UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

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

MEMORANDUM IN SUPPORT OF DEFENDANTS’

MOTION FOR ATTORNEY’S FEES AND COSTS
 Pursuant to the Equal Access to Justice Act (“EAJA”), 28 U.S.C. § 2412(d)(1)(A) &

(d)(1)(D), and Fed. R. Civ. P. 54(d), Defendants Father Emmanuel Lemelson (f/k/a Gregory

Lemelson) and Lemelson Capital Management (collectively, “Fr. Lemelson”) respectfully

submit this memorandum in support of their motion for fees and costs.

Two independent bases exist under the EAJA entitling Fr. Lemelson to recover from the

government the fees and costs he incurred in this litigation. First, Fr. Lemelson was the

“prevailing party” in this litigation, as courts have defined that term under the EAJA, and the

Commission’s position as to the claims on which it lost were not substantially justified. Second,

the Commission’s demands for sanctions since the outset of the litigation were excessive when

compared to the judgment it ultimately obtained.

Indeed, this case is a quintessential example of why Congress enacted the EAJA:

Concerned that the Government, with its vast resources, could force citizens into
acquiescing to adverse Government action, rather than vindicating their rights,
simply by threatening them with costly litigation, Congress enacted the EAJA,
waiving the United States’ sovereign and general statutory immunity to fee
awards and creating a limited exception to the “American Rule” against awarding
attorneys fees to prevailing parties.1

Here, the Commission brought a sprawling Complaint against Fr. Lemelson, and left no

doubt that it centered on a scheme to defraud not only the arms-length investing public but even

Fr. Lemelson’s own investors. The Commission issued a press release simultaneous with the

Complaint, titled, “SEC Charges Hedge Fund Adviser With Short and Distort Scheme.”

(emphasis added). Ultimately, the jury rejected the Commission’s core scheme charge along

with three other claims the Commission levied against Fr. Lemelson. As a former Senior Trial

Counsel and member of the executive staff of the SEC’s Division of Enforcement recently

1
Pierce v. Underwood, 487 U.S. 552, 575 (1988) (Brennan, J., concurring in part and concurring in the judgment).

1
observed: “Not only was the jury unconvinced by the SEC’s showing with regard to

misstatements, the jury outright rejected the SEC’s fraudulent scheme charge; the jury also found

the SEC failed to prove a negligent, reckless, or intentional violation of the Investment Advisors

Act by Lemelson or LCM. . . .The Commission brought the widest array of potential claims

against Lemelson and his company, and his decision to fight he charges paid off.” Similarly,

Law360 declared that Lemelson “largely beat” the Commission’s suit.

Further, at the outset of this case, the Commission demanded what effectively amounted

to an eye-popping $1,300,000 in disgorgement, along with a permanent injunction against Fr.

Lemelson. In its final judgment, the Court awarded the Commission no disgorgement and a

limited injunction of just five years. Notably, the Commission tacitly acknowledged that its

sanction demands were excessive when it failed to cross-appeal the Court’s final judgment.

As set forth below, under the circumstances present here, the EAJA requires the

government to pay the fees and costs incurred by Fr. Lemelson to defend himself against the

government’s unproven claims and wildly excessive sanction demands. Accordingly, Fr.

Lemelson respectfully requests that the Court grant the instant Motion and award fees and

expenses in the amount of $1,789,051.64 (fees of $1,594,159.42 and expenses of $194,892.22).2

PERTINENT FACTUAL BACKGROUND3

In 2014, Fr. Lemelson took a short position in a public company called Ligand

Pharmaceuticals and, exercising his constitutional rights to free speech and press, published five

research reports and conducted multiple radio interviews concerning Ligand and his short

2
Attached to the accompanying affidavit of Douglas S. Brooks are the firm’s invoices up to and including the date
of the Court’s Judgment. Counsel has excluded and redacted the fees and costs for any work not directly related to
defense of this case.
3
Where not otherwise cited, the facts are taken from the trial record.

2
position. In response, Ligand repeatedly lobbied the Commission to bring an enforcement action

against Fr. Lemelson stemming from his commentary about the company.

During the Commission’s pre-litigation investigation, Fr. Lemelson provided the

Commission with a so-called “Wells” submission, explaining in detail the factual and legal

deficiencies of the Commission’s threatened case. See Affidavit of Douglas S. Brooks (DSB

Aff.) ¶ 16. Ignoring Fr. Lemelson’s explanation, the Commission pressed forward undaunted.

On September 12, 2018, more than four years after Fr. Lemelson’s first published report about

Ligand, the Commission filed a Complaint against him alleging (i) most seriously, that Fr.

Lemelson engaged in a systematic scheme to defraud by driving down the price of Ligand’s

stock; (ii) that Fr. Lemelson made a false statement concerning Ligand’s insolvency; (iii) that Fr.

Lemelson made a false statement, not contained in any of his written reports, attributed to

Ligand’s investor relations firm; (iv) that Fr. Lemelson made two false or misleading statements

concerning another company that he never traded in; and (v) two claims under the Advisers’ Act

based on a theory that Fr. Lemelson defrauded his own investors (including one claim charging a

lower negligence standard).4 ECF No. 1.

After Fr. Lemelson demonstrated that his statement concerning Ligand’s insolvency was

demonstrably true—and the Commission’s position to the contrary was based on an unverified

and patently false allegation—the Court dismissed that claim. ECF No. 29. Not to be dissuaded

by the facts, the Commission amended its complaint and alleged that Fr. Lemelson made five

statements about Ligand’s insolvency that while true, were nonetheless misleading. ECF No. 33.

After four years of extensive and costly discovery and motion practice, trial began on

October 26, 2021. Following a seven-day jury trial, the jury reached a verdict that revealed the

4
The Commission packaged the first four of these claims into a single “Claim for Relief” under Section 10(b) of the
Exchange Act in its Complaint. ECF No. 1 at 17.

3
Commission’s monumental overreach. ECF No. 232. Specifically, the jury rejected the

Commission’s core scheme to defraud charge; it rejected the Commission’s claim concerning Fr.

Lemelson’s multiple statements about Ligand’s insolvency; and it rejected the Commission’s

two claims that Fr. Lemelson defrauded his own investors. Id. The jury did find Fr. Lemelson

liable for the remaining three statements. Id.

Under any objective analysis, the verdict represented a substantial loss for the

Commission. As a former member of the executive staff of the SEC’s Division of Enforcement

observed: “Not only was the jury unconvinced by the SEC’s showing with regard to

misstatements, the jury outright rejected the SEC’s fraudulent scheme charge; the jury also found

the SEC failed to prove a negligent, reckless, or intentional violation of the Investment Advisers

Act by either Lemelson or LCM.” DSB Aff. ¶ 12; Ex. 6. Any argument that the Commission’s

case was not centrally focused on its failed scheme claim is laid bare by the Commission’s false

press release, issued minutes after the verdict, in which it fraudulently claimed victory on that

count. DSB Aff. ¶ 14; Ex. 8. Ultimately, having been called out for its misconduct, the

Commission took down this false press release from its website. Id. Nonetheless, hours later,

the Commission sent the same fraudulent press release out to its entire email distribution list,

which undoubtedly included many thousands of industry professionals. Lemelson Aff. ¶ 7.

Despite losing on its core claim, as well as its two Advisers Act claims and its claim

concerning statements about Ligand’s insolvency, after trial, the Commission remained hellbent

on financially ruining Fr. Lemelson. It outrageously sought the most severe penalties available

to it, demanding $2,296,624 ($1,431,500 in civil monetary penalties and $865,124 in

disgorgement), and an order permanently enjoining Fr. Lemelson from future violations of

Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. See ECF No. 245 at 1.

4
The Court recognized the Commission’s overreach and imposed a civil monetary penalty of just

$160,000, limited the Commission’s request for permanent injunctive relief to a period of five

years, and, in a clear and unambiguous rejection of the Commission’s scheme liability claim

(which of course had already been shot down by the jury) the Court ordered no disgorgement.

ECF No. 274. From where it started at the beginning of this lawsuit, the judgment can only be

seen as an embarrassing defeat for the Commission.

The substantial victory Fr. Lemelson achieved, however, came at a heavy price. As with

any defendant whom the Commission targets for an enforcement action, Fr. Lemelson suffered

great and irreparable reputational damage. Additionally, Fr. Lemelson incurred significant

attorneys’ fees and costs associated with defending himself. All for the Commission to recover

less than 7% of the monetary penalties it demanded, none of which included the large

disgorgement amount it sought from the beginning of this case. Under these circumstances, the

EAJA compels the federal government to pay attorneys’ fees and costs.

ARGUMENT

I. Fr. Lemelson was the Prevailing Party Under 28 U.S.C. § 2412(d)(1)(A)

A. The Legal Standard

“The Act requires that a party seeking an award of fees under this section submit an

application establishing: (1) that it is a prevailing party; (2) that it is ‘eligible to receive an

award’; and (3) the amount sought, ‘including an itemized statement from any attorney

representing ... the party.” New Hampshire Hosp. Ass'n v. Azar, No. 15-CV-460-LM, 2019 WL

1406631, at *4 (D.N.H. Mar. 28, 2019) (citing Scarborough v. Principi, 541 U.S. 401 (2004))

(alterations in original).5

5
The EAJA provides that “a party seeking an award of fees and other expenses shall, within thirty days of final
judgment in the action, submit to the court an application for fees and other expenses which shows that the party is a

5
 “Congress enacted the Equal Access to Justice Act to encourage parties to challenge or

defend against unreasonable governmental action.” Schock v. F.D.I.C., 118 F. Supp. 2d 165, 168

(D.R.I. 2000), aff'd sub nom. Schock v. United States, 254 F.3d 1 (1st Cir. 2001). The EAJA

explicitly provides that “a court shall award to a prevailing party ... fees and other expenses ...

unless the court finds that the position of the United States was substantially justified or that

special circumstances make an award unjust.” 28 U.S.C.§ 2412(d)(l)(A) (emphasis added); see

also Castaneda-Castillo v. Holder, 723 F.3d 48, 68 (1st Cir. 2013) (“The Supreme Court has

noted that the word ‘shall’ ordinarily connotes an intention by Congress ‘to impose discretionless

obligations.”); Trinidad v. Secretary of HHS, 935 F.2d 13, 15 (1st Cir. 1991) (holding abuse of

discretion in denying a fee application when the government has not contested prevailing status,

established its position was substantially justified, nor objected to the fee request).6

B. Both Fr. Lemelson and LCM are Eligible Parties Under the EAJA

An eligible party under the EAJA is defined as “(i) an individual whose net worth did not

exceed $2,000,000 at the time the civil action was filed, or (ii) any owner of an unincorporated

business, or any partnership, corporation, association, unit of local government, or organization,

the net worth of which did not exceed $7,000,000 at the time the civil action was filed, and

which had not more than 500 employees at the time the civil action was filed.” See 28 U.S.C. §

prevailing party and is eligible to receive an award under this subsection.” 28 U.S.C. § 2412(d)(1)(B). “Final
judgment” is defined under the statute as “a judgment that is final and not appealable.” 28 U.S.C. § 2412(d)(2)(G).
Fr. Lemelson appealed to the United States Supreme Court, and his petition for writ of certiorari was denied on
December 11, 2023. See Lemelson v. SEC, No. 23-98, 2023 WL 8531892, at *1 (U.S. Dec. 11, 2023). Thus, this
application for fees is timely. Castaneda-Castillo v. Holder, 723 F.3d 48, 66 (1st Cir. 2013) (holding “final
judgment” under the EAJA occurs after deadline for filing petition for certiorari to the Supreme Court).

6
The amount a defendant has or has not paid is not a relevant consideration. The recoverable amount under the
EAJA is what the defendant has incurred, not the amount expended. “The client should be reimbursed for what he
or she has already paid, and the attorney should be compensated for any additional, unpaid labor or costs.” Pablo
Lorenzo v. Barr, 806 F. App'x 431, 436 (6th Cir. 2020) (rejecting argument that only what client paid can be
recovered as attorney’s fees and entitling attorney to unpaid fees).

6
2412(d)(2)(B)). Here, Fr. Lemelson’s affidavit establishes both his and LCM’s eligibility. See

Lemelson Aff. ¶¶ 4-5.

C. Prevailing Party

“The standard to establish that one is a prevailing party is not burdensome.” S.E.C. v.

Berlacher, No. CIV.A. 07-3800, 2012 WL 512201, at *2 (E.D. Pa. Feb. 15, 2012) (concluding a

defendant who received a mixed verdict in a case brought by the Commission was the

“prevailing party” under the EAJA). “The key is a ‘judicially sanctioned change in the legal

relationship of the parties.’” Id. (citing Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep't of

Health & Human Res., 532 U.S. 598, 605 (2001). In Berlacher, after a bench trial, the court

concluded that the defendant “had engaged in two instances of securities fraud, but that there was

insufficient evidence to find him liable on two other counts of fraud and one count of insider

trading.” Id. at *1. The court concluded that because ‘the Applicants were the beneficiaries of

such a change with respect to” a portion of the SEC’s claims in the litigation, “the Applicants

prevailed on those issues within the meaning of the EAJA.” Id. at *2 n.4.

Under this framework, there can be no dispute that Fr. Lemelson satisfies the prevailing

party standard of the EAJA. The Commission’s case centered on its allegation that Fr. Lemelson

engaged in a scheme to defraud by driving down the price of Ligand’s stock. Notably,

simultaneous with the filing of its Complaint, the Commission issued a press release, titled “SEC

Charges Hedge Fund Adviser With Short-and-Distort Scheme.”7 The first paragraph of the

release read: “The Securities and Exchange Commission today charged a hedge fund adviser and

his investment advisory firm with illegally profiting from a scheme to drive down the price of

7
See Press Release, SEC Charges Hedge Fund Adviser With Short-and-Distort Scheme, SECURITIES &
EXCHANGE COMMISSION, (Sept. 12, 2018), https://www.sec.gov/news/press-release/2018-190. See DSB
Aff. ¶ 15; Ex. 9.

7
San Diego-based Ligand Pharmaceuticals Inc., reaping more than $1.3 million of gains for the

adviser and the hedge fund.” Id. (emphasis added). The jury flatly rejected all these allegations.

The same press release also focuses on the insolvency statements that the jury rejected, and

importantly makes no mention of the two statements for which Fr. Lemelson was found liable

related to a different company he did not trade in.

Notably, the Commission was apparently so disconsolate that it lost its highly touted

scheme to defraud claim, that despite the jury’s verdict, the Commission falsely claimed victory

in a widely discredited and since-taken-down press release it issued on the day of the verdict.

See DSB Aff. ¶ 14; Ex. 8. After it took down the false release, however, it syndicated the false

statements again in an email to its entire distribution list. Lemelson Aff. ¶ 7. The media that

followed the trial called out the Commission’s false claims. “The SEC’s comments on the

verdict might confuse the historical record. Its press release headline reads: ‘SEC Wins Jury

Trial Against Hedge Fund Adviser Who Ran Manipulative Short Scheme.’ But the jury’s very

first vote was a finding that the agency didn’t prove its allegations of a ‘scheme.’” DSB Aff. ¶

9; Ex. 3.

The jury also rejected the Commission’s two incendiary claims arising under the

Advisers Act that Fr. Lemelson defrauded his own investors and its claims that he made a series

of misleading statements about Ligand’s insolvency. The jury found liability on only two stray

statements about another company and a 1.5 second oral comment not contained in any of Fr.

Lemelson’s reports attributed to Ligand’s investor relations firm. Not surprisingly, objective

global media outlets have declared Fr. Lemelson the victor. See, e.g., DSB Aff. ¶ 10; Ex. 4

(Law 360 article recognizing that Fr. Lemelson “largely beat a U.S. Securities & Exchange

Commission suit.”) (emphasis added).

8
 D. Substantial Justification

Once a party establishes that it is eligible and a “prevailing party” under the EAJA, the

burden shifts to the government to prove “that its position was substantially justified by a

preponderance of the evidence.” United States v. Yoffe, 775 F.2d 447 (1st Cir. 1985); see also

Scarborough, 541 U.S. at 403 (“the allegation functions to shift the burden to the Government to

prove that its position in the underlying litigation ‘was substantially justified’”).

“The government's position will be substantially justified where it had a reasonable basis

both in law and in fact.” Berishev v. Chertoff, 486 F. Supp. 2d 202, 206 (D. Mass. 2007) (citing

Pierce, 487 U.S. at 563) (internal quotations omitted). “The test for whether the government

meets this standard is essentially one of reasonableness.” Id. (internal quotations omitted). “The

test breaks down into three parts: did the government have a reasonable basis for the facts

alleged; did it have a reasonable basis in law for the theories advanced; and did the facts support

its theory.” Yoffe, 775 F.2d at 450.

Further, the government “is not exempted from liability under the EAJA merely because

it prevailed at some interim point in the judicial process.” Sierra Club v. Sec'y of Army, 820 F.2d

513, 517 (1st Cir. 1987). “The most powerful indicator of the reasonableness of an ultimately

rejected position is a decision on the merits and the rationale which supports that decision.”

S.E.C. v. Zahareas, 374 F.3d 624, 626–27 (8th Cir. 2004). “The government must show ‘that it

acted reasonably at all stages of the litigation.’” Id. (emphasis added). Therefore, the

government must “abandon its opposition to the other party as soon as it becomes apparent that

its litigation position is not substantially justified.” Envtl. Defense Fund, Inc. v. Watt, 722 F.2d

1081, 1086 (2d Cir.1983). The Commission cannot meet that burden here.

9
 1. The Commission’s Scheme Liability Theory Lacked Substantial
Justification Because It Lacked All the Necessary Evidence and was
Legally Unsound

The Commission had never before brought a short-and-distort scheme to defraud case

remotely resembling this one. And for good reason. At all times throughout this litigation, it

should have been crystal clear to the Commission that its case lacked all the hallmarks of a true

short-and-distort scheme because there was no evidence supporting such a scheme. Indeed, the

Court itself recognized the lack of justification supporting the failed scheme claim when, during

jury deliberations, it remarked: “This is why I’ve always said this [scheme claim] was an

underdeveloped piece of your case other than misstatements….” ECF No. 257 at 9-10. It is

therefore not surprising that the jury rejected the Commission’s core theory of liability.

Once again, neutral observers have weighed in on this issue and questioned the

Commission’s logic in pursuing this case centered around an alleged scheme to defraud. “Many

companies sue critics, but it’s unusual for the SEC to go after a money manager who publicly

discussed why they are short a stock.” DSB Aff. ¶ 8; Ex. 2.

At least four separate and independent bases exist that clearly demonstrate the

Commission’s failed scheme claim was never substantially justified.

First, Fr. Lemelson disclosed his short position in all five of his reports totaling 56 pages

and in multiple radio interviews. “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, courts have found that identifying a short position or other conflict of interest, and fulsome

10
disclosures generally, militate against liability for alleged securities violations. See, e.g.,

Aurelius v. Bofl Fed. Bank, 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”). At minimum, as the jury

apparently recognized, such repeated disclosures are antithetical to a scheme to defraud.

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

engaging in a scheme to defraud would never do and something unique to this failed scheme

case. 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). As Columbia Law professor Joshua Mitts, who has studied activist short

sellers, and has worked as a consultant to both the Commission and the Department of Justice,

observed to Barron’s: “This sort of case is very infrequent.” DSB Aff. ¶ 8; Ex. 2 (“In four

[short-and-distort] cases filed by the SEC in the last two decades, the agency charged traders

with spreading negative rumors while hiding their identities and then quickly exiting their short

positions, according to the case records.”) (emphasis added).

11
 Third, the Commission typically establishes scienter in a short-and-distort scheme 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)

(Commission alleged defendant acted intentionally because he sold short 10,000 shares of stock

“within minutes” of disseminating false information). In stark contrast here, Fr. Lemelson held

on to a substantial portion of his position in Ligand until October 2014—almost four months

after he published his initial report and almost two months after 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). By holding on to his short position in Ligand long after his reports and

interviews, Fr. Lemelson acted in a manner entirely inconsistent with a scheme to defraud.

Fourth, far from any scheme to defraud, Fr. Lemelson truly believed that Ligand was

overvalued—and the Commission never adduced evidence to the contrary. Prior to trial,

evidence was available that Fr. Lemelson was operating in good faith. For example, Fr.

Lemelson worked with an editor on all the Ligand reports. The Commission deposed the editor

who testified unequivocally that Fr. Lemelson staunchly believed in all his opinions. See ECF

No. 126 ¶ 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”). Moreover, Fr. Lemelson’s theory about

12
Ligand proved accurate. Despite the Commission promoting Ligand’s stock price as “recently

trading above $250 per share” in its Complaint, Ligand’s stock price has fallen as much as 88

percent since that time, destroying billions of dollars in shareholder value. Lemelson Aff. ¶ 6. It

has never substantially recovered, despite the significant increase in the S&P 500 index and the

NYSE Biotech Index, the indexes Ligand itself used to benchmark its performance. Id.

Investors who listened to Fr. Lemelson, instead of the Commission’s misguided promotional

language about Ligand’s stock price, would have been spared substantial losses.

Despite all this evidence showing that Fr. Lemelson did not engage in a scheme to

defraud, the Commission nonetheless pressed its scheme claim for years and forced Fr.

Lemelson to incur substantial fees and costs to successfully defend himself. Accordingly,

because the Commission’s litigation position that Fr. Lemelson engaged in a scheme to defraud

was never substantially justified, the EAJA commands that it pays the fees and costs.

2. The Commission’s Claims That Fr. Lemelson’s Statements About

Ligand’s Insolvency Violated 10b-5 Were Never Substantially Justified
Because Fr. Lemelson’s Statements Were Demonstrably True, and He
Fully Disclosed the Bases For His Conclusion

The Commission’s allegation that Fr. Lemelson’s statements about Ligand’s insolvency

violated the securities laws—which constituted the second major prong of its press release

announcing the charges—never had a reasonable basis in law or fact. The Commission initially

alleged that Fr. Lemelson’s calculation of Ligand’s debt-to-tangible-equity ratio was knowingly

false because he did not include the cash proceeds from a bond offering as equity. ECF No. 1 ¶

52. In fact, it was the Commission’s contention that was false, because proceeds from debt do

not constitute equity, as the Commission subsequently acknowledged. The Court correctly

dismissed the Commission’s claim in its original complaint, stating “the SEC has failed to plead

13
with particularity how a statement about Ligand’s debt-to-tangible-equity ratio is materially false

or misleading to a reasonable investor.” ECF No. 29 at 4-5.

Rather than acknowledge its error and move on, the Commission insisted on pressing its

groundless claim based on Fr. Lemelson’s correct analysis that Ligand was insolvent. In its

Amended Complaint, the Commission changed its theory and alleged that a series of true

statements Fr. Lemelson made concerning Ligand’s insolvency “were misleading because

Lemelson, without explanation, excluded Ligand’s intangible assets – including Ligand’s

intellectual property and goodwill – in claiming that Ligand was insolvent.” ECF No. 33 at 15.

In exhuming this baseless claim, the Commission simply ignored that Fr. Lemelson

expressly disclosed in the very title of the calculation 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 either accept or disregard it. ECF No.

12-4 at 2. Accordingly, not only were Fr. Lemelson’s statements concerning Ligand’s

insolvency true, but his fully transparent disclosures cloaked the statements with First

Amendment protection. See, e.g., Phantom Touring, Inc. v. Affiliated Publications, 953 F.2d

724, 731 (1st Cir. 1992) (“A number of courts, including Massachusetts, have immunized

statements of opinion based on fully disclosed nondefamatory facts”). It is therefore not

surprising that the jury rejected this claim as to all five statements at issue, as that claim was

utterly devoid of both legal and factual support.

3. The Commission’s Novel Theory That Lemelson Defrauded His Own

Investors Was Never Substantially Justified

Perhaps nothing demonstrates the Commission’s unprecedented overreach in this

litigation more than its claims under Section 206 of the Investment Advisers Act (“IAA”), in

which the Commission debuted a novel and nonsensical theory that Fr. Lemelson defrauded his

14
own investors by failing to disclose that the profits from the Ligand short position were allegedly

the result of the challenged statements.

Even before the Commission brought this action, in a Wells submission, the undersigned

explained that this theory was both groundless and unprecedented. DSB Aff. ¶ 16. Among other

things, the undersigned wrote:

Not surprisingly then, in the 11 years since Rule 206(4)-8’s promulgation, the
Commission has never used it to bring an enforcement action against a fund
manager for statements concerning a specific stock. We surveyed the 983
litigation releases, 24 enforcement releases, and 283 news and public statement
releases (and associated complaints, judgments, and orders) concerning Rule
206(4)-8 available on www.sec.gov as of June 14, 2018, as well as the 69 cases
and 56 administrative decisions concerning the Rule available on Westlaw as of
June 14, 2018, and have not found a single instance in which the Commission
brought an enforcement action against an investment advisor under Rule 206(4)-8
for statements about another company.

Id. at ¶ 17. In its zeal to punish Fr. Lemelson any way it could, the Commission ignored the

Wells submission and proceeded on this failed claim anyway.

The Commission also brought this claim notwithstanding a complete lack of due

diligence as to its factual underpinnings. Incredibly, the Commission never even bothered to

speak with any of Fr. Lemelson’s investors. ECF No. 126 ¶ 123. Then, after bringing its

baseless IAA claim, the Commission deposed Fr. Lemelson’s longest and largest investor, a liver

transplant specialist and hospital director. ECF No. 126 ¶¶ 139-140. The investor testified that

he never had any concern about Fr. Lemelson’s candor or truthfulness. Id. ¶ 140. Indeed, the

Commission presented no evidence that in the 14 years Fr. Lemelson has worked as an advisor

any of his investors complained about him to any regulatory agency.

Moreover, the entire basis of this claim rested on the Commission’s theory that Fr.

Lemelson profited from the alleged scheme. Yet the Commission never produced any evidence

purportedly tying Fr. Lemelson’s profits to any of the alleged wrongdoing, and the Court

15
accordingly denied the Commission’s misguided demand for disgorgement. ECF No. 273. And,

of course, as set forth above, the scheme claim itself was without basis. Still, the Commission

recklessly plowed ahead with its novel and meritless IAA claims at trial. The jury soundly

rejected them.

II. Fr. Lemelson is Independently Entitled to Attorney’s Fees and Costs Because the
Commission’s Sanction Demands Were Unreasonably Excessive

Pursuant to 28 U.S.C. § 2412(d)(l)(D), a litigant is entitled to fees and expenses when

“the demand by the United States is substantially in excess of the judgment finally obtained by

the United States and is unreasonable when compared with such judgment ... under the facts and

circumstances of the case.” § 2412(d)(l)(D). “While (d)(1)(A) only awards fees to parties that

prevail against the government—and only where the government action is not substantially

justified—(d)(1)(D) awards fees to parties against whom the United States obtains a judgment,

with no exception for substantial justification.” United States v. One 1997 Toyota Land Cruiser,

248 F.3d 899, 904 (9th Cir. 2001) (Toyota Land Cruiser). This alternative statutory provision is

“aimed at forcing ‘government attorneys ... [to] adjust their actions ... and not routinely issue ...

demands at the high end of the scale merely as a way of pressuring small entities to agree to

quick settlements.” Id. (quoting 142 Cong. Rec. E571–01, E573 (1996) (statement of Rep.

Hyde)) (alterations in original).

“Under this subsection, the party seeking fees bears the burden of proving (i) that the

government’s demand was substantially in excess of the award obtained by the judgment and (ii)

that the government's demand was unreasonable compared to that judgment.” United States ex

rel. Wall v. Circle C Constr., LLC, 868 F.3d 466, 469–70 (6th Cir. 2017). The term

“unreasonable” is defined as “justified to a degree that could satisfy a reasonable person.” Id. at

470. In Wall, the court held that a government demand of $1.66 million while “finally

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obtaining” $14,748 was substantially in excess of the judgment” because it was “fairyland rather

than actual.” Id. at 470. Likewise, in Toyota Land Cruiser, the court held that the government’s

$40,000 demand and ultimate settlement of $1,000 was excessive. 248 F.3d at 906.

Section 2412(d)(1)(D) is easily satisfied here. Indeed, the disparity between the demand

and the final judgment is striking. In the Complaint, the Commission initially sought

disgorgement of Fr. Lemelson’s alleged “ill-gotten” gains, which it pegged at over “$1.3

million,” as well as a permanent injunction. (ECF No. 1 ¶¶ 8, 10 & at 20).

The Commission’s post-verdict sanctions demand remained beyond excessive (not to

mention untethered to the facts or the reality of the verdict) and is reflective of its overall

position in this litigation. Specifically, after the verdict, the Commission clarified that it was

seeking to disgorge Fr. Lemelson’s personal interest in the Amvona Fund based on $1.3 million

in alleged “ill-gotten gains.” ECF No. 245 at 8. The Commission sought $656,500 in civil

monetary penalties from Fr. Lemelson. Id. Further, the Commission sought an additional

$775,000 penalty against LCM, the maximum penalty for entities under Section 21(d)(3)(B)(iii)

of the Exchange Act (adjusted for inflation). Id. at 9. Lastly, the Commission sought $208,624

in prejudgment interest. Id. at 15. All told, despite losing on the majority of its claims including

the core scheme to defraud and the insolvency claims cited in its press release, the Commission

sought $2,296,624 in monetary damages and a permanent injunction.

The Commission got a small sliver of what it sought.—both in terms of its demand at the

outset of the case and after the verdict. The Commission received no disgorgement, only a five-

year injunction (rather than permanent), and just a $160,000 civil fine. It recovered under 7% of

its post-verdict demand and recovered none of the disgorgement it demanded in its Complaint.

To declare this anything but an embarrassing defeat for the Commission would be disingenuous.

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In short, the judgment demonstrated that the Commission’s demand was “fairyland rather than

actual.” Wall, 868 F.3d at 470. As stated by a former high-ranking Commission attorney: “The

Commission brought the widest array of potential claims against Lemelson and his company, and

his decision to fight the charges paid off. Most importantly, he turned a lifelong injunction into a

term of years. He also succeeded in protecting his advisory business and the fund it managed

from any liability whatsoever.” DSB Aff. ¶ 12; Ex. 6. Indeed, the Commission tacitly

acknowledged that its sanction demands were excessive by not cross-appealing the Court’s

judgment, including its award of no disgorgement. Under the circumstances, the EAJA

mandates that the Commission should pay the fees and costs Fr. Lemelson incurred.

To the extent the Commission tries to invoke § 2412(d)(1)(D)’s “willful violation”

exception, any such argument must fail. The statute provides for an exception where a party

“has committed a willful violation of law or otherwise acted in bad faith, or special

circumstances make an award unjust.” 28 U.S.C. § 2412(d)(1)(D). Fr. Lemelson should not be

disqualified on this basis. For the three statements on which the jury found Fr. Lemelson liable,

the Commission never even specifically alleged—and the jury made no finding of—willfulness.

Instead, consistent with Rule 10(b)(5), the jury found only that Fr. Lemelson “intentionally or

recklessly made untrue statements of a material fact, or omitted to state a material fact . . .” ECF

No. 232 (emphasis added). As an initial matter, given that the jury found Fr. Lemelson not liable

for a scheme to defraud, it is likely that the jury’s finding on the three statements was based on

recklessness. In any event, there can be no legal basis for invoking the “willfulness” exception

where there was no finding of a willful violation of law.

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III. The Presumptive Hourly Rate Under the EAJA Should be Increased

The EAJA provides that “attorneys shall not be awarded in excess of $125 per hour

unless the court determines that an increase in the cost of living or a special factor, such as

limited availability of qualified counsel for the proceedings, justifies a higher fee. 28 U.S.C. §

2412(d)(1)(D)(2)(A).

In terms of the cost of living, the $125 figure was put in place in 1996, when Congress

amended 28 U.S.C. § 2412(d)(1)(D)(2)(A). See Hubbard-Davis v. Apfel, No. 95 C 5556, 1998

WL 417595, at *3 (N.D. Ill. July 20, 1998). The cost of living has of course increased

significantly in the quarter century between the statute’s amendment and the trial in this case,

and the Commission brought this action in a major metropolitan area with a particularly high

cost of living. For example, in a survey reported in Massachusetts Lawyers Weekly over a

decade ago, the average hourly rate for a partner in Boston was $598.69—more than $100 in

excess of the reduced hourly rate charged by the undersigned partners. DSB Aff ¶ 7, Ex. 11.

Accordingly, the $125 per hour figure should no longer be considered presumptive. Moreover,

in light of the specialized skill and qualifications of defense counsel, an increase in the hourly

rate to that charged by the undersigned is appropriate here.

In similar actions brought by the Commission, courts generally increase attorney’s fees

under the EAJA. For example, in S.E.C. v. Coffman, No. CIV06CV-00088REB-BNB, 2008 WL

4452334, at *3 (D. Colo. Sept. 30, 2008), the court found higher fees were justified for the

defense counsel based on their “specialized qualifications in the areas of securities law.” Id.

Thus, the court increased the awarded attorney’s fees to the amount similarly specialized

attorneys were charging in the Denver area. Id. Likewise, in S.E.C. v. Wilson, No. 04-CV-1331

(JCH), 2009 WL 2381954, at *11 (D. Conn. July 31, 2009), the court concluded that an increase

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in attorney’s fees was warranted in light of defense counsel’s specialized qualification in

securities litigation:

In both trials, it was clear that the key to Wilson’s defense was identifying,
analyzing, and communicating to the jury the flaws in the SEC’s case. While
poking holes in an opponent's argument is undoubtedly “general lawyerly
knowledge and ability useful in all litigation,” in this case, the infirmities of the
plaintiff's theory were only visible, in the first instance, to someone with an
intimate knowledge of the inner workings of the securities broker-dealer industry.

Id. The court accordingly found that the defense counsel’s “specialized training on the minutiae

of ... SEC enforcement proceedings which could not be obtained by a competent practicing

attorney through routine research or legal experience,” and awarded a higher rate. Id. at *10.

Here, as set forth in the affidavit of lead trial counsel, Douglas S. Brooks, defense

counsel possessed specialized qualifications in the areas of white collar defense, including

securities law, and SEC enforcement proceedings, see Coffman, 2008 WL 4452334, at *3,

“which could not be obtained by a competent practicing attorney through routine research or

legal experience.” Wilson, 2009 WL 2381954, at *10.

Accordingly, Fr. Lemelson respectfully requests that the Court increase the presumptive

rate to that reflected in the firm’s attached invoices. See DSB Aff. ¶ 3; Ex.1.

CONCLUSION

For the foregoing reasons, the government is responsible for fees and costs under the

EAJA because Fr. Lemelson was the prevailing party on claims where the Commission’s

position was not substantially justified, and the Commission’s demands were excessive when

compared to the final Judgment. He respectfully requests the government pay $1,789,051.64

(fees of $1,594,159.42 and expenses of $194,892.22).

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 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)
Thomas M. Hoopes (BBO No. 239340)
Jason M. Strojny (BBO No. 707774)
LIBBY HOOPES BROOKS & MULVEY, P.C.
260 Franklin Street
Boston, MA 02110
Tel.: (617)-338-9300
dbrooks@lhbmlegal.com
thoopes@lhbmlegal.com
jstrojny@lhbmlegal.com

Dated: January 10, 2024

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.

/s/ Douglas S. Brooks

Douglas S. Brooks

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