Short sellers often issue reports critical of the companies in which they hold short positions. When those reports contain falsehoods about those companies, the SEC is likely to take notice. In 2014, Gregory Lemelson – also known as Father Emmanuel Lemelson – and Lemelson Capital Management, LLC (LCM) caused the hedge fund they managed to take short positions in Ligand Pharmaceuticals, Inc. (Ligand) and then allegedly made multiple false statements about Ligand in an effort to drive down its share price. Ligand alerted the SEC, which commenced a civil enforcement action against Lemelson and LCM. In what is likely to be the final chapter of the saga, the U.S. Court of Appeals for the First Circuit has upheld a jury verdict finding the defendants liable under Rule 10b‑5 under the Securities Exchange Act of 1934 and the trial court’s imposition of a five-year injunction against future violations. This article details the SEC’s allegations, the relevant aspects of the litigation and the First Circuit’s decision. For another SEC action involving alleged short-sale violations, see “SEC Alleges Short Selling Violations by Firm Whose Compliance Staff Misinterpreted Rule 105
” (Jul. 28, 2022).