS RISK


JUNE 9, 2014
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When the commentary was published on June 9, 2014, shares surged nearly 5%. Shortly
afterwards Mr. Foehr discussed the Company’s skill at marketing itself to investors.

“We do not believe our average daily trading volume is an impediment to investor
interest, yet there's always room for more volume. We have a comprehensive and
active program of outreach to current and potential investors and analysts, including
participation in a number of health care and growth investment conferences each
year. We believe our communication with Wall Street is appropriately frequent”

INTERVIEW: LIGAND MANAGEMENT SAYS PRODUCT DIVERSIFICATION REDUCES ITS RISK


JUNE 9TH, 2014

Volume may not be an “impediment to investor interest”, but it could be an impediment to insider
selling.

Before the recent run up, insiders largely bought shares through the middle of 2013. Then, after
sell side analysts who either have or seek investment banking business from the firm, upgraded
shares (to a PT around $90 in most cases), insider’s began significant selling.

Fig. 3 Insider Transactions: Number and Volume

The Company has no tangible assets and a price to free cash flow ratio of 82 – that is to say, it
would take 82 years for free cash flow to cover the market capitalization of the Company and that
is only if the Company can somehow maintain its newly-discovered free cash flow, which is
unlikely. In fact, in only two of the last 10 years has the Company had any free cash flow at all.

Symbolic of the company’s disarray and lack of forward solutions or strategy, the “Major Assets”
section of the Company website (arguably one of the most critical company metrics) states simply
“under construction.”
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The pithy oversight shown in figures 4 and 5 below, are both symbolic, perhaps representing the
Company’s most honest statement regarding the state of its business.

Fig. 4 Major Assets

HTTP://WWW.LIGAND.COM/MAJOR-ASSETS

The same text appears under the “Business Model” section of the site.

Fig. 5 Business Model

HTTP://WWW.LIGAND.COM/BUSINESS-MODEL
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None of the nine sub-pages under the “Investors” section of the website, however, remain
“under construction.” These pages are full of, laudatory information about the stock.

As of February 14, 2014, there were approximately 705 holders of record of the common stock.
It is safe to reason that a significant number of these may well be a subset of the retail investor
genus known as “medical professionals,” who are not frequently lauded for their investing savvy.
Additionally, an unusual number of sell-side analysts covering the stock and providing price
targets in the 90s appear to have a primary profession in the medical field.

Fig. 6 Ligand Stock Price and Shares Outstanding

If there is any doubt about the lucrative trade in issuing and selling stock, consider the chart
above.

There are seven analysts following the Company. At least six of them are producing radically
speculative reports with indefensible “nosebleed” price targets.

The disclosures on these reports invariably suggest various possible conflicts of interest and look
something like this:

“(Analysts Company X) is a provider of research and execution services… (Analysts


Company X) does and seeks to do business with companies covered in its research
reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report.”
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If the Company were priced at a 15x diluted TTM EPS of $0.58 per share, the price would be
$8.70 per share.

At a PE ratio of 24x diluted TTM EPS (the average of the Company’s supposed competitors, who
have long histories of profitability, real R & D and significant assets), the price per share would
be $13.92.

Competitors with long histories of profitability and free cash flow include:

Fig. 7 PE Ratio of Competitors

Company Symbol Price Market Cap P/E


Mylan, Inc. MYL 50.25 18.76B 31.35
Pfizer Inc. PFE 29.58 188.49B 9.17
Johnson & Johnson JNJ 102.68 290.79B 19.66
GlaxoSmithKline plc GSK 54.6 131.45B 15.52
Sanofi SNY 53.71 141.89B 27.57
Novartis AG NVS 89.31 218.48B 22.78
Roche Holding AG RHHBY 37.44 254.30B 20.65
AstraZeneca PLC AZN 74.1 93.45B 45.4

Average PE 24.01

However, neither PE ratio above would apply in the case of Ligand which has only speculative
value and virtually no perceptible insight into future revenue or profitability, while maintaining a
spectrum of significant liabilities, including from the Company itself vis-à-vis spectacular dilution.

For an investor with the slightest inclination to even the most modest margin of safety, shares in
Ligand should be valued currently as essentially worthless.

“We recognized compensation expense of $5.7 million, $4.1 million and $3.4 million
for 2013, 2012 and 2011, respectively, associated with option awards...”

LIGAND PHARMACEUTICALS INCORPORATED


2013 FORM 10-K

Share-based compensation represented 64.8 percent of income from operations in 2013.


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Conclusion

“Increasingly, we are hearing from investors that if you want to own a piece of this
lucrative industry, the best way to do it is to own Ligand. The thinking behind that is
Ligand has so many partnerships and programs, so many ways to participate in the
upside, that investors have a potential for biotech like returns, but at the same time
the Company's portfolio diversity and ultra lean cost structure creates an unusually
lower risk profile compared to typical biotech. This is what investors and analysts are
saying…”

JOHN L. HIGGINS – CEO LIGAND PHARMACEUTICALS


Q4 2013 RESULTS - EARNINGS CALL

“Pay no attention to the man behind the curtain!”

L. FRANK BAUM
THE WONDERFUL WIZARD OF OZ

What is the Company really selling? According to the CEO, it is the promise of “biotech-like
returns.”

The balance sheet is ~66 percent intangibles. Once removed, the Company has just about minus
$4 million in equity. This point is important since management boasted recently of “doubling”
shareholder equity. If there was any appreciable evidence that the Company’s existing programs
were likely to produce materially higher revenues or profits in the future, the intangible entry
might have some value. But as it stands today, it is just padding the balance sheet to disguise just
how precarious the Company’s financial situation continues to be.

The Company’s income from continuing operations in 2013 was $8.8 million, which represents
just .629 percent (6/10th) of one percent of the Company’s market capitalization as of June 12,
2014 and would barely cover just stock-based compensation expense planned in FY 2014
(contingent liabilities aside).

In 2013, despite increased sales of some $9.7 million, the Company’s net cash position actually
decreased by $743,000 to just $11.6 million.
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How could a Company whose retained earnings amount to a cumulative loss to shareholders of
$669 million, while diluting shareholders by 72.4 percent over just ten years, be worth anything
more than zero?

The Company lacks any margin of safety. To be sure, purchasing the stock is an acquired liability
posed by, amongst other things, management itself.

Fig 8 Retained Earnings

For this royalty stream/low operating expense business model to work, the Company's portfolio
of “partnered products” would need to deliver actual royalty streams from supposed near-term
launches (rather than trade on the promise of future royalty streams from early-stage partnered
programs, which comprise 60 percent of the Company's so-called pipeline). But this has not
occurred, and the evidence indicates that even if it does occur at some future date, the revenue
and projected profits cannot justify a share price above zero given the severe threats to the highly
concentrated revenue streams and the likelihood management will continue to dilute owners
without restraint.

Buying Ligand shares at $67.75 (the price the stock closed at on Friday June 13, 2014) is buying a
stock that has earned just $0.57 cents per share in the last twelve months, a TTM figure set to
drop even further with the release of the Company’s Q2 2014 GAAP earnings, which are almost
certain to be negative.

Management and its investment banks who moonlight as purported analysts have convinced the
market that buying into Ligand is buying into a highly diversified pharmaceutical concern, with all
the romance and excitement of prospecting in the biotech gold rush. But in reality, nothing could
be further from the truth. Buyers are actually paying a 115x premium for a Company that has
never retained its earnings, basically has only two of its three revenue streams remaining with the
larger of these remaining two set to decline precipitously.
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What is left of the Company after that is sales of a material called Captisol®, which is being single-
sourced to a third party, Portugal-based facility, and which has never produced significant profits
though it has been commercially available for some time before its adoption by Ligand.

The history of losses, current “going concern” risks associated with the possibility of termination
of already insipid licensing agreements, outstanding shareholder dilution, and the imminent
conclusion of the commercial viability of the Company’s largest royalty generating product,
Promacta®, makes Ligand wholly unsuitable as an investment and its shares fundamentally
worthless.

For those inclined to adventure in a richly-priced stock market, buying shares in Ligand is like
handing over your money to a Company so it can essentially make its payroll. Ligand is a company
with no real assets and fragile royalty programs, which is prone to speaking in sports jargon about
an abstract pipeline not of assets, but of vague “partnerships and programs”, for which they do
not control the outcome, and to which they are infinitely the junior partner to the transaction.

The markets have risen steadily for five years, creating an expensive bull market in equities. As is
almost always the case, the rising tide has lifted all ships, and market participants may have gained
naïve optimism about the future of businesses like Ligand. As purely speculative issues go, Ligand
is one of the most egregiously speculative investments trading on any U.S.-based exchange.

In such environments, there is almost no limit to the amount of stock a Company and its
investment bankers can sell.

However, general market sentiment will change and when it does it would not be surprising to
see a great many holders of shares in Ligand become unpleasantly skittish in a matter of a
millisecond.

Greed will become fear again, and there will be no market for shares of companies of Ligand’s
flavor. If the Company has difficulty selling its shares on the open market (its biggest revenue
generator to date), or at prices that are significantly impaired, payroll will be a notable problem
at the Company once again and shareholders who bought into the dream are likely to be left
holding worthless pieces of digital paper.
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Full Disclaimer

As of the publication date of this report, Lemelson Capital Management LLC has a short position
in the Company covered herein (Ligand Pharmaceuticals) and stands to realize gains in the event
that the price of the stock declines. Following publication of the report, Lemelson Capital may
transact in the securities of the Company covered herein. All content in this report represents the
opinions of Lemelson Capital. Lemelson Capital has obtained all information herein from sources
it believes to be accurate and reliable. However, such information is presented “as is,” without
warranty of any kind – whether express or implied. Lemelson Capital makes no representation,
express or implied, as to the accuracy, timeliness, or completeness of any such information or
with regard to the results obtained from its use. All expressions of opinion are subject to change
without notice, and Lemelson Capital does not undertake to update or supplement this report or
any information contained herein.

This document is for informational purposes only and it is not intended as an official confirmation
of any transaction. All market prices, data and other information are not warranted as to
completeness or accuracy and are subject to change without notice. The information included in
this document is based upon selected public market data and reflects prevailing conditions and
Lemelson Capital’s views as of this date, all of which are accordingly subject to change. Lemelson
Capital’s opinions and estimates constitute a best efforts judgment and should be regarded as
indicative, preliminary and for illustrative purposes only.

Any investment involves substantial risks, including, but not limited to, pricing volatility,
inadequate liquidity, and the potential complete loss of principal. This report’s estimated
fundamental value only represents a best efforts estimate of the potential fundamental valuation
of a specific security, and is not expressed as, or implied as, assessments of the quality of a
security, a summary of past performance, or an actionable investment strategy for an investor.

This document does not in any way constitute an offer or solicitation of an offer to buy or sell any
investment, security, or commodity discussed herein or of any of the affiliates of Lemelson
Capital. Also, this document does not in any way constitute an offer or solicitation of an offer to
buy or sell any security in any jurisdiction in which such an offer would be unlawful under the
securities laws of such jurisdiction. To the best of Lemelson Capital’s abilities and beliefs, all
information contained herein is accurate and reliable.

Lemelson Capital reserves the rights for their affiliates, officers, and employees to hold cash or
derivative positions in any Company discussed in this document at any time. As of the original
publication date of this document, investors should assume that Lemelson Capital is short shares
of Ligand and may have positions in financial derivatives that reference this security and stand to
potentially realize gains in the event that the market valuation of the Company’s common equity
is lower than prior to the original publication date. These affiliates, officers, and individuals shall
Case 1:18-cv-11926-PBS Document 127-6 Filed 09/30/20 Page 25 of 25
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have no obligation to inform any investor about their historical, current, and future trading
activities. In addition, Lemelson Capital may benefit from any change in the valuation of any other
companies, securities, or commodities discussed in this document.
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UNITED STATES DISTRICT COURT


FOR THE
DISTRICT OF MASSACHUSETTS

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

v.
Civ. No. 1:18-cv-11926-PBS
GREGORY LEMELSON and LEMELSON CAPITAL
MANAGEMENT, LLC, JURY TRIAL DEMANDED

Defendants, Leave to amend granted on


January 23, 2019
and

THE AMVONA FUND, LP,

Relief Defendant.

AMENDED COMPLAINT

Plaintiff, the United States Securities and Exchange Commission (the “Commission”),

alleges the following against Defendants Gregory Lemelson (“Lemelson”) and Lemelson Capital

Management, LLC, and Relief Defendant The Amvona Fund, LP, and hereby demands a trial by

jury:

SUMMARY OF ALLEGATIONS

1. Between May and October of 2014, Lemelson devised and carried out a

fraudulent scheme in which he purchased “short positions” in the stock of Ligand

Pharmaceuticals, Inc. (“Ligand”) and then sought to manipulate the stock price to make a profit.

A short position is an investment technique whereby an investor seeks to profit when the price of

a stock falls. Lemelson publicly disseminated a series of false statements about Ligand to drive
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down the price of the stock, while engaging in a series of purchases and sales of Ligand stock

that enabled him to profit from the lowered stock price.

2. An investor takes a “short position” in a stock by borrowing a company’s stock

from a broker. The investor then sells the stock at its current market price (which the investor

hopes is overvalued and will soon drop). If the price of the stock goes down, the investor profits

from the “short sale” by purchasing the stock at the lower price, referred to as “covering” the

short sale, returning the borrowed stock to the broker, and keeping the difference between the

initial sale and the later purchase at a lower price.

3. Beginning in May 2014 and continuing through October 2014, Lemelson took

short positions in Ligand stock through his hedge fund, The Amvona Fund, LP (“Amvona”). He

then orchestrated a public campaign attacking Ligand with the intent to convince the investing

public that Ligand’s stock was overvalued. As part of his campaign, Lemelson made a series of

false statements of material fact about Ligand that were intended to shake investor confidence in

the company, drive down the price of Ligand’s stock, and, consequently, increase the value of

Lemelson’s short positions.

4. Starting in June 2014 and continuing through August 2014, Lemelson authored

and published multiple “research reports” that contained false statements of material fact about

Ligand and that were intended to create a negative view of the company and its value and,

consequently, to drive down the price of the company’s stock. Further, between June and

October of 2014, Lemelson participated in live and written interviews in which he made

additional false statements of material fact about Ligand which also were intended to create a

negative view of the company and its value and, consequently, to drive down the price of the

company’s stock.

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5. Each of Lemelson’s false statements was intended to drive down the price of

Ligand’s stock. For example, in a June 2014 report, Lemelson stated that Ligand’s flagship drug

product, and main source of licensing revenue, was imminently “going away.” To bolster and

lend credence to his report, Lemelson, in a widely available radio interview, falsely stated that a

Ligand representative agreed with his analysis. Lemelson also falsely claimed that Ligand

engaged in a sham licensing transaction with another pharmaceutical company and had run up so

much debt that the company was insolvent. None of these statements was true, none had a

reasonable basis in fact, and each concerned significant aspects of Ligand’s financial condition,

business dealings, and the viability of its products that reasonable investors would consider

important in evaluating Ligand’s prospects. Lemelson made each of these false statements

intentionally or recklessly for the purpose of driving down Ligand’s stock price.

6. Between June and October 2014, Lemelson publicly and widely disseminated

false statements about Ligand in press releases, on Amvona’s blog, through social media, in

various other media outlets, and also in appearances on radio shows. In doing so, Lemelson

intended to create a negative view of the company and its value and, consequently, to drive down

the price of the company’s stock.

7. In addition to deceiving the investing public by making false statements of

material fact about Ligand, Lemelson and Lemelson Capital Management, LLC (“LCM”)

deceived investors and prospective investors in The Amvona Fund by making and disseminating

false statements about Ligand as part of their efforts to obtain and retain Amvona Fund investors.

Defendants further misled investors and potential investors by not disclosing that The Amvona

Fund’s positive returns from its short position in Ligand were based on Defendants’ stock price

manipulation.

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8. As Lemelson intended, the price of Ligand stock fell during his scheme to mislead

investors about its value. The day Lemelson began disseminating his false statements, June 16,

2014, Ligand’s opening share price was $67.26. By October 13, 2014, Ligand’s share price had

dropped by nearly $23—a decline of approximately 34 percent. Also by that time, Lemelson had

“covered” the vast majority of Amvona’s short position in Ligand generating approximately $1.3

million in illegal profits. Ligand’s stock price subsequently recovered, and today, Ligand stock

trades at over $250 per share.

9. By engaging in this conduct, Lemelson and LCM violated Section 10(b) of the

Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rules 10b-5(a), (b),

and (c) thereunder [17 C.F.R. § 240.10b-5(a)-(c)], and both Lemelson and LCM violated Section

206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) [15 U.S.C. § 80b-6(4)] and Rule

206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8].

10. The Commission seeks injunctive relief, disgorgement of ill-gotten gains together

with prejudgment interest, and civil penalties.

JURISDICTION AND VENUE

11. The Commission brings this action pursuant to the enforcement authority

conferred upon it by Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] and Section 209(d)

of the Advisers Act [15 U.S.C. § 80b-9(d)]. The Commission seeks the imposition of a civil

penalty pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and Section

209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)].

12. This Court has jurisdiction over this action pursuant to Sections 21(d), 21(e), and

27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa], and Sections 209(d), 209(e) and

214 of the Advisers Act [15 U.S.C. §§ 80b-9(d), 80b-9(e), 80b-14], and 28 U.S.C. § 1331.

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13. Venue is proper in this district pursuant to 28 U.S.C. § 1331(b)(2), Sections

21(d)-(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d)-(e) and 78aa], and Sections 209(d)

and 214 of the Advisers Act [15 U.S.C. §§ 80b-9(d) , 80b-14], because a substantial part of the

acts constituting the alleged violations occurred in the District of Massachusetts, Lemelson lived

and worked in Massachusetts during the relevant time period, and the principal place of business

of Amvona and Lemelson Capital Management LLC (“LCM”) is in Massachusetts.

14. In connection with the conduct alleged in this Complaint, Lemelson directly or

indirectly made use of the means or instruments of transportation or communication in interstate

commerce, the facilities of national securities exchanges, or the mails.

15. Lemelson’s conduct involved fraud, deceit, or deliberate or reckless disregard of

regulatory requirements, and resulted in substantial loss, or significant risk of substantial loss, to

other persons.

16. Unless enjoined, Lemelson will continue to engage in the securities law violations

alleged herein, or in similar conduct that would violate federal securities laws.

DEFENDANTS AND RELIEF DEFENDANTS

17. Gregory Lemelson, 42, resides in Mansfield, Massachusetts. He is the Chief

Investment Officer and portfolio manager of Lemelson Capital Management LLC, a private

investment firm he founded to manage The Amvona Fund, LP. At all relevant times, Lemelson

was an “investment adviser” within the meaning of Section 202(a)(11) of the Advisers Act [15

U.S.C. §80b-2(a)(11)]. Lemelson is LCM’s founder, Chief Investment Officer, and portfolio

manager. In those capacities, Lemelson controls LCM and makes all decisions on behalf of

LCM.

18. Lemelson Capital Management, LLC is a Massachusetts company formed on

June 14, 2012, with its principal office in Marlborough, Massachusetts. LCM is an Exempt

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Reporting Adviser registered with the Commission and the Commonwealth of Massachusetts.

LCM is the investment manager and investment adviser to The Amvona Fund, LP. At all

relevant times, LCM was an “investment adviser” within the meaning of Section 202(a)(11) of

the Advisers Act [15 U.S.C. §80b-2(a)(11)].

19. The Amvona Fund, LP is a Delaware company formed on July 24, 2012, with its

principal office in Marlborough, Massachusetts. Amvona is a pooled investment vehicle under

Rule 206(4)-8(b) promulgated under the Advisers Act [17 C.F.R. § 275.206(4)-8] and Sections

3(a) and 3(c)(1) of the Investment Company Act of 1940 [15 U.S.C. § 80a-3(a) and (c)(1)].

Lemelson is the General Partner of Amvona. Lemelson launched Amvona as a hedge fund in

September 2012, and began accepting limited partner investments shortly thereafter. On January

4, 2013, Lemelson formed The Amvona Fund Ltd. (“Amvona Limited”) in the British Virgin

Islands. Amvona Limited operates as a feeder fund into Amvona (Amvona Limited and Amvona

are hereinafter referred to together as “Amvona”). Lemelson is the Director of Amvona Limited.

Amvona advertises itself as a long-position fund, i.e., a fund that seeks to profit from

appreciation in the price of securities it holds. Amvona has approximately $15 million of assets

under management, more than half of which belong to Lemelson and his family.

RELATED ENTITIES

20. Ligand Pharmaceuticals, Inc. (“Ligand”) is a Delaware corporation with its

principal place of business in San Diego, California. Ligand is a biopharmaceutical company

involved in the development and licensing of medicines and technologies. Ligand’s common

stock is registered with the Commission under Section 12(b) of the Exchange Act and trades on

NASDAQ under the symbol “LGND.”

21. Viking Therapeutics, Inc. (“Viking”) is a Delaware corporation with its

principal place of business in San Diego, California. Viking is a clinical-stage biotherapeutics

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company focused on developing treatments for metabolic and endocrine disorders. Viking’s

common stock is registered with the Commission under Section 12(b) of the Exchange Act and

trades on NASDAQ under the symbol “VKTX.” Through a Master License Agreement between

Ligand and Viking dated May 2014, Ligand became a 49.8% owner of Viking common stock.

FACTS

A. Lemelson Published and Disseminated Negative Reports about Ligand While


Increasing Amvona’s Short Position in Ligand

22. On May 22, 2014, Lemelson and LCM took an initial short position in Ligand of

579 shares on behalf of Amvona. Shortly thereafter, Lemelson began publicly disseminating

negative information about Ligand—including a series of false and misleading statements—as

part of a fraudulent scheme to drive down Ligand’s share price and profit from his short position.

23. Between June 16 and August 22, 2014, Lemelson published a total of five reports

that discussed Ligand. Lemelson was the sole author and solely responsible for the content of

each report. All of Lemelson’s reports about Ligand were negative and took a dim view of the

company’s value and prospects. Certain of the reports also contained false and misleading

statements of material fact, as detailed in Part B below. Lemelson used these false and

misleading statements to bolster and lend credence to the overall attack levied against Ligand

and its valuation.

24. Lemelson published the first of his negative reports about Ligand on June 16,

2014, titled “Ligand Pharmaceuticals (NASDAQ: LGND)” (the “June 16th Report”). As

detailed below, Lemelson stated, without a reasonable basis in fact, that Ligand’s primary source

of licensing revenue, the drug Promacta, was on the brink of obsolescence. Lemelson then

doubled down on this misstatement by falsely claiming in a June 19 interview that a Ligand

representative stated the company knew Promacta was “going away.” Lemelson thus concluded

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that “Ligand’s fair value is roughly $0 per share, or 100 percent below the current stock price.”

By this time, Lemelson had increased his short position in Ligand by borrowing and selling short

68,528 shares for approximately $4.6 million. In the days following the June 16 report Ligand’s

stock price dropped approximately 16%.

25. Lemelson continued his efforts to drive Ligand’s stock price even lower. In his

next report, dated July 3, 2014 and titled “Ligand Pharmaceuticals (NASDAQ: LGND);

Appendix” (the “July 3rd Report”), Lemelson characterized a transaction between Ligand and

Viking as a sham by making false statements about Viking’s finances and operations. Lemelson

went on to state that “the intrinsic value of Ligand shares must be reaffirmed as $0 with

downside risk justifiably calculated at 100%.”

26. Lemelson’s next report, dated August 4, 2014 and titled “Update: Lemelson

Capital Further Increases Short Stake in Ligand Pharmaceuticals (NASDAQ: LGND) as LGND

EPS Plunges 76 percent in Q2 2014” (the “August 4th Report”), repeated his false statement

about Promacta becoming obsolete and concluded that “the intrinsic value of Ligand shares must

be reaffirmed as $0 with downside risk justifiably calculated at 100 percent.”

27. In another report dated August 14, 2014, titled “Lemelson Capital Says Ligand

Pharmaceuticals’ (NASDAQ: LGND) $225M Debt Issuance Solidifies Company’s Insolvency,

Substantially Raises Specter of Bankruptcy” (the “August 14th Report”), Lemelson claimed that

Ligand was teetering on the brink of bankruptcy.

28. Finally, on August 22, 2014, Lemelson issued a report titled “Ligand

Pharmaceuticals (NASDAQ: LGND): Institutional holders wasting no time dumping stock in

response to mounting insolvency and bankruptcy risks” (the “August 22nd Report”), in which he

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made misleading statements about Ligand’s financial condition, as detailed below, and claimed

that “common shareholders could be wiped out almost entirely without notice.”

29. Lemelson published his Ligand reports under the heading of LCM; posted them

on Amvona’s website; distributed them to various press sources – among them, PR Newswire,

Globe Newswire, Seeking Alpha, Benzinga, Street Insider, Value Walk, and USA Today – the

day they were published; and posted links to the reports on various social media accounts under

his control. The published press releases contained abbreviated summaries of the report and

included links to the reports on Amvona’s website.

30. Between June and October 2014, Lemelson also conducted various audio and

written interviews in which he stated that Ligand’s stock had no intrinsic value and provided

additional commentary on Ligand. He conducted many such interviews with Benzinga, an

online financial media outlet, including appearing on Benzinga’s “Premarket Prep” show, which

provides investors with information prior to market open. Lemelson discussed Ligand in at least

four of these live and written interviews:

a. On June 19, 2014, Lemelson appeared on Benzinga’s Premarket Prep


show, for an audio interview (the “June 19th Interview”) in which he
falsely stated that a Ligand representative agreed with Lemelson’s
statements about Promacta in the June 16 Report and subsequently
reiterated in the August 4 report.

b. On August 13, 2014, Lemelson appeared for a second time on the


Benzinga Premarket Prep Show for an audio interview (the “August 13th
Interview”).

c. On September 16, 2014, Lemelson appeared for a third time on the


Benzinga Premarket Prep Show for an audio interview (the “September
16th Interview”).

d. On October 16, 2014, Lemelson appeared for a fourth time on the


Benzinga Premarket Prep Show for an audio interview (the “October 16th
Interview”).

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31. The purpose of Lemelson’s reports and interviews was to shake investor

confidence in Ligand and drive down Ligand’s share price. For example, in a solicitation to a

prospective Amvona investor, Lemelson touted the June 19th Interview and asserted that

“[s]hares of Ligand dropped ~2% during the interview.” Similarly, a major financial news

organization noted that Ligand’s stock price “fell more than 7 percent” after Lemelson published

his report claiming that demand for Promacta was rapidly declining.

32. Lemelson took affirmative steps to suppress commentary that highlighted his bias,

his lack of familiarity with the pharmaceutical industry, and his motivation to drive down the

price of Ligand stock. For example, Lemelson successfully petitioned Seeking Alpha to remove

commentary on his Ligand-related reports on or around at least the following dates:

a. June 22, 2014 (five separate comments by five separate accounts


removed),
b. June 23, 2014,
c. June 24, 2014,
d. August 4, 2014 (two separate comments by two separate accounts
removed),
e. August 23, 2014 (two separate comments by two separate accounts
removed),
f. August 26, 2014, and
g. May 1, 2015.

Lemelson also unsuccessfully attempted to remove comments critical of his Ligand-related

reports on July 7, 2014.

33. Lemelson expanded Amvona’s short position in Ligand stock between May 22

and August 4, 2014, to 65,736 shares. He covered a significant portion of this position in August

2014, after Ligand’s share price dropped from $68.72 on June 16, 2014, to $51.75 on August 22,

2014, in the wake of Lemelson’s negative reports and interviews. Lemelson covered the bulk of

Amvona’s remaining short position in October 2014. In total, Lemelson sold short (and bought

to cover) 77,836 shares of Ligand in 2014.

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34. Amvona profited by approximately $1.3 million from this trading, and, as a part

owner of Amvona, Lemelson personally profited from his fraudulent trading activity.

B. Lemelson’s False and Misleading Statements Concerning Ligand.

35. Lemelson presented his negative reports on Ligand as a purported exposé on the

company’s inner workings, and claimed that his statements about Ligand were based on

extensive research and discussions with the company’s representatives and with medical experts.

In his reports and other public statements, Lemelson intentionally or recklessly made the

following material misstatements of fact.

1) Lemelson Falsely States that Ligand’s Flagship Product was “Going Away.”

36. The central thesis of Lemelson’s June 16th Report was that Promacta, Ligand’s

flagship drug and primary source of revenue, was facing competitive pressure from a new

competing drug, Sovaldi, which would soon render Promacta obsolete. Lemelson subsequently

sought to lend credence to his thesis by falsely stating that a Ligand representative agreed with

him and acknowledged that Promacta was going to become obsolete.

37. Specifically, following publication of the June 16 Report, Lemelson appeared on

Benzinga’s Pre-Market Prep show on June 19, 2014. During the June 19th Interview, Lemelson

made the following false statement of material fact: “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.’”

38. Lemelson’s statement referenced a conversation he had on June 18, 2014, with a

representative of Ligand’s investor relations firm (the “IR Representative”). The IR

Representative, however, never made any such statement. The IR representative notified

Lemelson of that fact via email after hearing Lemelson’s Benzinga interview. Lemelson never

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responded to the email. Nor did Lemelson correct or withdraw his false statement, or disclose

that the IR Representative denied having made the statement Lemelson attributed to him.

39. Lemelson made this false statement of material fact to support his argument that

one of Ligand’s main revenue sources—royalties from licensing Promacta—was imperiled and

that Ligand’s stock was therefore overvalued.

40. Lemelson also attempted to bolster his false representation that Promacta was on

the brink of obsolescence by misleading the readers of his reports about other “evidence” he had

about Promacta. The June 16 Report cites information provided by “an Associate Clinical

Professor of Medicine and Surgery at one of the largest transplant Hepatology departments at a

major U.S. university hospital and also with the Chief of abdominal surgery and transplantation

at a major European university hospital.” This statement was itself misleading because: a)

Lemelson did not disclose that the European hospital doctor was actually Amvona’s largest

investor (and thus had a significant financial interest in making Ligand’s stock price fall), and b)

Lemelson never spoke with the U.S. hospital doctor, relying only on a report from his largest

investor on what the U.S. hospital doctor had said.

41. Further, none of the information Lemelson identified as the source of his

statement about Promacta suggested that Sovaldi would render Promacta obsolete. Specifically,

Lemelson cited two articles in the June 16th Report as “references to the obsolete nature of

[Hepatitis C] supportive care treatments such as Promacta,” despite the fact that neither article

discussed Promacta, and neither article could be fairly construed as implying or suggesting that

Sovaldi would render Promacta obsolete.

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42. In sum, Lemelson’s false statements about Promacta were falsely attributed to

Ligand and had no other reasonable basis in fact. He either intentionally lied about Promacta’s

viability, or was reckless as to the truth or falsity of his statements.

43. Lemelson’s false statements about Promacta were material. Each concerned the

viability of one of Ligand’s main sources of revenue. These material falsehoods supported

Lemelson’s misrepresentations that Ligand’s revenue streams were in peril, and were thus

central to his scheme to drive down Ligand’s stock price.

2) Misstatements about Viking Therapeutics, Inc.

44. Lemelson published another report about Ligand on July 3, 2014. In that report,

in addition to repeating his claims about Promacta, Lemelson also took aim at Ligand’s business

relationship with Viking. Lemelson stated that “Ligand appears to be indirectly creating a shell

company through Viking to generate paper profits to stuff its own balance sheet.” He further

stated that Ligand had “engaged in a ‘creative transaction’ with an affiliate shell company called

Viking Therapeutics” to the detriment of Ligand shareholders. To bolster and lend credence to

these accusations, Lemelson made material misstatements of fact regarding Ligand’s licensing

agreement with Viking and Viking’s Form S-1 registration statement (the form the SEC requires

initially to register securities for public sale).

45. Viking was not a “shell.” It was in the business of developing treatments for

certain kinds of illnesses. Ligand had five drugs that it licensed to Viking to develop. Ligand

had also invested in Viking and bought just under half of the company before Lemelson started

trying to drive Ligand's stock price down. In short, Viking was working on developing certain of

Ligand’s drugs with financial support from Ligand.

46. In the July 3rd Report, Lemelson falsely stated that, as of the filing of Viking’s

July 1, 2014 Form S-1 registration statement, Viking had “yet to consult with [its auditors] on

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any material issues” and that the “financial statements provided in the S1 accordingly are

unaudited.” Lemelson also falsely stated in the same report that “Viking does not intend to

conduct any preclinical studies or trials.” None of these statements were true, and each was

made to support Lemelson’s false claim that Viking was “an affiliate shell company” that Ligand

used to “create almost a veritable pyramid scheme of shell companies” that was “guaranteed to

lose money.”

47. Lemelson’s statements about auditors and financial statements were false and

contradicted by Viking’s July 1, 2014 Form S-1, which Lemelson relied upon when writing his

July 3 report. The Form S-1 contains a letter from Viking’s new auditors stating that they have

“audited the balance sheets of Viking . . . as of December 31, 2012, and 2013.”

48. Further, the May 21, 2014 Master License Agreement between Ligand and

Viking, which was attached to the Viking Form S-1, stated that “Viking is engaged in the

research, development, manufacturing and commercialization of pharmaceuticals products.”

Through the Master License Agreement, Viking obtained licenses to develop drugs, and leased

space from Ligand to conduct the necessary research and development activities, which include

preclinical studies and trials. Lemelson’s statement that “Viking does not intend to conduct any

preclinical studies or trials” is thus contradicted by the very document Lemelson supposedly

relied upon.

49. In short, each of Lemelson’s false statements about Viking is contradicted by the

source Lemelson supposedly relied upon. Lemelson therefore either intentionally lied about, or

was reckless as to the truth or falsity of, his statements.

50. Lemelson’s falsehoods about Viking were material. Each concerned a significant

financial transaction and sought to both cast doubt on the stated benefits of the transaction to

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Ligand and to allege misconduct by Ligand management. These material falsehoods supported

Lemelson’s false claim that the Ligand-Viking business relationship was a sham or fraud

designed to artificially inflate Ligand’s profits, and were thus central to his scheme to drive down

Ligand’s stock price.

3) Lemelson Makes Misleading Statements about Ligand’s Financial Condition.

51. In his August 14 Report, titled “Lemelson Capital Says Ligand Pharmaceuticals’

(NASDAQ: LGND) $225 Debt Issuance Solidifies Company’s Insolvency, Substantially Raises

Specter of Bankruptcy,” Lemelson wrote that Ligand’s “announcement that it would assume

$225 million in convertible debt . . . further deepens the already significant concerns about

Ligand’s imminent insolvency and the company’s substantial risk of bankruptcy.” In support of

this statement, Lemelson wrote that, as a result of the August 2014 debt issuance, “the

company’s liabilities will again far exceed its assets and the company will technically be

insolvent once more” and that, even before the new debt issuance, “the company’s liabilities

exceeded tangible assets, meaning the company was insolvent.” These statements were

misleading because Lemelson, without explanation, excluded Ligand’s intangible assets –

including Ligand’s intellectual property and goodwill – in claiming that Ligand was insolvent.

In fact, in its quarterly financial reports on Forms 10-Q both before and after Ligand’s August

2014 debt issuance, Ligand’s assets exceeded its total liabilities.

52. In his August 22 Report, titled “Ligand Pharmaceuticals (NASDAQ: LGND):

Institutional holders wasting no time dumping stock in response to mounting insolvency and

bankruptcy risks,” Lemelson again painted a misleading picture of Ligand’s financial health. He

wrote that Ligand “issued $245 million in new debt against the company’s [Ligand’s] tangible

equity of just $21,000, giving rise to a debt to tangible equity ratio of 11,667-to-1 (that is to say,

$11,667 dollars (sic) in debt for every $1 dollar (sic) in tangible common shareholder equity)”

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and that “shareholders have only the protection of $21,000 in tangible equity to shield them from

$245 million in debt.” This statement was misleading for the following reasons. First, this

statement ignores the cash proceeds of the debt issuance – i.e., while Ligand took on debt, it also

received cash, tens of millions of which remained at Ligand’s disposal as of the end of the third

quarter of 2014. Moreover, Lemelson’s statement that Ligand’s shareholders “have only the

protection of $21,000 in tangible equity to shield them from $245 million in debt” compares

apples to oranges. Shareholder equity is not “protection from debt”; it is a balance sheet figure

that represents the difference between assets and liabilities. Assets – including cash – “protect”

shareholders from debt. Yet, without explanation, Lemelson cited a “debt to tangible equity”

ratio that discarded the value of Ligand’s intangible assets, such as intellectual property – the

most significant asset of a pharmaceutical company whose business is built on licensing

intellectual property rights to its drugs. Lemelson then compounded the misleading nature of his

statement by comparing “tangible equity” as of June 30, 2014 – a figure that has no bearing on

“protection from debt” – to the full amount of the August 2014 debt offering ($245 million).

Lemelson thus compared an apple (“tangible equity,” which omitted existing intangible assets) to

an orange (the full amount of the new debt, ignoring the cash proceeds of the issuance) at two

different points in time to concoct a ratio that looks really bad (11,667 dollars of debt for every

dollar of shareholder equity) but has no bearing on the actual financial wherewithal of the

Company.

53. Second, and perhaps worse, Lemelson used his apples-to-oranges comparison to

suggest that Ligand was insolvent. It was misleading to suggest that a debt-to-tangible-equity

ratio is a test for insolvency; it is not.

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54. Lemelson’s misleading statements were material, as each went to the heart of

Ligand’s overall financial wherewithal and supported Lemelson’s argument that Ligand’s stock

was worthless.

C. Lemelson and LCM Misled Prospective Investors.

55. Both LCM and Lemelson, intentionally or recklessly, and by failing to exercise

reasonable care, disseminated the material false statements of fact detailed above to LCM’s

investors and prospective investors. By doing so, and by omitting to disclose material

information, they caused disclosures by Lemelson and LCM about Amvona’s investment

strategy and about Lemelson’s abilities as a financial adviser to be materially misleading.

56. Lemelson and LCM sent Lemelson’s reports and links to his interviews, which

contained multiple misstatements of material fact as detailed above, to current and prospective

Amvona investors, including in emails dated June 16, June 19 (boasting that Ligand shares

dropped two percent during his interview), July 2, July 3, and July 18, 2014. He also touted his

results in driving down Ligand’s stock price in communications to investors and prospective

investors, including in an email dated July 18, 2014; letters to Amvona Fund partners dated July

17, 2014 (claiming that Lemelson’s research report and appendix on Ligand “have begun to be

proven correct”) and October 9, 2014 (citing the decline in Ligand’s stock price); an investor

presentation dated September 4, 2014 (falsely noting that Lemelson Capital had been credited

with the drop in Ligand’s market capitalization by certain media outlets); and in multiple posts to

his Amvona website. In addition, in using Lemelson’s reports to solicit potential investors to

entrust their funds to him, Lemelson and LCM did not disclose that the profitability of their

short-selling strategy depended upon Lemelson’s fraudulent manipulation of Ligand stock

through false statements, rather than his ability to identify a company whose stock would

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decrease on its own based on its inherent lack of value. This omission also made other

disclosures about Amvona’s value-focused investing strategy materially false and misleading.

FIRST CLAIM FOR RELIEF

Fraud in the Purchase or Sale of Securities in


Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder

(Lemelson and LCM)

57. The Commission realleges and incorporates by reference paragraphs 1 through 56

above, as if set forth fully herein.

58. As detailed above, Defendants Lemelson and LCM engaged in a fraudulent

scheme through a series of fraudulent acts, statements, and material omissions designed to drive

Ligand’s stock price down and profit from a short position in Ligand stock.

59. By engaging in the conduct above, these Defendants, directly or indirectly, acting

intentionally, knowingly, or recklessly, by the use of means or instrumentalities of interstate

commerce or of the mails, in connection with the purchase or sale of securities: (a) have

employed or are employing devices, schemes, or artifices to defraud; (b) have made or are

making untrue statements of material fact or have omitted or are omitting to state material facts

necessary to make the statements made, in light of the circumstances under which they were

made, not misleading; and (c) have engaged or are engaging in acts, practices, or courses of

business which operate as a fraud or deceit upon certain persons, or, in the alternative, aided and

abetted these violations.

60. The conduct of these Defendants involved fraud, deceit, manipulation, and/or

deliberate or reckless disregard of regulatory requirements and directly or indirectly resulted in

losses to other persons.

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61. By engaging in the foregoing conduct, Lemelson violated, and unless enjoined

will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5

thereunder [17 C.F.R. § 240.10b-5].

SECOND CLAIM FOR RELIEF

Fraudulent, Deceptive, or Manipulative Act or Practice


to Investors or Potential Investors in Pooled Investment Vehicle in
Violation of Section 206(4) of the Investment Advisers Act and Rule 206(4)-8 Thereunder

(Lemelson and LCM)

62. The Commission realleges and incorporates by reference paragraphs 1 through 61

above.

63. Section 206(4) of the Advisers Act prohibits an investment adviser from, directly

or indirectly, engaging in any act, practice, or course of business that is fraudulent, deceptive, or

manipulative. Rule 206(4)-8(a)(1) prohibits an adviser to a pooled investment vehicle from

making any untrue statement of a material fact or omitting to state a material fact necessary to

make the statements made, in the light of the circumstances under which they were made, not

misleading, to any investor or prospective investor in the pooled vehicle.

64. By the actions described above, Lemelson and LCM, by use of the mails or any

means or instrumentality of interstate commerce, directly or indirectly, acting intentionally,

knowingly, recklessly, or negligently made untrue statements of material fact and omissions that

rendered Lemelson’s statements misleading to investors and prospective investors in Amvona.

65. At all relevant times, Lemelson and LCM were “investment advisers” within the

meaning of Section 202(a)(11) of the Advisers Act [15 U.S.C. §80b-2(a)(11)]. Lemelson was an

“investment adviser” by virtue of his ownership, management and control of LCM, and his

provision of investment advice to Amvona. Both Lemelson and LCM were in the business of

providing investment advice concerning securities, for compensation.

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66. At all relevant times, Amvona was a “pooled investment vehicle” within the

meaning of Rule 206(4)-8(b) promulgated under the Advisers Act [17 C.F.R. § 275.206(4)-8]

and Sections 3(a) and 3(c)(1) of the Investment Company Act of 1940 [15 U.S.C. § 80a-3(a) and

(c)(1)].

67. By engaging in the conduct described above, Lemelson and LCM violated, and

unless enjoined will continue to violate, Section 206(4) of the Advisers Act [15 U.S.C. § 80b-

6(4)] and Rule 206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8].

THIRD CLAIM FOR RELIEF

Other Equitable Relief, Including


Unjust Enrichment and Constructive Trust

(As to Relief Defendant The Amvona Fund, LP)

68. The Commission repeats and incorporates by reference the allegations in

paragraphs 1 through 67 above as if set forth fully herein.

69. Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)] states: “In any

action or proceeding brought or instituted by the Commission under any provision of the

securities laws, the Commission may seek, and any Federal court may grant, any equitable relief

that may be appropriate or necessary for the benefit of investors.”

70. Relief Defendant Amvona has received investor funds derived from the unlawful

acts or practices of the Defendants under circumstances dictating that, in equity and good

conscience, they should not be allowed to retain such funds.

71. Further, specific property acquired by Relief Defendant Amvona is traceable to

Defendants’ wrongful acts and there is no reason in equity why Relief Defendant should be

entitled to retain that property.

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72. As a result, Relief Defendant Amvona is liable for unjust enrichment and should

be required to return its ill-gotten gains, in an amount to be determined by the Court. The Court

should also impose a constructive trust on property in the possession of the Relief Defendant that

is traceable to Defendants’ wrongful acts.

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully request that the Court enter Final Judgment:

I.

Permanently restraining and enjoining Defendants, and their agents, servants, employees,

attorneys and those persons in active concert or participation with them, who receive actual

notice of the order by personal service or otherwise, from violating Section 10(b) of the

Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5] and

Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Rule 206(4)-8 thereunder

[17 C.F.R. § 275.206(4)-8];

II.

Ordering Defendants and Relief Defendant to disgorge the proceeds their ill-gotten gains,

plus prejudgment interest;

III.

Ordering Lemelson and LCM to pay appropriate civil monetary penalties under Section

21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and Section 209(e) of the Advisers Act

[15 U.S.C. §80b-9(e)];

IV.

Retaining jurisdiction of this action in accordance with the principles of equity and the

Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and

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decrees that may be entered or to entertain any suitable application of motion for additional relief

within the jurisdiction of this Court; and

V.

Granting such other and further relief as this Court may determine to be just and

necessary.

Dated: March 21, 2019 Respectfully submitted,

/s/ Alfred A. Day


Alfred A. Day (BBO #654436)
Marc J. Jones (BBO #645910)
Securities and Exchange Commission
Boston Regional Office
33 Arch Street, 24th Floor
Boston, MA 02110
617-573-4537 (Day)
617-573-8947 (Jones)
DayA@sec.gov
JonesMarc@sec.gov
Attorneys for Plaintiff

Virginia M. Rosado Desilets


Sonia G. Torrico
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549

CERTIFICATE OF SERVICE

I hereby certify that this document filed through the ECF system will be sent
electronically to the registered participants as identified on the Notice of Electronic Filing (NEF)
and paper copies will be sent to those indicated as non-participants on March 21, 2019.

/s/ Alfred A. Day

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UNITED STATES DISTRICT COURT


FOR THE DISTRICT OF MASSACHUSETTS

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

v.

GREGORY LEMELSON and LEMELSON CAPITAL Civil Action No. 1:18-cv-11926-PBS


MANAGEMENT, LLC,

Defendants,

and

THE AMVONA FUND, LP,

Relief Defendant.

OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

The Commission alleges the Defendants violated the securities laws in three ways: First,

Defendants made four false factual statements about the viability of Ligand’s flagship drug, the

nature of Ligand’s relationship with Viking Therapeutics, Inc., and Ligand’s financial condition.

Second, through these false statements and other conduct, Defendants engaged in a fraudulent

“short and distort” scheme to profit from Defendants’ short position by manipulating the market

price of Ligand shares. Third, Defendants deceived investors and prospective investors by

making and disseminating false statements about The Amvona Fund’s Ligand investment and by

failing to disclose that the fund’s positive returns from that position resulted from Defendants’

stock price manipulation The first two of these comprise the Commission’s First Claim,

violations of Exchange Act Section 10(b) and Rule 10b-5. The third is the Commission’s

Second Claim, violation of Advisers Act Section 206(4) and Rule 206(4)-8.

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Defendants raise four grounds for dismissal: (1) that three of four challenged false

statements of material fact were actually true; (2) that certain of Defendants’ statements included

in the Complaint, most of which the Commission does not allege are independently actionable,

are statements of “opinion”; (3) that the challenged false statements of material fact are not

material; and (4) that the Commission’s claim under Rule 206(4)-8 of the Investment Advisers

Act fails. Each of these arguments prematurely raises factual disputes that are not grounds for

dismissal or otherwise lack merit, and Defendants’ motion should be denied.

ARGUMENT

To survive a motion to dismiss under Rule 12(b)(6), a complaint must contain sufficient

factual matter to state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009). The Court takes the allegations in the complaint as true, making all reasonable

inferences in favor of the plaintiff. Hill v. Gozani, 638 F.3d 40, 55 (1st Cir. 2011). Dismissal for

failure to state a claim is only appropriate when the pleadings fail to set forth factual allegations

respecting each element necessary to sustain recovery under a legal theory. Gagliardi v.

Sullivan, 513 F.3d 301, 305 (1st Cir. 2008).

A. The Commission Has Alleged Actionable Misstatements of Material Fact.

The Commission alleges that Defendants made four specific material misrepresentations

in the course of their campaign to drive down Ligand’s share price and profit from their short

position. To state a claim under Exchange Act Section 10(b) and Rule 10b-5(b), the

Commission must allege that each of the four challenged statements of fact was false or

misleading, material, and made with scienter. 15 U.S.C. § 78j(b); 17 CFR § 240.10b–5(b); see

SEC. v. Ficken, 546 F.3d 45, 47 (1st Cir. 2008). The Commission has done so here: 1

1
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False Statement No. 1 – Promacta. In a June 19, 2014 interview, Lemelson falsely

stated: “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.’” (Compl. ¶ 37.) This statement was false – Ligand’s IR

representative never said any such thing – and material, as it concerned Ligand’s main source of

revenue. (Compl. ¶¶ 38-39, 43.)

False Statements Nos. 2 & 3 – Viking. In a July 3, 2014 report, Defendants falsely

stated that Viking had “yet to consult with [its auditors] on any material issues” and that the

“financial statements provided in the S1 accordingly are unaudited.” (Compl. ¶ 46.) In the same

report, Defendants falsely stated that “Viking does not intend to conduct any preclinical studies

or trials.” (Compl. ¶ 46.) These statements were false – Viking’s public filings plainly

contradict each statement – and material, as each concerned a significant financial transaction

and sought both to cast doubt on the stated benefits of the transaction and to allege misconduct

by Ligand management. (Compl. ¶¶ 47-50.)

False Statement No. 4 – Ligand’s Financial Condition. In an August 22, 2014 report,

Defendants misleadingly stated that Ligand “issued 245 million in new debt, against tangible

equity of just $21,000, giving rise to a debt to tangible equity ratio of 11,667 to 1 (that is $11,667

dollars [sic] in debt for every $1 in tangible common shareholder equity)” and that “shareholders

have only the protection of $21,000 in tangible equity to shield them from $245 million in debt.”

(Compl. ¶ 51.) In making this statement, Defendants omitted any reference to, and failed to

account for, the proceeds of the loan, which makes the statement misleading. (Compl. ¶ 52.)

ground for dismissal when, as here, the Commission has sufficiently alleged actionable misstatements that were part
of a scheme to manipulate Ligand’s stock price.

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And, the statement was material, as it went to the heart of Ligand’s overall financial viability and

supported Defendants’ argument that Ligand’s stock was worthless. (Compl. ¶¶ 52-53.)

The Commission does not allege that Defendants’ other statements in the Complaint

(which include all the statements described at pages 12-14 of Defendants’ brief) are

independently actionable as material misrepresentations. 2 Rather, these statements form the

backdrop for Defendants’ false statements, evidence Defendants’ scheme and scienter, and

demonstrate that Defendants’ misrepresentations were intended to support arguments Defendants

made in their reports and other public statements.

B. Defendants Arguments That Their False Statements Were In Fact True Are Not
Grounds For Dismissal.

Defendants first argue that three of the four false statements the Commission challenges

were actually true. (Br. at 5-11.) They are wrong, but the merits of the Commission’s

allegations cannot be resolved on a motion to dismiss. Ocasio-Hernandez v. Fortuno-Burset,

604 F.3d 1, 12 (1st Cir. 2011) (stating “court may not disregard properly pled factual allegations”

even when judge thinks proof of these facts is improbable). As set forth above, the Complaint

alleges in detail that each of the challenged statements is false or misleading and precisely how it

is false or misleading. For the purposes of a motion to dismiss, that is the end of the story.

Defendants’ disagreement with the Commission’s allegations raises, at best, factual disputes that

must be resolved at a later stage of this proceeding. Grajales v. P.R. Ports Auth., 682 F.3d 40,

44 (1st Cir. 2012) (on motion to dismiss, court must accept truth of all well-pleaded facts and

2
The Commission reserves the right to amend its Complaint to add additional claims stemming from Defendants’
other statements, many of which Defendants say are not actionable as “opinions.” (E.g., Br. at 12-14.) The
Supreme Court’s Omnicare decision (which Defendants do not mention but is discussed in Part C.3 below)
addressed liability for statements of opinion under the federal securities laws. Under Omnicare, even Defendants’
purported opinions may give rise to liability if the evidence shows that Defendants (i) did not believe the opinion
statement when it was made or (ii) misrepresented or omitted material facts that would make the opinion statement
misleading.

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draw all reasonable inferences for plaintiff). Defendants’ attacks on the truth of the Complaint’s

allegations are premature and do not constitute grounds for dismissal. What is more,

Defendants’ claims about the Commission’s allegations fall flat.

1. Defendants first quarrel with the Commission’s quotes and paraphrases.

In the spirit of “the best defense is a good offense,” Defendants attack supposed

“erroneous factual assertions” and “inflammatory language” in the Complaint. (Br. at 5-6.) For

example, Defendants claim that the Commission misquoted Lemelson. (Br. at 6.) Not so. The

purported “misquote,” in Complaint Paragraph 28, alleges that Lemelson said that Ligand’s

“common shareholders could be wiped out almost entirely without notice.” Defendants deny

that Lemelson said this and denounce the Commission for “mak[ing] a mockery of Fed. R. Civ.

P. 9(b)’s particularity requirement” by “invent[ing] Lemelson’s words to boost its case, rather

than simply rely[ing] on what he actually said.” (Br. at 6 (emphasis in original).) In fact, the

Commission did quote Lemelson’s exact words – the August 22, 2014 report includes the very

language quoted in Paragraph 28 of the Complaint. 3 (See Declaration of Alfred A. Day (“Day

Decl.”) Ex. 1 (August 22, 2014 report) at 5) (“If the call feature above is exercised common

shareholders could be wiped out almost entirely without notice.” (emphasis added)).) In any

event, the Commission does not allege that this statement is independently actionable as a

misrepresentation of material fact. Defendants’ accusation is thus beside-the-point.

Defendants also take issue with the Commission’s paraphrasing of Defendants’ reports.

(Br. at 5.) None of the snippets Defendants complain about purport to be direct quotes; they are

instead fair summaries of portions of Defendants’ reports. For example, Defendants

3
Defendants attached what appears to be a different version of this report to their motion (see Brooks Decl. Ex. 5),
and contains slightly different language (“common shareholders would be wiped out immediately”). The version
attached hereto, which the Commission quoted in its Complaint, was marked as Exhibit 21 during Lemelson’s
testimony before the staff of the Commission.

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characterized the Ligand-Viking transaction as “a common game of 3-card Monte, played on any

street corner – shills included” (Brooks Decl. Ex. 2 at 9), which the Commission distilled down

to, simply, a “sham” (e.g., Compl. ¶ 5). In any event, the Commission does not allege that the

paraphrased portions of Defendants’ reports are themselves actionable misstatements of material

fact. Again, Defendants’ accusations have no bearing on the legal sufficiency of the Complaint.

2. Statements about Promacta.

Defendants also falsely stated that a Ligand representative said Ligand’s flagship drug,

Promacta, was “going away.” (Compl. ¶¶ 36-39, 43.) While Defendants spend a significant

amount of their brief focused on Defendants’ other misrepresentations, they do not argue that

this alleged misrepresentation was true.

They do argue about the other misleading statements Defendants made in support of their

argument that Promacta was “going away”: (i) a reference to conversations with two doctors

(without disclosing that one was actually Ligand’s largest investor) about Promacta, and (ii) the

citation of two medical journal articles that do not discuss Promacta. (Br. at 8-10 & n.10 (citing

Compl. ¶¶ 40-41).) Despite what they wrote in their June 16, 2014 report (“The purpose and

applicability of Promacta was discussed with” the two doctors (Brooks Decl. Ex. 1 at 6)),

Defendants now claim that the sources they referenced do not even concern Promacta. (Br. at 9

(doctors referenced in June 16 report made “no comment on Promacta”).) Similarly, about the

two medical studies cited in that report, Defendants now maintain that “Lemelson never claimed

the articles discussed Promacta or its prospects” (Br. at 9 n.10), even though Lemelson’s report

states: “Further reference on the obsolete nature of supportive care treatments such as

Promacta … are also available in the following publications[.]” (Brooks Decl. Ex. 1 at 7

(emphasis added).) Regardless, even if Defendants arguments raise a genuine factual dispute

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about these allegations, it could not be resolved at this stage of the litigation.

3. Statements about Viking.

In the July 3, 2014 report, Defendants wrote that “Viking does not intend to conduct any

preclinical studies or trials[.]” (Compl. ¶ 46; Brooks Decl. Ex. 2 at 7.) They defend this

statement by noting that Viking expected to contract with third parties to perform certain tasks

related to future preclinical studies and clinical trials. (Br. at 7 (citing Brooks Decl. Ex. 6 at

17).) 4 But Viking also disclosed that, notwithstanding contractual arrangements with “[Contract

Research Organizations], medical institutions, clinical investigators and contract laboratories,” it

would “maintain responsibility” for their activities. (Brooks Decl. Ex. 6 at 21.) 5 In any event,

Defendants merely raise a factual dispute that cannot be resolved on a motion to dismiss.

In a similar vein, Defendants argue that their statement that the financial statements

referenced in Viking’s Form S-1 were audited was true, on the ground that some of Viking’s

financial statements were unaudited. (Br. at 10-11.) This argument defies common sense –

Defendants said that Viking had never been audited, when it in fact had. 6 The statement was

false, as the Commission alleges, and Defendants’ premature factual argument should be

rejected.

4. Misleading statements about Ligand’s financial condition.

Defendants stated that Ligand had a debt-to-tangible equity ratio of “11,667 to 1” and

4
Defendants cite to page 17 of Viking’s Form S-1 refers to the page number in the original document, which
appears at page 21 of the PDF.
5
This reference is to page 21 of the PDF, which is page 17 of Viking’s Form S-1.
6
Defendants’ position is contrary to Lemelson’s admission, during sworn testimony, that his statement about the
Viking financial statements was contradicted by the public filing, and that he would not have included the statement
in his report if he had read the auditor’s letter attached to Viking’s Form S-1. (Day Decl. Ex. 2 (excerpts of
Lemelson testimony) at 728:20 – 729:16.)

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that Ligand’s shareholders had “only $21,000 in tangible equity to shield them from $245

million in debt.” (Compl. ¶ 51.) The Commission alleges that this statement was misleading

because Defendants failed to account for the proceeds of a $245 million loan in their analysis. 7

(Compl. ¶ 52.) Defendants disagree, and contend that the Commission’s allegation is somehow

contrary to basic accounting principles. Defendants are mistaken, as the Commission will prove

at the appropriate stage of this litigation.

For now, suffice it to say that (1) the way Defendants’ presented their “debt-to-tangible

equity ratio” and discussed the supposedly exposed position of Ligand’s shareholders was

misleading, (2) Defendants’ reliance on SEC’s Beginners Guide to Financial Statements is

misplaced as that source contains no guidance on how to calculate the debt and equity parts of a

debt-to-equity ratio, nor does it contemplate the debt-to-tangible equity ratio Defendants

presented, and (3) in contending that their statement was not misleading, they ignore the elephant

in the room (or perhaps at the bank) – the hundreds of millions of dollars of loan proceeds.

Indeed, on this last point, Defendants “calculated” an eye-popping debt-to-equity figure

that they claimed put Ligand “deep within the context of insolvency” and left Ligand

shareholders with only $21,000 as a “shield” from $245 million in debt. (Day Decl. Ex. 1 at 5.)

Yet they ignored that Ligand now had $245 million to spend. 8 The shareholders thus had vastly

more than $21,000 as a “shield” against debt, and it was misleading to suggest otherwise, much

less to suggest that the company was “deep in the context of insolvency.”

In any event, the parties’ dispute over whether Defendants’ statements about Ligand’s

7
Defendants’ position is contrary to prior correspondence with Commission staff, in which Defendants
characterized their failure to account for the loan proceeds as an “obvious error.” (Day Decl. Ex. 2 (excerpt of June
30, 2017 Wells submission) at 26.)
8
Defendants “debt-to-tangible equity” ratio also excluded Ligand’s intellectual property and other intangible assets,
such as goodwill.

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financial condition were misleading is yet another factual dispute that cannot be resolved on a

motion to dismiss.

C. The False Statements Alleged by the Commission Are Not Opinions.

Defendants next argue that certain of Defendants’ statements included in the Complaint

expressed opinions, not facts, and that the SEC’s claims fail because the Commission does not

allege that Defendants’ subjectively disbelieved the opinions. (Br. at 12.) This argument misses

the mark for two reasons: first, Defendants attack statements that the Commission does not

allege are independently actionable and, second, Defendants misstate the law regarding when

statements of opinion may give rise to liability under the federal securities laws.

1. The false statements alleged by the Commission are statements of fact.

A fact is “a thing done or existing” or “[a]n actual happening.” Omnicare, Inc. v.

Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318, 1325 (2015) (quoting

Webster’s New International Dictionary 782 (1927)). If a statement is obviously one of fact, a

court may so rule as a matter of law. Flotech, Inc. v. E. I. Du Pont de Nemours & Co., 814 F.2d

775, 778 (1st Cir. 1987). If, on the other hand, reasonable minds could differ about whether a

statement constitutes a fact or opinion, it is a question for the jury. Id.

The false statements alleged here are plainly statements of fact, as each concerns an

objectively verifiable and existing happening or thing:

• Lemelson’s statement that “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’” concerns the substance of a past conversation with a Ligand

representative. (Compl. ¶ 37.) This conversation either unfolded as

Lemelson says, or it did not, as the Commission alleges.

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• In a July 3, 2014 report, Defendants stated that Viking had “yet to consult

with [its auditors] on any material issues” and that the “financial statements

provided in the S1 accordingly are unaudited.” (Compl. ¶ 46.) Again, these

statements concerned objectively verifiable and existing facts: Viking either

had either consulted with its auditors, or it had not, and its financial

statements were either audited, or they were not.

• In the same July 3 report, Defendants falsely stated that “Viking does not

intend to conduct any preclinical studies or trials.” (Compl. ¶ 46.) Again,

this is presented as a statement of existing fact regarding Viking’s intent: It

either intended to conduct clinical trials or it did not.

• In an August 22, 2014 report, Defendants misleadingly stated that Ligand

“issued 245 million in new debt, against tangible equity of just $21,000,

giving rise to a debt to tangible equity ratio of 11,667 to 1 (that is $11,667

dollars [sic] in debt for every $1 in tangible common shareholder equity)”

and that “shareholders have only the protection of $21,000 in tangible equity

to shield them from $245 million in debt.” (Compl. ¶ 51.) As discussed

above, this statement ignores the proceeds of the loan, and misrepresents

Ligand’s financial condition at the time – i.e., either Ligand shareholders had

only the $21,000 in tangible equity, or, as the Commission alleges, they had

tens of millions of dollars in the bank to protect them as well.

Each of these statements is alleged in the Complaint to be a false statement of fact. And, even if

reasonable minds could disagree about whether these are statements of fact or opinion, that

would be a matter for the jury, and not a basis for dismissal at the pleading stage.

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Rather than grappling with the false statements for which the Commission seeks to hold

them liable, Defendants focus on various statements that the Commission does not allege are

independently actionable. For example, the Commission is not suing Lemelson for saying that

Ligand was creating “a veritable pyramid scheme of shell companies.” (Br. at 13-14.) The

Complaint is clear that the challenged false statements of fact about Viking – that it had not

consulted auditors, had no audited financial statements, and did not intend to conduct clinical

trials – were made to provide a (false) factual underpinning for Defendants’ argument that

Ligand was a “pyramid scheme of shell companies.” (Compl. ¶ 46.)

The other statements Defendants characterize as opinion are similarly included in the

Complaint for context, to evidence Defendants’ scheme and scienter, and to demonstrate that

Defendants’ misrepresentations were intended to support Defendants’ reports and other public

statements. (Br. at 12 (citing Compl. ¶¶ 36, 44, 46).) The Commission does not allege that any

of these statements by Defendants are independently actionable. Rather, each recounts a portion

of the reports that Defendants’ sought to prop up with the challenged false statements of fact.

3. Defendants misstate the law regarding liability for opinions.

For a statement of fact, the plaintiff need only plead that the statement itself is untrue or

lacked a reasonable basis (i.e., objective falsity), which the Commission has done here. Miller

Inv. Trust v. Morgan Stanley & Co., LLC, 308 F. Supp. 3d 411, 429 (D. Mass. 2018) (citing Fait

v. Regions Fin. Corp., 655 F.3d 105, 110 (2d Cir. 2011)). For opinions, on the other hand, a

plaintiff must plead one of three things: (1) that the statement falsely represented the speaker’s

belief at the time it was made (subjective falsity) and that it was untrue (objective falsity);

(2) that a statement of fact embedded within the opinion is untrue; or (3) that the speaker omitted

material facts that would make the statement not misleading to a reasonable investor. Id.

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(citing Omnicare, 135 S. Ct. at 1325-27, 1329-30); see Plumbers’ Union Local No. 12 Pension

Fund v. Nomura Asset Acceptance Corp., 632 F.3d 762, 775 (1st Cir. 2011).

Defendants contend that the statements they characterize as opinions are not actionable

because “the [Commission] never alleges that Lemelson did not believe these opinions.” (Br.

at 12 (emphasis in original).) As an initial matter, the Commission has not alleged that the

statements in question are actionable. Defendants’ entire line of argument is thus a red herring.

But it is also wrong on the law. Pleading subjective falsity is only required in the absence of

allegations that a statement of opinion was rendered misleading because an embedded statement

of fact was untrue or there was a material omission. Miller Inv. Trust, 308 F. Supp. 3d at 429

(citing Omnicare, 135 S. Ct. at 1326 & n.2). Here, the Commission has alleged factual

misstatements. (See Part C.1, supra.) But even if any of the challenged factual misstatements

were considered a statement of opinion, or part of a statement of opinion, the Commission’s

allegations would be sufficient under Omnicare because each would constitute either (i) a false

statement of fact embedded within the opinion or (ii) a material omission that would make the

opinion misleading.

D. Defendants’ false statements were material.

A misstatement is material if “a reasonable investor would have viewed the

misrepresentation or omission as ‘having significantly altered the total mix of information made

available.’” Basic, Inc. v. Levinson, 485 U.S. 224, 232 (1988). As Defendants acknowledge (Br.

at 16), the First Circuit has held that “[i]n most circumstances, disputes over the materiality of

allegedly false or misleading statements must be reserved for the trier of fact.” Shaw v. Digital

Equip. Corp., 82 F.3d 1194, 1217 (1st Cir. 1996) (citing Basic, 485 U.S. at 236); Swack v. Credit

Suisse First Boston, 383 F. Supp. 2d 223, 238 (D. Mass. 2004) (materiality is “a fact-specific

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question that is rarely an appropriate basis for dismissal”). At the motion to dismiss stage, a

court’s inquiry is limited to “whether the complaint presents a ‘plausible jury question of

materiality.’” In re Vertex Pharm. Inc., Sec. Litig., 357 F. Supp. 2d 343, 351 (D. Mass. 2005)

(Saris, J.) (quoting Baron v. Smith, 380 F.3d 49, 53 (1st Cir. 2004)).

The Commission has more than adequately pled a “plausible jury question” of materiality

for each of the challenged false statements, as set forth in Part A, supra. To briefly recap:

• Defendants’ false statement about Promacta’s prospects was material

because it concerned Ligand’s main source of revenue. (Compl. ¶¶ 39,

43.) What reasonable investor would consider it unimportant that

Ligand acknowledged that its main revenue source was about to dry

up?

• Defendants’ false statements about Viking were material because they

sought to cast doubt on the benefits of the Ligand-Viking transaction

and to allege misconduct by Ligand management. (Compl. ¶¶ 47-50.)

A reasonable investor plainly would consider it important that

Ligand’s management was inappropriately expending significant

resources to go into business with a “shell company” that had never

been audited and did not intend to conduct clinical trials.

• Defendants’ misleading statement about Ligand’s financial condition

was material because it went to the heart of Ligand’s viability as a

going concern. (Compl. ¶ 53.) Indeed, a reasonable investor would

unquestionably find it important to know that a company had run up so

much debt that it made itself insolvent.

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While these allegations are sufficient, there are more. The Commission alleges that

Ligand’s share price dropped 34% during the period Defendants were disseminating their false

statements. (Compl. ¶ 8.) One financial news organization reported that Ligand’s stock price

“fell more than 7 percent” after Defendants spread their falsehood about Promacta. (Compl.

¶ 31.) And, Lemelson himself boasted that Ligand’s stock price fell 2% during the June 19,

2014 interview in which he falsely stated that a Ligand representative agreed that “Promacta’s

going away.” (Compl. ¶ 31.) Indeed, Defendants choice to include these statements in their

reports about the value of Ligand’s stock demonstrates that they considered the subject matter of

their false statements important to investors.

Defendants’ materiality arguments are largely aimed at statements the Commission has

not alleged are actionable misrepresentations. For example, Defendants’ statement that “Ligand

is worth $0/share” (Br. at 17) is not among the false statements at issue in this case. Defendants’

arguments about “puffery” and “exaggeration” (Br. at 16-17) are therefore irrelevant.

Defendants mention in passing only two of the false statements that the Commission

alleges are actionable. They first contend that because some of Viking’s financial statements

were unaudited (Br. at 18), their demonstrably false statements about Viking were unimportant. 9

Obviously, it is very different to say that a company has never consulted an auditor and has no

audited financial statements for a given period, than to say the company has consulted an auditor

but some of its financial statements remain unaudited. In any event, Defendants put the merits

cart before the pleadings horse, and their argument should be rejected.

9
Defendants based this argument on Parnes v. Gateway 2000, Inc., 122 F.3d 539 (8th Cir. 1997). Parnes is
inapposite, as it involved an alleged earnings overstatement of only 2%, which the court found too small to be
material in the context of a high-risk, high-growth company. Contrast Shaw v. Digital Equipment Corp., 82 F.3d
1194, 1217 (1996). Here, in contrast, Defendants were not claiming some inconsequential variance in reported
revenue – they were, in effect, saying that an entire company was a sham.

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Defendants next invoke the “bespeaks caution doctrine” for their false statement that a

Ligand representative agreed that “Promacta’s going away.” (Br. at 18 (citing Parnes, 122 F.3d

at 548-49 (discussing “bespeaks caution” doctrine).) But the bespeaks caution doctrine only

applies to certain forward-looking statements, such as forecasts, estimates, opinions, or

projections, when accompanied by cautionary disclosures that adequately warn of the possibility

that actual results or events may turn out differently. Battle Constr. Co., Inc. v. InVivo

Therapeutics Holdings Corp., 101 F. Supp. 3d 135, 139 (D. Mass. 2015) (citing Shaw v. Digital

Equip. Corp., 82 F.3d 1194, 1213 (1st Cir. 1996)). When, as here, a false statement concerns an

existing fact (i.e., what a Ligand representative said about Promacta), the doctrine has no

application. In re No. Nine Visual Tech. Corp. Sec. Litig., 51 F. Supp. 2d 1, 19 (D. Mass. 1999)

(citing Shaw, 82 F.3d at 1213).

E. That the Commission’s Advisers Act Claim Strikes the Defendants as Novel Is No
Ground for Dismissal.

The Commission has alleged that Defendants deceived investors and prospective

investors by making and disseminating false statements about Ligand as part of their efforts to

obtain and retain Amvona Fund investors, and by failing to disclose that The Amvona Fund’s

positive returns from its short position in Ligand were based on Defendants’ stock price

manipulation. (Compl. ¶ 7.) These misrepresentations caused Defendants’ disclosures about

both The Amvona Fund’s investment strategy and about Lemelson’s abilities as a financial

adviser to be materially misleading. (Compl. ¶ 54.) The Commission alleges the specific

reports, interviews, emails, and client communications where these misrepresentations and

omissions were made. (Compl. ¶ 55.)

Defendants claim that Rule 206(4)-8 does not apply to statements like those Defendants

made, but only applies to statements about “the fund or the manager himself.” (Br. at 19-20.)

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They cite five (non-exclusive) examples of statements the Commission described in the Rule

Release for Rule 206(4)-8: (1) “the experience and credentials of the adviser (or its associated

persons)”; (2) “the risks associated with an investment in the pool”; (3) “the performance of the

pool or other funds advised by the adviser”; (4) “the valuation of the pool or investor accounts in

it”; and (5) “practices the adviser follows in the operation of its advisory business such as how

the adviser allocates investment opportunities.” 72 Fed. Reg. 44756, 44757 (Aug. 9, 2007).

They ignore that the Commission has alleged that Defendants’ misrepresentations and

fraudulent omissions relate to both the fund and the manager. Defendants’ misrepresentations

about Ligand fit squarely into the “risks associated with an investment” and “performance of the

pool” examples Defendants cite from the Rule Release, as they are statements about The

Amvona Fund and its $5 million short position in Ligand which was part of the pooled

investment. Similarly, statements and omissions concerning how The Amvona Fund actually

made its money (through fraud) are, by definition, statements about the fund (fitting the

“performance of the pool” example). Statements and omissions about Lemelson’s abilities as a

financial adviser (including his ability to pick stocks that will decline in price) are statements

about the manager (fitting the “experience and credentials” and “practices the adviser follows in

the operation of its advisory business” examples). In other words, the Commission alleges the

very types of misrepresentations and omissions the Defendants say Rule 206(4)-8 was intended

to cover.

But even if Defendants were correct that this case presented a new or unanticipated

application of Rule 206(4)-8, they do not explain why that would be legal grounds to dismiss the

claim (or even why it would be a problem at all). In citing the Rule Release, Defendants skip

over the Commission’s expressed intent at the beginning of the Release: “our intent is to

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prohibit all fraud on investors in pools managed by investment advisers.” 72 Fed. Reg. 44756,

44757 (Aug. 9, 2007) (emphasis added). The Commission also made clear that it intended the

Rule to extend to the limits of their Congressional authority: “In adopting rule 206(4)-8, we

intend to employ all of the broad authority that Congress provided us in section 206(4) and direct

it at adviser conduct affecting an investor or potential investor in a pooled investment vehicle.”

Id. The Commission explained that the Rule was a “general antifraud rule[] capable of

flexibility.” Id. The Rule Release thus explicitly rejects the argument that the scope is limited in

the way Defendants claim.

[REMAINDER OF PAGE INTENTIONALLY BLANK]

17
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CONCLUSION

Defendants do not raise any adequate grounds to dismiss this action. For the reasons

stated above, Defendants’ motion should be denied.

Dated: November 8, 2018 Respectfully submitted,

/s/ Alfred A. Day


Alfred A. Day (BBO #654436)
Marc J. Jones (BBO #645910)
Securities and Exchange Commission
Boston Regional Office
33 Arch Street, 24th Floor
Boston, MA 02110
617-573-4537 (Day)
617-573-8947 (Jones)
DayA@sec.gov
JonesMarc@sec.gov
Attorneys for Plaintiff

Virginia M. Rosado Desilets


Sonia G. Torrico
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549

CERTIFICATE OF SERVICE

I hereby certify that this document filed through the ECF system will be sent electronically
to the registered participants as identified on the Notice of Electronic Filing (NEF) and paper
copies will be sent to those indicated as non-participants on November 8, 2018.

/s/ Alfred A. Day

18
Case 1:18-cv-11926-PBS Document 127-9 Filed 09/30/20 Page 1 of 3
From: Foehr, Matt <MFoehr@ligand.com>
To: Higgins, John L. <JHiggins@ligand.com>;Bruce Voss <BVoss@lhai.com>
Sent: 6/17/2014 7:22:49 PM
Subject: RE: LGND / Lemelson

I looked at these with Erika this morning and will forward fine details in a moment (Erika
is pulling them up). In general, e-malings on Thursday and Friday of last week - Erika
called him back on Friday morning to schedule a time for this week for an introductory
call, but his assistant said he was busy and could not talk to schedule. The time was then
selected over e-mail between Erika and Lemelson.

-----Original Message-----
From: Higgins, John L.
Sent: Tuesday, June 17, 2014 4:12 PM
To: Bruce Voss; Foehr, Matt
Subject: RE: LGND / Lemelson

Bruce I have proposed a narrative for a call for you to have with lemelson. Specifically,
in my proposal, I do not think the first call should be jump into content or a rebuttal. I
would like to feel him out first for tone and approcah to the research and what the purpose
of a call would be if he is not going to update a report. To me, if we jump right into
rebuttal mode without knowing our countrparty, seems we are less prepared for any call we
could have on substance

And Matt - will you let us know more precisely how many times lemelson called for a
meeting/call and roughly when/dates. I want to get a sense for how hard he was trying to
make contact with us prior to the reprot coming.

From: Bruce Voss [BVoss@lhai.com]


Sent: Tuesday, June 17, 2014 4:07 PM
To: Higgins, John L.; Foehr, Matt
Subject: RE: LGND / Lemelson

I'd be happy to speak with Lemelson but whether it's me or management, the substance of the
call from our end should be pointing out the errors and biases in their report, and putting
forth the correct information. Please look at the Q&A I began drafting, with an eye on
answers and any facts you see in the report that are wrong and should be added to the Qs.
That said, a large part of Lemelson's thesis is built upon Promacta (HCV) and Captisol
(ingredient vs. drug, lumpy ordering), so perhaps a call that includes Matt and me makes
sense.

I could speak with Lemelson to feel out their questions, intent, asset base, size of short
position, etc. prior to a call with management, but that's an unnecessary interim step that
likely will get us little information. If I do a joint call with Matt I can start out with
those questions but I bet they'll be cagey with their answers.

Cancelling the call will make us look like we're hiding, and not the intended ''you're too
reckless to justify our time."

Bruce Voss, Managing Director, Principal Investor Relations: Results that Matter

Confidential Treatment Requested by Bruce Voss LCM SEC0000857


Subject to Protective Order in D. Mass. Case No. 18-cv-11926-PBS EPROD-SEC-LIT-E-000000940
Case
T: 310.691.7100 C: 1:18-cv-11926-PBS Document E:
646.249.7453 F: 310.691.7150 127-9 Filed 09/30/20 Page 2 of 3
BVoss@lhai.com
2121 Avenue of the Stars, Suite 2970 I Los Angeles, CA 90067 www.lhai.com Facebook I
Linkedin I Twitter I YouTube

This email and attachments, if any, may contain confidential and/or privileged information.
If you are not the intended recipient, please notify the sender immediately. Any
unauthorized copying, disclosure or distribution of the material in this email is strictly
forbidden.

Please consider the environment before printing this email.

-----Original Message-----
From: Higgins, John L. [mailto:JHiggins@ligand.com]
Sent: Tuesday, June 17, 2014 3:42 PM
To: Foehr, Matt; Bruce Voss
Subject: RE: LGND / Lemelson

As I see it, we have three choices

1) take the call

2) cancel the call

3) have Bruce call in lieu Matt. The gist of the call would be a friendly dialogue to say
management would be happy to speak with Lemelson, however we disagree with most of the
report given things are misrepresented or factually out of date. And that we read the
disclaimer upfront that the report is written "as is", that they do not warrant accuracy
and they do not make updates to correct things.

So, (the message could go on) happy to have a call, but we want to know would we get out of
it (ie would the report be reissued with corrections and current information) and what
questions does lameleson have for us.

To me #3 seems the best option. Cancel could be toxic. Having the call could be a sandtrap
until we know a little more.

On the other hand, I am open to no call back at all. The rationale being this report is so
absurd, and a call might be a trap for him to say he talked to management and now sees some
value but its only say $15/share so still a big short. (the ale win the battle but lose the
war)

Bruce any thoughts now, otherwise I can call you about 8 am tomorrow to discuss.

thanks

john

From: Foehr, Matt


Sent: Tuesday, June 17, 2014 2:51 PM
To: Higgins, John L.; Bruce Voss
Subject: RE: LGND / Lemelson

Both: I was just looking at my meeting schedule for tomorrow and Thursday and noted that
Erika actually originally scheduled the Lamelson call for tomorrow (Wednesday) at 1:00 p.m.
PT (it was another call that was originally scheduled for Thursday with a known long-term
holder - both were booked earlier - unfortunate). We can of course huddle in advance of

Confidential Treatment Requested by Bruce Voss LCM SEC0000858


Subject to Protective Order in D. Mass. Case No. 18-cv-11926-PBS EPROD-SEC-LIT-E-000000941
Case
1:00 p.m. PT if we 1:18-cv-11926-PBS Document
decide taking the call 127-9
is worth Filed
doing, but09/30/20 Page 3toofbe
I just wanted 3 sure to
mention that. I could delay him now if that makes sense, but would likely want to wait on
any communication towards him at all until you two can discuss tomorrow. --Matt

From: Higgins, John L.


Sent: Tuesday, June 17, 2014 2:44 PM
To: Bruce Voss
Cc: Foehr, Matt; Berkman, Charles; Luib, Erika; de Silva, Nishan; Carolyn Curran
Subject: Re: LGND / Lemelson

Bruce - I will call you tomorrow.

We'll prepare any responses internally.

John

On Jun 17, 2014, at 1:43 PM, "Bruce Voss" <BVoss@lhai.com<mailto:BVoss@lhai.com>> wrote:


To set and implement a strategic response to the Lemelson situation, we must first be clear
as to the issues in their report (i.e., errors and bias) and our responses. We also need a
few clear, powerful messages to use whether proactively or reactively.

Attached is a first, working draft doc11ment to begin the process with both. We can use this
with USA Today (Gary Strauss) should we choose to grant him an interview, or alternatively
the messages can be emailed to him as a company statement.

Ligand and LHA have exchanged numerous emails on this subject, and perhaps it's best to set
a time for later today to compare all we know and our thoughts on next steps. I'll make
myself available when everyone else is.

Bruce Voss, Managing Director, Principal <image00l.jpg> Investor Relations: Results that
Matter

T: 310.691.7100 C: 646.249.7453 F: 310.691.7150 E: BVoss@lhai.com<mailto:BVoss@lhai.com>


2121 Avenue of the Stars, Suite 2970 I Los Angeles, CA 90067 www.lhai.com<http://lhai.com/>
I Facebook<http://www.facebook.com/pages/LHA-Lippert-Heilshorn
/281806488523656?sk=app_330253286992099> I Linkedin<http://www.linkedin.com/company
/lha-lippert-heilshorn> I Twitter<http://twitter.com/# 1 /LHA_IR_PR> I
YouTube<http://www.youtube.com/user/LippertHeilshorn?feature=mhee>

This email and attachments, if any, may contain confidential and/or privileged information.
If you are not the intended recipient, please notify the sender immediately. Any
unauthorized copying, disclosure or distribution of the material in this email is strictly
forbidden.

Please consider the environment before printing this email.

<Lemelson messages - draft 1.docx>

Confidential Treatment Requested by Bruce Voss LCM SEC0000859


Subject to Protective Order in D. Mass. Case No. 18-cv-11926-PBS EPROD-SEC-LIT-E-000000942
Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 1 of 34
BRUCE VOSS December 3, 2019

UNITED STATES DISTRICT COURT


FOR THE
DISTRICT OF MASSACHUSETTS

SECURITIES AND EXCHANGE )


COMMISSION, )
)
Plaintiff, ) Case No.
) 1:18-CU-11926-PBS
vs. )
)
GREGORY LEMELSON and )
LEMELSON CAPITAL )
MANAGEMENT, LLC, )
)
)
Defendants, )
)
and )
)
THE AMVONA FUND, LP, )
)
Relief Defendant. )
)

Deposition of BRUCE VOSS

San Diego, California

December 3, 2019

Reported by:
Sheri L. Somers
CSR No. 9734
Job No. 10062968

KEY Discovery 617-348-9360


Deposition Services WWW.KEY-DISCOVERY.COM
Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 2 of 34
BRUCE VOSS December 3, 2019

Page 2
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF MASSACHUSETTS

SECURITIES AND EXCHANGE )


COMMISSION, )
)
Plaintiff, ) Case No.
) 1:18-CU-11926-PBS
vs. )
)
GREGORY LEMELSON and )
LEMELSON CAPITAL )
MANAGEMENT, LLC, )
)
Defendants, )
)
and )
)
THE AMVONA FUND, LP, )
)
Relief Defendant. )
)

Deposition of BRUCE VOSS, taken on behalf of


defendant, at 600 West Broadway, Suite 300, San Diego,
California, beginning at 8:57 a.m., and ending at
5:52 p.m., on Tuesday, December 3, 2019, before
Sheri L. Somers, CSR No. 9734.

KEY Discovery 617-348-9360


Deposition Services WWW.KEY-DISCOVERY.COM
Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 3 of 34
BRUCE VOSS December 3, 2019

Page 3
APPEARANCES:

For Plaintiff:
U.S. SECURITIES AND EXCHANGE COMMISSION
BOSTON REGIONAL OFFICE
33 Arch Street, 24th Floor
Boston, Massachusetts 02110
617.573.8947
617.573.4590 fax
By: Marc Jones, Esq.
Jonesmarc@sec.gov
Alfred A. Day, Esq.
Daya@sec.gov

For Defendants GREGORY LEMELSON and LEMELSON CAPITAL


MANAGEMENT, LLC:

LIBBY HOOPES
399 Boylston Street
Boston, Massachusetts 02116
617.338.9300
617.338.9911 fax
By: Douglas S. Brooks, Esq.
Dbrooks@libbyhoopes.com

For LIGAND PHARMACEUTICALS and BRUCE VOSS:


CAHILL GORDON & REINDEL LLP
1900 K Street, Suite 950
Washington, D.C., 20006
202.862.8900
202.862.8958 fax
By: Sean P. Tonolli, Esq.
Stonolli@cahill.com
Bradley J. Bondi, Esq.
Bbondi@cahill.com
William C. McCaughey, Esq.
Wmccaughey@cahill.com

KEY Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 4 of 34
BRUCE VOSS December 3, 2019

Page 4
APPEARANCES (Continued):

The Videographer:
Ryan Asanas
Key Discovery

Also present:
Gregory Lemelson

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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 5 of 34
BRUCE VOSS December 3, 2019

Page 5
INDEX
WITNESS: BRUCE VOSS
PAGE
EXAMINATION BY MR. BROOKS 12

EXHIBITS
DEFENDANT'S PAGE
Exhibit 75 E-mail string, top e-mail to 39
various recipients from Bruce
Voss dated 6/16/2014, Bates Nos.
LCM_SEC0000220 to '221
Exhibit 76 E-mail to Bruce Voss from John 52
Higgins dated 6/17/2014, Bates
Nos. LCM_SEC0000826
Exhibit 77 E-mail string, top e-mail to 59
John Higgins from Bruce Voss
dated 6/17/2014, Bates Nos.
LCM_SEC0000259 to '261

Exhibit 78 E-mail string, top e-mail to 79


John Higgins from Bruce Voss
dated 6/17/2014, Bates Nos.
LCM_SEC0000276 to '279
Exhibit 79 E-mail string, top e-mail to 85
Keith Lippert from Bruce Voss
dated 6/17/2014, Bates Nos.
LCM_SEC0000289 to '292
Exhibit 80 E-mail string, top e-mail to 91
Matt Foehr from Bruce Voss dated
6/17/2014, Bates Nos.
LCM_SEC0000295 to '296
Exhibit 81 E-mail string, top e-mail to 95
John Higgins and Matt Foehr from
Bruce Voss dated 6/17/2014,
Bates Nos. LCM_SEC0000303 to
'306

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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 6 of 34
BRUCE VOSS December 3, 2019

Page 6
EXHIBITS
DEFENDANT'S PAGE
Exhibit 82 Top page says, "This document 103
was produced natively, and
attached notes of Bruce Voss,
Bates Nos. LCM_SEC0000001 to
'002
Exhibit 83 E-mail string, top e-mail to 132
John Higgins and Matt Foehr from
Bruce Voss dated 6/18/2014,
Bates Nos. LCM_SEC0000316 to
'318
Exhibit 84 E-mail to Bruce Voss from John 139
Higgins dated 6/20/2014, Bates
Nos. LCM_SEC0000883
Exhibit 85 E-mail string, top e-mail to 144
John Higgins from Bruce Voss
dated 6/20/2014, Bates Nos.
LCM_SEC0000324 to '325

Exhibit 86 E-mail to Matt Foehr from Bruce 159


Voss dated 6/20/2014, Bates Nos.
LCM_SEC0000323

Exhibit 87 E-mail string, top e-mail to 164


John Higgins from Bruce Voss
dated 6/20/2014, Bates Nos.
LCM_SEC0000327 to '328
Exhibit 88 Draft #1, June 20, 2014, Ligand 164
Pharmaceuticals Response to the
Lemelson Capital Management
Report, Bates Nos.
LCM_SEC0000332 to '333
Exhibit 89 E-mail string, top e-mail to 172
Matt Foehr and John Higgins from
Bruce Voss dated 6/20/2014,
Bates Nos. LCM_SEC0000329 to
'330

KEY Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 7 of 34
BRUCE VOSS December 3, 2019

Page 7
EXHIBITS
DEFENDANT'S PAGE
Exhibit 90 E-mail to John Higgins and Matt 173
Foehr from Bruce Voss dated
6/20/2014, Bates Nos.
LCM_SEC0000331

Exhibit 91 E-mail string, top e-mail to 179


Matt Foehr and John Higgins from
Bruce Voss dated 6/20/2014,
Bates Nos. LCM_SEC0000334 to
'337

Exhibit 92 E-mail string, top e-mail to 188


Bruce Voss from John Higgins
dated 6/20/2014, Bates Nos.
LCM_SEC0000902 to '907
Exhibit 93 E-mail string, top e-mail to 189
John Higgins from Bruce Voss
dated 6/23/2014, Bates Nos.
LCM_SEC0000346 to '350

Exhibit 94 E-mail string, top e-mail to Fr. 191


Lemelson from Bruce Voss dated
6/23/2014, Bates Nos.
LCM_SEC0000351 to '352
Exhibit 95 E-mail string, top e-mail to 195
Erika Luib from Bruce Voss dated
6/23/2014, Bates Nos.
LCM_SEC0000354 to '359

Exhibit 96 E-mail string, top e-mail to 200


Bruce Voss from John Higgins
dated 6/24/2014, Bates Nos.
LCM_SEC0000923 to '924
Exhibit 97 E-mail string, top e-mail to 204
Bruce Voss from John Higgins
dated 6/24/2014, Bates Nos.
LCM_SEC0000928 to '930

Exhibit 98 E-mail string, top e-mail to 207


Bruce Voss from Matt Foehr dated
6/25/2014, Bates Nos.
LCM_SEC0000936 to '937

KEY Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 8 of 34
BRUCE VOSS December 3, 2019

Page 8
EXHIBITS
DEFENDANT'S PAGE
Exhibit 99 E-mail string, top e-mail to 217
John Higgins from Matt Foehr
dated 7/7/2014, Bates Nos.
LCM_SEC0000991 to '1005

Exhibit 100 E-mail string, top e-mail to 221


various recipients from John
Higgins dated 7/9/2014, Bates
Nos. LCM_SEC0001027
Exhibit 101 E-mail string, top e-mail to 225
Bruce Voss from Erika Luib dated
7/14/2014, Bates Nos.
LCM_SEC0001036 to '037

Exhibit 102 E-mail string, top e-mail to 229


Bruce Voss from Erika Luib dated
6/12/2014, Bates Nos.
LCM_SEC0000806 to '808
Exhibit 103 E-mail string, top e-mail to 230
Bruce Voss from Vincent dated
7/14/2014, Bates Nos.
LCM_SEC0001038 to '039

Exhibit 104 E-mail string, top e-mail to 230


John Higgins from Bruce Voss
dated 7/22/2014, Bates Nos.
LCM_SEC0000431 to '433
Exhibit 105 E-mail string, top e-mail to 242
Bruce Voss from Erika Luib dated
8/14/2014, Bates Nos.
LCM_SEC0001084 to '085
Exhibit 106 E-mail string, top e-mail to 247
John Higgins and Charles Berkman
from Bruce Voss dated 8/18/2014,
Bates Nos. LCM_SEC0000491 to
'495
Exhibit 107 E-mail string, top e-mail to 252
Bruce Voss from John Higgins
dated 8/19/2014, Bates Nos.
LCM_SEC0001133 to '138

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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 9 of 34
BRUCE VOSS December 3, 2019

Page 9
EXHIBITS
DEFENDANT'S PAGE
Exhibit 108 E-mail to Randy Osborne from 261
Bruce Voss dated 9/5/2014, Bates
Nos. LCM_SEC0000524
Exhibit 109 E-mail string, top e-mail to 263
John Higgins, Matt Foehr and
Charles Berkman from Bruce Voss
dated 9/23/2014, Bates Nos.
LCM_SEC0000528 to '535
Exhibit 110 E-mail string, top e-mail to 267
Matt Foehr from Bruce Voss dated
9/23/2014, Bates Nos.
LCM_SEC0000543 to '544

Exhibit 111 E-mail string, top e-mail to 270


Jody Burfening from Bruce Voss
dated 11/17/2014, Bates Nos.
LCM_SEC0000578 to '579
Exhibit 112 E-mail string, top e-mail to 289
Bruce Voss from John Higgins
dated 10/27/2015, Bates Nos.
LCM_SEC0000676 to '682

Exhibit 113 E-mail string, top e-mail to 299


Bruce Voss from Todd Pettingill
dated 5/14/2015, Bates Nos.
LCM_SEC0001268 to '270
Exhibit 114 E-mail string, top e-mail to 302
John Higgins from Bruce Voss
dated 10/27/2015, Bates Nos.
LCM_SEC0000102 to '108

Exhibit 115 E-mail string, top e-mail to 303


Bruce Voss from Matt Foehr dated
3/18/2016, Bates Nos.
LCM_SEC0000755 to '757

KEY Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 10 of 34
BRUCE VOSS December 3, 2019

Page 10

PREVIOUSLY MARKED EXHIBITS

EXHIBIT NO. PAGE


4 33

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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 11 of 34
BRUCE VOSS December 3, 2019

Page 11
1 SAN DIEGO, CALIFORNIA; TUESDAY, DECEMBER 3, 2019
2 8:57 A.M. - 5:52 P.M.

4 THE VIDEOGRAPHER: We are now on the record.

5 Today's date is December 3rd, 2019, and the time is


6 8:57 a.m. This begins the video-recorded deposition of

7 Bruce Voss being taken in the matter of SEC versus


8 Lemelson Capital Management, LLC, on behalf of the

9 defendants, pending in the United States District


10 Court, District of Massachusetts, Case

11 No. 1:18-CU-11926-PBS.

12 This deposition is taking place at Aptus

13 Court Reporting located at 600 West Broadway,

14 Suite 300, San Diego, California 92101. My name is

15 Ryan Asanas, the videographer, of Key Discovery.

16 Will all counsel please identify yourselves

17 and state whom you represent starting with the taking


18 attorney.

19 MR. BROOKS: Good morning. Doug Brooks, law firm

20 of Libby Hoopes, and I represent the defendants in this

21 matter.
22 MR. JONES: Good morning. Marc Jones for the

23 plaintiff, Securities and Exchange Commission.


24 MR. DAY: Al Day for the Securities and Exchange

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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 12 of 34
BRUCE VOSS December 3, 2019

Page 12
1 Commission.
2 MR. BONDI: Brad Bondi of Cahill Gordon & Reindel

3 for the witness, Bruce Voss.

4 MR. McCAUGHEY: William McCaughey of Cahill Gordon

5 for Bruce Voss.


6 MR. TONOLLI: Sean Tonolli of Cahill Gordon on

7 behalf of Mr. Voss.


8 THE VIDEOGRAPHER: Thank you. The court reporter

9 today is Sheri Somers also with Key Discovery, and she


10 may now swear in or affirm the deponent.

11

12 BRUCE VOSS,

13 having been administered an oath, was examined and

14 testified as follows:

15

16 EXAMINATION

17 BY MR. BROOKS:
18 Q. Good morning, Mr. Voss. We met briefly off

19 the record. My name is Doug Brooks and I represent the

20 defendants in this matter.

21 Can you please state and spell your last name


22 for the record.

23 A. Last name is Voss, V -- like "Victor" --


24 o-s-s -- like "Sam."

KEY Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 13 of 34
BRUCE VOSS December 3, 2019

Page 34
1 when Mr. Berkman sent it to you?
2 A. I don't recall exactly when I read the full

3 report. It's quite long. I read parts of it when

4 Mr. Berkman forwarded it to me.

5 Q. Do you recall what parts?


6 A. The Seeking Alpha alert is a link back to the

7 Seeking Alpha website, and as best as I can recall, I


8 started to scan the document on Seeking Alpha, which in

9 turn, as I recall, had a link to the document here in


10 front of me.

11 Q. Had you heard of Seeking Alpha before

12 June 16, 2014?

13 A. I had.

14 Q. And what was your understanding of what

15 Seeking Alpha was?

16 A. My understanding of Seeking Alpha is that it

17 is a website into which various contributors write


18 notes and opinions and information about publicly

19 traded companies.

20 Q. Now, ultimately you spoke with Father

21 Lemelson about his report, correct?


22 A. I ultimately spoke with Father Lemelson about

23 his report on June 18, right?


24 Q. Okay. So two days after the report came out,

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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 14 of 34
BRUCE VOSS December 3, 2019

Page 35
1 correct?
2 A. That's correct. The report came out on the

3 16th.

4 Q. When you spoke to Father Lemelson on June 18,

5 had you read the entire report at that point?


6 A. By that point, yes.

7 Q. How many times?


8 A. I don't recall.

9 Q. Now, prior to speaking with Father Lemelson


10 on June 18, 2014, did you discuss that report with

11 anyone at Ligand?

12 A. As I recall, we had multiple discussions

13 about the report with various people at Ligand.

14 Q. Did that include -- strike that.

15 Did that include telephone conversations?

16 A. As I recall, it did.

17 Q. And, again, focusing on the time between June


18 16 and June 18, did you speak with anyone at Ligand in

19 person?

20 A. I -- as I recall, I did not.

21 Q. Have you ever exchanged text messages with


22 anyone at Ligand about Father Lemelson?

23 A. I have not.
24 Q. With whom at Ligand did you speak about the

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Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 15 of 34
BRUCE VOSS December 3, 2019

Page 99
1 Do you see that?
2 A. I do.

3 Q. Other than this e-mail, do you know if he

4 ever provided you a proposed narrative in writing?

5 A. I don't recall ever receiving a proposed


6 narrative in writing.

7 Q. Do you recall ever seeing a proposed


8 narrative outside of this e-mail on a phone call with

9 Mr. Higgins?
10 A. I don't follow, seeing on a phone call.

11 Q. I misspoke. I'm sorry.

12 So did you ever receive a proposed narrative

13 from Mr. Higgins on a phone call?

14 A. I don't recall.

15 Q. He then writes, "Specifically, in my proposal

16 I do not think the first call should be jump into

17 content or a rebuttal."
18 Do you see that?

19 A. I do.

20 Q. Did you agree with that suggestion?

21 A. That's him making a suggestion.


22 Q. Did you agree with it?

23 A. It's -- was presented for consideration.


24 Q. And what did you consider about it?

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Page 100
1 A. This is ultimately what happened.
2 Q. Meaning ultimately that's the way the call

3 went --

4 A. Right.

5 Q. -- without jumping into content or rebuttal,


6 correct?

7 A. I think what's key here is that he's --


8 Mr. Higgins is suggesting that I call Father Lemelson

9 first to feel him out for tone and approach.


10 Q. Right. And he's writing in that first call

11 he doesn't want you to jump into content or rebuttal,

12 correct?

13 A. I don't -- I think what he's responding to is

14 that the previous suggestion was to have Matt on with

15 me because so much of Father Lemelson's report was

16 about topics where Matt is the subject matter expert.

17 Q. Right.
18 A. And I'm not sure that Mr. Higgins here was

19 talking in very definitive terms on content or

20 rebuttal.

21 Q. So if you look at the fourth line down,


22 Mr. Higgins writes, "To me, if we jump right into

23 rebuttal mode without knowing our counterparty, it


24 seems we are less prepared for any call we could have

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Page 113
1 Q. All right. Now we're going to get to the
2 hard part where I'm going to ask you to decipher all of

3 your notes.

4 A. I understand.

5 Q. So I think we can start because you've talked


6 about the ones above it. So you see the date 6-18-14?

7 A. Yeah.
8 Q. That's the date of the call, right?

9 A. I'll read through it. 6-18-14 is the date.


10 Q. Yep.

11 A. Under where it says 8:49, then crossed out,

12 55 A, that means at 8:55 a.m., "LVN" means I left a

13 voicemail.

14 Q. Okay.

15 A. And then under that, "9:56 A to 10:16 A,"

16 that's when the returned call and the conversation took

17 place.
18 Q. Okay. So fair to say it was a 20-minute

19 conversation?

20 A. Correct.

21 Q. Okay. All right. Then can you continue


22 reading.

23 A. I would note here that these notes that I


24 took are in the main things Father Lemelson was saying

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Page 131
1 Do you recall anything that Father Lemelson
2 said during your June 18, 2014 telephone conversation

3 that is not written in your notes that are Exhibit 82,

4 I believe?

5 A. There's a lot he said not in these notes. I


6 don't recall all of it. The notes are not a

7 transcription of the call. They are my best ability.


8 But to answer your question, I recall that Father

9 Lemelson had a pattern of speech during that call where


10 after many of his statements he would say the phrase,

11 "Don't you agree?" But the way he said it was just

12 that, it was a pattern of speech. It was a very

13 dismissive, "Don't you agree?" and then the

14 conversation would go on. And it struck me as just a

15 personal tick that I hadn't heard before, which is why

16 I remembered it.

17 Q. And in response to him saying, "Don't you


18 agree?" did you explicitly disagree as to any of his

19 points when he phrased it like that?

20 A. I don't recall specifically addressing any of

21 those because, like I said, they were so regular and


22 they were so basically dismissive that they were just

23 part of his speech pattern.


24 Q. And I believe -- is it one of your

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Page 146
1 Q. So if you go down in that first paragraph of
2 your thing towards the end, do you see where, three

3 lines up, it says, "As I wrote last night"?

4 A. I see that.

5 Q. You said, "As I wrote last night, he made


6 that statement with a rhetorical, "Don't you agree?"

7 and I moved on to the next subject as we had more to


8 cover and his statement was ridiculous."

9 What were you referring to there?


10 A. This refers to a comment Father Lemelson made

11 during the Benzinga interview whereby he mentioned that

12 he had talked to Ligand's IR representative, meaning

13 me, and that I had said to him in agreement that we,

14 meaning Ligand, agree and know that Promacta is going

15 to go to zero in sales.

16 Q. Okay. And that's what you're referring to in

17 that sentence I just read, correct?


18 A. That's the statement that I'm referencing.

19 Q. You wrote, "As I wrote last night." Do you

20 know what you're referring to there?

21 A. I don't.
22 Q. So I'll just represent for the record that we

23 do not have any e-mails from you from -- that relate to


24 this in any way from the prior night. So to the extent

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Page 147
1 that they exist, I'd ask counsel to look for them.
2 MR. TONOLLI: I'll represent that we have looked,

3 we're aware of this, and there is nothing there. And

4 as you've indicated, Mr. Voss has testified he had not

5 seen or heard of the interview until the 20th, so


6 saying, "As of last night" would have been the 19th.

7 BY MR. BROOKS:
8 Q. So you don't know why you wrote that?

9 A. I don't know what it refers to or how it


10 might be written incorrectly. I don't know.

11 MR. TONOLLI: And to be clear, we've checked both

12 Ligand's and Bruce at LHA.

13 MR. BROOKS: I appreciate that. We've obviously

14 done the same. So --

15 BY MR. BROOKS:

16 Q. And, again, just to clarify, now that we've

17 had the back and forth, you just -- sitting here today,
18 you have no memory of what you were referring to,

19 correct?

20 A. Unfortunately I don't.

21 Q. Okay. Now, in the next paragraph you say,


22 "We could always threaten legal action against him for

23 being reckless by making knowingly incorrect statements


24 publicly, but I'm not sure what that would include."

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Page 152
1 A. I do see that.
2 Q. And prior to your e-mail to Mr. Higgins on
3 January 20, you had spoken to him by phone on -- prior
4 to -- sorry. Mr. Tonolli is ready to object.
5 MR. TONOLLI: You said January.
6 MR. BROOKS: I know.
7 BY MR. BROOKS:
8 Q. Let me rephrase it so the transcript is
9 clear.
10 Prior to your e-mail -- strike that.
11 Prior to Mr. Higgins' e-mail to you on
12 June 20 that's part of Exhibit 85, you had spoken to
13 Mr. Higgins about your conversation with Father
14 Lemelson on June 18, correct?
15 A. That's correct, in the debrief.
16 Q. Okay. And Mr. Higgins' characterization was
17 that you made a tacit agreement -- you were in tacit
18 agreement that Promacta was going away, right?
19 MR. TONOLLI: Object to form.
20 MR. JONES: Vague.
21 BY MR. BROOKS:
22 Q. You can answer.
23 A. What you just said he wrote.
24 Q. Did you agree with Mr. Higgins' assessment

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Page 228
1 Q. Was that true?
2 A. There had been no dialogue between Father

3 Lemelson and Ligand or LHA prior to issuing the report,

4 as we have discussed. To say no prior contact, that's

5 an error because there were attempted contacts and


6 there were some exchanges.

7 Q. Why did you not tell Mr. Balsamo about Father


8 Lemelson's attempted contacts with Ligand before

9 issuing his report?


10 A. I think the precision of this e-mail was not

11 to that degree. I was trying to make the point that

12 the report had been issued by Father Lemelson without

13 the benefit of a conversation with Ligand Management or

14 with LHA.

15 Q. And then you wrote, "The report's content and

16 conclusions are so egregious and the author so marginal

17 that Ligand has chosen not to respond publicly."


18 Was that your opinion at the time?

19 A. It was.

20 Q. And does it remain your opinion sitting here

21 today?
22 A. It does.

23 Q. Mr. Voss, you've just been handed what's been


24 marked as Exhibit 102. I'll ask you to take a look at

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Page 274
1 Q. But you don't recall who at Ligand told you?
2 A. I don't recall who. I don't recall when.

3 Q. You then wrote, "If your client might go that

4 route, I can took them up with the Latham & Watkins

5 guys in San Diego who spearheaded the effort."


6 Does that refresh your recollection on who

7 Ligand used for their meeting with the Boston SEC in


8 2014?

9 A. It does refresh my memory because I believe


10 previously I had stated that I knew Ligand had a

11 relationship with Latham & Watkins, but I was not aware

12 if they were involved in this matter.

13 Q. And just to be clear, somebody at Ligand

14 would have been the one to tell you that there seems to

15 be an investigation underway; is that right?

16 MR. JONES: Objection.

17 THE WITNESS: The only entity I would have heard


18 this from would have been Ligand, and specifically who,

19 I don't know. I don't recall.

20 BY MR. BROOKS:

21 Q. At this point, November 17, 2014, had you


22 spoken to anybody at the SEC about Father Lemelson?

23 A. I don't believe so.


24 Q. Have you ever spoken with anybody at the SEC

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BRUCE VOSS December 3, 2019

Page 287
1 accomplished by meeting with me in person and talking
2 and discussing things. Whether it was an interview or

3 something else, I don't know.

4 Q. As best you can remember, did you say

5 anything during the meeting with the SEC in New York


6 that is inconsistent with what you've testified to here

7 today?
8 A. As best I can remember, absolutely not.

9 Q. But you don't recall them showing you any


10 e-mails?

11 A. They may have, but I honestly don't recall.

12 Q. Getting back to the e-mail that led us down

13 this road, which was the last exhibit, which was 111 --

14 A. That's right.

15 Q. -- you talked about -- you talked about that

16 there was a lengthy meeting. Do you see that? The

17 last paragraph. I'm sorry.


18 A. I see, yes.

19 Q. Do you know if any presentation was made at

20 that meeting?

21 A. I don't know if there was or was not.


22 Q. Have you ever seen a presentation that Ligand

23 or its counsel made to the SEC?


24 A. I don't recall seeing any such presentation.

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Page 288
1 (Mr. Day leaves the deposition.)
2 Q. And you see obviously that Ligand was using

3 Latham & Watkins and then ultimately decided on Cahill;

4 is that right?

5 A. And whether there was anyone in between, I


6 don't know.

7 Q. Fair enough. Did anyone at Ligand ever


8 explain to you why they started using Cahill? I don't

9 want to hear about any conversations you had with


10 anyone at Cahill.

11 MR. TONOLLI: Well, objection to the extent it

12 would call on conversations that are privileged or work

13 product between people with common interests.

14 MR. BROOKS: So are you saying -- is there a

15 common interest agreement, written or oral?

16 MR. TONOLLI: I'm just saying to the extent it

17 calls on those kinds of conversations.


18 MR. BROOKS: I'm not.

19 MR. TONOLLI: I understand. I'm just making a

20 record.

21 BY MR. BROOKS:
22 Q. I guess, first, did you ever have any such

23 conversations?
24 A. I was aware that Ligand was talking to law

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BRUCE VOSS December 3, 2019

Page 311
1 DECLARATION UNDER PENALTY OF PERJURY
2
3 I, BRUCE VOSS, hereby certify under penalty of
4 perjury under the laws of the State of California that
5 the foregoing is true and correct.
6
7 Executed this _____ day of ________________, 2019
8 at ____________________, California.
9
10
11
12 ____________________________
13 BRUCE VOSS
14
15
16
17
18
19
20
21
22
23
24

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Page 312
1 DEPOSITION ERRATA SHEET
2
CASE NAME: SEC v. LEMELSON
3 DEPOSITION DATE: December 3, 2019
WITNESS NAME: BRUCE VOSS
4
5 Reason Codes: 1. To clarify the record.
2. To conform to the facts.
6 3. To correct transcription errors.
7
Page _____ Line ______ Reason Code ______
8 From _______________________ to _______________________
9 Page _____ Line ______ Reason Code ______
From _______________________ to _______________________
10
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11 From _______________________ to _______________________
12 Page _____ Line ______ Reason Code ______
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15 Page _____ Line ______ Reason Code ______
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20 From _______________________ to _______________________
21 Page _____ Line ______ Reason Code ______
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22
Page _____ Line ______ Reason Code ______
23 From _______________________ to _______________________
24

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Page 313
1 Page _____ Line ______ Reason Code ______
From _______________________ to _______________________
2
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3 From _______________________ to _______________________
4 Page _____ Line ______ Reason Code ______
From _______________________ to _______________________
5
6
_______ Subject to the above changes, I certify that
7 the transcript is true and correct
8 _______ No changes have been made. I certify that the
transcript is true and correct.
9
10
11 ______________________
BRUCE VOSS
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13
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ERRATA SHEET

Case: Securities and Exchange Commission v. Lemelson, No. 1:18-cv-11926-PBS (D. Mass)

Date of Deposition: December 3, 2019

Deponent: Bruce Voss

Page Line(s) Change Change To Reason


1 N/A 1:18-CU-11926-PBS 1:18-CV-11926-PBS Clarification
2 N/A 1:18-CU-11926-PBS 1:18-CV-11926-PBS Clarification
11 11 1:18-CU-11926-PBS 1:18-CV-11926-PBS Clarification
14 10 No. Yes, in local court in San Clarification.
Francisco about a
neighbor my landlord was
trying to evict.
15 16 strike preserved strike are preserved Transcription Error
16 18 firms’ limited partnership firm’s limited Transcription Error
partnerships
16 24 NW Ayer N.W. Ayer Transcription Error
17 3 NW Ayer N.W. Ayer Transcription Error
17 2 York. York. Correction, I Clarification
worked at N.W. Ayer
before Southmark.
18 4 three times. three years. Transcription Error
26 14 that roughly Promacta that, roughly, Promacta Clarification
27 9 importance to of importance of Transcription Error
34 23 right? right. Transcription Error
37 23 or Q&A or a Q&A Transcription Error
38 6 and Q&A and a Q&A Transcription Error
43 2 get any public get in a public Clarification from
exhibit
50 3 get benefit get a benefit Transcription Error
55 3 Today, Today. Clarification from
exhibit
55 3-4 undress UNDRESS Clarification from
exhibit
56 5, 11 you YOU Clarification from
exhibit
56 7 was, was Clarification from
exhibit
57 10 call Gary Gary call Transcription Error
64 8 and then then Clarification from
exhibit
Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 30 of 34

Page Line(s) Change Change To Reason


70 2 today, today Clarification from
exhibit
72 17 belief brief Transcription Error
74 3-4 “Promacta, along with Promacta, along with Clarification from
Kyprolis, is early in its Kyprolis, “are early in exhibit
lifecycle” their . . . lifecycles”
77 11 2.2 $2.2 Clarification from
exhibit
77 17 10 $10 Clarification from
exhibit
78 19 10 $10 Clarification
80 14 this. this? Clarification from
exhibit
80 14 Bruce, Bruce - Clarification from
exhibit
82 1 call. call, Clarification from
exhibit
83 11 forceful and forceful. and Clarification from
exhibit
86 19 new new, Clarification from
exhibit
88 12 4 $4 Clarification from
exhibit
89 7 new new, Clarification from
exhibit
92 17 Both, Both: Clarification from
exhibit
95 21 “You have three choices” “We have three choices” Clarification from
exhibit
99 10 call. call? Transcription Error
100 23-24 it seems seems Clarification from
exhibit
101 8 to or to, to Transcription Error
103 10 meeting call meeting/call Clarification from
exhibit
103 10-11 when dates when/dates Clarification from
exhibit
103 13 coming out.” coming.” Clarification from
exhibit
106 15 I all all I Transcription Error
111 11 side size Transcription Error
113 12 “LVN” “LVM” Transcription Error
114 1 I myself myself Transcription Error
120 7 “research,” rsch, research, “rsch,” Transcription Error
Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 31 of 34

Page Line(s) Change Change To Reason


120 8 Silvadi “Solvadi” Clarification from
exhibit
122 4 technology in biotechnology Clarification
biotechnology
125 8 “none-GAAP,” “non-GAAP,” Clarification from
exhibit
142 14 were was Transcription Error
142 16 Ligand mentioned Ligand was mentioned Transcription Error
143 8 often often than Clarification
151 18 there were more things to ‘there were more things to Clarification from
cover or cover.’ Or exhibit
156 18 guy’s guys Clarification from
exhibit
157 19 to phrase the phrase Transcription Error
160 22 ‘kook’ kook, Clarification from
exhibit
161 17 folly personal Clarification
169 17 to be to not be Clarification
169 20-21 to be to not be Clarification
170 10 about being about not being Clarification
173 13 write wrote Transcription Error
174 4 that basically that you basically Transcription Error
174 13-15 Benzinga,” paren, “a Benzinga,” paren, “(a Clarification from
self-described financial self-described financial exhibit
media outlet for traders media outlet for traders at
at Benzinga.com,” close benzinga.com),” close
paren, “during which paren, “during which
190 10, 13 “Bruce, no, it looks Bruce – note looks good.” Clarification from
good.” exhibit
190 15-16 underline,” quote, “only underline”, quote, “‘only Clarification from
one,” in the para about one’ in the first para about exhibit
Promacta, “not sure Promacta. Not sure
193 3 is KOL’s his KOL’s Transcription Error
196 15 84 $84,000 Clarification
200 6 have didn’t didn’t Transcription Error
201 4 on of Transcription Error
201 9 news. news? Clarification from
exhibit
203 6 UPS UBS Transcription Error
204 19 hold old Transcription Error
205 1 any my Transcription Error
206 18 polling pulling Transcription Error
207 15 person different different person Transcription Error
211 19 to men for men Transcription Error
Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 32 of 34

Page Line(s) Change Change To Reason


212 2-3 this his his Transcription Error
214 22 flash in Transcription Error
214 24 then than Transcription Error
215 2 they very they are very Transcription Error
229 16 there they Transcription Error
234 10 understand under Transcription Error
237 15 Mr. Higgins Mr. Higgins’ Transcription Error
240 8 Leff Left Transcription Error
240 16 trade tread Transcription Error
254 11-12 to,” quote, “not to quote “not comment,” Clarification from
comment,” closed quote, closed quote, “should exhibit
“should
255 10-11 out,” open paren, “the out,” open paren, “(the Clarification from
opinions of others,” opinions of others),” close exhibit
closed paren, “and paren, “and
256 17-19 Lemelson,” open paren, Lemelson”, open paren, Clarification from
“the person, the report, “(the person, the report, exhibit
the fund, the model, the the fund, the model, the
assumptions, WWF, et assumptions, WWF, etc.),
cetera, he says he says
256 22-23 future,” open paren, future,” open paren, quote Clarification from
quote, “I won’t give him “(‘I won’t give him exhibit
any more space,” closed anymore space’),” closed
quote, closed paren. quote, closed paren.
259 23 et cetera etc. Clarification from
exhibit
262 5 38 percent 38% Clarification from
exhibit
264 14 4,000,000 $400 million Clarification
266 4 400 $400 Clarification
266 24 share shares Transcription Error
271 14 worth zero, not 1.1 worth $0, not $1.1 billion, Clarification from
billion, exhibit
273 14-15 SEC,” open paren, SEC,” open paren, Clarification from
“Lemelson is based in “(Lemelson is based in exhibit
Mass,” closed paren, Mass.),” closed paren,
“and “and
274 4 took hook Clarification from
exhibit
276 12 trades of trading in Clarification
290 8 sometime some time Transcription Error
293 5-6 He’s been coaching to go He’s been coaching the Transcription Error
witness all day. witness all day.
304 10 closed close Transcription Error
Case 1:18-cv-11926-PBS Document 127-10 Filed 09/30/20 Page 33 of 34

Page Line(s) Change Change To Reason


305 18 that there Transcription Error
305 21 has have Transcription Error
308 15 trailing trading Transcription Error
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FileExte Date Date Last


EVDXID FileName Prod BegBates Prod EndBates nsion Created Mod

Notes- phone conversation


EPROD-SEC-LIT-E-000589566 with B. Voss - LGND.docx SEC-Lemelson-E-0586677 SEC-Lemelson-E-0586678 docx 9/14/2015 6/18/2014
Case 1:18-cv-11926-PBS Document 127-12 Filed 09/30/20 Page 4 of 4
Case 1:18-cv-11926-PBS Document 127-13 Filed 09/30/20 Page 1 of 2
From: Bruce Voss
To: Higgins, John L.
CC: Foehr, Matt
Sent: 6/20/201411:17:26AM
Subject: Re: Lemelson interview

I am polling my colleagues to see if anyone has any experience with Benzinga but so far no
one does.

John, you're going to have to trust me that I handled my conversation with Lemelson
appropriately. I gained as much information as I could and represented the company
forcefully but as you can tell from the interview and my debrief, this guys approach is
absurd and he's not interested in hearing another point of view.

The comment about Promacta was not a legitimate question but rather it was made in passing
and then he chose to take that piece of the dialogue out of context. That's typical of what
he has done with other pieces from conference calls and SEC filings in his report. Quite
simply I did not agree with that statement nor did I agree with any number of statements he
made.

I am happy to reengage with him, but as we have seen any engagement is subject to
misinterpretation. That's why I think email might be the better vehicle than a phone call.

Sent from my iPhone

On Jun 20, 2014, at 7: 59 AJvl, "Higgins, John L." <JHiggins@ligand.com> wrote:

> Please listen to the interview. At least the ligand part. You talked to the guy. We are
putting the puzzle of the plan together. Your input would be helpful. And Who is benziga,
the interview service?
>
> Also, if he said the CEO beats his employees would you just move on because "there were
more things to cover." Or would you take a moment to stick up for the CEO? Promacta is a
big deal, and a big part of our value and business model. He knows it too. He gave you a
softball and you just moved on? Even 1 minute of soft info would have left him with a
different impression than tacit agreement.
>
> Are IR firms ever advocates for their clients. It seems the approach with Gary and now
hearing the non-rebuttal approach with lemelson is more passive than ideal.
>
> John
>
>> On Jun 20, 2014, at 9:42 AlvI, "Bruce Voss" <BVoss@lhai.com> wrote:
>>
>> I've read some posts about his interview but have not seen the interview itself. I could
call him and ask for proof I said Promacta sales are going away (I don't think he recorded
our conversation, but if he did that would be great as he'd have a record of me not saying
that), and in absence of proof I can demand he correct his statement (I'm not sure how he
would do that as it was in an interview, but maybe he could put a correction on Seeking
Alpha). As I wrote last night, he made that statement with a rhetorical "don't you agree"
and I moved on to the next subject as we had more to cover and his statement was
ridiculous.
>>
>> We could always threaten legal action against him for being reckless by making knowingly
incorrect statements publicly but I'm not sure what that would include. Maybe Charles has a
view.
>>
>>
>>
>> Bruce Voss, Managing Director, Principal

Confidential Treatment Requested by Bruce Voss LCM SEC0000324


Subject to Protective Order in D. Mass. Case No. 18-cv-11926-PBS EPROD-SEC-LIT-E-000000407
Case 1:18-cv-11926-PBS
>> Investor Relations: Document 127-13 Filed 09/30/20 Page 2 of 2
Results that Matter
>>
>> T: 310.691.7100 C: 646.249.7453 F: 310.691.7150 E: BVoss@lhai.com
>> 2121 Avenue of the Stars, Suite 2970 I Los Angeles, CA 90067
>> www.lhai.com I Facebook I Linkedin I Twitter I YouTube
>>
>>
>> This email and attachments, if any, may contain confidential and/or privileged
information. If you are not the intended recipient, please notify the sender immediately.
Any unauthorized copying, disclosure or distribution of the material in this email is
strictly forbidden.
>>
>> Please consider the environment before printing this email.
>>
>>
>> From: Higgins, John L. [JHiggins@ligand.com]
>> Sent: Friday, June 20, 2014 6:56 AM
>> To: Bruce Voss
>> Cc: Foehr, Matt
>> Subject: Fwd: Lemelson interview
>>
>> Bruce - any thoughts?
>>
>>
>> Begin forwarded message:
>>
>> From: "Foehr, Matt" <MFoehr@ligand.com<mailto:MFoehr@ligand.com>>
>> Date: June 20, 2014 at 8:43:20 AM CDT
>> To: "Higgins, John L." <JHiggins@ligand.com<mailto:JHiggins@ligand.com>>
>> Subject: FW: Lemelson interview
>>
>> From a retail investor (below), just received by Erika. Just an FYI.
>> -----Original Message-----
>> From: Joe Hunt [mailto:joehunt1222@verizon.net]
>> Sent: Thursday, June 19, 2014 8:49 PM
>> To: Investors
>> Subject: Lemelson interview
>>
>> The manager of the hedge fund which published the extremely negative report on Monday
about Ligand conducted an interview with Benzinga today.
>>
>> You can see the interview here:
>>
>> http://phanarion.org/updates/6-updates/l20-watch-6-l9-rev-emmanuel-lemelson-
on-stewardship-and-capital-allocation-show-9-20am-et
>>
>> The part of the interview relevant to Ligand begins at the 14:32 time marker, so you
don't need to waste your time listening to the entire recording. Please note well what he
states beginning at approximately the 15:52 time marker. He says he spoke with management,
and then corrects himself and says he spoke with IR, who he says basically agreed that
Promacta sales are going away.
>>
>> This seems to me to be a flat out falsehood, and you should take legal action against
this short seller. Clearly, Promacta sales into the hepatitis c market will eventually
decline if the new therapies which are not combined with interferon are successful, but to
state that Promacta sales are going away is simply not true. He apparently does not know or
take into account that Promacta is used in multiple indications and that the hep c
indication is not the primary one at present.
>>
>> Thank you for your attention to this matter.
>>
>> Joseph Hunt
>> shareholder

Confidential Treatment Requested by Bruce Voss LCM SEC0000325


Subject to Protective Order in D. Mass. Case No. 18-cv-11926-PBS EPROD-SEC-LIT-E-000000408
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1

Ligand Pharmaceuticals (NASDAQ: LGND): Appendix


Lemelson Capital further increases short stake and reaffirms 100% downside risk in
Ligand Pharmaceuticals (NASDAQ: LGND), a ncillary applications for Promacta® and
Kyprolis® not commercially viable, Duavee® sales remain immaterial

Table of Contents

Overview ................................................................................................................................................... 1
Disclaimer.................................................................................................................................................. 2
ITP not a commercially viable application for Promacta® ........................................................................ 3
No indication Kyprolis’® 2014 sales will even cover CEO’s compensation ............................................... 3
A “Silly” Report? Duavee® and CE® Melphalan ........................................................................................ 6
Viking Therapeutics ................................................................................................................................... 7
A curious relationship ............................................................................................................................... 9
Speculation has no intrinsic value, 100% downside risk reaffirmed ...................................................... 10
Full Disclaimer ......................................................................................................................................... 11

Overview

 Despite a significant downward correction in the share price of Ligand Pharmaceuticals


(NASDAQ: LGND) since the June 16,2014 publication of its original research report on LGND,
Lemelson Capital Management has since continued to increase its short position in the
Company.

o Lemelson Capital’s original June 16, 2014 report can be found here.

 Promacta® sales, which represented as much as 72 percent of Ligand royalty revenue as recently
as Q4 2013, have slowed sharply in Q1 and are expected to continue to decline, a point
recognized in recent analyst commentary. There is no evidence of a significant market for
Case 1:18-cv-11926-PBS Document 127-15 Filed 09/30/20 Page 2 of 12
2

Promacta® outside of Hepatitis C indications, and suggestions that idiopathic thrombocytopenic


purpura (ITP) is a commercially viable alternative application are false.

 Amgen’s total revenue from Kyprolis® in Q1 2014 was just $68 million, representing royalties to
LGND of just $1,020,000.

 Contrary to recent analyst commentary regarding “significant revenue contribution in the near
term” from sales of Duavee® and Captisol-enabled® (CE) Melphalan, Duavee® sales have been
and will continue to be immaterial for the foreseeable future, while an NDA has not even been
filed for CE Melphalan.

 There are no indications that Captisol® sales will increase materially in the future, and it is likely
to become the company’s only significant source of future revenue. Recent analyst commentary
concedes that single-sourced Captisol® represents the majority of the Company’s “pipeline.”

 The company’s recent and highly complex arrangement with Viking Therapeutics, a sub-tenant
in one of Ligands buildings, deserves close scrutiny, since the latter of the two appears to serve
only as shell for Ligand to further access pubic markets via a $58 million IPO and an arrangement
(not disclosed in related press releases) to convey 50% of Viking equity, post successful offering
to Ligand.

 Given extraordinary and growing liabilities associated with Ligand’s key products, as well as
questionable transactions associated with the Viking IPO, Lemelson Capital reaffirms downside
risk for LGND at 100%.

Disclaimer

Following publication, Lemelson Capital may transact in the securities of the company. Lemelson
Capital has obtained all information herein from sources it believes to be accurate and reliable.
However, such information is presented “as is,” without warranty of any kind whether express
or implied. Lemelson Capital makes no representation, express or implied, as to the accuracy,
timeliness, or completeness of any such information or with regard to the results obtained from
its use. All expressions of opinion are subject to change without notice, and Lemelson Capital
does not undertake to update this report or any information contained herein.
Case 1:18-cv-11926-PBS Document 127-15 Filed 09/30/20 Page 3 of 12
3

ITP not a commercially viable application for Promacta®

“The first line of therapy for ITP is a corticosteroid, usually prednisone. In children,
idiopathic thrombocytopenic purpura usually runs its course without the need for
treatment.”

THE MAYO CLINIC


WWW.MAYOCLINIC.ORG

“Yes. And there's no specific quantification by GSK in terms of ITP or Hep C.


Qualitatively, the recent development in the Hep C space is perhaps not
helping the analytics.As you can imagine, there's been a real preoccupation
with the new therapy.“JOHN L. HIGGINS - CHIEF EXECUTIVE OFFICER, PRESIDENT AND
EXECUTIVE DIRECTOR

(REFERRING TO NEW THERAPIES THAT WILL REPLACE PROMACTA® AS AN INDICATION FOR HEP C)
LIGAND PHARMACEUTICALS INCORPORATED'S (LGND) Q1 2014 RESULTS EARNINGS CALL TRANSCRIPT

Once the Hep C application is lost, there is no evidence of a significant, commercially viable
market for Promacta®. ITP, which has been mentioned as an alternative application, does not
have significant commercial viability.

No indication Kyprolis’® 2014 sales will even cover CEO’s compensation

“But I think we are just about seeing a peak in the third line area for Kyprolis®.”

ANTHONY C. HOOPER - EVP, GLOBAL COMMERCIAL OPERATIONS


AMGEN (AMGN) MANAGEMENT PRESENTS AT GOLDMAN SACHS 35TH ANNUAL GLOBAL HEALTHCARE CONFERENCE

According to Amgen’s (NASDAQ: AMGN) form 10-Q for Q1 2014 filed with the SEC, Amgen’s
total revenue from Kyprolis® in Q1 2014 was just $68 million, representing royalties to LGND of
Case 1:18-cv-11926-PBS Document 127-15 Filed 09/30/20 Page 4 of 12
4

just $1,020,000. At an annualized royalty rate of $4,080,000, there is no indication Kyprolis®


royalties will even cover Ligand CEO’s ever-increasing compensation.

Name Year Total Compensation % Increase

John L. Higgins 2014 ?


2013 $ 3,004,911 26.7%
2012 $ 2,371,336 45.2%
2011 $ 1,633,156

Average % Increase: 36.0%

Even if Kyprolis® were to receive designation as a second-line indication and sales reached the
highest end of all expectations and tripled in coming years, the royalty rate payable to LGND
would barely exceed an anemic $18 million.

“Serious side effects seen with Kyprolis® included heart failure…”

U.S. FOOD AND DRUG ADMINISTRATION (FDA), JULY 20, 2012

Kyprolis® has yet to demonstrate a survival benefit in patients.

The FDA approved Kyprolis® for multiple myeloma in 2012 based on just a 23% response rate to
the drug in only 266 patients.

The Phase 3 FOCUS trial, which was recently completed, could easily reinforce Kyprolis'
association with heart failure, organ failure, and other serious side effects. In other words, it is
essential to consider the significant possibility that Kyprolis® may fail to ever become a second-
line indication for AMGN.

Indeed, Kyprolis® might end up demonstrating little to no overall survival benefit in any of the
myeloma trials, which would confirm that it too lacks commercial viability.
Despite the FDA approval, many oncologists are understandably hesitant to use Kyprolis® due to
the drug's association with heart failure, ischemia, hypertension, and even infusion reactions.
Although myeloma patients may have a very poor prognosis after failure to respond to front and
second-line therapies, it does not mean that oncologists would gamble with the possibility of
drug-induced death.
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5

“…any setback that may occur with respect to Promacta® or Kyprolis® could
significantly impair our operating results and/or reduce the market price of our
stock.”

ITEM 1A. RISK FACTORS


LIGAND PHARMACEUTICALS INCORPORATED
2013 FORM 10-K

“Further, the manufacture, use or sale of our potential products or our collaborative
partners' products or potential products may infringe the patent rights of others. This
could impact Captisol, Promacta®, Kyprolis, Avinza, Duavee, Viviant and Conbriza,
Nexterone, and other products or potential products.”

ITEM 1A. RISK FACTORS


LIGAND PHARMACEUTICALS INCORPORATED
2013 FORM 10-K

“So Kyprolis® you know we have at the moment a third line plus indication. There is a
finite level of growth you can get in the third line.“

ANTHONY C. HOOPER - EVP, AMGEN’S GLOBAL COMMERCIAL OPERATIONS


AMGEN (AMGN) MANAGEMENT PRESENTS AT GOLDMAN SACHS 35TH ANNUAL GLOBAL HEALTHCARE CONFERENCE

According to the company’s proxy statement filed with the SEC, Mr. Higgins’ total compensation
for 2013 was $3,004,911, or roughly 26% of the Company’s 2013 net income. Additionally,
Executive VP and COO Mr. Matthew Foehr earned total compensation of $1,965,465. When
taken together, these two executive salaries alone are equivalent to approximately 44% of the
Company’s 2013 net earnings.
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6

A “Silly” Report? Duavee® and CE® Melphalan

“…we expect significant revenue contribution in the near term from Duavee® and CE®
Melphalan”

ROTH CAPITAL ANALYST JOSEPH PANTGINIS RESPONDING TO LCM’S JUNE 16 RESEARCH REPORT ON LGND

“We don't expect a lot from Duavee this year…”

JOHN SHARP, VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER (REFERRING TO FY 2014)
“LIGAND PHARMACEUTICALS' CEO DISCUSSES Q4 2013 RESULTS,” EARNINGS CALL TRANSCRIPT

CE® Melphalan is not even mentioned in the Company’s 2013 annual report. According to the
company’s website, an NDA has NOT even been filed for CE® Melphalan (a fact also recognized in the
company’s Q1 2014 conference call).

According to Streetinsider.com, Joseph Pantginis, Roth Capital analyst, on June 17, 2014, referred to the
original June 16, 2014 Lemelson Capital Management research report on LGND as “silly.” On the same
day and again on June 25, 2014, Mr. Pantginis reiterated his buy rating on LGND shares with a $92 price
target.

At $92 per share, LGND would trade at 159x earnings and its market cap would swell to over $1.9 billion
for a Company that has earned just $9.2 million in the last twelve months. Such a price would represent
almost 30x book value (all of which is intangible).

In another article published by SmarterAnlyst, Mr. Pantginis further referred to the report as “foolish.”

According to TipRanks, which measures analysts’ success rates based on how their calls perform,
analyst Joseph Pantginis, who covers LGND, currently has a one-year average return of -6.5% and is
ranked #3027 out of 3104 analysts.

During the same period, while Mr. Pantginis returned a loss of 6.5%, the S&P 500 rose approximately
17.6%.

Mr. Pantginis was not able to invalidate any point raised in LCM’s original June 16, 2014 research report,
but did admit in the response that LGND’s “pipeline” is in fact highly concentrated in just one product,
Case 1:18-cv-11926-PBS Document 127-15 Filed 09/30/20 Page 7 of 12
7

namely Captisol®. Further, Mr. Pantginis acknowledged that current LGND management has been in
place ~six of the last ten years (a period of time when shareholders were diluted by some 72%).

Viking Therapeutics

On Thursday May 22, Viking Therapeutics, a clinical-stage biopharmaceutical company, which consists
entirely of technologies it in-licenses from Ligand, released a joint statement together with Ligand,
announcing that it had signed a “broad licensing deal” with Ligand Pharmaceuticals. Shares of Ligand
closed 3% higher on the news, representing an increase of almost $40 million in market capitalization
for Ligand in just a matter of hours.

Viking 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. Viking appears to be a
single-purpose vehicle created to raise more capital from public markets for its sponsor, Ligand
Pharmaceuticals.

In the release, Mr. Higgins stated:

"A relationship such as this one with Viking gives Ligand the opportunity to entrust
valuable internal programs to a dedicated team with the operational resources to
take them to the next level."

“This is a creative transaction that establishes a bold portfolio of early- and mid-stage
assets that have the potential to generate substantial news flow…”

JOHN HIGGINS, PRESIDENT AND CEO OF LIGAND PHARMACEUTICALS


VIKING SIGNS BROAD LICENSING DEAL WITH LGND FOR RIGHTS TO FIVE NOVEL THERAPEUTIC PROGRAMS

However, once again there is a substantial difference between the Company’s press releases and SEC
filings in Viking’s recent S1 registration.

“Our independent registered public accounting firm has expressed substantial doubt
about our ability to continue as a going concern.”

“Additionally, as of March 31, 2014, we do not believe that we will have sufficient
cash to meet our operating requirements for at least the next 12 months...”
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8

VIKING THERAPEUTICS, INC.


FORM S-1 REGISTRATION STATEMENT

In fact, Ligand had to loan Viking $2.5 million in order to get them to take programs that they did,
meaning that they literally had to pay the partner in this instance to take on the programs, and
apparently the only partner that could be located for these programs was essentially insolvent, just as
Ligand is once intangibles are removed from its balance sheet.

It is perhaps a testimony to the biotech bubble that exists when one insolvent company pays another
insolvent company to take over not “products,” but “programs” in order to generate not “sales” but
“news flow,” in order for the second insolvent company, which has no immediate hope of generating
revenue let alone profits or cash flow (and has never had any revenues) to take itself public.

“We may never become profitable.”

VIKING THERAPEUTICS, INC.


FORM S-1 REGISTRATION STATEMENT

And the purpose of the public offering if it should succeed?

“Under the terms of the Master License Agreement, we will pay Ligand an upfront fee
of $29.0 million, subject to adjustment in certain circumstances, payable in equity
upon the closing of this offering”

VIKING THERAPEUTICS, INC.


FORM S-1 REGISTRATION STATEMENT

$29 million is almost four times what Ligand has earned in the last twelve months. Yet, this fact was
somehow left out of its May 22 press release.

Ligand appears to be indirectly creating a shell company through Viking to generate paper profits to
stuff its own balance sheet. Viking represents a subsidiary that can start with a clean slate and issue
new shares ad infinitum over the years just as Ligand has done over its lifetime. Only this time, the
dilution and the inevitable losses will be associated with another name, thus shielding Ligand from the
obvious bad press, while allowing the company to access the public markets yet again and add a
substantial entry to the “asset” side of the balance sheet, which will be a positive number, behind which
in reality will be nothing but further losses based on Ligand’s own portfolio of “programs,” which
apparently were not marketable to any profitable company.
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9

According to Viking’s balance sheet, the firm has no assets and yet plans to raise $58 million in public
markets, 50% of which, or $29 million apparently will go directly to Ligand, a fact revealed in the SEC
filing but not the related press releases on the licensing agreements. On the announcement of the
“creative transaction,” Ligand shares themselves gained almost $40 million in value. The combined total
of these two events equals almost as much as Ligand’s projected 2015 gross revenues.

The legality of such a transaction may one day be challenged by shareholders in either company. The
ethics should already be clear. The objectives of alchemy have no place in legitimate finance.

The casual observer might even mistake what Ligand leadership has coined a “creative transaction” as a
common game of three-card Monte, played on any street corner – shills included.

A curious relationship

On April 7, 2014 Viking suddenly terminated its relationship with its independent registered public
accounting firm and auditor MaloneBailey just one month after they had engaged them.

On March 4, 2014, we engaged MaloneBailey LLP, or MaloneBailey, to audit our


financial statements as of and for the fiscal years ended December 31, 2012 and
2013. On April 7, 2014, our board of directors approved the dismissal of MaloneBailey
as our independent registered public accounting firm, effective immediately.

VIKING THERAPEUTICS, INC.


FORM S-1 REGISTRATION STATEMENT

On April 7, 2014, Viking’s Board of Directors appointed Marcum LLP as an independent registered public
accounting firm stating:

From September 24, 2012 (Inception) through April 7, 2014, neither we nor anyone
on our behalf consulted with Marcum regarding (1) the application of accounting
principles to a specified transaction, either completed or proposed, (2) the type of
audit opinion that might be rendered on our financial statements, or (3) any matter
that was either the subject of a disagreement, as described in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions thereto, or a “reportable event” as
described in Item 304(a)(1)(v) of Regulation S-K.
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10

In other words, Marcum was merely hired, but the company has not yet even consulted with the firm on
any material issues. The financial statements provided on the S1 accordingly are unaudited.

Speculation has no intrinsic value, 100% downside risk reaffirmed

The Company’s CY 2015 revenue estimates are $80 million. At such a sales level, net profits
continue to be immaterial. Additionally, virtually every major revenue-generating product of
the Company faces either a significant competitive or market threat. Current tangible equity is
negative $4 million--that is to say, the Company’s liabilities far exceed its assets and the
Company appears all but certain to show a GAAP loss in Q2, which will further erode the “house
of cards” balance sheet the company has maintained.

The impact to sales of Promacta® from revolutionary new drugs has already begun to manifest
itself in the Company’s Q1 results. Suggestions that ITP is a viable alternative market for
Promacta® are contradicted by clinical research and expectations.

Kyprolis®, a third-line indication for multiple myeloma, has been linked to heart failure by the
FDA, and there is no evidence to suggest that the results of the Phase 3 FOCUS trial will result in
Kyprolis® becoming a second-line indication. However, even if it did achieve this status, the
maximum royalties payable to LGND would barely exceed $18 million dollars, a result that
would likely take many years to achieve.

The company has engaged in a “creative transaction” with an affiliate shell company called
Viking Therapeutics, funding the junior partner to the transaction with a $2.5 million loan, which
represents a significant part of Ligand’s cash and overall current assets. The purpose of this
transaction appears to be the ability of Ligand to access public markets indirectly through Viking
in order to further stuff its own balance sheet with what will likely be inflated Viking stock
should the Viking IPO succeed. It is indeed possible to infer from the terms of the transaction
that the value of the five “programs” licensed to Viking were in fact less than zero since Ligand
was required to make a loan to Viking in exchange for Viking taking them over, part of which will
be used to pay Ligand rent on space which Ligand is providing to the firm in its own building.

The Company’s business model as a “broker” of obscure, third-line, unknown and largely
untested indications is inherently flawed and filled with extraordinary risk. It is worth
considering why so much time, energy and resources are invested by the company in
extraordinarily complex transactions that are often presented to the public in a different light
than they are to the SEC.

There is no circumstance where speculation has a legitimate value greater than zero. Indeed
transactions can certainly represent an amount less than zero (only liability). For this reason,
the intrinsic value of Ligand shares must be reaffirmed as $0 with downside risk justifiably
calculated at 100%.
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11

Full Disclaimer

As of the publication date of this report, Lemelson Capital Management LLC has a short position
in the Company covered herein (Ligand Pharmaceuticals) and stands to realize gains in the event
that the price of the stock declines. Following publication of the report, Lemelson Capital may
transact in the securities of the Company covered herein. All content in this report represents
the opinions of Lemelson Capital. Lemelson Capital has obtained all information herein from
sources it believes to be accurate and reliable. However, such information is presented “as is,”
without warranty of any kind, whether express or implied. Lemelson Capital makes no
representation, express or implied, as to the accuracy, timeliness, or completeness of any such
information or with regard to the results obtained from its use. All expressions of opinion are
subject to change without notice, and Lemelson Capital does not undertake to update or
supplement this report or any information contained herein.

This document is for informational purposes only and it is not intended as an official
confirmation of any transaction. All market prices, data and other information are not
warranted as to completeness or accuracy and are subject to change without notice. The
information included in this document is based upon selected public market data and reflects
prevailing conditions and Lemelson Capital’s views as of this date, all of which are accordingly
subject to change. Lemelson Capital’s opinions and estimates constitute a best efforts judgment
and should be regarded as indicative, preliminary and for illustrative purposes only.

Any investment involves substantial risks, including, but not limited to, pricing volatility,
inadequate liquidity, and the potential complete loss of principal. This report’s estimated
fundamental value only represents a best efforts estimate of the potential fundamental
valuation of a specific security, and is not expressed as, or implied as, assessments of the quality
of a security, a summary of past performance, or an actionable investment strategy for an
investor.

This document does not in any way constitute an offer or solicitation of an offer to buy or sell
any investment, security, or commodity discussed herein or of any of the affiliates of Lemelson
Capital. Also, this document does not in any way constitute an offer or solicitation of an offer to
buy or sell any security in any jurisdiction in which such an offer would be unlawful under the
securities laws of such jurisdiction. To the best of Lemelson Capital’s abilities and beliefs, all
information contained herein is accurate and reliable.

Lemelson Capital reserves the rights for their affiliates, officers, and employees to hold cash or
derivative positions in any Company discussed in this document at any time. As of the original
publication date of this document, investors should assume that Lemelson Capital is short
shares of Ligand and may have positions in financial derivatives that reference this security and
stand to potentially realize gains in the event that the market valuation of the Company’s
common equity is lower than prior to the original publication date. These affiliates, officers, and
Case 1:18-cv-11926-PBS Document 127-15 Filed 09/30/20 Page 12 of 12
12

individuals shall have no obligation to inform any investor about their historical, current, and
future trading activities. In addition, Lemelson Capital may benefit from any change in the
valuation of any other companies, securities, or commodities discussed in this document.
Case Case
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UNITED STATES DISTRICT COURT


FOR THE
DISTRICT OF MASSACHUSETTS

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

v.
Civ. No. __________
GREGORY LEMELSON and LEMELSON CAPITAL
MANAGEMENT, LLC, JURY TRIAL DEMANDED

Defendants,

and

THE AMVONA FUND, LP,

Relief Defendant.

COMPLAINT

Plaintiff, the United States Securities and Exchange Commission (the “Commission”),

alleges the following against Defendants Gregory Lemelson (“Lemelson”) and Lemelson Capital

Management, LLC, and Relief Defendant The Amvona Fund, LP, and hereby demands a trial by

jury:

SUMMARY OF ALLEGATIONS

1. Between May and October of 2014, Lemelson devised and carried out a

fraudulent scheme in which he purchased “short positions” in the stock of Ligand

Pharmaceuticals, Inc. (“Ligand”) and then sought to manipulate the stock price to make a profit.

A short position is an investment technique whereby an investor seeks to profit when the price of

a stock falls. Lemelson publicly disseminated a series of false statements about Ligand to drive
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down the price of the stock, while engaging in a series of purchases and sales of Ligand stock

that enabled him to profit from the lowered stock price.

2. An investor takes a “short position” in a stock by borrowing a company’s stock

from a broker. The investor then sells the stock at its current market price (which the investor

hopes is overvalued and will soon drop). If the price of the stock goes down, the investor profits

from the “short sale” by purchasing the stock at the lower price, referred to as “covering” the

short sale, returning the borrowed stock to the broker, and keeping the difference between the

initial sale and the later purchase at a lower price.

3. Beginning in May 2014 and continuing through October 2014, Lemelson took

short positions in Ligand stock through his hedge fund, The Amvona Fund, LP (“Amvona”). He

then orchestrated a public campaign attacking Ligand with the intent to convince the investing

public that Ligand’s stock was overvalued. As part of his campaign, Lemelson made a series of

false statements of material fact about Ligand that were intended to shake investor confidence in

the company, drive down the price of Ligand’s stock, and, consequently, increase the value of

Lemelson’s short positions.

4. Starting in June 2014 and continuing through August 2014, Lemelson authored

and published multiple “research reports” that contained false statements of material fact about

Ligand and that were intended to create a negative view of the company and its value and,

consequently, to drive down the price of the company’s stock. Further, between June and

October of 2014, Lemelson participated in live and written interviews in which he made

additional false statements of material fact about Ligand which also were intended to create a

negative view of the company and its value and, consequently, to drive down the price of the

company’s stock.

2
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5. Each of Lemelson’s false statements was intended to drive down the price of

Ligand’s stock. For example, in a June 2014 report, Lemelson stated that Ligand’s flagship drug

product, and main source of licensing revenue, was imminently “going away.” To bolster and

lend credence to his report, Lemelson, in a widely available radio interview, falsely stated that a

Ligand representative agreed with his analysis. Lemelson also falsely claimed that Ligand

engaged in a sham licensing transaction with another pharmaceutical company and had run up so

much debt that the company had virtually no value. None of these statements was true, none had

a reasonable basis in fact, and each concerned significant aspects of Ligand’s financial condition,

business dealings, and the viability of its products that reasonable investors would consider

important in evaluating Ligand’s prospects. Lemelson made each of these false statements

intentionally or recklessly for the purpose of driving down Ligand’s stock price.

6. Between June and October 2014, Lemelson publicly and widely disseminated

false statements about Ligand in press releases, on Amvona’s blog, through social media, in

various other media outlets, and also in appearances on radio shows. In doing so, Lemelson

intended to create a negative view of the company and its value and, consequently, to drive down

the price of the company’s stock.

7. In addition to deceiving the investing public by making false statements of

material fact about Ligand, Lemelson and Lemelson Capital Management, LLC (“LCM”)

deceived investors and prospective investors in The Amvona Fund by making and disseminating

false statements about Ligand as part of their efforts to obtain and retain Amvona Fund investors.

Defendants further misled investors and potential investors by not disclosing that The Amvona

Fund’s positive returns from its short position in Ligand were based on Defendants’ stock price

manipulation.

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8. As Lemelson intended, the price of Ligand stock fell during his scheme to mislead

investors about its value. The day Lemelson began disseminating his false statements, June 16,

2014, Ligand’s opening share price was $67.26. By October 13, 2014, Ligand’s share price had

dropped by nearly than $23—a decline of approximately 34 percent. Also by that time,

Lemelson had “covered” the vast majority of Amvona’s short position in Ligand generating

approximately $1.3 million in illegal profits. Ligand’s stock price subsequently recovered, and

today, Ligand stock trades at over $250 per share.

9. By engaging in this conduct, Lemelson and LCM violated Section 10(b) of the

Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rules 10b-5(a), (b),

and (c) thereunder [17 C.F.R. § 240.10b-5(a)-(c)], and both Lemelson and LCM violated Section

206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) [15 U.S.C. § 80b-6(4)] and Rule

206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8].

10. The Commission seeks injunctive relief, disgorgement of ill-gotten gains together

with prejudgment interest, and civil penalties.

JURISDICTION AND VENUE

11. The Commission brings this action pursuant to the enforcement authority

conferred upon it by Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] and Section 209(d)

of the Advisers Act [15 U.S.C. § 80b-9(d)]. The Commission seeks the imposition of a civil

penalty pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and Section

209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)].

12. This Court has jurisdiction over this action pursuant to Sections 21(d), 21(e), and

27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa], and Sections 209(d), 209(e) and

214 of the Advisers Act [15 U.S.C. §§ 80b-9(d), 80b-9(e), 80b-14], and 28 U.S.C. § 1331.

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13. Venue is proper in this district pursuant to 28 U.S.C. § 1331(b)(2), Sections

21(d)-(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d)-(e) and 78aa], and Sections 209(d)

and 214 of the Advisers Act [15 U.S.C. §§ 80b-9(d) , 80b-14], because a substantial part of the

acts constituting the alleged violations occurred in the District of Massachusetts, Lemelson lived

and worked in Massachusetts during the relevant time period, and the principal place of business

of Amvona and Lemelson Capital Management LLC (“LCM”) is in Massachusetts.

14. In connection with the conduct alleged in this Complaint, Lemelson directly or

indirectly made use of the means or instruments of transportation or communication in interstate

commerce, the facilities of national securities exchanges, or the mails.

15. Lemelson’s conduct involved fraud, deceit, or deliberate or reckless disregard of

regulatory requirements, and resulted in substantial loss, or significant risk of substantial loss, to

other persons.

16. Unless enjoined, Lemelson will continue to engage in the securities law violations

alleged herein, or in similar conduct that would violate federal securities laws.

DEFENDANTS AND RELIEF DEFENDANTS

17. Gregory Lemelson, 42, resides in Mansfield, Massachusetts. He is the Chief

Investment Officer and portfolio manager of Lemelson Capital Management LLC, a private

investment firm he founded to manage The Amvona Fund, LP. At all relevant times, Lemelson

was an “investment adviser” within the meaning of Section 202(a)(11) of the Advisers Act [15

U.S.C. §80b-2(a)(11)]. Lemelson is LCM’s founder, Chief Investment Officer, and portfolio

manager. In those capacities, Lemelson controls LCM and makes all decisions on behalf of

LCM.

18. Lemelson Capital Management, LLC is a Massachusetts company formed on

June 14, 2012, with its principal office in Marlborough, Massachusetts. LCM is an Exempt

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Reporting Adviser registered with the Commission and the Commonwealth of Massachusetts.

LCM is the investment manager and investment adviser to The Amvona Fund, LP. At all

relevant times, LCM was an “investment adviser” within the meaning of Section 202(a)(11) of

the Advisers Act [15 U.S.C. §80b-2(a)(11)].

19. The Amvona Fund, LP is a Delaware company formed on July 24, 2012, with its

principal office in Marlborough, Massachusetts. Amvona is a pooled investment vehicle under

Rule 206(4)-8(b) promulgated under the Advisers Act [17 C.F.R. § 275.206(4)-8] and Sections

3(a) and 3(c)(1) of the Investment Company Act of 1940 [15 U.S.C. § 80a-3(a) and (c)(1)].

Lemelson is the General Partner of Amvona. Lemelson launched Amvona as a hedge fund in

September 2012, and began accepting limited partner investments shortly thereafter. On January

4, 2013, Lemelson formed The Amvona Fund Ltd. (“Amvona Limited”) in the British Virgin

Islands. Amvona Limited operates as a feeder fund into Amvona (Amvona Limited and Amvona

are hereinafter referred to together as “Amvona”). Lemelson is the Director of Amvona Limited.

Amvona advertises itself as a long-position fund, i.e., a fund that seeks to profit from

appreciation in the price of securities it holds. Amvona has approximately $15 million of assets

under management, more than half of which belong to Lemelson and his family.

RELATED ENTITIES

20. Ligand Pharmaceuticals, Inc. (“Ligand”) is a Delaware corporation with its

principal place of business in San Diego, California. Ligand is a biopharmaceutical company

involved in the development and licensing of medicines and technologies. Ligand’s common

stock is registered with the Commission under Section 12(b) of the Exchange Act and trades on

NASDAQ under the symbol “LGND.”

21. Viking Therapeutics, Inc. (“Viking”) is a Delaware corporation with its

principal place of business in San Diego, California. Viking is a clinical-stage biotherapeutics

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company focused on developing treatments for metabolic and endocrine disorders. Viking’s

common stock is registered with the Commission under Section 12(b) of the Exchange Act and

trades on NASDAQ under the symbol “VKTX.” Through a Master License Agreement between

Ligand and Viking dated May 2014, Ligand became a 49.8% owner of Viking common stock.

FACTS

A. Lemelson Published and Disseminated Negative Reports about Ligand While


Increasing Amvona’s Short Position in Ligand

22. On May 22, 2014, Lemelson and LCM took an initial short position in Ligand of

579 shares on behalf of Amvona. Shortly thereafter, Lemelson began publicly disseminating

negative information about Ligand—including a series of false and misleading statements—as

part of a fraudulent scheme to drive down Ligand’s share price and profit from his short position.

23. Between June 16 and August 22, 2014, Lemelson published a total of five reports

that discussed Ligand. Lemelson was the sole author and solely responsible for the content of

each report. All of Lemelson’s reports about Ligand were negative and took a dim view of the

company’s value and prospects. Certain of the reports also contained false and misleading

statements of material fact, as detailed in Part B below. Lemelson used these false and

misleading statements to bolster and lend credence to the overall attack levied against Ligand

and its valuation.

24. Lemelson published the first of his negative reports about Ligand on June 16,

2014, titled “Ligand Pharmaceuticals (NASDAQ: LGND)” (the “June 16th Report”). As

detailed below, Lemelson stated, without a reasonable basis in fact, that Ligand’s primary source

of licensing revenue, the drug Promacta, was on the brink of obsolescence. Lemelson then

doubled down on this misstatement by falsely claiming in a June 19 interview that a Ligand

representative stated the company knew Promacta was “going away.” Lemelson thus concluded

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that “Ligand’s fair value is roughly $0 per share, or 100 percent below the current stock price.”

By this time, Lemelson had increased his short position in Ligand by borrowing and selling short

68,528 shares for approximately $4.6 million. In the days following the June 16 report Ligand’s

stock price dropped approximately 16%.

25. Lemelson continued his efforts to drive Ligand’s stock price even lower. In his

next report, dated July 3, 2014 and titled “Ligand Pharmaceuticals (NASDAQ: LGND);

Appendix” (the “July 3rd Report”), Lemelson characterized a transaction between Ligand and

Viking as a sham by making false statements about Viking’s finances and operations. Lemelson

went on to state that “the intrinsic value of Ligand shares must be reaffirmed as $0 with

downside risk justifiably calculated at 100%.”

26. Lemelson’s next report, dated August 4, 2014 and titled “Update: Lemelson

Capital Further Increases Short Stake in Ligand Pharmaceuticals (NASDAQ: LGND) as LGND

EPS Plunges 76 percent in Q2 2014” (the “August 4th Report”), repeated his false statement

about Promacta becoming obsolete and concluded that “the intrinsic value of Ligand shares must

be reaffirmed as $0 with downside risk justifiably calculated at 100 percent.”

27. In another report dated August 14, 2014, titled “Lemelson Capital Says Ligand

Pharmaceuticals’ (NASDAQ: LGND) $225M Debt Issuance Solidifies Company’s Insolvency,

Substantially Raises Specter of Bankruptcy” (the “August 14th Report”), Lemelson claimed that

Ligand was teetering on the brink of bankruptcy.

28. Finally, on August 22, 2014, Lemelson issued a report titled “Ligand

Pharmaceuticals’ (NASDAQ: LGND) – Institutional Holders waste no time dumping stock in

response to Insolvency and bankruptcy risk” (the “August 22nd Report”), in which he

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mischaracterized Ligand’s financial condition, as detailed below, and claimed that “common

shareholders could be wiped out almost entirely without notice.”

29. Lemelson published his Ligand reports under the heading of LCM; posted them

on Amvona’s website; distributed them to various press sources – among them, PR Newswire,

Globe Newswire, Seeking Alpha, Benzinga, Street Insider, Value Walk, and USA Today – the

day they were published; and posted links to the reports on various social media accounts under

his control. The published press releases contained abbreviated summaries of the report and

included links to the reports on Amvona’s website.

30. Between June and October 2014, Lemelson also conducted various audio and

written interviews in which he stated that Ligand’s stock had no intrinsic value and provided

additional commentary on Ligand. He conducted many such interviews with Benzinga, an

online financial media outlet, including appearing on Benzinga’s “Premarket Prep” show, which

provides investors with information prior to market open. Lemelson discussed Ligand in at least

four of these live and written interviews:

a. On June 19, 2014, Lemelson appeared on Benzinga’s Premarket Prep


show, for an audio interview (the “June 19th Interview”) in which he
falsely stated that a Ligand representative agreed with Lemelson’s
statements about Promacta in the June 16 Report and subsequently
reiterated in the August 4 report.

b. On August 13, 2014, Lemelson appeared for a second time on the


Benzinga Premarket Prep Show for an audio interview (the “August 13th
Interview”).

c. On September 16, 2014, Lemelson appeared for a third time on the


Benzinga Premarket Prep Show for an audio interview (the “September
16th Interview”).

d. On October 16, 2014, Lemelson appeared for a fourth time on the


Benzinga Premarket Prep Show for an audio interview (the “October 16th
Interview”).

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31. The purpose of Lemelson’s reports and interviews was to shake investor

confidence in Ligand and drive down Ligand’s share price. For example, in a solicitation to a

prospective Amvona investor, Lemelson touted the June 19th Interview and asserted that

“[s]hares of Ligand dropped ~2% during the interview.” Similarly, a major financial news

organization noted that Ligand’s stock price “fell more than 7 percent” after Lemelson published

his report claiming that demand for Promacta was rapidly declining.

32. Lemelson took affirmative steps to suppress commentary that highlighted his bias,

his lack of familiarity with the pharmaceutical industry, and his motivation to drive down the

price of Ligand stock. For example, Lemelson successfully petitioned Seeking Alpha to remove

commentary on his Ligand-related reports on or around at least the following dates:

a. June 22, 2014 (five separate comments by five separate accounts


removed),
b. June 23, 2014,
c. June 24, 2014,
d. August 4, 2014 (two separate comments by two separate accounts
removed),
e. August 23, 2014 (two separate comments by two separate accounts
removed),
f. August 26, 2014, and
g. May 1, 2015.

Lemelson also unsuccessfully attempted to remove comments critical of his Ligand-related

reports on July 7, 2014.

33. Lemelson expanded Amvona’s short position in Ligand stock between May 22

and August 4, 2014, to 65,736 shares. He covered a significant portion of this position in August

2014, after Ligand’s share price dropped from $68.72 on June 16, 2014, to $51.75 on August 22,

2014, in the wake of Lemelson’s negative reports and interviews. Lemelson covered the bulk of

Amvona’s remaining short position in October 2014. In total, Lemelson sold short (and bought

to cover) 77,836 shares of Ligand in 2014.

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34. Amvona profited by approximately $1.3 million from this trading, and, as a part

owner of Amvona, Lemelson personally profited from his fraudulent trading activity.

B. Lemelson’s False and Misleading Statements Concerning Ligand.

35. Lemelson presented his negative reports on Ligand as a purported exposé on the

company’s inner workings, and claimed that his statements about Ligand were based on

extensive research and discussions with the company’s representatives and with medical experts.

In his reports and other public statements, Lemelson intentionally or recklessly made the

following material misstatements of fact.

1) Lemelson Falsely States that Ligand’s Flagship Product was “Going Away.”

36. The central thesis of Lemelson’s June 16th Report was that Promacta, Ligand’s

flagship drug and primary source of revenue, was facing competitive pressure from a new

competing drug, Sovaldi, which would soon render Promacta obsolete. Lemelson subsequently

sought to lend credence to his thesis by falsely stating that a Ligand representative agreed with

him and acknowledged that Promacta was going to become obsolete.

37. Specifically, following publication of the June 16 Report, Lemelson appeared on

Benzinga’s Pre-Market Prep show on June 19, 2014. During the June 19th Interview, Lemelson

made the following false statement of material fact: “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.’”

38. Lemelson’s statement referenced a conversation he had on June 18, 2014, with a

representative of Ligand’s investor relations firm (the “IR Representative”). The IR

Representative, however, never made any such statement. The IR representative notified

Lemelson of that fact via email after hearing Lemelson’s Benzinga interview. Lemelson never

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responded to the email. Nor did Lemelson correct or withdraw his false statement, or disclose

that the IR Representative denied having made the statement Lemelson attributed to him.

39. Lemelson made this false statement of material fact to support his argument that

one of Ligand’s main revenue sources—royalties from licensing Promacta—was imperiled and

that Ligand’s stock was therefore overvalued.

40. Lemelson also attempted to bolster his false representation that Promacta was on

the brink of obsolescence by misleading the readers of his reports about other “evidence” he had

about Promacta. The June 16 Report cites information provided by “an Associate Clinical

Professor of Medicine and Surgery at one of the largest transplant Hepatology departments at a

major U.S. university hospital and also with the Chief of abdominal surgery and transplantation

at a major European university hospital.” This statement was itself misleading because: a)

Lemelson did not disclose that the European hospital doctor was actually Amvona’s largest

investor (and thus had a significant financial interest in making Ligand’s stock price fall), and b)

Lemelson never spoke with the U.S. hospital doctor, relying only on a report from his largest

investor on what the U.S. hospital doctor had said.

41. Further, none of the information Lemelson identified as the source of his

statement about Promacta suggested that Sovaldi would render Promacta obsolete. Specifically,

Lemelson cited two articles in the June 16th Report as “references to the obsolete nature of

[Hepatitis C] supportive care treatments such as Promacta,” despite the fact that neither article

discussed Promacta, and neither article could be fairly construed as implying or suggesting that

Sovaldi would render Promacta obsolete.

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42. In sum, Lemelson’s false statements about Promacta were falsely attributed to

Ligand and had no other reasonable basis in fact. He either intentionally lied about Promacta’s

viability, or was reckless as to the truth or falsity of his statements.

43. Lemelson’s false statements about Promacta were material. Each concerned the

viability of one of Ligand’s main sources of revenue. These material falsehoods supported

Lemelson’s misrepresentations that Ligand’s revenue streams were in peril, and were thus

central to his scheme to drive down Ligand’s stock price.

2) Misstatements About Viking Therapeutics, Inc.

44. Lemelson published another report about Ligand on July 3, 2014. In that report,

in addition to repeating his claims about Promacta, Lemelson also took aim at Ligand’s business

relationship with Viking. Lemelson stated that “Ligand appears to be indirectly creating a shell

company through Viking to generate paper profits to stuff its own balance sheet.” He further

stated that Ligand had “engaged in a ‘creative transaction’ with an affiliate shell company called

Viking Therapeutics” to the detriment of Ligand shareholders. To bolster and lend credence to

these accusations, Lemelson made material misstatements of fact regarding Ligand’s licensing

agreement with Viking and Viking’s Form S-1 registration statement (the form the SEC requires

initially to register securities for public sale).

45. Viking was not a “shell.” It was in the business of developing treatments for

certain kinds of illnesses. Ligand had five drugs that it licensed to Viking to develop. Ligand

had also invested in Viking and bought just under half of the company before Lemelson started

trying to drive Ligand's stock price down. In short, Viking was working on developing certain of

Ligand’s drugs with financial support from Ligand.

46. In the July 3rd Report, Lemelson falsely stated that, as of the filing of Viking’s

July 1, 2014 Form S-1 registration statement, Viking had “yet to consult with [its auditors] on

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any material issues” and that the “financial statements provided in the S1 accordingly are

unaudited.” Lemelson also falsely stated in the same report that “Viking does not intend to

conduct any preclinical studies or trials.” None of these statements were true, and each was

made to support Lemelson’s false claim that Viking was “an affiliate shell company” that Ligand

used to “create almost a veritable pyramid scheme of shell companies” that was “guaranteed to

lose money.”

47. Lemelson’s statements about auditors and financial statements were false and

contradicted by Viking’s July 1, 2014 Form S-1, which Lemelson relied upon when writing his

July 3 report. The Form S-1 contains a letter from Viking’s new auditors stating that they have

“audited the balance sheets of Viking . . . as of December 31, 2012, and 2013.”

48. Further, the May 21, 2014 Master License Agreement between Ligand and

Viking, which was attached to the Viking Form S-1, stated that “Viking is engaged in the

research, development, manufacturing and commercialization of pharmaceuticals products.”

Through the Master License Agreement, Viking obtained licenses to develop drugs, and leased

space from Ligand to conduct the necessary research and development activities, which include

preclinical studies and trials. Lemelson’s statement that “Viking does not intend to conduct any

preclinical studies or trials” is thus contradicted by the very document Lemelson supposedly

relied upon.

49. In short, each of Lemelson’s false statements about Viking is contradicted by the

source Lemelson supposedly relied upon. Lemelson therefore either intentionally lied about, or

was reckless as to the truth or falsity of, his statements.

50. Lemelson’s falsehoods about Viking were material. Each concerned a significant

financial transaction and sought to both cast doubt on the stated benefits of the transaction to

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Ligand and to allege misconduct by Ligand management. These material falsehoods supported

Lemelson’s false claim that the Ligand-Viking business relationship was a sham or fraud

designed to artificially inflate Ligand’s profits, and were thus central to his scheme to drive down

Ligand’s stock price.

3) Lemelson Makes False and Misleading Statements about Ligand’s Finances.

51. In his August 14 and August 22 Reports, Lemelson stated that Ligand was

saddled with crippling debt and therefore insolvent. To support this claim, Lemelson falsely

stated that Ligand “issued 245 million in new debt, against tangible equity of just $21,000,

giving rise to a debt to tangible equity ratio of 11,667 to 1 (that is $11,667 dollars (sic) in debt

for every $1 in tangible common shareholder equity)” and that “shareholders have only the

protection of $21,000 in tangible equity to shield them from $245 million in debt.”

52. In calculating Ligand’s “debt to equity ratio of 11,667 to 1,” Lemelson included

the new debt but not the proceeds of the loan, which would have yielded a debt-to-equity ratio

closer to 1:1. Lemelson intentionally misstated Ligand’s debt-to-equity ratio, or was reckless as

to the truth or falsity of his statement.

53. This false statement was material. Lemelson made his false statement about

Ligand’s debt-to-equity ratio to support his argument that Ligand had rendered itself insolvent by

issuing excessive debt. Lemelson’s false statement went to the heart of Ligand’s overall

financial viability and supported his argument that Ligand’s stock was worthless.

C. Lemelson and LCM Misled Prospective Investors.

54. Both LCM and Lemelson, intentionally or recklessly, and by failing to exercise

reasonable care, disseminated the material false statements of fact detailed above to LCM’s

investors and prospective investors. By doing so, and by omitting to disclose material

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information, they caused disclosures by Lemelson and LCM about Amvona’s investment

strategy and about Lemelson’s abilities as a financial adviser to be materially misleading.

55. Lemelson and LCM sent Lemelson’s reports and links to his interviews, which

contained multiple misstatements of material fact as detailed above, to current and prospective

Amvona investors, including in emails dated June 16, June 19 (boasting that Ligand shares

dropped two percent during his interview), July 2, July 3, and July 18, 2014. He also touted his

results in driving down Ligand’s stock price in communications to investors and prospective

investors, including in an email dated July 18, 2014; letters to Amvona Fund partners dated July

17, 2014 (claiming that Lemelson’s research report and appendix on Ligand “have begun to be

proven correct”) and October 9, 2014 (citing the decline in Ligand’s stock price); an investor

presentation dated September 4, 2014 (falsely noting that Lemelson Capital had been credited

with the drop in Ligand’s market capitalization by certain media outlets); and in multiple posts to

his Amvona website. In addition, in using Lemelson’s reports to solicit potential investors to

entrust their funds to him, Lemelson and LCM did not disclose that the profitability of their

short-selling strategy depended upon Lemelson’s fraudulent manipulation of Ligand stock

through false statements, rather than his ability to identify a company whose stock would

decrease on its own based on its inherent lack of value. This omission also made other

disclosures about Amvona’s value-focused investing strategy materially false and misleading.

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FIRST CLAIM FOR RELIEF

Fraud in the Purchase or Sale of Securities in


Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder

(Lemelson and LCM)

56. The Commission realleges and incorporates by reference paragraphs 1 through 55

above, as if set forth fully herein.

57. As detailed above, Defendants Lemelson and LCM engaged in a fraudulent

scheme through a series of fraudulent acts, statements, and material omissions designed to drive

Ligand’s stock price down and profit from a short position in Ligand stock.

58. By engaging in the conduct above, these Defendants, directly or indirectly, acting

intentionally, knowingly, or recklessly, by the use of means or instrumentalities of interstate

commerce or of the mails, in connection with the purchase or sale of securities: (a) have

employed or are employing devices, schemes, or artifices to defraud; (b) have made or are

making untrue statements of material fact or have omitted or are omitting to state material facts

necessary to make the statements made, in light of the circumstances under which they were

made, not misleading; and (c) have engaged or are engaging in acts, practices, or courses of

business which operate as a fraud or deceit upon certain persons, or, in the alternative, aided and

abetted these violations.

59. The conduct of these Defendants involved fraud, deceit, manipulation, and/or

deliberate or reckless disregard of regulatory requirements and directly or indirectly resulted in

losses to other persons.

60. By engaging in the foregoing conduct, Lemelson violated, and unless enjoined

will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5

thereunder [17 C.F.R. § 240.10b-5].

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SECOND CLAIM FOR RELIEF

Fraudulent, Deceptive, or Manipulative Act or Practice


to Investors or Potential Investors in Pooled Investment Vehicle in
Violation of Section 206(4) of the Investment Advisers Act and Rule 206(4)-8 Thereunder

(Lemelson and LCM)

61. The Commission realleges and incorporates by reference paragraphs 1 through 60

above.

62. Section 206(4) of the Advisers Act prohibits an investment adviser from, directly

or indirectly, engaging in any act, practice, or course of business that is fraudulent, deceptive, or

manipulative. Rule 206(4)-8(a)(1) prohibits an adviser to a pooled investment vehicle from

making any untrue statement of a material fact or omitting to state a material fact necessary to

make the statements made, in the light of the circumstances under which they were made, not

misleading, to any investor or prospective investor in the pooled vehicle.

63. By the actions described above, Lemelson and LCM, by use of the mails or any

means or instrumentality of interstate commerce, directly or indirectly, acting intentionally,

knowingly, recklessly, or negligently made untrue statements of material fact and omissions that

rendered Lemelson’s statements misleading to investors and prospective investors in Amvona.

64. At all relevant times, Lemelson and LCM were “investment advisers” within the

meaning of Section 202(a)(11) of the Advisers Act [15 U.S.C. §80b-2(a)(11)]. Lemelson was an

“investment adviser” by virtue of his ownership, management and control of LCM, and his

provision of investment advice to Amvona. Both Lemelson and LCM were in the business of

providing investment advice concerning securities, for compensation.

65. At all relevant times, Amvona was a “pooled investment vehicle” within the

meaning of Rule 206(4)-8(b) promulgated under the Advisers Act [17 C.F.R. § 275.206(4)-8]

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and Sections 3(a) and 3(c)(1) of the Investment Company Act of 1940 [15 U.S.C. § 80a-3(a) and

(c)(1)].

66. By engaging in the conduct described above, Lemelson and LCM violated, and

unless enjoined will continue to violate, Section 206(4) of the Advisers Act [15 U.S.C. § 80b-

6(4)] and Rule 206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8].

THIRD CLAIM FOR RELIEF

Other Equitable Relief, Including


Unjust Enrichment and Constructive Trust

(As to Relief Defendant The Amvona Fund, LP)

67. The Commission repeats and incorporates by reference the allegations in

paragraphs 1 through 66 above as if set forth fully herein.

68. Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)] states: “In any

action or proceeding brought or instituted by the Commission under any provision of the

securities laws, the Commission may seek, and any Federal court may grant, any equitable relief

that may be appropriate or necessary for the benefit of investors.”

69. Relief Defendant Amvona has received investor funds derived from the unlawful

acts or practices of the Defendants under circumstances dictating that, in equity and good

conscience, they should not be allowed to retain such funds.

70. Further, specific property acquired by Relief Defendant Amvona is traceable to

Defendants’ wrongful acts and there is no reason in equity why Relief Defendant should be

entitled to retain that property.

71. As a result, Relief Defendant Amvona is liable for unjust enrichment and should

be required to return its ill-gotten gains, in an amount to be determined by the Court. The Court

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should also impose a constructive trust on property in the possession of the Relief Defendant that

is traceable to Defendants’ wrongful acts.

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully request that the Court enter Final Judgment:

I.

Permanently restraining and enjoining Defendants, and their agents, servants, employees,

attorneys and those persons in active concert or participation with them, who receive actual

notice of the order by personal service or otherwise, from violating Section 10(b) of the

Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5] and

Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Rule 206(4)-8 thereunder

[17 C.F.R. § 275.206(4)-8];

II.

Ordering Defendants and Relief Defendant to disgorge the proceeds their ill-gotten gains,

plus prejudgment interest;

III.

Ordering Lemelson and LCM to pay appropriate civil monetary penalties under Section

21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and Section 209(e) of the Advisers Act

[15 U.S.C. §80b-9(e)];

IV.

Retaining jurisdiction of this action in accordance with the principles of equity and the

Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and

decrees that may be entered or to entertain any suitable application of motion for additional relief

within the jurisdiction of this Court; and

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V.

Granting such other and further relief as this Court may determine to be just and

necessary.

Dated: September 12, 2018 Respectfully submitted,

/s/ Alfred A. Day


Alfred A. Day (BBO #654436)
Marc J. Jones (BBO #645910)
Securities and Exchange Commission
Boston Regional Office
33 Arch Street, 24th Floor
Boston, MA 02110
617-573-4537 (Day)
617-573-8947 (Jones)
DayA@sec.gov
JonesMarc@sec.gov
Attorneys for Plaintiff

Virginia M. Rosado Desilets


Sonia G. Torrico
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549

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JS 44 (Rev. 08/18) CIVIL COVER SHEET
The JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law, except as
provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the
purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON NEXT PAGE OF THIS FORM.)

I. (a) PLAINTIFFS DEFENDANTS


Securities and Exchange Commission Gregory Lemelson and Lemelson Capital Management, LLC

(b) County of Residence of First Listed Plaintiff County of Residence of First Listed Defendant Worcester
(EXCEPT IN U.S. PLAINTIFF CASES) (IN U.S. PLAINTIFF CASES ONLY)
NOTE: IN LAND CONDEMNATION CASES, USE THE LOCATION OF
THE TRACT OF LAND INVOLVED.

(c) Attorneys (Firm Name, Address, and Telephone Number) Attorneys (If Known)
Marc J. Jones, (617) 573-8947, Alfred A. Day, (617) 573-4537 Douglas S. Brooks, (617) 338-9300
Securities and Exchange Commission, Boston Regional Office LibbyHoopes, P.C.
33 Arch St, 24th Floor, Boston, MA 02110 399 Boylston St, Boston, MA 02116

II. BASIS OF JURISDICTION (Place an “X” in One Box Only) III. CITIZENSHIP OF PRINCIPAL PARTIES (Place an “X” in One Box for Plaintiff
(For Diversity Cases Only) and One Box for Defendant)
u 1 U.S. Government u 3 Federal Question PTF DEF PTF DEF
Plaintiff (U.S. Government Not a Party) Citizen of This State u 1 u 1 Incorporated or Principal Place u 4 u 4
of Business In This State

u 2 U.S. Government u 4 Diversity Citizen of Another State u 2 u 2 Incorporated and Principal Place u 5 u 5
Defendant (Indicate Citizenship of Parties in Item III) of Business In Another State

Citizen or Subject of a u 3 u 3 Foreign Nation u 6 u 6


Foreign Country
IV. NATURE OF SUIT (Place an “X” in One Box Only) Click here for: Nature of Suit Code Descriptions.
CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES
u 110 Insurance PERSONAL INJURY PERSONAL INJURY u 625 Drug Related Seizure u 422 Appeal 28 USC 158 u 375 False Claims Act
u 120 Marine u 310 Airplane u 365 Personal Injury - of Property 21 USC 881 u 423 Withdrawal u 376 Qui Tam (31 USC
u 130 Miller Act u 315 Airplane Product Product Liability u 690 Other 28 USC 157 3729(a))
u 140 Negotiable Instrument Liability u 367 Health Care/ u 400 State Reapportionment
u 150 Recovery of Overpayment u 320 Assault, Libel & Pharmaceutical PROPERTY RIGHTS u 410 Antitrust
& Enforcement of Judgment Slander Personal Injury u 820 Copyrights u 430 Banks and Banking
u 151 Medicare Act u 330 Federal Employers’ Product Liability u 830 Patent u 450 Commerce
u 152 Recovery of Defaulted Liability u 368 Asbestos Personal u 835 Patent - Abbreviated u 460 Deportation
Student Loans u 340 Marine Injury Product New Drug Application u 470 Racketeer Influenced and
(Excludes Veterans) u 345 Marine Product Liability u 840 Trademark Corrupt Organizations
u 153 Recovery of Overpayment Liability PERSONAL PROPERTY LABOR SOCIAL SECURITY u 480 Consumer Credit
of Veteran’s Benefits u 350 Motor Vehicle u 370 Other Fraud u 710 Fair Labor Standards u 861 HIA (1395ff) u 485 Telephone Consumer
u 160 Stockholders’ Suits u 355 Motor Vehicle u 371 Truth in Lending Act u 862 Black Lung (923) Protection Act
u 190 Other Contract Product Liability u 380 Other Personal u 720 Labor/Management u 863 DIWC/DIWW (405(g)) u 490 Cable/Sat TV
u 195 Contract Product Liability u 360 Other Personal Property Damage Relations u 864 SSID Title XVI u 850 Securities/Commodities/
u 196 Franchise Injury u 385 Property Damage u 740 Railway Labor Act u 865 RSI (405(g)) Exchange
u 362 Personal Injury - Product Liability u 751 Family and Medical u 890 Other Statutory Actions
Medical Malpractice Leave Act u 891 Agricultural Acts
REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS u 790 Other Labor Litigation FEDERAL TAX SUITS u 893 Environmental Matters
u 210 Land Condemnation u 440 Other Civil Rights Habeas Corpus: u 791 Employee Retirement u 870 Taxes (U.S. Plaintiff u 895 Freedom of Information
u 220 Foreclosure u 441 Voting u 463 Alien Detainee Income Security Act or Defendant) Act
u 230 Rent Lease & Ejectment u 442 Employment u 510 Motions to Vacate u 871 IRS—Third Party u 896 Arbitration
u 240 Torts to Land u 443 Housing/ Sentence 26 USC 7609 u 899 Administrative Procedure
u 245 Tort Product Liability Accommodations u 530 General Act/Review or Appeal of
u 290 All Other Real Property u 445 Amer. w/Disabilities - u 535 Death Penalty IMMIGRATION Agency Decision
Employment Other: u 462 Naturalization Application u 950 Constitutionality of
u 446 Amer. w/Disabilities - u 540 Mandamus & Other u 465 Other Immigration State Statutes
Other u 550 Civil Rights Actions
u 448 Education u 555 Prison Condition
u 560 Civil Detainee -
Conditions of
Confinement
V. ORIGIN (Place an “X” in One Box Only)
u 1 Original u 2 Removed from u 3 Remanded from u 4 Reinstated or u 5 Transferred from u 6 Multidistrict u 8 Multidistrict
Proceeding State Court Appellate Court Reopened Another District Litigation - Litigation -
(specify) Transfer Direct File
Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):
15 U.S.C. 78j(b), 15 U.S.C. 80b-6(4)
VI. CAUSE OF ACTION Brief description of cause:
Securities Fraud
VII. REQUESTED IN u CHECK IF THIS IS A CLASS ACTION DEMAND $ CHECK YES only if demanded in complaint:
COMPLAINT: UNDER RULE 23, F.R.Cv.P. JURY DEMAND: u Yes u No
VIII. RELATED CASE(S)
(See instructions):
IF ANY JUDGE DOCKET NUMBER
DATE SIGNATURE OF ATTORNEY OF RECORD
September 12, 2018 /s/ Alfred A. Day, Senior Trial Counsel, U.S. Securities and Exchange Commission
FOR OFFICE USE ONLY

RECEIPT # AMOUNT APPLYING IFP JUDGE MAG. JUDGE


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UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

1. Title of case (name of first party on each side only) Securities and Exchange Commission v. Gregory Lemelson

2. Category in which the case belongs based upon the numbered nature of suit code listed on the civil cover sheet. (See local
rule 40.1(a)(1)).

I. 410, 441, 470, 535, 830*, 835*, 891, 893, 895, R.23, REGARDLESS OF NATURE OF SUIT.

✔ II. 110, 130, 140, 160, 190, 196, 230, 240, 290,320,362, 370, 371, 380, 430, 440, 442, 443, 445, 446, 448, 710, 720,
740, 790, 820*, 840*, 850, 870, 871.

III. 120, 150, 151, 152, 153, 195, 210, 220, 245, 310, 315, 330, 340, 345, 350, 355, 360, 365, 367, 368, 375, 376, 385,
400, 422, 423, 450, 460, 462, 463, 465, 480, 485, 490, 510, 530, 540, 550, 555, 625, 690, 751, 791, 861-865, 890,
896, 899, 950.

*Also complete AO 120 or AO 121. for patent, trademark or copyright cases.

3. Title and number, if any, of related cases. (See local rule 40.1(g)). If more than one prior related case has been filed in this
district please indicate the title and number of the first filed case in this court.

4. Has a prior action between the same parties and based on the same claim ever been filed in this court?

YES 9 NO 9✔
5. Does the complaint in this case question the constitutionality of an act of congress affecting the public interest? (See 28 USC
§2403)

YES 9 NO ✔
9
If so, is the U.S.A. or an officer, agent or employee of the U.S. a party?

YES 9 NO 9
6. Is this case required to be heard and determined by a district court of three judges pursuant to title 28 USC §2284?

YES 9 NO 9

7. Do all of the parties in this action, excluding governmental agencies of the United States and the Commonwealth of
Massachusetts (“governmental agencies”), residing in Massachusetts reside in the same division? - (See Local Rule 40.1(d)).

YES ✔
9 NO 9
A. If yes, in which division do all of the non-governmental parties reside?

Eastern Division 9✔ Central Division 9 Western Division 9


B. If no, in which division do the majority of the plaintiffs or the only parties, excluding governmental agencies,
residing in Massachusetts reside?

Eastern Division 9 Central Division 9 Western Division 9


8. If filing a Notice of Removal - are there any motions pending in the state court requiring the attention of this Court? (If yes,
submit a separate sheet identifying the motions)

YES 9 NO 9
(PLEASE TYPE OR PRINT)
ATTORNEY'S NAME Marc J. Jones, Alfred A. Day
ADDRESS Securities and Exchange Commission, Boston Regional Office, 33 Arch St, 24th Floor, Boston, MA 02110
TELEPHONE NO. Jones: (617) 573-8947, Day: (617) 573-4537
(CategoryForm9-2018.wpd )
Case 1:18-cv-11926-PBS Document 127-17 Filed 09/30/20 Page 1 of 20
MATTHEW FOEHR December 5, 2019

UNITED STATES DISTRICT COURT


FOR THE
DISTRICT OF MASSACHUSETTS

SECURITIES AND EXCHANGE )


COMMISSION, )
)
Plaintiff, ) Case No.
) 1:18-CU-11926-PBS
vs. )
)
GREGORY LEMELSON and )
LEMELSON CAPITAL )
MANAGEMENT, LLC, )
)
Defendants, )
)
and )
)
THE AMVONA FUND, LP, )
)
Relief Defendant. )

Deposition of MATTHEW FOEHR


San Diego, California
December 5, 2019

Reported by:
Sheri L. Somers
CSR No. 9734
Job No. 10062971

Key Discovery 617-348-9360


Deposition Services WWW.KEY-DISCOVERY.COM
Case 1:18-cv-11926-PBS Document 127-17 Filed 09/30/20 Page 2 of 20
MATTHEW FOEHR December 5, 2019

Page 2
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF MASSACHUSETTS

SECURITIES AND EXCHANGE )


COMMISSION, )
)
Plaintiff, ) Case No.
) 1:18-CU-11926-PBS
vs. )
)
GREGORY LEMELSON and )
LEMELSON CAPITAL MANAGEMENT, )
LLC, )
)
Defendants, )
)
and )
)
THE AMVONA FUND, LP, )
)
Relief Defendant. )

Deposition of MATTHEW FOEHR, taken on behalf of


defendant, at 600 West Broadway, Suite 300, San Diego,
California, beginning at 8:59 a.m., and ending at
6:35 p.m., on Thursday, December 5, 2019, before
Sheri L. Somers, CSR No. 9734.

Key Discovery 617-348-9360


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MATTHEW FOEHR December 5, 2019

Page 3
APPEARANCES:

For Plaintiff:
U.S. SECURITIES AND EXCHANGE COMMISSION
BOSTON REGIONAL OFFICE
33 Arch Street, 24th Floor
Boston, Massachusetts 02110
617.573.8947
617.573.4590 fax
By: Marc Jones, Esq.
Jonesmarc@sec.gov

For Defendants:
LIBBY HOOPES
399 Boylston Street
Boston, Massachusetts 02116
617.338.9300
617.338.9911 fax
By: Douglas S. Brooks, Esq.
Dbrooks@libbyhoopes.com

For LIGAND PHARMACEUTICALS and MATTHEW FOEHR:

CAHILL GORDON & REINDEL LLP


1900 K Street, Suite 950
Washington, D.C., 20006
202.862.8900
202.862.8958 fax
By: Bradley J. Bondi, Esq.
Bbondi@cahill.com
William C. McCaughey, Esq.
Wmccaughey@cahill.com

The Videographer:
Ryan Asanas and Mike Tisa
Key Discovery
Also present:
Gregory Lemelson

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MATTHEW FOEHR December 5, 2019

Page 4
INDEX
WITNESS: BRUCE VOSS
PAGE
EXAMINATION BY MR. BROOKS 9

EXHIBITS

DEFENDANT'S PAGE

Exhibit 116 Subpoena to Testify at a 18


Deposition in a Civil Action
Exhibit 117 E-mail string, top e-mail to 36
various recipients from Olivia
Holiday dated 3/12/2014, Bates
Nos. LGND_0020049 to '061

Exhibit 118 Form S-1 Registration Statement 68


for Viking Therapeutics, Inc.
Exhibit 119 Slide deck entitled, "Board of 73
Directors Meeting, June 10,
2015," Bates Nos. LGND_0056230
to '268

Exhibit 120 E-mail string, top e-mail to 90


Jeffrey Finnell from Scott
Friestad dated 5/21/2015, Bates
Nos. SEC-SEC-E-0000892 to '895
Exhibit 121 Document titled, "Overview of 106
Event Study Analysis," Bates
Nos. SEC-LIGAND-E-0000761 to
'766

Exhibit 122 Slide deck entitled, "Meeting 108


with SEC Enforcement Division
Re: Emmanuel Lemelson," Bates
Nos. LGND_0048070 to '129

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MATTHEW FOEHR December 5, 2019

Page 5
EXHIBITS
DEFENDANTS' PAGE
Exhibit 123 Document titled, "Ligand 165
Pharmaceuticals Incorporated
Going Concern Analysis," Bates
Nos. LGND_0021095 to '098

Exhibit 124 Table of Contents, Item 1A. Risk 168


Factors, Bates Nos. LGND_0009352
to '361

Exhibit 125 E-mail string, top e-mail to 197


Matt Foehr from Nishan De Silva
dated 8/29/2013, Bates Nos.
LGND_0010818, and attached slide
deck entitled, "Shots-on-Goal
Portfolio Review"
Exhibit 126 E-mail string, top e-mail to 208
John Higgins, matt Foehr and
Nishan De Silva from Jason Aryeh
dated 12/6/2013, Bates Nos.
LGND_0018514 to '516
Exhibit 127 E-mail string, top e-mail to 210
undisclosed recipients from
Robyn Karnauskas-Deutsche Bank
dated 12/6/2013, Bates Nos.
LGND_0018523 to '524
Exhibit 128 E-mail string, top e-mail to 212
John Higgins from Matt Foehr
dated 2/1/2014, Bates Nos.
LGND_0019421 to '422

Exhibit 129 E-mail string, top e-mail to 224


John Higgins from Matt Foehr
dated 2/3/2014, Bates Nos.
LGND_0019446 to '447
Exhibit 130 E-mail to Glenn Dourado from Lin 227
Zhi dated 4/1/2014, Bates Nos.
LGND_0022920 to '932

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MATTHEW FOEHR December 5, 2019

Page 6
EXHIBITS
DEFENDANTS' PAGE
Exhibit 131 E-mail to John Higgins from Matt 231
Foehr dated 9/26/2014, Bates
Nos. LGND_0061987 to '2010
Exhibit 132 E-mail string, top e-mail to 246
Bruce Voss from Matt Foehr dated
6/17/2014, Bates Nos.
LCM_SEC0000849 to '851

Exhibit 133 E-mail string, top e-mail to 250


Bruce Voss from Matt Foehr dated
6/17/2014, Bates Nos.
LCM_SEC0000857 to '859
Exhibit 134 E-mail string, top e-mail to 266
Bruce Voss and John Higgins from
Matt Foehr dated 6/25/2014,
Bates Nos. LCM_SEC0000936 to
'937
Exhibit 135 E-mail string, top e-mail to 271
Bruce Voss from Matt Foehr dated
9/26/2014, Bates Nos.
LCM_SEC0001190 to '193

Exhibit 136 E-mail to John Higgins from Matt 272


Foehr dated 10/6/2014, Bates No.
LGND_000165

Exhibit 137 Document titled, "Pipeline 279


Ligand Pipe Dream, Citron
Publishes the Smoking Gun on
Ligand Pharmaceuticals

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MATTHEW FOEHR December 5, 2019

Page 7
PREVIOUSLY MARKED EXHIBITS

EXHIBIT NO. PAGE

4 236

79 245

85 261

99 268

110 270

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MATTHEW FOEHR December 5, 2019

Page 8
1 SAN DIEGO, CALIFORNIA; THURSDAY, DECEMBER 5, 2019

2 8:59 A.M. - 6:35 P.M.

5 THE VIDEOGRAPHER: We are now on the record.

6 Today's date is December 5, 2019, and the time is

7 8:59 a.m. This begins the video-recorded deposition of

8 Matt Foehr being taken in the matter of SEC versus

9 Lemelson Capital Management, LLC, et al., on behalf of

10 the defendant, pending in the United States District

11 Court, District of Massachusetts, Civil Action

12 No. 1:18-CV-11926-PBS.

13 This deposition is taking place at Aptus

14 Court Reporting located at 600 West Broadway,

15 Suite 300, San Diego, California 92101. My name is

16 Ryan Asanas, the videographer, of Key Discovery located

17 at 40 Court Street, Boston, Massachusetts 02108.

18 Will all counsel present identify yourselves

19 and state whom you represent starting with the taking

20 attorneys.

21 MR. BROOKS: Doug Brooks from the law firm Libby

22 Hoopes and I represent the defendants in this matter.

23 MR. JONES: Marc Jones, Securities and Exchange

24 Commission, representing the plaintiffs.

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MATTHEW FOEHR December 5, 2019

Page 9
1 MR. McCAUGHEY: William McCaughey, Cahill Gordon &

2 Reindel, on behalf of Matt Foehr.

3 MR. BONDI: Brad Bondi, Cahill Gordon & Reindel,

4 on behalf of Ligand Pharmaceuticals and the witness.

5 THE VIDEOGRAPHER: Thank you. The court reporter

6 today is Sheri Somers also with Key Discovery, and she

7 may now swear in or affirm the deponent.

9 MATTHEW FOEHR,

10 having been administered an oath, was examined and

11 testified as follows:

12

13 EXAMINATION

14 BY MR. BROOKS:

15 Q. Good morning, Mr. Foehr. My name is Doug

16 Brooks. We met briefly off the record. I represent

17 the defendants in this matter.

18 Have you ever been deposed before?

19 A. I have.

20 Q. How many times?

21 A. Approximately five. I'm not sure exactly.

22 Q. When was the last time you were deposed?

23 A. Within the last six months.

24 Q. And what was the nature of that deposition,

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Page 53
1 Q. Do you have any memory of what Viking was

2 worth as a company at this time?

3 A. I do not.

4 Q. Do you recall what percentage of Viking did

5 Ligand -- strike that.

6 At this point -- at the point of the master

7 license agreement, Ligand didn't own any part of

8 Viking, did it?

9 A. I don't believe Ligand owned any Viking prior

10 to the master license agreement.

11 Q. Okay. When did Ligand first take an

12 ownership stake in Viking?

13 A. In some ways this is a highly technical

14 question. Here we plan to fund Viking with a

15 2.5 million loan that was convertible into stock. So

16 I'm not sure how to answer your question precisely, but

17 it would have been generally following the master

18 license agreement.

19 Q. Was Viking established to access public

20 markets to raise additional capital to fund Ligand's

21 unpartnered assets?

22 MR. JONES: Objection.

23 MR. BONDI: Objection.

24 THE WITNESS: Viking existed prior to us doing the

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Page 98
1 but if you look at the second paragraph, it says,
2 "While Ligand and its prior counsel have had some
3 contact with the enforcement staff (through the Boston
4 office and the Office of Whistleblower Protection) in
5 the past concerning Lemelson, we wish to discuss new
6 contact -- new conduct by Lemelson since those
7 meetings."

8 Do you see that?


9 A. I see that.
10 Q. Were you aware -- strike that.
11 In May 2015, were you aware that Ligand and
12 its prior counsel had had contact with the enforcement
13 staff of the SEC?
14 A. Yes.
15 Q. Had you personally had any?

16 A. I was part of a meeting, yes.


17 Q. When did that meeting take place?
18 A. I don't recall the date exactly. It was
19 prior to this, but I don't recall exactly when.
20 Q. Do you know if it was in 2014?
21 A. I don't know. I'd have to look at the
22 records.
23 Q. Where did that meeting take place?

24 A. In Boston.

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Page 99
1 Q. Who was at that meeting?

2 A. John Higgins, myself, Charles Berkman, our

3 general counsel, and I believe Nishan de Silva, who was

4 our CFO at the time, and there may have been other

5 attendees, and I don't recall who attended from the

6 SEC.

7 Q. Do you remember how many people from the SEC

8 attended?

9 A. I don't.

10 Q. Mr. Jones was not there, correct, the

11 gentleman sitting over there?

12 A. I don't recall Mr. Jones being there.

13 Q. How long did that meeting last?

14 A. My estimate, as I sit here today, is a little

15 more than an hour, but I'm not sure.

16 Q. And I'm sorry if I -- was anyone from -- was

17 Ligand's outside counsel there?

18 A. There were attorneys from our outside counsel

19 there.

20 Q. Okay. Do you know the firm?

21 A. Latham & Watkins.

22 Q. Do you know the attorneys that were there?

23 A. I don't recall the names.

24 Q. Do you remember what office they were from?

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Case 1:18-cv-11926-PBS Document 127-17 Filed 09/30/20 Page 13 of 20
MATTHEW FOEHR December 5, 2019

Page 108
1 A. I believe that there was.

2 Q. And was that somebody who was hired by

3 Ligand's counsel?

4 A. I believe that the individual you're

5 referring to was --

6 Q. Okay.

7 A. -- a consultant of Cahill or hired by Cahill.

8 Q. Do you know when Ligand hired Cahill in

9 connection with the Father Lemelson matter?

10 A. Not exactly, no.

11 Q. Do you recall approximately how much before

12 May 2015?

13 A. I don't.

14 Q. Who -- do you recall who specifically was

15 present from the SEC at the June 2015 meeting?

16 A. From this document, it looks like an

17 individual named Scott Friestad was there. I generally

18 recall that, but I don't recall anyone else.

19 Q. Okay. How long approximately did that

20 meeting last?

21 A. My recollection is it was about an hour.

22 Q. Was a presentation made?

23 A. Yes.

24 Q. Was there a PowerPoint presentation?

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Case 1:18-cv-11926-PBS Document 127-17 Filed 09/30/20 Page 14 of 20
MATTHEW FOEHR December 5, 2019

Page 109
1 A. Yes.
2 Q. Was it the same presentation as was made in
3 Boston?
4 A. I don't recall.
5 Q. Do you recall whether the presentation
6 involved things that took place after the meeting in
7 Boston occurred?

8 A. It may have.
9 Q. Did you take notes at that meeting?
10 A. No.
11 Q. Did anyone?
12 A. I don't know.
13 Q. As best you can recall, what was in that
14 presentation?
15 A. Generally a summary of Ligand and our

16 business. I believe there was also material that I


17 spoke to relating to Promacta. There may have been
18 other analysis by -- or other work or other material
19 that was prepared by Cahill or the individual who was
20 contracted by Cahill, but I don't recall specifically.
21 Q. Okay. And again, outside of that
22 presentation, can you tell me everything you recall
23 being said at the meeting.

24 A. I don't recall any specific statements, and

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Case 1:18-cv-11926-PBS Document 127-17 Filed 09/30/20 Page 15 of 20
MATTHEW FOEHR December 5, 2019

Page 305
1 I, the undersigned, a Certified Shorthand
2 Reporter of the State of California, do hereby certify:
3 That the foregoing proceedings were taken
4 before me at the time and place herein set forth; that
5 any witnesses in the foregoing proceedings, prior to
6 testifying, were duly sworn; that a record of the
7 proceedings was made by me using machine shorthand,
8 which was thereafter transcribed under my direction;
9 that the foregoing transcript is a true record of the
10 testimony given.
11 Further, that if the foregoing pertains to the
12 original transcript of a deposition in a federal case,
13 before completion of the proceedings, review of the
14 transcript [ X ] was [ ] was not requested.
15
16 I further certify I am neither financially
17 interested in the action nor a relative or employee of
18 any attorney or party to this action.
19 IN WITNESS WHEREOF, I have this date
20 subscribed my name.
21 Dated: December 19, 2019
22
23 _____________________________________
Sheri L. Somers
24 CLR, CSR No. 9734

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Case 1:18-cv-11926-PBS Document 127-17 Filed 09/30/20 Page 16 of 20
MATTHEW FOEHR December 5, 2019

Page 306
1 DECLARATION UNDER PENALTY OF PERJURY
2
3 I, MATTHEW FOEHR, hereby certify under penalty of
4 perjury under the laws of the State of California that
5 the foregoing is true and correct.
6
7 Executed this _____ day of ________________, 2019

8 at ____________________, California.
9
10
11
12 ____________________________
13 MATTHEW FOEHR
14
15

16
17
18
19
20
21
22
23

24

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Case 1:18-cv-11926-PBS Document 127-17 Filed 09/30/20 Page 17 of 20
MATTHEW FOEHR December 5, 2019

Page 307
1 DEPOSITION ERRATA SHEET
2
CASE NAME: SEC v. LEMELSON
3 DEPOSITION DATE: December 5, 2019
WITNESS NAME: MATTHEW FOEHR
4
5 Reason Codes: 1. To clarify the record.
2. To conform to the facts.
6 3. To correct transcription errors.
7
Page _____ Line ______ Reason Code ______
8 From _______________________ to _______________________
9 Page _____ Line ______ Reason Code ______
From _______________________ to _______________________
10
Page _____ Line ______ Reason Code ______
11 From _______________________ to _______________________
12 Page _____ Line ______ Reason Code ______
From _______________________ to _______________________
13
Page _____ Line ______ Reason Code ______
14 From _______________________ to _______________________
15 Page _____ Line ______ Reason Code ______
From _______________________ to _______________________
16
Page _____ Line ______ Reason Code ______
17 From _______________________ to _______________________
18 Page _____ Line ______ Reason Code ______
From _______________________ to _______________________
19
Page _____ Line ______ Reason Code ______
20 From _______________________ to _______________________
21 Page _____ Line ______ Reason Code ______
From _______________________ to _______________________
22
Page _____ Line ______ Reason Code ______
23 From _______________________ to _______________________
24

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Case 1:18-cv-11926-PBS Document 127-17 Filed 09/30/20 Page 18 of 20
MATTHEW FOEHR December 5, 2019

Page 308
1 Page _____ Line ______ Reason Code ______
From _______________________ to _______________________
2
Page _____ Line ______ Reason Code ______
3 From _______________________ to _______________________
4 Page _____ Line ______ Reason Code ______
From _______________________ to _______________________
5
6
_______ Subject to the above changes, I certify that
7 the transcript is true and correct
8 _______ No changes have been made. I certify that the
transcript is true and correct.
9
10
11 ______________________
MATTHEW FOEHR
12
13
14
15
16
17
18
19
20
21
22
23
24

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Case 1:18-cv-11926-PBS Document 127-17 Filed 09/30/20 Page 19 of 20

ERRATA SHEET

Case: Securities and Exchange Commission v. Lemelson, No. 1:18-cv-11926-PBS (D. Mass)

Date of Deposition: December 5, 2019

Deponent: Matthew Foehr

Page Line(s) Change Change To Reason


1 N/A 1:18-CU-11926-PBS 1:18-CV-11926-PBS Clarification
2 N/A 1:18-CU-11926-PBS 1:18-CV-11926-PBS Clarification
4 N/A WITNESS: BRUCE WITNESS: MATTHEW Clarification
VOSS FOEHR
16 21 Santol Antle Transcription Error
16 24 Ed Eric Transcription Error
25 15 McCartney Macartney Transcription Error
25 17 Steven Stephen Transcription Error
51 21 it was your question. it. Clarification
52 10 had may Transcription Error
52 21 2.5 million $2.5 million loan Clarification from
exhibit
53 15 2.5 $2.5 Clarification
54 14 prefer refer Transcription Error
56 23 so had so we Transcription Error
181 23 Sovaldi Hepatitis C Clarification
215 5 Transcept primary Asset “Transcept: Primary Asset Clarification from
Intermezzo.” Intermezzo.” exhibit
223 6 believe was believe it was Clarification
229 18 amount discussion amount of discussion Transcription Error
254 24 is not nonsensical is a nonsensical Transcription Error
262 20 misstates misstatements Transcription Error
Case 1:18-cv-11926-PBS Document 127-17 Filed 09/30/20 Page 20 of 20
Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 1 of 21
TODD PETTINGILL December 12, 2019

United States District Court


District of Massachusetts

Securities and Exchange )


Commission, )
Plaintiff, ) 1:18-cv-11926-PBS
v. )
Gregory Lemelson and Lemelson )
Capital Management, LLC, )
Defendants, )
and )
The Amvona Fund, LP, )
Relief Defendant. )
_________________________________

Video Deposition of TODD PETTINGILL


San Diego, California
December 12, 2019

Reported by:
Veronica S. Thompson
CSR 6056, RPR, CRR, CCRR
KEY Discovery

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 2 of 21
TODD PETTINGILL December 12, 2019

Page 2
United States District Court
District of Massachusetts

Securities and Exchange )


Commission, )
Plaintiff, ) 1:18-cv-11926-PBS
v. )
Gregory Lemelson and Lemelson )
Capital Management, LLC, )
Defendants, )
and )
The Amvona Fund, LP, )
Relief Defendant. )
_________________________________

Video Deposition of TODD PETTINGILL


was taken on behalf of Defendants at 600 West Broadway,
Suite 300, San Diego, California 92101, commencing at
7:00 AM and ending at 10:50 AM, on Thursday,
December 12, 2019, before Veronica S. Thompson,
CSR 6056.

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 3 of 21
TODD PETTINGILL December 12, 2019

Page 3
APPEARANCES

For Plaintiff:
U.S. Securities and Exchange Commission
By: Alfred A. Day, Sr. Trial Counsel
33 Arch Street
Boston, Massachusetts 02110
617-573-4537
daya@sec.gov

For Defendants:
Libby Hoopes
By: Douglas A. Brooks, Esq.
399 Boylston Street
Boston, Massachusetts 02116
617-338-9300
dbrooks@libbyhoopes.com

For Ligand Pharmaceuticals, John Higgins, and Viking


Therapeutics:

Cahill Gordon & Reindel LLP


By: Bradley J. Bondi, Esq.
By: Sean P. Tonolli, Esq.
By: William C. McCaughey, Esq.
1990 K Street, N.W., Suite 950
Washington, D.C. 20006
202-862-8900
bbondi@cahill.com
stonolli@cahill.com
wmccaughey@cahill.com
Also Present:
Fr. Emmanuel Lemelson
Videographer:
Daniel Bermudez, KEY Discovery

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 4 of 21
TODD PETTINGILL December 12, 2019

Page 4
INDEX

EXAMINATION PAGE

By Mr. Brooks 7

EXHIBITS

NUMBER DESCRIPTION PAGE

Exhibit 151 Email string ending 11/05/13 from 29

John Higgins to Todd Pettingill;

LGND_0018094

Exhibit 152 Email string ending 08/22/14 from 91

Todd Pettingill to Eric Vajda;

LGND_0041208-0041210

Exhibit 153 Email string ending 09/19/14 from 95

Todd Pettingill to Nishan de Silva;

LGND_0047276-0047278

Exhibit 154 Marked and withdrawn (not attached); 108

LGND_0047298-0047307

Exhibit 155 Marked and withdrawn (not attached); 123

LGND_0052340-0052343

Exhibit 156 Email string ending 08/22/14 from 132

Todd Pettingill to Glenn Dourado and

Eric Vajda; LGND_0041211-41213

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 5 of 21
TODD PETTINGILL December 12, 2019

Page 5
Exhibit 157 Email string ending 08/10/14 from 138

Melanie Herman to Todd Pettingill;

LGND_0040984, 0041028-0041031

Exhibit 158 Email string ending 07/21/16 from 139

Todd Pettingill to Bruce Voss;

LCM_SEC0000774-0000776

FIRST REFERENCE TO PREVIOUSLY MARKED EXHIBITS

NUMBER PAGE LINE

Exhibit 4 37 2

Exhibit 7 58 16

Exhibit 8 85 17

Exhibit 114 49 4

Exhibit 146 110 6

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 6 of 21
TODD PETTINGILL December 12, 2019

Page 6
1 SAN DIEGO, CALIFORNIA, DECEMBER 12, 2019, 7:00 AM
2 VIDEOGRAPHER: We are now on the record.

3 Today's date is December 12, 2019, and the time is

4 7:00 AM. This is the video deposition of Todd

5 Pettingill being taken in the matter of SEC versus


6 Lemelson Capital Management LLC pending in the United

7 States District Court, District of Massachusetts.


8 We are at Aptus Court Reporting, San Diego.

9 My name is Daniel Bermudez of Aptus Court


10 Reporting located at 600 West Broadway, Suite 300,

11 San Diego, California 92101.

12 Will counsel please identify yourselves and

13 state whom you represent.

14 MR. BROOKS: Doug Brooks, law firm Libby

15 Hoopes, for the defendants in this action.

16 MR. DAY: Al Day for the Securities and

17 Exchange Commission.
18 MR. McCAUGHEY: William McCaughey, Cahill

19 Gordon & Reindel, on behalf of Ligand Pharmaceuticals

20 and the witness.

21 MR. TONOLLI: Sean Tonolli of Cahill Gordon &


22 Reindel on behalf of Mr. Pettingill and Ligand

23 Pharmaceuticals.
24 MR. BONDI: Brad Bondi, Cahill Gordon &

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 7 of 21
TODD PETTINGILL December 12, 2019

Page 7
1 Reindel, on behalf of Ligand Pharmaceuticals and the

2 witness.

3 VIDEOGRAPHER: The court reporter is Veronica

4 Thompson, and she may now swear in the witness.

5 TODD PETTINGILL,

6 having been duly sworn, testified as follows:

7 EXAMINATION

8 BY MR. BROOKS:

9 Q. Good morning, Mr. Pettingill. My name is Doug

10 Brooks. We met briefly off the record. I represent the

11 defendants in this action.

12 Have you ever been deposed before?

13 A. I have not.

14 Q. Okay. So just a few ground rules then.

15 As you know, you're under oath. Everything

16 you're saying is being transcribed. We should both do

17 our best not to talk over each other because then it

18 becomes hard for the court reporter.

19 And all your responses should be verbal

20 because there is a videographer, but the court

21 reporter -- it's hard to get a nod of the head.

22 A. Makes sense.

23 Q. Does that all make sense?

24 A. Yes.

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 8 of 21
TODD PETTINGILL December 12, 2019

Page 53
1 media posts. You know, he's got like three different

2 Wikipedia pages. He's got his own -- oh, and they all,

3 kind of, cross-reference each other, so very -- you

4 know, very good at promoting himself in multiple ways

5 across different platforms.

6 So we would follow that and, kind of,

7 unders- -- you know, look -- look at history and just

8 try to understand.

9 Again, it was purely out of understanding who

10 was this guy that was coming at us with, you know, false

11 and misleading statements.

12 MR. BROOKS: Can we take a quick bathroom

13 break?

14 VIDEOGRAPHER: We're off the record at

15 7:56 AM.

16 (Recess, 7:56 AM - 8:05 AM.)

17 VIDEOGRAPHER: We are on the record at

18 8:05 AM.

19 BY MR. BROOKS:

20 Q. Mr. Pettingill, were you involved in any

21 discussions at Ligand about whether the company should

22 publicly respond to Fr. Lemelson's reports?

23 A. I don't recall specifically, but I'd imagine

24 so.

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 9 of 21
TODD PETTINGILL December 12, 2019

Page 54
1 Q. Do you recall generally what was discussed at

2 Ligand about that issue?

3 A. Yes. I would say -- well, again, it was a

4 long time ago. Key talking points, though, that I

5 imagine we discussed were, you know, is this -- is it

6 worth -- you know, is this guy trying to put out a fair

7 report? Are we -- is -- you know, is, you know,

8 contacting him and trying to set the record straight --

9 you know, is this -- is this deliberate, or is this --

10 is this just a -- you know, a -- just a mistake? And

11 would it make sense to -- you know, to try to, you know,

12 set him straight.

13 I think ultimate- -- and then as far as, like,

14 you know, going to the public, you know, I think it was,

15 Do we put more fuel on the fire if we give this guy more

16 credence than -- you know, than he deserves?

17 Q. In the 2014 time frame, did you personally

18 have an opinion on how, if at all, Ligand should

19 respond?

20 A. You know, it's very difficult to recall

21 specifically. I can tell you that in general in

22 hindsight I'm glad we didn't engage. I think that would

23 have, you know, put -- again, just seeing how he reacted

24 to other things such as this -- you know, the Wall

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 10 of 21
TODD PETTINGILL December 12, 2019

Page 82
1 Q. If I could turn your attention back to the

2 exhibit. See number 3, in bold, it says "Tangible

3 equity"?

4 A. Uh-huh.

5 Q. And if you go to the third line, it says,

6 "With the August 4, 2014, earnings release and its

7 updated financials, the company presented tangible

8 equity of just 21,000 upon which rested an extraordinary

9 market capitalization of approximately 1.1 billion." Do

10 you recall reading this at the time?

11 A. Yes.

12 Q. Did you think there was anything inaccurate

13 with his tangible equity calculation of 21,000?

14 A. So tangible equity is not a commonly used

15 financial metric. Prior to reading this, I'd never

16 heard of it. I've heard of tangible assets, which is

17 your assets minus your intangible assets. That's

18 something people talk about.

19 Tangible equity in itself is an oxymoron.

20 Equity is -- equity means your ownership. You have

21 equity in your house. Tangible means existing,

22 something you put your hands on.

23 So I defy you to show me the tangible equity

24 you own in your house. You don't have physical -- a

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 11 of 21
TODD PETTINGILL December 12, 2019

Page 83
1 physical, you know, amount that you owe of your house.

2 I guess you could say, "Okay. Half of my house belongs

3 to the bank because I haven't paid it back, and half

4 belongs to me." I guess you could say that, but that's

5 not how people view tangible equity.

6 Tangible equity was -- it was a fabricated and

7 misleading financial metric that was brought up here.

8 Q. But the way he describes it, do you believe

9 the 21,000 is a true or false calculation?

10 MR. BONDI: Object to the form, asked and

11 answered.

12 THE WITNESS: Yeah, I'm not sure how to answer

13 that because I could say -- you know, I could make up a

14 metric and, you know, dis- -- and calculate it

15 correctly, but if the metric has no financial meaning,

16 then I believe it's an inaccurate metric.

17 Now, I will say, I mean, just specifically, if

18 you're asking about the accuracy of that metric, as --

19 when we were, kind of, going through this process and

20 trying to understand what was going on and who this guy

21 was and what he was talking about, John had me start to

22 track this tangible equity to figure out what it was

23 and -- John, my CEO -- and one of the things I realized

24 is, even in his reports, he wasn't being -- Mr. Lemelson

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 12 of 21
TODD PETTINGILL December 12, 2019

Page 84
1 wasn't even being consistent on how he was calculating

2 it.

3 At one point he was excluding certain

4 intangible assets; in other ones, he wasn't. To me it

5 seemed like he didn't even know what he was talking

6 about. He was just -- you know, if it was that much of

7 a -- kind of a metric that was used by the financial

8 community, it seemed like he would be able to calculate

9 it consistently, but he wasn't even consistent between

10 reports.

11 BY MR. BROOKS:

12 Q. So are you saying -- is it your testimony here

13 today that you've never heard of tangible equity outside

14 of Fr. Lemelson?

15 A. Yes.

16 MR. BONDI: Object to form, asked and

17 answered.

18 BY MR. BROOKS:

19 Q. So if I google "tangible equity," presumably I

20 won't find anything on it?

21 A. I'm not testifying that. I'm testifying I've

22 never heard of it. In my experience as an investor,

23 I've never heard that as a use- -- as a commonly used

24 term.

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 13 of 21
TODD PETTINGILL December 12, 2019

Page 85
1 I've heard of tangible assets. And tangible

2 assets and tangible equity are not the same thing.

3 Q. Right. But Fr. Lemelson describes what he

4 means by tangible equity. Right?

5 MR. BONDI: Objection.

6 THE WITNESS: I don't know. Where's -- I

7 mean, let's -- is there -- is that described in this

8 calculation here?

9 I see 21,000. I see a number, but I don't see

10 any breakdown in calculation. Maybe it's there. I'm

11 just not seeing it.

12 BY MR. BROOKS:

13 Q. Did -- so I just want to get -- so do you

14 believe that Fr. Lemelson invented the metric of

15 tangible equity?

16 A. Yes.

17 Q. I'm handing you what's previously been marked

18 as Exhibit 8.

19 A. Are we done with Exhibit 7?

20 Q. Yes.

21 Are you familiar with that document?

22 A. Sorry. I should have looked in detail.

23 Yes, I believe so.

24 Q. Can -- can I ask you -- and I apologize.

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 14 of 21
TODD PETTINGILL December 12, 2019

Page 103
1 BY MR. BROOKS:

2 Q. So turning back to the exhibit in front of

3 you, if I could turn your attention to the bottom of

4 page 2 and the last -- page before that. Yeah.

5 The bottom of it is a statement from his

6 report that you reproduced that says, "On August 18,

7 Ligand filed a Form 8-K with the Securities and Exchange

8 Commission, SEC, revealing that the company had issued

9 245 million in new debt against the company's tangible

10 equity of just 21,000 giving a rise to a debt" -- "to a

11 debt to tangible equity ratio of 11,667 to one. That is

12 to say $11,667 in debt for every one dollar in tangible

13 common shareholder equity." Do you see that?

14 A. Correct.

15 Q. Okay. Then your response was, "Calculation

16 incorrect because he leaves out the cash which would

17 increase the tangible equity value." Do you see that?

18 A. Yep.

19 Q. How would cash increase tangible equity value?

20 A. I think at this point I was, you know, trying

21 to wrestle with a new term. I didn't understand how it

22 meant. I agree. That actually probably isn't the -- it

23 would have affected net debt. Tangible equity value,

24 again, was a new term that I was struggling to keep up

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 15 of 21
TODD PETTINGILL December 12, 2019

Page 104
1 with.

2 Q. The -- did -- leaving aside tangible equity,

3 did common shareholder equity in Ligand go up or down

4 after the 2014 bond offering?

5 A. It wasn't affected by it.

6 Q. Now --

7 A. Well, actually, you mean just the accounting

8 impact? Because there's two things. So just to make

9 sure we're not confusing terms, market cap -- when

10 people talk about, like, you know, the value of the

11 company's equity, generally they're talking about market

12 cap, which is number of shares outstanding times the

13 market -- the per share price.

14 So assuming you're not talking about that,

15 assuming you're talking about in the context of -- the

16 other context is the accounting definition of equity.

17 Tangible equity -- ignore that for a second.

18 Equity in general is you -- basically, you

19 take the assets. That's -- you mark up, you total up,

20 you sum up everything the company has, tangible or

21 intangible. You back out liabilities which is, kind of,

22 like the near-term payables, the thing they need to back

23 out -- the things they need to pay people, debt

24 outstanding, things like that. And then whatever is

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 16 of 21
TODD PETTINGILL December 12, 2019

Page 131
1 they sold when they came out with good SARM -- or with

2 good NASH data, they went up to $20 a share.

3 All of this time, Mr. Lemelson was putting out

4 reports saying that they were a sham, you know, just

5 not -- you know, a fake company and a fake transaction

6 from Ligand.

7 Q. Fr. Lemelson put out reports about Viking

8 after the IPO?

9 A. Dur- -- yeah, yeah. He referenced -- no.

10 Well, he didn't put the specific report about Viking,

11 but he did re- -- he referred to -- a big section of one

12 of his reports was about how Viking was a fraud.

13 Q. That was -- wasn't that before the IPO,

14 though?

15 A. I don't believe so. Maybe -- maybe I'm

16 getting things mixed up, but the point is, you know, he

17 was very actively, you know, trying to discredit the

18 transaction --

19 Q. Right.

20 A. -- in the markets --

21 Q. Right.

22 A. -- using -- using things that were just

23 misleading.

24 Q. But my question is, weren't all of his reports

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 17 of 21
TODD PETTINGILL December 12, 2019

Page 132
1 a full year before the Viking IPO?

2 A. Yeah. Yeah, you're correct.

3 Q. Let's get this one.

4 (Exhibit 156 was marked.)

5 BY MR. BROOKS:

6 Q. Mr. Pettingill, you've been handed what's been

7 marked as Exhibit 156. I'd ask you to take a moment and

8 look at this.

9 A. Seemed like the same chain we --

10 Q. Yeah, it's actually -- yes. This is actually

11 a continuation of it, if you see.

12 So if you turn to the second page of this

13 exhibit after the email that you wrote that we've

14 already discussed, see at the top an email from Glenn

15 Dourado?

16 A. Yeah.

17 Q. He writes, "Unfortunately he's winning because

18 the stock keeps going down. He needs to be silenced for

19 good. I'm not saying anything specific, for fear it

20 could be misconstrued, but this is a total farce."

21 You understood he was talking about

22 Fr. Lemelson. Correct?

23 A. Assume so.

24 Q. All right. And then if you look at the next

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Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 18 of 21

·1· · · · · · I, the undersigned, a Certified Shorthand

·2· Reporter of the State of California, do hereby certify:

·3· · · · · · That the foregoing proceedings were taken

·4· before me at the time and place herein set forth; that

·5· any witnesses in the foregoing proceedings, prior to

·6· testifying, were duly sworn; that a record of the

·7· proceedings was made by me using machine shorthand,

·8· which was thereafter transcribed by me; that the

·9· foregoing is a true record of the testimony given.

10· · · · · · Further, that if the foregoing pertains to the

11· original transcript of a deposition in a federal case,

12· before completion of the proceedings, review of the

13· transcript [ X ] was [· ] was not requested.

14· · · · · · I further certify I am neither financially

15· interested in the action nor a relative or employee of

16· any attorney or party to this action.

17· · · · · · In witness whereof, I have this date

18· subscribed my name.

19

20· Dated:· December 27, 2019

21

22

23
· · · · · · · ____________________________
24· · · · · · Veronica S. Thompson
· · · · · · · CSR 6056, RPR, CRR, CCRR
Case 1:18-cv-11926-PBS Document 127-18 Filed 09/30/20 Page 19 of 21
TODD PETTINGILL December 12, 2019

Page 154
1 DECLARATION UNDER PENALTY OF PERJURY

3 Case Name: SEC v. Lemelson

4 Date of Deposition: 12/12/19

5 KEY Discovery Job

7 I, TODD PETTINGILL, hereby certify under

8 penalty of perjury under the laws of the State of

9 ________________ that the foregoing is true and correct.

10 Executed this _____ day of __________________,

11 20______, at ______________________.

12

13

14 ____________________________

15 TODD PETTINGILL

16

17

18

19

20

21

22

23

24

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TODD PETTINGILL December 12, 2019

Page 155
1 DEPOSITION ERRATA SHEET
2 Case Name: SEC v. Lemelson
Name of Witness: TODD PETTINGILL
3 Date of Deposition: 12/12/19
KEY Discovery Job
4 Reason Codes: 1. To clarify record.
2. To conform to facts.
5 3. To correct transcription errors.
6
7 Page ______ Line ______ Reason ______
8 From _______________________ to ________________________
9 Page ______ Line ______ Reason ______
10 From _______________________ to ________________________
11 Page ______ Line ______ Reason ______
12 From _______________________ to ________________________
13 Page ______ Line ______ Reason ______
14 From _______________________ to ________________________
15 Page ______ Line ______ Reason ______
16 From _______________________ to ________________________
17 Page ______ Line ______ Reason ______
18 From _______________________ to ________________________
19 Page ______ Line ______ Reason ______
20 From _______________________ to ________________________
21 Page ______ Line ______ Reason ______
22 From _______________________ to ________________________
23 Page ______ Line ______ Reason ______
24 From _______________________ to ________________________

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TODD PETTINGILL December 12, 2019

Page 156
1 Page ______ Line ______ Reason ______
2 From _______________________ to ________________________
3 Page ______ Line ______ Reason ______
4 From _______________________ to ________________________
5 Page ______ Line ______ Reason ______
6 From _______________________ to ________________________
7 Page ______ Line ______ Reason ______
8 From _______________________ to ________________________
9 Page ______ Line ______ Reason ______
10 From _______________________ to ________________________
11 Page ______ Line ______ Reason ______
12 From _______________________ to ________________________
13 Page ______ Line ______ Reason ______
14 From _______________________ to ________________________
15 Page ______ Line ______ Reason ______
16 From _______________________ to ________________________
17 Page ______ Line ______ Reason ______
18 From _______________________ to ________________________
19 Page ______ Line ______ Reason ______
20 From _______________________ to ________________________
21 ______ Subject to the above changes, I certify that the
transcript is true and correct.
22 ______ No changes have been made. I certify that the
transcript is true and correct.
23
___________ __________________________________________
24 Date Todd Pettingill

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S-1 1 d711611ds1.htm S-1

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As filed with the Securities and Exchange Commission on July 1, 2014


Registration No. 333-

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Viking Therapeutics, Inc.


(Exact name of Registrant as specified in its charter)

Delaware 2834 46-1073877


(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
Viking Therapeutics, Inc.
11119 North Torrey Pines Road, Suite 50
San Diego, CA 92037
(858) 550-7810
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Brian Lian, Ph.D.


President and Chief Executive Officer
Viking Therapeutics, Inc.
11119 North Torrey Pines Road, Suite 50
San Diego, CA 92037
(858) 550-7810
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:
Jeffrey T. Hartlin, Esq. Michael D. Maline, Esq.
Paul Hastings LLP Thomas S. Levato, Esq.
1117 S. California Avenue Goodwin Procter LLP
Palo Alto, California 94304 The New York Times Building
(650) 320-1804 620 Eighth Avenue
New York, New York 10018
(212) 813-8800

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the
following box: …
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. …
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same offering. …
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same offering. …
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer … Accelerated filer …
Non-accelerated filer _ (Do not check if a smaller reporting company) Smaller reporting company …

CALCULATION OF REGISTRATION FEE


Title of Each Class of Proposed Amount of
Securities to be Registered Maximum Registration Fee(3)

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Aggregate
Offering Price(1)(2)
Common Stock, $0.00001 par value per share $57,500,000 $7,406
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.
(3) Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended, based on an estimate of the proposed maximum aggregate offering
price.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.

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Summary Financial Data

The following table sets forth our summary financial data as of the dates and for the periods indicated. We have derived the
summary statement of operations data for the period from September 24, 2012 (Inception) through December 31, 2012 and the
year ended December 31, 2013 from our audited financial statements included elsewhere in this prospectus. The summary
statement of operations data for the three months ended March 31, 2013 and 2014 and the cumulative period from September 24,
2012 (Inception) through March 31, 2014, and the balance sheet data as of March 31, 2014, are derived from our unaudited
financial statements included elsewhere in this prospectus. Our unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of our management, include all adjustments, consisting of normal
recurring adjustments and accruals, necessary for a fair statement of the information for the interim periods.

The historical results presented below are not necessarily indicative of the results to be expected for any future period and our
interim results are not necessarily indicative of the results that may be expected for a full year. The following summaries of our
financial data for the periods presented should be read in conjunction with the sections of this prospectus entitled “Risk Factors,”
“Selected Financial Data,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our financial statements and the related notes included elsewhere in this prospectus.

Cumulative
Period from Period from
September 24, September 24,
2012 Three Three 2012
(Inception) Year Months Months (Inception)
through Ended Ended Ended through
December 31, December 31, March 31, March 31, March 31,
2012 2013 2013 2014 2014
(Unaudited) (Unaudited) (Unaudited)
Statement of Operations
Revenue $ – $ – $ – $ – $ –
Operating expenses:
Research and development 68,871 11,613 575 50,000 130,484
General and administrative 40,770 89,463 2,615 159,737 289,970
Total operating expenses 109,641 101,076 3,190 209,737 420,454
Loss from operations (109,641) (101,076) (3,190) (209,737) (420,454)
Other expenses:
Loss from change in fair value of debt
conversion feature – 20,622 37 10,249 30,871
Interest expense 1,386 24,549 1,356 8,955 34,890
Total other expenses 1,386 45,171 1,393 19,204 65,761
Net loss (111,027) (146,247) (4,583) (228,941) (486,215)
Basic and diluted net loss per share $ (0.07) $ (0.07) $ (0.00) $ (0.07) $ (0.24)
Weighted-average shares used to compute
basic and diluted net loss per share 1,482,625 2,043,295 1,794,444 3,191,666 2,026,311
Pro forma basic and diluted net loss per
share (unaudited) $ $
Weighted-average pro forma shares used to
compute basic and diluted net loss per
common share (unaudited)

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As of March 31, 2014


Pro Forma as
Pro Adjusted(2)
Actual Forma(1) (3)
(Unaudited) (Unaudited) (Unaudited)
Balance Sheet Data
Cash $ 78,849 $ 78,849
Working capital (deficit) (349,912)
Total assets 276,716 276,716
Convertible notes payable, current 47,930 —
Convertible notes payable, non-current 237,194 —
Debt conversion feature liability 81,904 —
Common stock 60
Additional paid-in capital 10,010
Accumulated deficit (486,215)
Total stockholders’ equity (deficit) (478,643)

(1) The pro forma column in the balance sheet data table above reflects (a) the conversion of our outstanding convertible notes in an aggregate principal amount of
$310,350 and accrued interest of approximately $9,083 into an aggregate of shares of our common stock upon the closing of this offering, based on an
assumed initial public offering price of $ , the midpoint of the price range set forth on the cover page of this prospectus, and (b) the issuance of an
aggregate of shares of our common stock to Ligand pursuant to the Master License Agreement and conversion of the Note upon the consummation of
this offering, based on shares of common stock outstanding as of immediately prior to the closing of this offering (excluding shares issued in this offering) and
an assumed initial public offering price of $ , the midpoint of the price range set forth on the cover page of this prospectus. The pro forma information
is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.
(2) The pro forma as adjusted column in the consolidated balance sheet data table above reflects (a) the conversion of our outstanding convertible notes in an
aggregate principal amount of $310,350 and accrued interest of approximately $9,083 into an aggregate of shares of our common stock upon the
closing of this offering, based on an assumed initial public offering price of $ , the midpoint of the price range set forth on the cover page of this
prospectus, (b) the issuance of an aggregate of shares of our common stock to Ligand pursuant to the Master License Agreement and conversion of the
Note upon the consummation of this offering, based on shares of common stock outstanding as of immediately prior to the closing of this offering (excluding
shares issued in this offering) and an assumed initial public offering price of $ , the midpoint of the price range set forth on the cover page of this
prospectus, and (c) the sale of shares of common stock in this offering at an assumed initial public offering price of $ , the midpoint of the price
range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses
payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price
and other terms of this offering determined at pricing.
(3) Each $1.00 increase or decrease in the assumed initial public offering price of $ , the midpoint of the price range set forth on the cover page of this
prospectus, would increase or decrease each of the pro forma as adjusted cash, additional paid-in capital, total stockholders’ equity (deficit) by approximately
$ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the
estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we
are offering. An increase or decrease of 1.0 million in the number of shares we are offering would increase or decrease each of the pro forma as adjusted cash,
additional paid-in capital and total stockholders’ equity (deficit) by approximately $ million, assuming an initial public offering price of $ , the
midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual
initial public offering price and other terms of this offering determined at pricing.

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• our drug candidates may cause undesirable side effects that delay or preclude regulatory approval or limit their commercial use or
market acceptance, if approved;
• collaborators who may be responsible for the development of our drug candidates may not devote sufficient resources to these
clinical trials or other preclinical studies of these candidates or conduct them in a timely manner; or
• we may face delays in obtaining regulatory approvals to commence one or more clinical trials.

Success in early development does not mean that later development will be successful because, for example, drug candidates in later-
stage clinical trials may fail to demonstrate sufficient safety and efficacy despite having progressed through initial clinical trials.

We in-license all of the intellectual property related to our drug candidates from Ligand pursuant to the Master License Agreement. All
clinical trials, preclinical studies and other analyses performed to date with respect to our drug candidates have been conducted by
Ligand. Therefore, as a company, we do not have any experience in conducting clinical trials for our drug candidates. Since our
experience with our drug candidates is limited, we will need to train our existing personnel and hire additional personnel in order to
successfully administer and manage our clinical trials and other studies as planned, which may result in delays in completing such
planned clinical trials and preclinical studies. Moreover, to date our drug candidates have been tested in less than the number of
patients that will likely need to be studied to obtain regulatory approval. The data collected from clinical trials with larger patient
populations may not demonstrate sufficient safety and efficacy to support regulatory approval of these drug candidates.

We currently do not have strategic collaborations in place for clinical development of any of our current drug candidates. Therefore, in
the future, we or any potential future collaborative partner will be responsible for establishing the targeted endpoints and goals for
development of our drug candidates. These targeted endpoints and goals may be inadequate to demonstrate the safety and efficacy
levels required for regulatory approvals. Even if we believe data collected during the development of our drug candidates are
promising, such data may not be sufficient to support marketing approval by the FDA, EMA or comparable foreign authorities. Further,
data generated during development can be interpreted in different ways, and the FDA, EMA or comparable foreign authorities may
interpret such data in different ways than us or our collaborators. Our failure to adequately demonstrate the safety and efficacy of our
drug candidates would prevent our receipt of regulatory approval, and ultimately the potential commercialization of these drug
candidates.

Since we do not currently possess the resources necessary to independently develop and commercialize our drug candidates, including
our core metabolic and endocrine disease assets, VK0612 and VK5211, our earlier-stage assets, VK0214 and the EPOR and DGAT-1
programs, or any other drug candidates that we may develop, we may seek to enter into collaborative agreements to assist in the
development and potential future commercialization of some or all of these assets as a component of our strategic plan. However, our
discussions with potential collaborators may not lead to the establishment of collaborations on acceptable terms, if at all, or it may take
longer than expected to establish new collaborations, leading to development and potential commercialization delays, which would
adversely affect our business, financial condition and results of operations.

We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain
profitability.

We expect to expend substantial funds in research and development, including preclinical studies and clinical trials of our drug
candidates, and to manufacture and market any drug candidates in the event they are approved for commercial sale. We also may need
additional funding to develop or acquire complementary companies, technologies and assets, as well as for working capital
requirements and other operating and general corporate purposes. Moreover, our planned increases in staffing will dramatically
increase our costs in the near and long-term.

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• recruiting and enrolling patients to participate in one or more clinical trials; and
• the failure of our collaborators to adequately resource our drug candidates due to their focus on other programs or as a result of
general market conditions.

In addition, once a clinical trial has begun, it may be suspended or terminated by us, our collaborators, the institutional review boards
or data safety monitoring boards charged with overseeing our clinical trials, the FDA, EMA or comparable foreign authorities due to a
number of factors, including:
• failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;
• inspection of the clinical trial operations or clinical trial site by the FDA, EMA or comparable foreign authorities resulting in the
imposition of a clinical hold;
• unforeseen safety issues; or
• lack of adequate funding to continue the clinical trial.

If we experience significant delays in the commencement or completion of clinical trials, our drug development costs may increase, we
may lose any competitive advantage associated with early market entry and our ability to establish strategic collaborations may be
delayed or limited. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials
may also ultimately lead to the denial of regulatory approval of a drug candidate.

We intend to rely on third parties to conduct our preclinical studies and clinical trials and perform other tasks for us. If these
third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory
requirements, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business,
financial condition and results of operations could be substantially harmed.

Ligand, the licensor of our development programs, has relied upon and plans to continue to rely upon third-party CROs, medical
institutions, clinical investigators and contract laboratories to monitor and manage data for our licensed ongoing preclinical and clinical
programs. We have relied and expect to continue to rely on these parties for execution of our preclinical studies and clinical trials, and
we control only certain aspects of their activities. Nevertheless, we maintain responsibility for ensuring that each of our clinical trials
and preclinical studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our
reliance on these third parties does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to
comply with current requirements on good manufacturing practices, or cGMP, good clinical practices, or GCP, and good laboratory
practice, or GLP, which are a collection of laws and regulations enforced by the FDA, EMA or comparable foreign authorities for all of
our drug candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of
preclinical study and clinical trial sponsors, principal investigators, preclinical study and clinical trial sites, and other contractors. If we
or any of our CROs or vendors fails to comply with applicable regulations, the data generated in our preclinical studies and clinical
trials may be deemed unreliable and the FDA, EMA or comparable foreign authorities may require us to perform additional preclinical
studies and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given
regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition,
our clinical trials must be conducted with products produced consistent with cGMP regulations. Our failure to comply with these
regulations may require us to repeat clinical trials, which would delay the development and regulatory approval processes.

If any of our relationships with these third-party CROs, medical institutions, clinical investigators or contract laboratories terminate,
we may not be able to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. In addition, our
CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control
whether or not they devote sufficient time and

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Capitalization

The following table sets forth our cash and capitalization as of March 31, 2014:
• on an actual basis;
• on a pro forma basis to reflect (1) the conversion of our outstanding convertible notes in an aggregate principal amount of
$310,350 and accrued interest of approximately $9,083 into an aggregate of shares of our common stock upon the closing
of this offering, based on an assumed initial public offering price of $ , the midpoint of the price range set forth on the
cover page of this prospectus, (2) the issuance of an aggregate of shares of our common stock to Ligand pursuant to the
Master License Agreement and the Note upon the consummation of this offering, based on shares of common stock
outstanding as of immediately prior to the closing of this offering (excluding shares issued in this offering) and an assumed initial
public offering price of $ , the midpoint of the price range set forth on the cover page of this prospectus, and (3) the filing
of our amended and restated certificate of incorporation in Delaware, which will occur immediately prior to the completion of this
offering; and
• on a pro forma as adjusted basis to give further effect to our issuance and sale of shares of common stock in this offering
at an assumed initial public offering price of $ , the midpoint of the price range set forth on the cover page of this
prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable
by us.

The information in this table should be read in conjunction with the sections of this prospectus entitled “Use of Proceeds,” “Selected
Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial
statements and related notes thereto included elsewhere in this prospectus.

March 31, 2014


Pro Pro Forma as
Forma(1) Adjusted(1)
Actual (2) (2)
(Unaudited) (Unaudited) (Unaudited)
Cash $ 78,849 $ $
Convertible notes payable, current 47,930
Convertible notes payable, non-current 237,194
Debt conversion feature liability 81,904
Stockholders’ equity (deficit)
Common stock, $0.00001 par value; 10,000,000 shares authorized, 6,000,000 shares
issued and outstanding, actual; shares authorized, shares issued and
outstanding, pro forma; shares authorized, shares issued and
outstanding, pro forma as adjusted 60
Additional paid-in capital 10,010
Deficit accumulated during the development stage (486,215)
Total stockholders’ equity (deficit) (478,643)
Total capitalization $ (111,615) $ $

(1) The pro forma and pro forma as adjusted information is illustrative only and following the completion of this offering will be adjusted based on the actual initial
public offering price and other terms of this offering determined at pricing.
(2) Each $1.00 increase or decrease in the assumed initial public offering price of $ , the midpoint of the price range set forth on the cover page of this
prospectus, would increase or decrease each of the pro forma as adjusted cash, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization
by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after
deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of
shares we are offering. An

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Selected Financial Data

The following selected statement of operations data and comprehensive loss data for each of the periods from September 24, 2012
(Inception) through December 31, 2012, the year ended December 31, 2013 and the cumulative period from September 24, 2012
(Inception) through December 31, 2013, and the selected balance sheet data as of December 31, 2013, have been derived from our
audited financial statements included elsewhere in this prospectus. The following selected statement of operations data and
comprehensive loss data for the three months ended March 31, 2013 and 2014, the cumulative period from September 24, 2012
(Inception) through March 31, 2014, and the selected balance sheet data as of March 31, 2014, are derived from our unaudited
financial statements included elsewhere in this prospectus. Our unaudited financial statements have been prepared on the same basis
as the audited financial statements and, in the opinion of our management, include all adjustments, consisting of normal recurring
adjustments and accruals, necessary for a fair statement of the information for the interim periods.

The historical results presented below are not necessarily indicative of the results to be expected for any future period and our interim
results are not necessarily indicative of the results that may be expected for a full year. You should read the selected financial and
operating data for the periods presented in conjunction with the sections of this prospectus entitled “Risk Factors,” “Capitalization,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the
related notes included elsewhere in this prospectus.

Cumulative
Period from Period from
September 24, September 24,
2012 Three Three 2012
(Inception) Year Months Months (Inception)
through Ended Ended Ended through
December 31, December 31, March 31, March 31, March 31,
2012 2013 2013 2014 2014
(Unaudited) (Unaudited) (Unaudited)
Statement of Operations
Revenues $ – $ – $ – $ – $ –
Operating expenses
Research and development 68,871 11,613 575 50,000 130,484
General and administrative 40,770 89,463 2,615 159,737 289,970
Total operating expenses 109,641 101,076 3,190 209,737 420,454
Loss from operations (109,641) (101,076) (3,190) (209,737) (420,454)
Other expenses
Loss from change in fair value of debt
conversion feature – 20,622 37 10,249 30,871
Interest expense 1,386 24,549 1,356 8,955 34,890
Total other expenses 1,386 45,171 1,393 19,204 65,761
Net loss $ (111,027) $ (146,247) $ (4,583) $ (228,941) $ (486,215)
Basic and diluted net loss per share $ (0.07) $ (0.07) $ (0.00) $ (0.07) $ (0.24)
Weighted-average shares used to compute basic
and diluted net loss per share 1,482,625 2,043,295 1,794,444 3,191,666 2,026,311
Pro forma basic and diluted net loss per share
(unaudited) $ $
Weighted-average pro forma shares used to
compute basic and diluted net loss per
common share (unaudited)

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December 31, March 31,


2012 2013 2014
(Unaudited)
Balance Sheet Data
Cash $ – $ 179,619 $ 78,849
Working capital (deficit) (54,379) 52,128 (349,912)
Total assets – 180,394 276,716
Convertible notes payable, current – 46,894 47,930
Convertible notes payable, non-current 42,750 231,851 237,194
Debt conversion feature liability 8,286 71,655 81,904
Accumulated deficit (111,027) (257,274) (486,215)
Total stockholders’ equity (deficit) (105,415) (250,604) (478,643)

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Stock-Based Compensation Summary

Stock-based compensation is reported in our statements of operations as follows:

Cumulative
Period from
Period from September 24,
September 24, 2012 Three Months Three Months 2012 (Inception)
(Inception) through Year Ended Ended Ended through
December 31, 2012 December 31, 2013 March 31, 2013 March 31, 2014 March 31, 2014
(Unaudited) (Unaudited) (Unaudited)
Research and development $ – $ 750 $ – $ – $ 750
General and administrative 5,612 2,804 965 904 9,320
Total $ 5,612 $ 3,554 $ 965 $ 904 $ 10,070

At March 31, 2014, there were 2,912,500 unvested shares and $173,547 of total unrecognized compensation costs related to the
6,000,000 shares of common stock outstanding, which is expected to be recognized over a weighted average period of 1.05 years.

Results of Operations

Comparison of the Three Months Ended March 31, 2013 and 2014

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended March 31, 2013 and 2014.

Three Months Ended $ %


March 31, Change Change
2013 2014
(Unaudited)
Research and development expenses $ 575 $ 50,000 $49,425 8,596%

During the three months ended March 31, 2013, we incurred minimal research and development expenses, since we were in the process
of negotiating to license certain technology from Ligand and had not engaged in any significant research or development during such
time. During the three months ended March 31, 2014, we expensed a $50,000 payment made to Ligand to extend our option to license
certain technology from Ligand.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2013 and 2014.

Three Months Ended $ %


March 31, Change Change
2013 2014
(Unaudited)
General and administrative expenses $2,615 $159,737 $157,122 6,008%

The increase in general and administrative expenses was primarily due to an increase of $77,403 in legal fees and an increase in
salaries and wages, including stock-based compensation expense of $29,939, during the three months ended March 31, 2014 as
compared to the same period in 2013. We began paying salaries to our founders during the second half of 2013. No salaries were paid
by us during the three months ended March 31, 2013. The increase also reflects $40,769 in accounting fees incurred during the three
months ended March 31, 2014 as we prepared for and commenced our financial audits during the three months ended March 31, 2014,
as compared to no accounting fees incurred during the three months ended March 31, 2013.

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Other Expenses

The following table summarizes our other expenses for the three months ended March 31, 2013 and 2014.

Three Months Ended $ %


March 31, Change Change
2013 2014
(Unaudited)
Other expenses $1,393 $ 19,204 $17,811 1,279%

Other expenses increased during the three months ended March 31, 2014 primarily due to an increase in the fair value of the debt
conversion feature of the Convertible Notes and an increase in interest expense under the Convertible Notes. The increase in loss from
change in fair value of debt conversion feature of $10,212 during the three months ended March 31, 2014 relative to the three months
ended March 31, 2013 was due primarily to our issuance of additional Convertible Notes in an aggregate principal amount of $260,350
after March 31, 2013, which carried their own additional loss from change in debt conversion feature charge. In addition, interest
expense during the three months ended March 31, 2014 increased by $7,599 as compared to the same period in 2013, due primarily to
an increase in amortization of the debt discount and additional interest expense accrued on Convertible Notes issued after March 31,
2013.

Comparison of the Period from September 24, 2012 (Inception) through December 31, 2012 to the Year Ended December 31, 2013

Research and Development Expenses

The following table summarizes our research and development expenses for the period from September 24, 2012 (Inception) through
December 31, 2012 and the year ended December 31, 2013.

Period from
September 24, 2012 %
(Inception) through Year Ended Increase Increase
December 31, 2012 December 31, 2013 (Decrease) (Decrease)
Research and development expenses $ 68,871 $ 11,613 $(57,258) (83%)

Research and development expenses for the period from September 24, 2012 (Inception) through December 31, 2012 related primarily
to costs associated with an option to license intellectual property from Ligand and other legal costs related to negotiation discussions.
We paid an option fee of $50,000 in the period ended December 31, 2012. We did not make any option or similar payments in 2013
and did not engage in significant research and development efforts during this period.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the period from September 24, 2012 (Inception) through
December 31, 2012 to the year ended December 31, 2013.

Period from
September 24, 2012 %
(Inception) through Year Ended Increase Increase
December 31, 2012 December 31, 2013 (Decrease) (Decrease)
General and administrative expenses $ 40,770 $ 89,463 $ 48,693 119%

The increase in general and administrative expenses during the year ended December 31, 2013 as compared to the period from
September 24, 2012 (Inception) through December 31, 2012 was primarily due to the payment of salaries and wages, including stock-
based compensation expense of $53,054 in 2013, an increase in rent for

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The following table summarizes our cash flows for the periods indicated below:

For the For the


Period from Three Three Period from
September 24, 2012 Year Ended Months Ended Months Ended September 24, 2012
(Inception) through December 31, March 31, March 31, (Inception) through
December 31, 2012 2013 2013 2014 March 31, 2014
(Unaudited) (Unaudited) (Unaudited)
Cash used in operating
activities $ (50,000) $ (78,235) $ – $ (100,768) $ (229,003)
Cash provided by (used in)
financing activities $ 50,000 $ 257,854 $ – $ (2) $ 307,852

Cash Used in Operating Activities

During the period from September 24, 2012 (Inception) through December 31, 2012, cash used in operating activities was $50,000.
Cash used in operating activities primarily reflected our net losses for the period, offset by changes in our working capital accounts,
primarily an increase in accounts payable.

During the year ended December 31, 2013, cash used in operating activities was $78,235. Cash used in operating activities primarily
reflected our net losses for the period, offset by non-cash charges such as amortization of discount charged to interest expense on
Convertible Notes and an increase in change in fair value of debt conversion feature as well as changes in our working capital
accounts, primarily an increase in accounts payable and accrued expenses.

During the three months ended March 31, 2013, cash used in operating activities was $0. Cash used in operating activities was $0 as a
result of our net losses for the period being offset by non-cash charges such as amortization of discount charged to interest expense on
Convertible Notes as well as changes in our working capital accounts, primarily an increase in accounts payable and accrued expenses.

During the three months ended March 31, 2014, cash used in operating activities was $100,768. Cash used in operating activities
primarily reflected our net losses for the period, offset by non-cash charges such as amortization of discount charged to interest expense
on Convertible Notes and an increase in change in fair value of debt conversion feature as well as changes in our working capital
accounts, primarily an increase in accounts payable and accrued expenses and an increase in deferred IPO financing costs.

During the period from September 24, 2012 (Inception) through March 31, 2014, cash used in operating activities was $229,003. Cash
used in operating activities primarily reflected our net losses for the period, offset by non-cash charges such as amortization of discount
charged to interest expense on convertible notes and an increase in change in fair value of debt conversion feature as well as changes in
our working capital accounts, primarily an increase in accounts payable and accrued expenses and an increase in deferred IPO
financing costs.

Cash Used in Investing Activities

We have not engaged in any investing activities since our inception.

Cash Provided by (Used in) Financing Activities

During the period from September 24, 2012 (Inception) through December 31, 2012, cash provided by financing activities was $50,000
and consisted of proceeds from the issuance of Convertible Notes.

During the year ended December 31, 2013, cash provided by financing activities was $257,854, which consisted of proceeds from the
issuance of Convertible Notes in the amount of $260,350, offset by the repurchase of shares of restricted common stock for an
aggregate purchase price of $2,503.

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Legal Matters

Paul Hastings LLP, Palo Alto, California, which has acted as our counsel in connection with this offering, will pass upon the validity of
the shares of common stock being offered by this prospectus. The underwriters have been represented by Goodwin Procter LLP, New
York, New York.

Changes in and Disagreements with Independent Registered Public Accounting Firm on Accounting and
Financial Disclosure

On March 4, 2014, we engaged MaloneBailey LLP, or MaloneBailey, to audit our financial statements as of and for the fiscal years
ended December 31, 2012 and 2013. On April 7, 2014, our board of directors approved the dismissal of MaloneBailey as our
independent registered public accounting firm, effective immediately.

MaloneBailey did not issue any reports with respect to our financial statements. Accordingly, there were no reports issued by
MaloneBailey with respect to us that contained an adverse opinion or disclaimer of opinion and MaloneBailey did not issue any report
that was qualified or modified as to uncertainty, audit scope or accounting principles.

From September 24, 2012 (Inception) through April 7, 2014: (1) there were no disagreements between us and MaloneBailey on any
matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the
satisfaction of MaloneBailey, would have caused MaloneBailey to make reference to the matter in any report they would have issued;
and (2) there were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K.

We provided MaloneBailey with a copy of the foregoing disclosures and requested that MaloneBailey provide a letter addressed to the
SEC stating whether it agrees with the foregoing statements. MaloneBailey furnished such a letter, dated July 1, 2014, and a copy of
such letter is filed as Exhibit 16.1 to the registration statement of which this prospectus forms a part.

Effective as of April 7, 2014, our board of directors appointed Marcum LLP, or Marcum, as our independent registered public
accounting firm to audit our financial statements as of and for the fiscal years ended December 31, 2012 and 2013, and for the fiscal
year ending December 31, 2014. From September 24, 2012 (Inception) through April 7, 2014, neither we nor anyone on our behalf
consulted with Marcum regarding (1) the application of accounting principles to a specified transaction, either completed or proposed,
(2) the type of audit opinion that might be rendered on our financial statements, or (3) any matter that was either the subject of a
disagreement, as described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions thereto, or a “reportable event” as
described in Item 304(a)(1)(v) of Regulation S-K.

Experts

The audited financial statements for the period from September 24, 2012 (Inception) through December 31, 2012 and for the year
ended December 31, 2013 have been included herein in reliance upon the report of Marcum LLP, an independent registered public
accounting firm, and upon the report of such firm given upon their authority as experts in accounting and auditing.

Where You Can Find Additional Information

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock
offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement, some of which is

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Viking Therapeutics, Inc.


(A Development Stage Company)
Balance Sheets
December 31, 2012 December 31, 2013 March 31, 2014
(Unaudited)
Assets
Current assets
Cash $ – $ 179,619 $ 78,849
Prepaids and other current assets – – 7,500
Total current assets – 179,619 86,349
Other Assets
Deposits – 775 775
Deferred IPO financing costs – – 189,592
Total other assets – 775 190,367
Total assets $ – $ 180,394 $ 276,716
Liabilities and Stockholders’ equity (deficit)
Current liabilities
Accounts payable $ 49,013 $ 73,378 $ 378,324
Accounts payable – related party 5,016 712 924
Accrued interest 350 6,507 9,083
Convertible notes payable, current portion (net of
discount of $3,106 and $2,070 at December 31, 2013
and March 31, 2014, respectively) – 46,894 47,930
Total current liabilities 54,379 127,491 436,261
Long-term liabilities
Convertible notes payable (net of discount of $7,250,
$28,499 and $23,156 at December 31,
2012, December 31, 2013 and March 31, 2014,
respectively) 42,750 231,851 237,194
Debt conversion feature liability 8,286 71,655 81,904
Total long-term liabilities 51,036 303,506 319,098
Total liabilities 105,415 430,997 755,359
Stockholders’ equity (deficit)
Common stock, $0.00001 par value; 10,000,000 shares
authorized; 5,000,000, 5,200,000 and 6,000,000
shares issued and outstanding at December 31,
2012, December 31, 2013 and March 31, 2014,
respectively 50 52 60
Additional paid-in capital 5,562 11,114 10,010
Notes receivable from stockholders – (4,496) (2,498)
Deficit accumulated during the development stage (111,027) (257,274) (486,215)
Total stockholders’ equity (deficit) (105,415) (250,604) (478,643)
Total liabilities and stockholders’ equity (deficit) $ – $ 180,394 $ 276,716

See accompanying notes to financial statements.

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Viking Therapeutics, Inc.


(A Development Stage Company)
Statements of Operations
Period from
September 24, Cumulative Period
2012 (Inception) Three Months from September 24,
through Year Ended Ended 2012 (Inception)
December 31, December 31, March 31, Three Months Ended through
2012 2013 2013 March 31, 2014 March 31, 2014
(Unaudited) (Unaudited) (Unaudited)
Revenues $ – $ – $ – $ – $ –
Operating expenses
Research and development 68,871 11,613 575 50,000 130,484
General and administrative 40,770 89,463 2,615 159,737 289,970
Total operating expenses 109,641 101,076 3,190 209,737 420,454
Loss from operations (109,641) (101,076) (3,190) (209,737) (420,454)
Other expenses
Loss from change in fair value of
debt conversion feature – 20,622 37 10,249 30,871
Interest expense 1,386 24,549 1,356 8,955 34,890
Total other expenses 1,386 45,171 1,393 19,204 65,761
Net loss $ (111,027) $ (146,247) $ (4,583) $ (228,941) $ (486,215)
Basic and diluted net loss per share $ (0.07) $ (0.07) $ (0.00) $ (0.07) $
Weighted-average shares used to
compute basic and diluted net loss
per share 1,482,625 2,043,295 1,794,444 3,191,666 2,026,311
Pro forma basic and diluted net loss
per share $ $
Weighted-average pro forma shares
used to compute basic and diluted
net loss per share

See accompanying notes to financial statements.

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Viking Therapeutics, Inc.


(A Development Stage Company)
Statements of Stockholders’ Equity (Deficit)
Deficit
Notes Accumulated
Receivable During the
Additional from Development
Paid-In Capital Stockholders Stage Total
Common Stock
Shares Amount
Balance, September 24, 2012 – $ – $ – $ – $ – $ –
Issuance of common stock to directors
(founders stock) for services 4,750,000 48 5,501 – – 5,549
Issuance of common stock for services 250,000 2 61 – – 63
Net loss – – – – (111,027) (111,027)
Balance, December 31, 2012 5,000,000 50 5,562 – (111,027) (105,415)
Repurchase of common stock (500,000) (5) (4,995) 2,497 – (2,503)
Issuance of common stock for notes
receivable 700,000 7 6,993 (6,993) – 7
Employee stock-based compensation
expense – – 3,554 – – 3,554
Net loss – – – (146,247) (146,247)
Balance, December 31, 2013 5,200,000 52 11,114 (4,496) (257,274) (250,604)
Repurchase of common stock (200,000) (2) (1,998) 1,998 – (2)
Issuance of performance based common
stock 1,000,000 10 (10) – – –
Employee stock-based compensation
expense – – 904 – – 904
Net loss – – – – (228,941) (228,941)
Balance, March 31, 2014 (unaudited) 6,000,000 $ 60 $ 10,010 $ (2,498) $ (486,215) $(478,643)

See accompanying notes to financial statements.

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Viking Therapeutics, Inc.


(A Development Stage Company)
Statements of Cash Flows
Cumulative
Period from
For the Period from September 24,
September 24, 2012 Year Ended Three Months Three Months 2012 (Inception)
(Inception) through December 31, Ended Ended through
December 31, 2012 2013 March 31, 2013 March 31, 2014 March 31, 2014
(Unaudited) (Unaudited) (Unaudited)
Cash Flows from Operating
Activities:
Net loss $ (111,027) $ (146,247) $ (4,583) $ (228,941) $ (486,215)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization of discount charged
to interest expense on
convertible notes 1,036 18,392 1,036 6,379 25,807
Change in fair value of debt
conversion feature – 20,622 37 10,249 30,871
Stock issued for services 5,612 3,554 965 904 10,070
Changes in operating assets and
liabilities
Prepaids and other current assets – – – (7,500) (7,500)
Deferred IPO financing costs – – – (189,592) (189,592)
Deposits – (775) – – (775)
Accounts payable 49,013 24,366 1,679 305,657 379,036
Accounts payable – related party 5,016 (4,304) 546 (500) 212
Accrued expenses 350 6,157 320 2,576 9,083
Net cash used in operating
activities (50,000) (78,235) – (100,768) (229,003)
Cash Flows From Financing
Activities:
Proceeds from issuance of common
stock – 7 – – 7
Repurchase of common stock – (2,503) – (2) (2,505)
Proceeds from convertible notes
payable 50,000 260,350 – – 310,350
Net cash provided by (used in)
financing activities 50,000 257,854 – (2) 307,852
Net increase (decrease) in cash – 179,619 – (100,770) 78,849
Cash, beginning of period – – – 179,619 –
Cash, end of period $ – $ 179,619 $ – $ 78,849 $ 78,849
Supplemental disclosure of cash flow
information
Cash paid during the year for:
Interest $ – $ – $ – $ – $ –
Income taxes $ – $ – $ – $ – $ –

Supplemental Disclosure of Non-Cash Transactions


During the year ended December 31, 2013, the Company issued shares of its common stock in exchange for $4,496 in notes receivable
and repurchased common stock through a reversal of previously recorded notes receivable. During the three months ended March 31,
2014, the Company repurchased common stock through a reversal of previously recorded notes receivable in the amount of $1,998. In
addition, there was a non-cash increase in the discount on notes payable of $8,249 and $42,747 for the period from September 24, 2012
(Inception) to December 31, 2012 and for the year ended December 31, 2013, respectively.

See accompanying notes to financial statements.

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Viking Therapeutics, Inc.


(A Development Stage Company)
Notes to Financial Statements

1. Organization, Liquidity and Management’s Plan, and Summary of Significant Accounting Policies

(Information as of March 31, 2014 and thereafter and for the three months ended March 31, 2013 and 2014 is unaudited)

The Company

Viking Therapeutics, Inc., a Delaware corporation (the “Company”), is a clinical-stage biopharmaceutical company focused on the
development of novel, first-in-class or best-in-class therapies for metabolic and endocrine disorders.

The Company was incorporated under the laws of the State of Delaware on September 24, 2012 and its principal executive offices are
located in San Diego, CA.

Development Stage

Through March 31, 2014, the Company has devoted substantially all of its efforts to raising capital, building infrastructure and
acquiring rights to intellectual property, and has not realized revenues from its planned principal operations. Accordingly, the Company
is considered to be in the development stage.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements
relate to determining the fair value of the debt conversion liability and accounting for certain commitments. Actual results could differ
from those estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash. The Company
maintains its cash balances at what it believes are high credit-quality financial institutions. At times, balances at a single financial
institution may exceed federally insured limits of $250,000.

Liquidity and Management’s Plan

As of March 31, 2014, the Company did not have sufficient working capital to fund its planned operations without additional
financing. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying
financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting
contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business. A successful
transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support the
Company’s cost structure. In order to continue its operations, the Company must raise additional funds through equity or debt
financings or generate revenues from collaborative partners. There can be no assurance that the Company will be able to obtain
additional equity or debt financing on terms acceptable to the Company, or at all. If the Company is unable to obtain sufficient funding,
it may be required to significantly curtail its planned operations, which may have a material, adverse impact on its ability to continue as
a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be forced to take any such actions.

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Unaudited Interim Financial Statements

The financial statements as of March 31, 2014, for the three months ended March 31, 2013 and 2014, and for the cumulative period
from September 24, 2012 (Inception) through March 31, 2014 are unaudited. The unaudited financial statements have been prepared on
the same basis as the audited financial statements and, in the opinion of management, include all adjustments, consisting of normal
recurring adjustments, considered necessary to state fairly the financial information set forth therein, in accordance with GAAP.

The results of operations for the unaudited interim period ended March 31, 2014 are not indicative of the results which may be reported
for the year ending December 31, 2014.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts payable, debt and its related debt conversion feature liability. The
carrying amount reported in the accompanying balance sheets for cash and accounts payable approximates fair value because of the
short-term maturity of those instruments. The Company’s convertible notes are convertible into capital stock, and this debt conversion
feature (see Note 2) has been recorded as a liability based on “Level 3” fair value inputs, which consist of unobservable inputs and
generally reflect management’s estimate of assumptions that market participants would use in pricing the liability. The fair value of the
debt conversion feature required management to make assumptions about the probability of the occurrence of a Qualifying Financing
and the convertible notes being converted based on the applicable conversion terms. Alternate probabilities would have resulted in
increases or decreases in the fair value of the debt conversion feature. The Company did not have any assets or liabilities categorized as
Level 1 or Level 2 in the fair value hierarchy as of December 31, 2012, December 31, 2013 or March 31, 2014. There have been no
changes in the methodologies used at December 31, 2012, December 31, 2013 or March 31, 2014.

The fair values of the Company’s financial instruments are presented below:

December 31, December 31, March 31,


2012 2013 2014
(Unaudited)
Liabilities
Debt Conversion Feature (Level 3) $ 8,286 $ 71,655 $ 81,904
Total Liabilities Measured at Fair Value $ 8,286 $ 71,655 $ 81,904

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The table below presents a summary of changes in the Company’s debt conversion feature measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) for the period from September 24, 2012 (Inception) through March 31, 2014:

Balance at September 24, 2012 (Inception) $ –


Additions 8,249
Adjustments Resulting from Changes
In Fair Value Recognized in Earnings 37
Balance at December 31, 2012 8,286
Additions 42,747
Adjustments Resulting from Changes
In Fair Value Recognized in Earnings 20,622
Balance at December 31, 2013 71,655
Adjustments Resulting from Changes
In Fair Value Recognized in Earnings 10,249
Balance at March 31, 2014 (unaudited) $81,904

Revenue Recognition

The Company has not recorded any revenues since its inception. However, in the future the Company may enter into collaborative
research and licensing agreements, under which the Company could be eligible for payments made in the form of upfront license fees,
research funding, cost reimbursement, contingent event-based payments and royalties.

Revenue from upfront, nonrefundable license fees is recognized over the period that any related services are to be provided by the
Company. Amounts received for research funding are recognized as revenue as the research services that are the subject of such
funding are performed. Revenue derived from reimbursement of research and development costs in transactions where the Company
acts as a principal are recorded as revenue for the gross amount of the reimbursement, and the costs associated with these
reimbursements are reflected as a component of research and development expense in the statements of operations.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605-28, Revenue Recognition –
Milestone Method (“ASC 605-28”), established the milestone method as an acceptable method of revenue recognition for certain
contingent event-based payments under research and development arrangements. Under the milestone method, a payment that is
contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is
achieved. A milestone is an event (1) that can be achieved based in whole or in part on either the Company’s performance or on the
occurrence of a specific outcome resulting from the Company’s performance, (2) for which there is substantive uncertainty at the date
the arrangement is entered into that the event will be achieved, and (3) that would result in additional payments being due to the
Company. The determination that a milestone is substantive is judgmental and is made at the inception of the arrangement. Milestones
are considered substantive when the consideration earned from the achievement of the milestone is (a) commensurate with either the
Company’s performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome
resulting from the Company’s performance to achieve the milestone, (b) relates solely to past performance, and (c) is reasonable
relative to all deliverables and payment terms in the arrangement.

F-8

https://www.sec.gov/Archives/edgar/data/1607678/000119312514257855/d711611ds1.htm 173/196
11/25/2019 S-1 Filed 09/30/20 Page 21 of 21
Case 1:18-cv-11926-PBS Document 127-19

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on July 1, 2014.

VIKING THERAPEUTICS, INC.

By: /s/ Brian Lian, Ph.D.


Brian Lian, Ph.D.
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian
Lian, Ph.D. and Michael Dinerman, M.D., and each of them, as his true and lawful attorneys-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Registration Statement on
Form S-1 of Viking Therapeutics, Inc., and any or all amendments (including post-effective amendments) thereto and any new
registration statement with respect to the offering contemplated thereby filed pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agent, or
his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated.

Signature Title Date

/s/ Brian Lian, Ph.D. President, Chief Executive Officer and Director July 1, 2014
Brian Lian, Ph.D. (Principal Executive Officer)

/s/ Michael Morneau Chief Financial Officer July 1, 2014


Michael Morneau (Principal Accounting and Financial Officer)

/s/ Matthew W. Foehr Director July 1, 2014


Matthew W. Foehr

/s/ Lawson Macartney, DVM, Ph.D. Director July 1, 2014


Lawson Macartney, DVM, Ph.D.

/s/ Matthew Singleton Director July 1, 2014


Matthew Singleton

/s/ Stephen W. Webster Director July 1, 2014


Stephen W. Webster

II-8

https://www.sec.gov/Archives/edgar/data/1607678/000119312514257855/d711611ds1.htm 194/196
Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 1 of 19
BRIAN LIAN, PH.D. December 12, 2019

United States District Court


District of Massachusetts

Securities and Exchange )


Commission, )
Plaintiff, ) 1:18-cv-11926-PBS
v. )
Gregory Lemelson and Lemelson )
Capital Management, LLC, )
Defendants, )
and )
The Amvona Fund, LP, )
Relief Defendant. )
_________________________________

30(b)(6) Video Deposition of VIKING THERAPEUTICS INC.


BRIAN LIAN, PH.D.
San Diego, California
December 12, 2019

Reported by:
Veronica S. Thompson
CSR 6056, RPR, CRR, CCRR
KEY Discovery

KEY Discovery 617-348-9360


Deposition Services WWW.KEY-DISCOVERY.COM
Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 2 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 2
United States District Court
District of Massachusetts

Securities and Exchange )


Commission, )
Plaintiff, ) 1:18-cv-11926-PBS
v. )
Gregory Lemelson and Lemelson )
Capital Management, LLC, )
Defendants, )
and )
The Amvona Fund, LP, )
Relief Defendant. )
_________________________________

30(b)(6) Video Deposition of VIKING THERAPEUTICS INC.


BRIAN LIAN, PH.D.,
was taken on behalf of Defendants at 600 West Broadway,
Suite 300, San Diego, California 92101, commencing at
11:10 AM and ending at 3:50 PM, on Thursday,
December 12, 2019, before Veronica S. Thompson,
CSR 6056.

KEY Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 3 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 3
APPEARANCES

For Plaintiff:
U.S. Securities and Exchange Commission
By: Alfred A. Day, Sr. Trial Counsel
33 Arch Street
Boston, Massachusetts 02110
617-573-4537
daya@sec.gov

For Defendants:
Libby Hoopes
By: Douglas A. Brooks, Esq.
399 Boylston Street
Boston, Massachusetts 02116
617-338-9300
dbrooks@libbyhoopes.com

For Ligand Pharmaceuticals, John Higgins, and Viking


Therapeutics:

Cahill Gordon & Reindel LLP


By: Sean P. Tonolli, Esq.
By: Bradley J. Bondi, Esq.
By: William C. McCaughey, Esq.
1990 K Street, N.W., Suite 950
Washington, D.C. 20006
202-862-8900
stonolli@cahill.com
bbondi@cahill.com
wmccaughey@cahill.com
Also Present:
Fr. Emmanuel Lemelson
Videographer:
Daniel Bermudez, KEY Discovery

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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 4 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 4
INDEX

EXAMINATION PAGE

By Mr. Brooks 7

Lunch recess 52

By Mr. Day 136

EXHIBITS

NUMBER DESCRIPTION PAGE

Exhibit 159 Subpoena to Viking Therapeutics Inc. 9

Exhibit 160 Ligand-Viking Master License 52

Agreement

Exhibit 161 06/18/14 email from Jeffrey Riedler, 94

SEC, to Brian Lian;

VKTX_0001058-0001064

Exhibit 162 07/31/14 memo from Liang Zhao to 102

Ligand Pharmaceuticals;

LGND_0041028-0041031

Exhibit 163 Email string ending 04/20/17 from 109

Steven Vertucci to Brian Lian;

VKTX_0000386-0000387

Exhibit 164 Email string ending 04/08/14 from 111

Steve Rapattoni to Brian Lian;

VKTX_0000278-0000289

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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 5 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 5
Exhibit 165 Email string ending 05/02/14 from 119

Michael Morneau to Brian Lian;

VKTX_0000422

Exhibit 166 Email string ending 05/08/14 from 124

Steve Brian Lian to Matt Foehr;

LGND_0074148-0074149

FIRST REFERENCE TO PREVIOUSLY MARKED EXHIBITS

NUMBER PAGE LINE

Exhibit 117 97 23

Exhibit 118 60 9

Exhibit 119 108 22

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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 6 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 6
SAN DIEGO, CALIFORNIA, DECEMBER 12, 2019, 11:10 AM

VIDEOGRAPHER: We are now on the record.

Today's date is December 12, 2019, and the time is

11:10 AM. This is the video deposition of Brian Lian

being taken in the matter of SEC versus Lemelson Capital

Management LLC pending in the United States District

Court, District of Massachusetts.

We are at Aptus Court Reporting, San Diego.

My name is Daniel Bermudez of Aptus Court Reporting

located at 600 West Broadway, Suite 300, in San Diego,

California 92101.

Will counsel please identify yourselves and

state whom you represent.

MR. BROOKS: Doug Brooks, Libby Hoopes, and I

represent the defendants in this matter.

MR. DAY: Al Day for the plaintiff, the

Securities and Exchange Commission.

MR. McCAUGHEY: William McCaughey, Cahill

Gordon & Reindel, on behalf of Viking Therapeutics and

the witness.

MR. BONDI: Brad Bondi, Cahill Gordon &

Reindel, on behalf of Viking Pharmaceuticals and the

witness.

MR. TONOLLI: Sean Tonolli of Cahill Gordon &

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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 7 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 7
1 Reindel on behalf of Mr. Lian and Viking Therapeutics.
2 MR. BONDI: Excuse me. Viking Therapeutics.

3 VIDEOGRAPHER: The court reporter is Veronica

4 Thompson, and she may now swear in the witness.

5 BRIAN LIAN,
6 having been duly sworn, testified as follows:

7 EXAMINATION
8 BY MR. BROOKS:

9 Q. Can I ask you to state your name for the


10 record to make sure I pronounce it correctly.

11 A. Yes. Brian Lian.

12 Q. Mr. Lian, my name is Doug Brooks. We met

13 briefly off the record. I represent the defendants in

14 this matter.

15 Have you ever been deposed before?

16 A. No.

17 Q. Have you ever testified in any other


18 litigation?

19 A. No.

20 Q. Just a few ground rules since you've never

21 been deposed.
22 You and I should do our best, and I'll do my

23 best, not to talk over each other because it's hard for
24 the stenographer to get it down. All responses should

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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 8 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 56
1 met with the SEC in 2015?

2 A. No, not in any particular way. My

3 understanding of Ligand and the SEC was that something

4 may proceed with the SEC, and that was it, but nothing,

5 like -- beyond that.

6 Q. Do you recall when you first heard of

7 Fr. Lemelson?

8 A. It was in the summer of 2014.

9 Q. Okay. Are you aware that Fr. Lemelson wrote

10 certain reports about Ligand?

11 A. I'm aware of one report that referenced

12 Viking, and that was in July.

13 Q. Is that the only report of Fr. Lemelson's that

14 you're aware of?

15 A. Yes. That's the only one I know of, yeah.

16 Q. Okay. Have you read that report?

17 A. I -- I read a SeekingAlpha summary of it. I

18 don't know if that was the actual report or not, but

19 then Cahill brought a copy of portions of it.

20 MR. TONOLLI: Object and instruct the witness

21 not to answer what you -- discussions with your

22 attorneys or what documents may or may not have been

23 shown to you.

24 ///

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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 9 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 76
1 that it was part of the risk language. We certainly had

2 personnel who were skilled at execution of clinical

3 trials.

4 Q. If you turn to page 17 --

5 A. Uh-huh.

6 Q. -- you'll see the bold language on that page.

7 It begins, "We intend to rely on third parties to

8 conduct our preclinical studies and clinical trials and

9 perform other tasks for us." Do you know why that

10 language was included in the S-1?

11 A. Yeah. I think that's a very standard element

12 of the entire biotechnology industry. The model to hire

13 contractors to conduct preclinical and clinical work

14 is -- it's just very standard across the industry, so --

15 Q. Does Ligand include dis- -- that type of

16 disclosure in any of their public filings?

17 MR. TONOLLI: Objection. Lacks foundation.

18 MR. DAY: Objection.

19 THE WITNESS: I don't know.

20 BY MR. BROOKS:

21 Q. Who were the third parties being referred to

22 in that sentence that we just read?

23 A. So it would be any contractor that's hired to

24 conduct any particular assay. So if it's a -- if it's

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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 10 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 77
1 manufacturing of drug product, it would be that
2 manufacturer. If it's conducting some assay -- so

3 there's a -- I mean, it's a very large bucket of

4 vendors.

5 Q. As of July 1, 2014, when this was filed, did


6 Viking intend to conduct any preclinical studies or

7 clinical trials in-house?


8 MR. DAY: Objection.

9 THE WITNESS: So the model of Viking, and


10 75 percent of the industry, is to hire third parties to

11 conduct their experiments. We never intended to build

12 wet labs because we have vendors that can do that much

13 more cost effectively. And we had discussions with

14 them, and we were moving forward with those plans.

15 BY MR. BROOKS:

16 Q. Do you remember the names of any of those

17 vendors?
18 A. The names that -- sure. The -- WuXi had

19 manufactured drug. Patheon had manufactured drug.

20 Charles River Labs had done some animal testing. Yeah,

21 I mean, there's -- I don't know how -- very many


22 companies had been engaged previously, yes.

23 Q. By whom? Who had engaged them?


24 A. Metabasis, Ligand. We were -- upon funding,

KEY Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 11 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 129
1 VIDEOGRAPHER: We're on the record at 3:30 PM.

2 BY MR. BROOKS:

3 Q. Mr. Lian, have you ever spoken with any Viking

4 investors about Fr. Lemelson?

5 A. No. Not really, no. And I'm saying that kind

6 of vaguely that -- I -- I'm remembering on the IPO we

7 would occasionally get questions about the report, so it

8 was not really about a person there.

9 Q. All right. Let me broaden the question.

10 Have you ever spoken with any Viking investors

11 about Fr. Lemelson's reports?

12 A. Really only to the extent of someone mentions

13 they'd seen it, and that's about it. Not in a -- any

14 sort of depth.

15 Q. Do you believe Fr. Lemelson has caused any

16 harm to Viking's stock price?

17 A. Viking was private when the first report

18 was -- well, when the report that I'm aware of was

19 issued. And I don't know of the other reports or what

20 other things have been published that would be damaging

21 to Viking.

22 Q. Have you ever spoken with any Ligand investor

23 about Fr. Lemelson or his reports?

24 A. Yes. I -- it -- I may have been made aware of

KEY Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 12 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 130
1 the initial report from someone at Ligand, but I just

2 can't remember who flagged that to me because it was

3 right after our test-the-waters meeting, and then maybe

4 once, just in small talk, asked if anything ever came of

5 that report or something like that to Matt Foehr who was

6 on our board.

7 Q. What did Mr. Foehr say in response?

8 A. Nothing substantive that I can remember, just

9 that the SEC may pursue some action there or something.

10 It's just nothing -- it was kind of the small talk

11 during a break of our board meeting.

12 Q. When was that board meeting?

13 A. Oh, I don't recall when that conversation

14 occurred, no.

15 Q. Do you recall what year?

16 A. No, I don't actually. No.

17 Q. Okay.

18 A. It wasn't this year.

19 Q. When -- do you recall reading the July 2014

20 report that Fr. Lemelson wrote?

21 A. No. I recall -- I don't think I ever read the

22 actual report. That SeekingAlpha story that I had

23 was -- I don't think it was a report. I think it was a

24 summary of the report. Maybe it was in there, but

KEY Discovery 617-348-9360


Deposition Services WWW.KEY-DISCOVERY.COM
Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 13 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 131
1 that's what I saw.

2 Q. What was your reaction to reading the summary

3 of the report?

4 A. Well, I just thought that it was -- many items

5 were presented as fact and they were demonstrably false.

6 And many things that were -- technically maybe had a

7 shade of truth were misrepresented very badly to skew an

8 interpretation, I think, unreasonably.

9 Q. Did you do anything in response to having read

10 the SeekingAlpha summary of Fr. Lemelson's July 2014

11 report?

12 A. I may have forwarded it to my team and just --

13 you know, in case somebody -- just to give them a

14 heads-up in case somebody were to ask them about it, but

15 that's probably as -- you know, that's really the extent

16 of it, yeah.

17 Q. Did you have any follow-up discussions at all

18 with your team about Fr. Lemelson's July 2014 report?

19 A. Not that I can recall.

20 Q. Did anyone on your team express concern over

21 that report?

22 A. No, no. I don't think -- I don't think I

23 received any responses to the message that I sent.

24 Q. Were you concerned about Fr. Lemelson's

KEY Discovery 617-348-9360


Deposition Services WWW.KEY-DISCOVERY.COM
Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 14 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 132
1 July 2014 report?

2 A. I wasn't particularly because it was so poorly

3 sort of put together. You know, it's like somebody

4 writing, you know, "Brian Lian has green hair." I mean,

5 obviously I don't, and so I'm not going to worry about

6 that. You know, it's just ridiculous.

7 Q. Have you ever heard of the accounting

8 principle substance over form?

9 A. No.

10 Q. Were you aware that Ligand booked $28 million

11 on its income statement as a result of the Viking IPO?

12 MR. DAY: Objection.

13 THE WITNESS: I don't know how Viking -- or

14 how Ligand booked this transaction.

15 BY MR. BROOKS:

16 Q. Were any products -- did any products or

17 services change hands upon Viking's IPO?

18 MR. TONOLLI: Objection. Vague.

19 THE WITNESS: Had any products or services

20 changed hands?

21 BY MR. BROOKS:

22 Q. Yeah.

23 A. Between whom?

24 Q. Between -- start with between Viking and

KEY Discovery 617-348-9360


Deposition Services WWW.KEY-DISCOVERY.COM
Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 15 of 19

·1· · · · · · I, the undersigned, a Certified Shorthand

·2· Reporter of the State of California, do hereby certify:

·3· · · · · · That the foregoing proceedings were taken

·4· before me at the time and place herein set forth; that

·5· any witnesses in the foregoing proceedings, prior to

·6· testifying, were duly sworn; that a record of the

·7· proceedings was made by me using machine shorthand,

·8· which was thereafter transcribed by me; that the

·9· foregoing is a true record of the testimony given.

10· · · · · · Further, that if the foregoing pertains to the

11· original transcript of a deposition in a federal case,

12· before completion of the proceedings, review of the

13· transcript [ X ] was [· ] was not requested.

14· · · · · · I further certify I am neither financially

15· interested in the action nor a relative or employee of

16· any attorney or party to this action.

17· · · · · · In witness whereof, I have this date

18· subscribed my name.

19

20· Dated:· December 27, 2019

21

22

23
· · · · · · · ____________________________
24· · · · · · Veronica S. Thompson
· · · · · · · CSR 6056, RPR, CRR, CCRR
Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 16 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 140
1 DECLARATION UNDER PENALTY OF PERJURY

3 Case Name: SEC v. Lemelson

4 Date of Deposition: 12/12/19

5 KEY Discovery Job

7 I, BRIAN LIAN, PH.D., hereby certify under

8 penalty of perjury under the laws of the State of

9 ________________ that the foregoing is true and correct.

10 Executed this _____ day of __________________,

11 20______, at ______________________.

12

13

14 ____________________________

15 BRIAN LIAN, PH.D.

16

17

18

19

20

21

22

23

24

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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 17 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 141
1 DEPOSITION ERRATA SHEET

2 Case Name: SEC v. Lemelson

3 Name of Witness: BRIAN LIAN, PH.D.

4 Date of Deposition: 12/12/19

5 KEY Discovery Job

6 Reason Codes: 1. To clarify record.

7 2. To conform to facts.

8 3. To correct transcription errors.

10 Page ______ Line ______ Reason ______

11 From _______________________ to ________________________

12 Page ______ Line ______ Reason ______

13 From _______________________ to ________________________

14 Page ______ Line ______ Reason ______

15 From _______________________ to ________________________

16 Page ______ Line ______ Reason ______

17 From _______________________ to ________________________

18 Page ______ Line ______ Reason ______

19 From _______________________ to ________________________

20 Page ______ Line ______ Reason ______

21 From _______________________ to ________________________

22 Page ______ Line ______ Reason ______

23 From _______________________ to ________________________

24 Page ______ Line ______ Reason ______

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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 18 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 142
1 From _______________________ to ________________________

2 Page ______ Line ______ Reason ______

3 From _______________________ to ________________________

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5 From _______________________ to ________________________

6 Page ______ Line ______ Reason ______

7 From _______________________ to ________________________

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9 From _______________________ to ________________________

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21 From _______________________ to ________________________

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23 From _______________________ to ________________________

24 ______ Subject to the above changes, I certify that the

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Case 1:18-cv-11926-PBS Document 127-20 Filed 09/30/20 Page 19 of 19
BRIAN LIAN, PH.D. December 12, 2019

Page 143
1 transcript is true and correct.

2 ______ No changes have been made. I certify that the

3 transcript is true and correct.

5 ___________ __________________________________________

6 Date Brian Lian, Ph.D.

10

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KEY Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-21 Filed 09/30/20 Page 1 of 22
JOHN HIGGINS December 11, 2019

United States District Court


District of Massachusetts

Securities and Exchange )


Commission, )
Plaintiff, ) 1:18-cv-11926-PBS
v. )
Gregory Lemelson and Lemelson )
Capital Management, LLC, )
Defendants, )
and )
The Amvona Fund, LP, )
Relief Defendant. )
_________________________________

Highly Confidential
30(b)(6) Video Deposition of LIGAND PHARMACEUTICALS
JOHN HIGGINS
San Diego, California
December 11, 2019

Reported by:
Veronica S. Thompson
CSR 6056, RPR, CRR, CCRR
KEY Discovery Job 371

Key Discovery 617-348-9360


Deposition Services WWW.KEY-DISCOVERY.COM
Case 1:18-cv-11926-PBS Document 127-21 Filed 09/30/20 Page 2 of 22
JOHN HIGGINS December 11, 2019

Page 2
United States District Court
District of Massachusetts

Securities and Exchange )


Commission, )
Plaintiff, ) 1:18-cv-11926-PBS
v. )
Gregory Lemelson and Lemelson )
Capital Management, LLC, )
Defendants, )
and )
The Amvona Fund, LP, )
Relief Defendant. )
_________________________________

Highly Confidential
30(b)(6) Video Deposition of Ligand Pharmaceuticals
JOHN HIGGINS
was taken on behalf of Defendants at 600 West Broadway,
Suite 300, San Diego, California 92101, commencing at
9:03 AM and ending at 7:03 PM, on Wednesday,
December 11, 2019, before Veronica S. Thompson,
CSR 6056.

Key Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-21 Filed 09/30/20 Page 3 of 22
JOHN HIGGINS December 11, 2019

Page 3
APPEARANCES

For Plaintiff:
U.S. Securities and Exchange Commission
By: Alfred A. Day, Sr. Trial Counsel
33 Arch Street
Boston, Massachusetts 02110
617-573-4537
daya@sec.gov

For Defendants:
Libby Hoopes
By: Douglas A. Brooks, Esq.
399 Boylston Street
Boston, Massachusetts 02116
617-338-9300
dbrooks@libbyhoopes.com

For Ligand Pharmaceuticals, John Higgins, and Viking


Therapeutics:

Cahill Gordon & Reindel LLP


By: Bradley J. Bondi, Esq.
By: Sean P. Tonolli, Esq.
By: William C. McCaughey, Esq.
1990 K Street, N.W., Suite 950
Washington, D.C. 20006
202-862-8900
bbondi@cahill.com
stonolli@cahill.com
wmccaughey@cahill.com
Also Present:
Fr. Emmanuel Lemelson
Videographer:
Daniel Bermudez, KEY Discovery

Key Discovery 617-348-9360


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Case 1:18-cv-11926-PBS Document 127-21 Filed 09/30/20 Page 4 of 22
JOHN HIGGINS December 11, 2019

Page 4
INDEX

EXAMINATION PAGE

By Mr. Brooks 9

Lunch recess 147

EXHIBITS

NUMBER DESCRIPTION PAGE

Exhibit 138 Slide Deck, Board of Directors 53

Meeting, 09/18/13;

LGND_0078931-0079032

Exhibit 139 04/02/14 email from Glenn Dourado to 70

Jinzi Wu; LGND_0022935-0022947

Exhibit 140 01/04/13 email from Matt Foehr to 77

Steven Pessagno; LGND_000190-000198

Exhibit 141 08/02/13 Ligand Update by Cantor 82

Fitzgerald; LGND_009625-009633

Exhibit 142 Email string ending 06/24/14 from 94

John Higgins to Debbie Schneider;

LGND_0037632-36633

Exhibit 143 Email chain ending 07/20/14 from John 186

Higgins to Matt Foehr and Nishan de

Silva; LGND_0000051-0000053

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Case 1:18-cv-11926-PBS Document 127-21 Filed 09/30/20 Page 5 of 22
JOHN HIGGINS December 11, 2019

Page 5
Exhibit 144 Email string ending 10/28/15 from 203

Charles Berkman, etc.; LGND_0001322

Exhibit 145 Email string ending 03/18/16 from 209

Matthew Korenberg to Todd Pettingill

and Bruce Voss;

LCM_SEC0001360-0001361

Exhibit 146 Ligand Presentation to the SEC, 211

09/25/14; LGND_0080678-0080737

Exhibit 147 Ligand Presentation to the SEC, 259

06/08/15; LGND_0080738-0080799

Exhibit 148 Email string ending 09/02/14 from 301

Erika Luib to Matt Foehr;

LGND_0041839-0041841

Exhibit 149 Email string ending 06/20/14 from 330

John Higgins to Matthew Perry;

LGND_00375666

Exhibit 150 Email string ending 07/07/14 from 333

Matt Foehr to John Higgins;

LGND_0039378-0039409

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Case 1:18-cv-11926-PBS Document 127-21 Filed 09/30/20 Page 6 of 22
JOHN HIGGINS December 11, 2019

Page 6
FIRST REFERENCE TO PREVIOUSLY MARKED EXHIBITS

NUMBER PAGE LINE

Exhibit 4 85 4

Exhibit 75 97 22

Exhibit 76 108 2

Exhibit 77 122 4

Exhibit 79 125 10

Exhibit 80 129 5

Exhibit 84 148 4

Exhibit 85 149 12

Exhibit 88 161 17

Exhibit 89 160 23

Exhibit 90 161 17

Exhibit 91 162 20

Exhibit 96 165 19

Exhibit 98 173 16

Exhibit 99 179 6

Exhibit 100 183 2

Exhibit 104 194 17

Exhibit 114 200 13

Exhibit 116 12 12

Exhibit 117 324 11

Exhibit 128 64 19

Exhibit 133 132 19

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Case 1:18-cv-11926-PBS Document 127-21 Filed 09/30/20 Page 7 of 22
JOHN HIGGINS December 11, 2019

Page 7
QUESTIONS INSTRUCTED NOT TO ANSWER
PAGE LINE
217 10
271 17
282 7
320 20

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Case 1:18-cv-11926-PBS Document 127-21 Filed 09/30/20 Page 8 of 22
JOHN HIGGINS December 11, 2019

Page 8
1 SAN DIEGO, CALIFORNIA, DECEMBER 11, 2019, 9:03 AM

2 VIDEOGRAPHER: We are now on the record.

3 Today's date is December 11, 2019, and the time is

4 9:04 AM.

5 This is the video deposition of John Higgins

6 being taken in the matter of SEC versus Lemelson Capital

7 Management LLC pending in the United States District

8 Court, District of Massachusetts.

9 We are at Aptus Court Reporting, San Diego.

10 My name is Daniel Bermudez of Aptus Court Reporting

11 located at 600 West Broadway, Suite 300, in San Diego,

12 California 92101.

13 Will counsel please identify yourself and

14 state whom you represent.

15 MR. BROOKS: Yes. Doug Brooks, law firm Libby

16 Hoopes, and I represent the defendants in this matter.

17 MR. DAY: Al Day for the Securities and

18 Exchange Commission.

19 MR. McCAUGHEY: William McCaughey, Cahill

20 Gordon & Reindel on behalf of Ligand Pharmaceuticals and

21 the witness.

22 MR. TONOLLI: Sean Tonolli at Cahill Gordon &

23 Reindel representing John Higgins.

24 MR. BONDI: Brad Bondi of Cahill Gordon &

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Case 1:18-cv-11926-PBS Document 127-21 Filed 09/30/20 Page 9 of 22
JOHN HIGGINS December 11, 2019

Page 9
1 Reindel on behalf of Ligand Pharmaceuticals and

2 Mr. Higgins.

3 VIDEOGRAPHER: The court reporter today is

4 Veronica Thompson, and she may now swear in the witness.

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