SEC v. Lemelson

United States Court of Appeals
For the First Circuit
No. 22-1630
US SECURITIES & EXCHANGE COMMISSION,
Plaintiff, Appellee,
v.
GREGORY LEMELSON, a/k/a Father Emmanuel Lemelson;
LEMELSON CAPITAL MANAGEMENT, LLC,
Defendants, Appellants,
THE AMVONA FUND, LP,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, U.S. District Judge]
Before
Kayatta, Lynch, and Gelpí,
Circuit Judges.
Kevin P. Martin, with whom William E. Evans III, Goodwin
Procter LLP, Douglas S. Brooks, Brian J. Sullivan, Thomas M.
Hoopes, and Libby Hoopes Brooks, P.C. were on brief, for
appellants.
Ezekiel L. Hill, Attorney, Securities and Exchange
Commission, with whom Dan M. Berkovitz, General Counsel, John W.
Avery, Deputy Solicitor, and Paul G. Alvarez, Senior Appellate
Counsel, were on brief, for appellee.
January 3, 2023
LYNCH, Circuit Judge. The U.S. Securities and Exchange
Commission (the "SEC") brought a civil enforcement action against
Gregory Lemelson, also known as Father Emmanuel Lemelson
("Lemelson"); Lemelson Capital Management, LLC; and the Amvona
Fund, LP. After trial, the jury found Lemelson liable for three
untrue statements of a material fact in violation of Section 10(b)
of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and
SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. After the jury verdict and
further briefing and argument, the district court judge, who had
presided over the jury trial, ordered Lemelson to pay a civil
penalty and enjoined him from violating Section 10(b) and Rule
10b-5 for five years. See SEC v. Lemelson, 596 F. Supp. 3d 227,
238 (D. Mass. 2022).
In this appeal, Lemelson argues that his three
statements were protected by the First Amendment and that the SEC
failed to introduce sufficient evidence to support the jury's
determination that the statements were (1) of fact rather than
opinion, (2) material, and (3) made with scienter. He also
contends that the district court abused its discretion and
committed an error of law in entering the injunction. We reject
Lemelson's arguments and affirm.
I.
A.
The following facts were presented to the jury.
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While working as an investment adviser and fund manager
at Lemelson Capital Management, LLC, Lemelson managed all
investments for a hedge fund called the Amvona Fund. In this role,
Lemelson published online reports and conducted interviews
regarding companies in whose stock the Amvona Fund invested. For
example, Lemelson sometimes posted his reports on Seeking Alpha,
a website where contributors post opinions or reports concerning
financial topics. Unlike paid portals like Bloomberg where
investment analysts traditionally post their research, Seeking
Alpha is a non-subscription and open-forum resource, which
Lemelson selected in order to expand the audience for his reports.
In May 2014, the Amvona Fund began building a short
position1 in the stock of Ligand Pharmaceuticals, Inc. ("Ligand"),
a biotechnology company. At the time, Ligand was a small "virtual
company" that would discover or acquire the economic rights to new
drug candidates, license those candidates to other companies for
development, and partner with other entities to manufacture and
market approved drugs.
Ligand's principal product in 2014 was Promacta, a drug
that had been approved by the U.S. Food and Drug Administration
1 "To take a short position in a stock means to sell
borrowed stock at the current price in the hope that the stock
price will decline and the borrower will be able to return the
borrowed stock by purchasing it at the later, lower price."
Universal Commc'n Sys., Inc. v. Lycos, Inc., 478 F.3d 413, 422 n.5
(1st Cir. 2007).
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(the "FDA") and various foreign drug agencies for treatment related
to several medical disorders, including hepatitis C. Ligand
partnered with other companies to manufacture and market Promacta
in return for royalty payments based on those sales. As of May
2014, Ligand expected Promacta royalties to be a substantial
portion of its future revenues. Promacta is still on the market
today.
Ligand had also recently entered a licensing agreement
with Viking Therapeutics, Inc. ("Viking"), a biopharmaceutical
drug development company. Under the licensing deal, Viking would
develop certain Ligand drug candidates and Ligand would acquire
royalty rights and equity in Viking. Viking focused on the
development of novel therapies for metabolic and endocrine
disorders.
Viking had exclusive rights to five drug candidates
based on molecules licensed from Ligand. As of 2014, all five
drug candidates were undergoing preclinical studies or clinical
trials, which were required before seeking FDA approval so that
the drugs eventually could be brought to market. According to
Viking's Form S-12 (the "Viking S-1") filed on July 1, 2014, Viking
2 A Form S-1, or a "Registration Statement Under the
Securities Act of 1933," is filed by a company making a public
stock offering. See, e.g., Versyss Inc. v. Coopers & Lybrand, 982
F.2d 653, 654 (1st Cir. 1992).
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"intend[ed] to rely on third parties to conduct [its] preclinical
studies and clinical trials." (Emphasis omitted).
The Viking S-1 contained both audited and unaudited
financial data about Viking. It also included a report from Marcum
LLP, an accounting firm that had "audited [Viking's] . . . balance
sheets . . . as of December 31, 2012 and 2013."
Between June and August 2014, Lemelson published reports
and conducted interviews in which he criticized Ligand's finances,
prospects, and management and argued that Ligand stock was vastly
overvalued. As relevant here, Lemelson made statements related to
both Promacta and Viking. We describe each of the three statements
for which the jury found liability.
i. The Promacta Statement
On June 16, 2014, Lemelson published his first report
concerning Ligand on his website and on Seeking Alpha. The report
stated that Ligand "face[d] it[s] biggest existential threat" from
"what is likely to be a momentous impairment of its largest royalty
generating asset, Promacta," due largely to a competitive threat
from a new drug called Sovaldi.
On June 18, Lemelson discussed Promacta's future during
a phone call with Bruce Voss, Ligand's investor relations
representative. The next day, Lemelson gave a radio interview for
the financial website Benzinga. The interview was for Benzinga's
online "PreMarket Prep" show, which provides investors with
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information prior to market open. During the interview, Lemelson
stated the following about Promacta:
Promacta accounted for 72 percent of
[Ligand's] royalty revenues . . . [and] is
literally going to go away.
I mean I had discussions with management just
yesterday -- excuse me, their [investor
relations] firm, and they basically agreed.
And they said, look, we understand Promacta is
going away.
(Emphasis added). Lemelson's statement that Voss told Lemelson
that Ligand understood Promacta was "going away" (the "Promacta
Statement") is the first statement at issue in this appeal.
ii. The Viking Statements
The next two statements at issue were made about two
weeks later by Lemelson in his next report concerning Ligand. Both
statements concerned Viking.
First, the report stated the following about Viking's
drug development capabilities:
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.
(Emphasis added). The statement that "Viking does not intend to
conduct any preclinical studies or trials" (the "Preclinical
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Studies Statement") is the second statement at issue in this
appeal.
Next, the report stated the following about the
financial data included in the Viking S-1:
On April 7, 2014, Viking's Board of Directors
appointed Marcum LLP as an independent
registered public accounting firm stating [in
the Viking S-1]:
"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 . . . or a 'reportable
event' . . . ."
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 [Viking
S-1] accordingly are unaudited.
(Emphasis added). The statement that Viking's "financial
statements provided on the [Viking S-1] accordingly are unaudited"
(the "Audit Statement") is the third statement at issue in this
appeal.
Lemelson made the Preclinical Studies Statement and the
Audit Statement (collectively, the "Viking Statements") in support
of his broader statement that Viking was a "single-purpose vehicle"
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and a "shell company" being used by Ligand to "generate paper
profits to stuff [Ligand's] own balance sheet."
In the following months, Lemelson published several more
reports critical of Viking and Promacta's prospects. Lemelson
continued building the Amvona Fund's short position in Ligand stock
throughout this time. Ligand's stock price declined, and Lemelson
covered the short position on various dates for a profit.
B.
On September 12, 2018, the SEC filed a complaint against
Lemelson, Lemelson Capital Management, LLC, and the Amvona Fund in
the U.S. District Court for the District of Massachusetts. As
later amended, the complaint alleged, inter alia, that the Promacta
Statement and the Viking Statements were material misstatements of
fact prohibited by Section 10(b) and Rule 10b-5.3 The case went
to trial and, after both parties rested, Lemelson unsuccessfully
moved for judgment as a matter of law. On November 5, 2021, the
jury found Lemelson liable for the three statements.4
3 The SEC also alleged that Lemelson (1) engaged in a
fraudulent scheme and course of business in violation of
subsections (a) and (c) of Rule 10b-5; (2) made other untrue
statements that there were "significant concerns about Ligand's
imminent insolvency" and that Ligand's "liabilities exceeded
tangible assets, meaning the company was insolvent"; and (3) misled
his own investors in contravention of the Investment Advisers Act.
4 The jury found Lemelson not liable with respect to the
SEC's other claims.
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After the jury verdict, Lemelson renewed his motion for
judgment as a matter of law pursuant to Federal Rule of Civil
Procedure 50(b). Lemelson argued, inter alia, that the Viking
Statements were opinions protected by the First Amendment and that
the SEC failed to produce sufficient evidence that all three
statements were material and made with scienter. The district
court rejected these arguments and denied the motion.
The district court then received briefing and heard
argument concerning the proper remedies for Lemelson's violations.
The SEC requested, inter alia, a $656,500 civil penalty against
Lemelson and an injunction permanently enjoining him from
violating Section 10(b) and Rule 10b-5. Lemelson countered that
the civil penalty should be "far less" than $80,000 and that no
injunction should be issued. The district court assessed a civil
penalty of $160,000 and enjoined Lemelson from violating Section
10(b) and Rule 10b-5 for five years.5 Lemelson, 596 F. Supp. 3d
at 238. The court rejected the SEC's contention that a permanent
injunction was warranted, noting that Lemelson's "violation was
5 The injunction also applied to Lemelson Capital
Management, LLC. Lemelson, 596 F. Supp. 3d at 238. The district
court declined to (1) enter a civil penalty against Lemelson
Capital Management, LLC; (2) order joint and several disgorgement
of the defendants' pecuniary gain; or (3) assess prejudgment
interest. Id. at 230. The SEC has not appealed these decisions.
Nor is the amount of the civil penalty at issue in this appeal.
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not as severe as in many of the cases where courts ordered
permanent injunctions." Id. at 233.
Lemelson timely appealed.6
II.
We review de novo a district court's denial of a motion
for judgment as a matter of law. Suero-Algarín v. CMT Hosp. Hima
San Pablo Caguas, 957 F.3d 30, 37 (1st Cir. 2020). In reviewing
the record, we "construe facts in the light most favorable to the
jury verdict, draw any inferences in favor of the non-movant, and
abstain from evaluating the credibility of the witnesses or the
weight of the evidence." Id. We "ask whether . . . a rational
jury could have found in favor of the party that prevailed,"
Bisbal-Ramos v. City of Mayagüez, 467 F.3d 16, 22 (1st Cir. 2006),
and set aside the jury verdict "only if the jury failed to reach
the only result permitted by the evidence," Quiles–Quiles v.
Henderson, 439 F.3d 1, 4 (1st Cir. 2006).
Section 10(b) prohibits, "in connection with the
purchase or sale of any security," the "use or employ[ment]" of
"any manipulative or deceptive device or contrivance in
contravention" of SEC regulations. 15 U.S.C. § 78j(b). Subsection
(b) of Rule 10b-5 declares it "unlawful," "in connection with the
6 The district court also denied Lemelson's motion for a
new trial. Because Lemelson develops no argument on appeal
concerning this denial, he has waived the issue. See United States
v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
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purchase or sale of any security," to "make any untrue statement
of a material fact or to omit to state a material fact necessary
in order to make the statements made . . . not misleading." 17
C.F.R. § 240.10b-5(b).
Lemelson argues that the jury verdict must be overturned
for three reasons. First, he argues that the Viking Statements
were opinions that are protected by the First Amendment and
nonactionable under Section 10(b) and Rule 10b-5. Second, he
contends that the SEC failed to introduce evidence sufficient to
prove that the Promacta Statement and Viking Statements were
material. Finally, he argues that the jury lacked a sufficient
basis to find that he made the Promacta Statement and Viking
Statements with scienter. We address each argument in turn.
A.
Lemelson first contends that the Viking Statements were
statements of opinion7 and thus were nonactionable under Rule 10b-5
and protected by the First Amendment. We disagree.
"A [Rule 10b-5] violation . . . requires a false, or
misleadingly omitted, statement of fact." Constr. Indus. &
Laborers Joint Pension Tr. v. Carbonite, Inc., 22 F.4th 1, 7 (1st
Cir. 2021). The "most significant difference between statements
of fact and expressions of opinion is that 'a statement of
7 Lemelson does not argue that the Promacta Statement was
a statement of opinion.
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fact . . . expresses certainty about a thing, whereas a statement
of opinion . . . does not.'" Id. (quoting Omnicare, Inc. v.
Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175,
183 (2015)).
A reasonable jury could have concluded that the Viking
Statements "expresse[d] certainty about . . . thing[s]," and thus
were actionable statements of fact, for a number of reasons.
Omnicare, 575 U.S. at 183. In the Preclinical Studies Statement,
Lemelson wrote that "Viking does not intend to conduct any
preclinical studies or trials," and in the Audit Statement, he
asserted that Viking's "financial statements provided on the
[Viking S-1] . . . are unaudited." Neither statement was prefaced
by words like "I think" or "I believe," which "can play a role in
demonstrating a lack of certainty." Carbonite, 22 F.4th at 7
(citing Omnicare, 575 U.S. at 187). Both statements were factually
contradicted by the Viking S-1, which included audited financial
data and stated Viking's intention to "expend substantial funds in
research and development, including preclinical studies and
clinical trials." Indeed, Lemelson himself in his testimony
characterized the Audit Statement as a "mistake[n]" reading of the
Viking S-1. And even though Viking intended to have third parties
conduct preclinical studies and clinical trials on its behalf, a
rational jury could have found the Preclinical Studies Statement
to be, at the least, a misleading "half-truth[]" actionable under
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Rule 10b-5. SEC v. Johnston, 986 F.3d 63, 72 (1st Cir. 2021); see
also Lucia v. Prospect St. High Income Portfolio, Inc., 36 F.3d
170, 175 (1st Cir. 1994) ("[T]he fact that a statement is literally
accurate does not preclude liability under federal securities
laws.").
Lemelson cites a series of First Circuit defamation
cases for the proposition that the First Amendment generally
precludes liability "when the speaker 'outlines the facts
available to him, thus making it clear that the challenged
statements represent his own interpretation of those facts and
leaving the reader free to draw his own conclusions.'" McKee v.
Cosby, 874 F.3d 54, 61 (1st Cir. 2017) (quoting Riley v. Harr, 292
F.3d 282, 289 (1st Cir. 2002)); see also, e.g., Phantom Touring,
Inc. v. Affiliated Publ'ns, 953 F.2d 724, 730 (1st Cir. 1992).
Lemelson reasons that the Viking Statements simply "interpret[ed]"
the facts in the Viking S-1, and thus that the statements were
protected opinions.
The SEC argues that the First Amendment principles at
issue are limited to the defamation context, and notes that
Lemelson has failed to cite any cases applying those principles in
the context of Section 10(b) and Rule 10b-5. Because we determine
the Viking Statements to be statements of fact, we need not decide
whether the cases cited by Lemelson reach beyond defamation law.
Even were we to consider these cases and apply de novo review, see
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Naser Jewelers, Inc. v. City of Concord, 513 F.3d 27, 32 (1st Cir.
2008), Lemelson's argument fails because the Viking Statements
"reasonably would be understood to declare or imply provable
assertions of fact," McKee, 874 F.3d at 60-61 (quoting Phantom
Touring, 953 F.2d at 727). Far from presenting interpretations of
the facts contained in the Viking S-1, the Viking Statements are
flatly inconsistent with those facts. See, e.g., Piccone v.
Bartels, 785 F.3d 766, 771 (1st Cir. 2015) ("[T]he speaker can
immunize his statement from defamation liability by fully
disclosing the non-defamatory facts on which his opinion is based."
(emphasis added)); id. at 774 ("The First Amendment generally
protects statements of opinion where the speaker 'outlines the
facts available to him, thus making it clear that the challenged
statements represent his own interpretation of those
facts . . . .'" (internal quotation marks omitted) (quoting Riley,
292 F.3d at 289) (emphases added)); see also Cheng v. Neumann, 51
F.4th 438, 444 (1st Cir. 2022) (noting that "statement[s] of
opinion" without "provably false factual connotation[s]" can
receive First Amendment protection against defamation suits
(quoting Milkovich v. Lorain J. Co., 497 U.S. 1, 20 (1990))).
Further, Lemelson was "claiming to be in possession of objectively
verifiable facts," not merely "expressing a subjective view" of
the Viking S-1. McKee, 874 F.3d at 61 (quoting Riley, 292 F.3d at
289); see also Cheng, 51 F.4th at 444.
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B.
Lemelson next argues that even if all three statements
were untrue statements of fact, a reasonable jury could not have,
on the evidence presented, concluded that the statements were
material.
Liability under subsection (b) of Rule 10b-5 only lies
with respect to misstatements or omissions of "material fact." 17
C.F.R. § 240.10b-5(b) (emphasis added). To prove materiality, the
SEC must show that there exists a "substantial likelihood" that
the fact "would have been viewed by the reasonable investor as
having significantly altered the 'total mix' of information made
available." Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988)
(quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449
(1976)). The determination of materiality is typically left to
the jury. In re Cabletron Sys., Inc., 311 F.3d 11, 34 (1st Cir.
2002).
We first address the Promacta Statement and then address
the Viking Statements. We conclude that the SEC introduced
evidence sufficient for a rational jury to find all three
statements material.
i.
The controversy over the Promacta Statement stemmed from
the June 18 phone call between Lemelson and Voss. No transcript
of the call was introduced at trial, and Lemelson and Voss offered
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different accounts of their dialogue. According to Lemelson, Voss
"said [Ligand] agreed that [Sovaldi] would eliminate the need for
Promacta." According to Voss, Lemelson himself "made th[e]
comment" that "Promacta sales are going to go away" and then
followed the comment with a "rhetorical 'don't you agree?'", to
which Voss provided no verbal reply. Voss testified that he had
actually informed Lemelson that Promacta had a "bright future."
The jury credited Voss's account of the call, finding the Promacta
Statement -- i.e., Lemelson's statement that Voss affirmatively
"said" that Ligand understood Promacta was "going away" -- to be
an "untrue statement of a material fact" in violation of Rule
10b-5.
A reasonable jury could have found the Promacta
Statement material. First, the SEC introduced evidence
demonstrating the importance of Promacta to Ligand's bottom line.
See Carbonite, 22 F.4th at 8 (noting that the "importan[ce] [of a]
product" to a company is relevant in determining the materiality
of a statement concerning that product's effectiveness). Ligand
had released positive revenue data for Promacta, noting, for
example, that increased Promacta royalties contributed to
aggregate royalty revenues of $7.9 million for the three months
ending March 31, 2014, compared to $5.8 million for the same period
in 2013. Further, witness testimony demonstrated that investment
analysts had projected augmented Promacta revenues from 2015 to
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2020, that Promacta could potentially expand into new geographic
markets, and that new medical applications for Promacta were being
pursued. And the jury also considered evidence that Sovaldi would
not negatively impact Promacta sales to patients with certain
medical conditions. Ligand thus had "expected [Promacta
royalties] to be a substantial portion of [its] ongoing revenues"
and knew that setbacks for Promacta "could significantly impair
[Ligand's] operating results and/or reduce the market price of
[its] stock."
The SEC also produced evidence demonstrating investors'
alarm and concern about the Promacta Statement and that they
communicated those concerns to Ligand. For example, one Ligand
shareholder emailed Ligand about the Benzinga interview and stated
that the Promacta Statement "seem[ed] to [the shareholder] to be
a flat out falsehood" that warranted "legal action." Ligand's
President, Matthew Foehr, wrote an email the day after the
interview stating that Foehr was "fielding questions from pretty
major [share]holders" about the interview. Further, the SEC
introduced the testimony of Robert Fields, a portfolio manager who
testified that it "[w]ould . . . have been important to [him] as
an investor in Ligand if Promacta was, in fact, going away" because
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Promacta "made up the majority of the current revenue of [Ligand]"
and was Ligand's "largest source of cash flow."8
The jury also considered evidence that Lemelson himself
took credit for the decline in Ligand's stock value in the summer
of 2014. For example, in an email to another investment adviser
in October 2014, Lemelson wrote that his "multi-month battle with
[Ligand]" was "paying off" because it resulted in Ligand's shares
being "down ~40% since [Lemelson] published" his first report on
June 16. A reasonable jury could infer that Lemelson himself
believed that the Promacta Statement, which was a substantial part
of his "battle" with Ligand, would be material to investors.
Lemelson contends that the Promacta Statement cannot
have been material given that Voss signaled at least "tacit
agreement" by failing to respond to Lemelson's comment that
Promacta was "going to go away." But this argument does not
confront the fact that during his interview with Benzinga, Lemelson
stated that Voss affirmatively "said" that Promacta was going away.
8 The presence of Fields' testimony distinguishes this
case from United States v. Bingham, 992 F.2d 975 (9th Cir. 1993),
a case cited by Lemelson in support of his argument that the SEC
failed to prove the Promacta Statement's materiality. There, the
defendant failed to disclose that he was an officer and director
of the issuer of stock he was selling, and the government's sole
materiality evidence was broker testimony that brokers "would
always find a buyer's or seller's status as a corporate officer to
be of interest." Id. at 976. In contrast with the "abstract"
testimony in Bingham, id., Fields' testimony was specific to Ligand
and the Promacta Statement.
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Voss testified that he "[a]bsolutely [did] not" say those words or
"anything to that effect." A rational jury could have found Voss's
account of the phone call more credible than Lemelson's. See
Suero-Algarín, 957 F.3d at 37 (noting that when adjudicating a
motion for judgment as a matter of law, the court must "abstain
from evaluating the credibility of the witnesses"). A rational
jury could also find that investors would likely react much more
adversely to news that Ligand said Promacta was going away than
they would to news that a Ligand representative said nothing when
Lemelson so claimed, while also saying that Promacta had a "bright
future."
ii.
A rational jury also could find the Viking Statements
material. As with Promacta, the SEC introduced evidence
demonstrating the importance of the Viking deal to Ligand. See
Carbonite, 22 F.4th at 8. For example, Foehr testified that Ligand
needed Viking's "development expertise" because Ligand did not
have that expertise "internally," and Fields attested that "[t]he
potential economic royalties that Ligand [could] receive from
Viking number[ed] in the multiple billions of dollars."
Further, a reasonable jury could have inferred that
investors were concerned about the Viking Statements. Foehr
testified that Ligand received "an increasing number of questions
about [Lemelson's] reports from a variety of individuals,
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investors," and "other companies" with whom Ligand was
"working . . . on potential licenses." And importantly, Fields
testified that it would "have been important for [him] to know as
an investor" if "Viking were a shell." Although Fields did not
specifically identify the Viking Statements, Lemelson himself
acknowledges that he made the Preclinical Studies Statement "to
support his opinion that Viking [was] a single-purpose
vehicle/shell company." Drawing all inferences in the SEC's favor,
see Suero-Algarín, 957 F.3d at 37, a reasonable jury could have
viewed the Viking Statements as important parts of Lemelson's
broader argument that Viking was a shell company, which Fields
believed was material.
Lemelson argues that the public availability of the
Viking S-1 precludes a jury from finding his statements material.
Because the Viking S-1 reported audited financial results and
detailed Viking's intentions to manage preclinical studies and
clinical trials, Lemelson contends, his false statements to the
contrary cannot have altered the "total mix" of information
available to investors. We disagree. Lemelson is not helped by
his reference to our statement that it is "not a material omission
to fail to point out information of which the market is already
aware." Thant v. Karyopharm Therapeutics Inc., 43 F.4th 214, 222
(1st Cir. 2022) (emphasis added) (quoting Baron v. Smith, 380 F.3d
49, 57 (1st Cir. 2004)). We have never held that it cannot be a
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material misstatement to flatly contradict publicly available
facts. See, e.g., Ponsa-Rabell v. Santander Sec. LLC, 35 F.4th
26, 34 (1st Cir. 2022) (distinguishing "omissions" from
"affirmative misrepresentations"); Johnston, 986 F.3d at 72
(bypassing dispute about duty to disclose because defendant "chose
to make statements"). Indeed, Lemelson's position would risk
foreclosing Rule 10b-5 liability for all untrue statements belied
by public securities filings.9
Lemelson cites Teamsters Local 282 Pension Trust Fund v.
Angelos, 762 F.2d 522 (7th Cir. 1985), and Phillips v. LCI
International, Inc., 190 F.3d 609 (4th Cir. 1999). He misleadingly
argues that these cases hold that "even lies are not actionable"
when an investor "possesses information sufficient to call the
[mis]representation into question." Teamsters, 762 F.2d at 529-
30; see also Phillips, 190 F.3d at 617. In Teamsters, the Seventh
Circuit addressed not the materiality element, but rather the
"reliance" element in a private (not brought by the SEC) securities
enforcement suit, noting (in dicta) that a plaintiff investor
9 Lemelson is correct that public SEC filings, like the
Viking S-1, are part of the "total mix" of information available
to investors. See, e.g., United States v. Contorinis, 692 F.3d
136, 143 (2d Cir. 2012). But he cites no cases holding that a
statement contradicting such filings could not be "viewed by [a]
reasonable investor as having significantly altered th[at] 'total
mix.'" Basic, 485 U.S. at 231-32 (quoting TSC Indus., 426 U.S. at
449). Similarly, we reject Lemelson's contention that his
statements were rendered categorically immaterial by his
identifying himself as a short seller in his reports.
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cannot "claim . . . that he relied on or was deceived by [a] lie"
if he in fact "knows enough so that the lie . . . still leaves him
cognizant" of the truth. 762 F.2d at 530. But in an enforcement
action brought by the SEC, the SEC need not prove any individual
investor's reliance. See SEC v. Tambone, 597 F.3d 436, 447 n.9
(1st Cir. 2010) (en banc). In Phillips, which also involved a
private suit, the Fourth Circuit found not actionable an
executive's statement, after merger negotiations had recently
taken place, that "[w]e're not a company that's for sale"; the
court emphasized that the executive "did not deny present or future
merger negotiations" and "actually indicated that there would be
mergers in the company's future." 190 F.3d at 619 (alteration in
original). Here, in contrast, Lemelson specifically stated that
Viking was unaudited and would not conduct preclinical studies or
trials.
C.
Finally, Lemelson contends that even if all three
statements were "untrue statement[s] of a material fact" under
Rule 10b-5, a reasonable jury could not have found that he made
the statements with the requisite scienter.
Evidence of scienter is required to establish violations
of Section 10(b) and Rule 10b-5. Johnston, 986 F.3d at 74. Proof
of scienter requires "a showing of either conscious intent to
defraud or 'a high degree of recklessness.'" SEC v. Ficken, 546
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F.3d 45, 47 (1st Cir. 2008) (quoting ACA Fin. Guar. Corp. v.
Advest, Inc., 512 F.3d 46, 58 (1st Cir. 2008)). A "high degree of
recklessness" entails "'a highly unreasonable omission,' one that
not only involves 'an extreme departure from the standards of
ordinary care,' but also '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.'" Johnston, 986 F.3d at 74
(quoting Corban v. Sarepta Therapeutics, Inc., 868 F.3d 31, 37
(1st Cir. 2017)).
First addressing the Promacta Statement and then
examining the Viking Statements, we find the evidence sufficient
to support the jury's finding that Lemelson made all three
statements with scienter.
i.
As to the Promacta Statement, a reasonable jury could
have credited Voss's testimony that he "[a]bsolutely [did] not"
say that Promacta was going away or "anything to that effect."
Rather, Voss told Ligand leadership that he "represented [Ligand]
forcefully" during his call with Lemelson and "pointed out that
[hepatitis C] is only one of several indications for [Promacta],
and that even within [hepatitis C] there exists a sizeable market
for Promacta independent of Sovaldi." Voss testified that he
informed Lemelson of these views and that Promacta had a "bright
future."
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A rational jury could find that Lemelson knew Voss's
account of the call to be accurate, yet intentionally or recklessly
chose to misconstrue the conversation. See Johnston, 986 F.3d at
74 ("[A] defendant's publication of statements when that defendant
'knew facts suggesting the statements were inaccurate or
misleadingly incomplete is classic evidence of scienter.'"
(quoting Aldridge v. A.T. Cross Corp., 284 F.3d 72, 83 (1st Cir.
2002))). Indeed, Voss emailed Lemelson after the Benzinga
interview, writing that Voss "never made th[e] statement [that
Promacta was going away], never agreed with that statement[,] and
never would because it's not true," but Lemelson never responded
to the email or "publicly acknowledge[d]" Voss's competing
interpretation of the call.
ii.
The SEC also introduced sufficient evidence for the jury
to find that Lemelson made the Viking Statements with scienter.
In particular, a reasonable jury could infer that Lemelson
understood from the Viking S-1 that Viking had audited financials
and that Viking intended to manage preclinical studies and trials,
yet intentionally or recklessly made statements to the contrary.
Lemelson held himself out as a sophisticated investor
who had been "featured, quoted or cited in substantially every
major global financial news media outlet." He made all the
investment decisions for the Amvona Fund, which he touted as "one
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of the world's top-performing hedge [f]unds." He also testified
to having read "hundreds of financial statements."
Lemelson admitted that he read and "carefully
researched" the Viking S-1. The Viking S-1 extensively detailed
Viking's intentions to manage preclinical studies and clinical
trials, and it included various audited financial data. Given
Lemelson's financial expertise and his testimony that he closely
reviewed the Viking S-1, a reasonable jury could conclude that
Lemelson "knew facts suggesting the [Viking] [S]tatements were
inaccurate or misleadingly incomplete." Johnston, 986 F.3d at 74
(quoting Aldridge, 284 F.3d at 83); see also Geffon v. Micrion
Corp., 249 F.3d 29, 36 (1st Cir. 2001) (noting that "disregard of
current factual information acquired prior to the statement at
issue" can be evidence of scienter). Indeed, Lemelson testified
that he knew a Form S-1 cannot be filed without audited financial
data, a fact also mentioned by Foehr in his testimony. And even
if the Preclinical Studies Statement were taken as literally true
because Viking planned to hire third parties to conduct studies
and trials on its behalf, a rational jury could conclude that
Lemelson presented the statement as a misleading "half-truth[],"
supporting an inference of scienter. Johnston, 986 F.3d at 72.
Whether or not a reasonable jury could have concluded that the
Viking Statements were intentional misstatements to investors, a
rational jury could find that Lemelson made the statements with a
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"high degree of recklessness," Ficken, 546 F.3d at 47 (quoting ACA
Fin. Guar. Corp., 512 F.3d at 58), particularly given that he
published the statements two days after the Viking S-1 became
public and without first contacting anyone at Viking for comment.
Further, the importance of the Ligand short position to
Lemelson could lead a reasonable jury to infer that he would
investigate Viking thoroughly. Lemelson testified that the short
position comprised a "substantial part" of the Amvona Fund's
portfolio and that 34 percent of the invested funds was his
"family's money." Although the fact that Lemelson "stood to
benefit from wrongdoing" does not itself necessarily prove
scienter, Kader v. Sarepta Therapeutics, Inc., 887 F.3d 48, 60
(1st Cir. 2018) (quoting Greebel v. FTP Software, Inc., 194 F.3d
185, 197 (1st Cir. 1999)), a reasonable jury could infer that
Lemelson would have carefully researched Viking and thus been aware
of the misleading nature of his statements, cf. Carbonite, 22 F.4th
at 9 ("[T]he importance of a particular item to a defendant can
support an inference that the defendant is paying close attention
to that item . . . ." (internal quotation marks omitted) (quoting
Loc. No. 8 IBEW Ret. Plan & Tr. v. Vertex Pharms., Inc., 838 F.3d
76, 82 (1st Cir. 2016))).
We reject Lemelson's challenge to the jury's scienter
finding and, as noted, reject Lemelson's other challenges to the
jury verdict. We affirm the jury verdict.
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III.
Lemelson argues that the district court abused its
discretion and committed an error of law in enjoining him from
violating Section 10(b) and Rule 10b-5 for five years. We
disagree.
In an SEC enforcement action, we review the district
court's decision to enter an injunction for abuse of discretion.
SEC v. Sargent, 329 F.3d 34, 38 (1st Cir. 2003). Abuse of
discretion occurs "when a material factor deserving significant
weight is ignored, when an improper factor is relied upon, or when
all proper and no improper factors are assessed, but the [district]
court makes a serious mistake in weighing them." Id. (quoting
Indep. Oil & Chem. Workers of Quincy, Inc. v. Procter & Gamble
Mfg. Co., 864 F.2d 927, 929 (1st Cir. 1988)). "[A] district court
[also] abuses its discretion if it incorrectly applies the law to
particular facts." Id. (quoting Am. Bd. of Psychiatry & Neurology,
Inc. v. Johnson-Powell, 129 F.3d 1, 3 (1st Cir. 1997)).
Congress authorized the SEC to seek injunctive relief to
prevent violations of securities laws. See 15 U.S.C. § 78u(d)(1).
A district court may enter such an injunction "where there is, 'at
a minimum, proof that a person is engaged in or is about to engage
in a substantive violation of either [the Securities Act of 1933
or the Securities Exchange Act of 1934] or of the regulations
promulgated thereunder.'" Sargent, 329 F.3d at 39 (quoting Aaron
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v. SEC, 446 U.S. 680, 700-01 (1980)). The legal standard for
issuance of the injunction is a "reasonable likelihood of
recidivism," which is assessed by looking at "several factors,
none of which is determinative." Id. These factors include, inter
alia, (1) the "nature of the violation, including its egregiousness
and its isolated or repeated nature," (2) "whether the defendants
will, owing to their occupation, be in a position to violate
again," and (3) "whether the defendants have recognized the
wrongfulness of their conduct." Id.The district court properly weighed these three factors
and considered no improper ones. First, it examined the "nature
of the violation" and found that the Promacta Statement was
"particularly egregious." Lemelson, 596 F. Supp. 3d at 233. As
the district court emphasized, Promacta was "Ligand's key
product." Id. The jury determined that Lemelson falsely told the
public that Voss said Promacta was "going away," when in fact Voss
said just the opposite: that Promacta had a "bright future." And
Lemelson "derived a[] direct personal profit" from the
misstatement by cashing in his short position. Sargent, 329 F.3d
at 39.
Next, the district court noted that Lemelson would be in
a position to violate again owing to his occupation as an
investment adviser and management of a new hedge fund called the
Spruce Peak Fund since early 2021. Lemelson, 596 F. Supp. 3d at
- 29 -
233. In contrast with the two defendants' occupations in
Sargent -- webcasting and dentistry, respectively, see Sargent,
329 F.3d at 39-40 -- Lemelson's continued position as a hedge fund
manager and investment adviser would readily allow him to benefit
from future material misstatements concerning investments.
Lemelson argues that the district court committed an
error of law by issuing an injunction on the basis of a mere
possibility, rather than a likelihood, of future violations. He
relies on the fact that the district court wrote that Lemelson
"will be able to violate again." Lemelson, 596 F. Supp. 3d at
233. Although Lemelson is correct that the legal standard is a
"reasonable likelihood of recidivism," Sargent, 329 F.3d at 39(emphasis added), not a mere possibility of future violations, he
takes the district court's language out of context. The district
court's statement that Lemelson "will be able to violate again"
was made when applying the factor from Sargent concerning "whether
the defendant[] will, owing to [his] occupation, be in a position
to violate again." Id. (emphasis added). The court correctly
quoted this factor and ultimately applied the "reasonable
likelihood of recidivism" standard. Lemelson, 596 F. Supp. 3d at
231. No legal error occurred.
Finally, the district court determined that Lemelson had
failed to "recognize the wrongfulness of his conduct." Id. at
233. The court referenced the fact that Lemelson incurred
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sanctions by violating a protective order and leaking confidential
material related to the litigation to the press. Id. at 232-33.
Further, when the district judge heard post-verdict argument on
whether to impose an injunction, she allowed Lemelson to speak and
Lemelson said he would "never regret the things [he] did." Also,
Lemelson's lack of regret and remorse is highlighted by the fact
that even after Voss emailed Lemelson that Voss had never said
Promacta was going away, Lemelson never took steps to inform the
public of Voss's disagreement with Lemelson's account of what was
said. Lemelson had opportunities to correct his misstatements and
took advantage of none of them.
That there was no abuse of discretion is further
evidenced by the district court's careful rejection of the SEC's
request for a permanent injunction. The court contrasted
Lemelson's case with various cases that each involved "egregious
conduct occurring over prolonged periods of time." Id. at 231-
32; see, e.g., SEC v. Wall, No. 19-cv-00139, 2020 WL 1539919, at
*8 (D. Me. Mar. 31, 2020) (violations spanning more than four
years); SEC v. Chan, 465 F. Supp. 3d 18, 38 (D. Mass. 2020) (scheme
lasting nearly two years); SEC v. Present, No. 14-cv-14692, 2018
WL 1701972, at *1, *5 (D. Mass. Mar. 20, 2018) (twenty-one
violations over multiple years). The court concluded that
Lemelson's "violation was not as severe as in many of the cases
where courts ordered permanent injunctions" and enjoined Lemelson
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for only five years. Lemelson, 596 F. Supp. 3d at 233. That this
was within the district court's discretion is consistent with case
law in other circuits. See, e.g., SEC v. Levine, 517 F. Supp. 2d
121, 147 (D.D.C. 2007), aff'd, 279 F. App'x 6 (D.C. Cir. 2008)
(ten-year injunction); SEC v. Johnson, 595 F. Supp. 2d 40, 45
(D.D.C. 2009) (five-year injunction); SEC v. Spartan Sec. Grp.,
No. 19-cv-448, 2022 WL 3224008, at *5 (M.D. Fla. Aug. 10, 2022)
(same).10
Lemelson notes that the SEC did not seek any injunctive
relief until 2021. Even so, there was no abuse of discretion in
the district court's view that there still existed a "reasonable
likelihood of recidivism." Sargent, 329 F.3d at 39. Indeed, the
district court acknowledged during the motion hearing that the
lack of violations since 2014 "mitigate[d] against a lifetime bar"
and accordingly chose to enter a five-year injunction instead.
Doing so was not an abuse of discretion. See Negrón-Almeda v.
Santiago, 528 F.3d 15, 21 (1st Cir. 2008) ("Under [abuse of
discretion review], we may not reverse a determination simply
10 Lemelson objects to the SEC's use of the injunction to
seek a lifetime associational bar against him under 15 U.S.C.
§ 80b-3. As Lemelson notes, when the district court later denied
Lemelson's motion to amend the judgment, the court "agree[d] [that]
a lifetime ban would be excessive." Nevertheless, only the five-
year injunction is on appeal here, and the district court was
within its discretion in imposing that injunction. If the SEC
imposes an associational bar, Lemelson may appeal that decision in
a separate action. See, e.g., Kornman v. SEC, 592 F.3d 173, 175,
181 (D.C. Cir. 2010).
- 32 -
because we, if sitting as a court of first instance, would have
weighed the relevant considerations differently.").
IV.
For the foregoing reasons, the judgment of the district
court is affirmed.
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