heb lawsuit vs asenio and crew page 1
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
HEMISPHERX BIOPHARMA, INC.
One Penn Center, Suite 660
1617 John F. Kennedy Boulevard
Philadelphia, PA 19103
Plaintiff
CIVIL ACTION MANUEL P. ASENSIO
767 Third Avenue, 20th Floor
New York, NY 10017-2023
ASENSIO & COMPANY, INC.
767 Third Avenue, 20th Floor
New York, NY 10017
FORT HILL PARTNERS
767 Third Avenue, 20th Floor
New York, NY 10017
MESIROW FINANCIAL SERVICES, INC.
350 North Clark Street
Chicago, IL 60610-4796
FLAGSHIP SECURITIES, INC.
120 East Genesee Street
Syracuse, NY 13202-1408
FSC SECURITIES CORP.
2300 Windy Ridge Parkway
Suite 1100
Atlanta, GA 30339
SHARPE CAPITAL, INC.
120 Broadway
New York, NY 10271
JOHN DOES 1-20
Defendants no.
JURY TRIAL DEMANDED
COMPLAINT
1. Plaintiff Hemispherx Biopharma, Inc. ("HBI") is a corporation incorporated under the laws of the State of Delaware with its principal place of business at 1617 John F. Kennedy Boulevard, Philadelphia, Pennsylvania. HBI is engaged in the business of researching, developing and testing experimental pharmaceutical compounds and drug technologies for regulatory approval and sale. HBIs primary focus has been the development and clinical testing of a broad-spectrum anti-viral compound known as AMPLIGEN, and related drug technologies, for the possible treatment of serious and life-threatening viral afflictions such as chronic fatigue syndrome ("CFS") and chronic hepatitis.
2. Defendant Manuel P. Asensio ("Asensio") is a citizen of the State of New York with a place of business at 767 Third Avenue, 20th Floor, New York, New York 10017-2023. On information and belief, Asensio is a stock research analyst subject to the rules, regulations, and ethical standards applicable to such analysts, and he is a registered representative or associated person (CRD #1148811) of a licensed broker-dealer subject to the rules, regulations, and ethical standards applicable to such persons in the securities industry.
3. Defendant Asensio & Company, Inc. ("ACI") is a corporation incorporated under the laws of the State of New York with its principal place of business at 767 Third Avenue, 20th Floor, New York, New York 10017. ACI is a registered broker engaged, inter alia, in the business of producing and disseminating to the investing public analytical research reports regarding publicly traded companies, and trading the securities of those companies for its own account. Defendant Asensio is a principal and majority owner of ACI, and as such is a controlling person within the meaning of Section 20(a) of the Securities Exchange Act of 1934 ("the Exchange Act"), 15 U.S.C. ¤ 78t.
4. Defendant Fort Hill Partners ("Fort Hill") is a partnership organized under the laws of the State of New York with a place of business at 767 Third Avenue, 20th Floor, New York, New York 10017. Upon information and belief, Defendant Fort Hill is an investment partnership which trades publicly held securities for its own account and the accounts of others, and Defendant Asensio is a controlling person of Defendant Fort Hill within the meaning of Section 20(a) of the Exchange Act, 15 U.S.C. ¤ 78t.
5. Defendant Mesirow Financial Services, Inc. ("Mesirow") is a corporation incorporated under the laws of the State of Illinois with its principal place of business at 350 North Clark Street, Chicago, Illinois, 60610-4796. Upon information and belief, Defendant Mesirow is a registered broker-dealer subject to the rules, regulations and standards of business conduct of the Securities and Exchange Commission ("SEC") and the various self-regulatory organizations.
6. Defendant Flagship Securities, Inc. ("Flagship") is a corporation incorporated under the laws of the State of New York with its principal place of business at 120 East Genesee Street, Syracuse, New York, 13202-1408. Upon information and belief, Defendant Flagship is a registered broker-dealer subject to the rules, regulations and standards of business conduct of the SEC and the various self-regulatory organizations.
7. Defendant FSC Securities Corp. ("FSC") is a corporation incorporated under the laws of the State of Delaware with its principal place of business at 2300 Windy Ridge Parkway, Suite 1100, Atlanta, Georgia 30339. Upon information and belief, Defendant FSC is a registered broker-dealer subject to the rules, regulations and standards of business conduct of the SEC and the various self-regulatory organizations.
8. Defendant Sharpe Capital, Inc. ("Sharpe") is a corporation incorporated under the laws of the State of New York with its principal place of business at 120 Broadway, New York, New York 10271. Upon information and belief, Defendant Sharpe is a registered broker-dealer subject to the rules, regulations and standards of business conduct of the SEC and the various self-regulatory organizations.
9. Defendant LXE ("LXE") is, or is a designation for, a corporation incorporated under the laws of the State of New York with its principal place of business at 120 Broadway, New York, New York 10271. Upon information and belief, Defendant LXE is a registered broker-dealer, correspondent firm or introducing firm subject to the rules, regulations and standards of business conduct of the SEC and the various self-regulatory organizations, and clearing through Spear, Leeds & Kellogg.
10. This action arises out of the unlawful manipulation and illegal short selling by defendants of the common stock of HBI, traded on the American Stock Exchange, Inc. ("AMEX") and subject to the rules and regulations of the SEC, AMEX and other exchanges and self-regulatory organizations regarding short selling.
11. Upon information and belief, from on or about September 15, 1998 to the present, Defendants Asensio, ACI, Fort Hill, Mesirow, Flagship, FSC, Sharpe, and "LXE" traded and continue to trade illegally in the publicly available common stock of HBI by negligently, recklessly, or intentionally participating in or facilitating the unlawful manipulation of the price of HBI stock to their advantage on their own, under the control of, or in conspiracy with, Defendants Asensio, ACI, Fort Hill and each other. Such manipulation is ongoing.
12. Defendants John Does 1-20 are yet unknown investment companies, investment managers, investment advisors, broker-dealers, registered representatives, associated persons of broker-dealers, and investors who, from on or about September 15, 1998 to the present, traded and continue to trade illegally in the publicly available common stock of HBI by negligently, recklessly, or intentionally participating in or facilitating the unlawful manipulation of the price of HBI common stock to their advantage on their own, under the control of, or in conspiracy with, Defendants Asensio, ACI, Fort Hill, Mesirow, Flagship, FSC, Sharpe and "LXE" and each other. Such manipulation is ongoing. Jurisdiction and Venue
13. This Court has jurisdiction over Count I of the Complaint pursuant to Section 1964(c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. ¤ 1964(c), and pursuant to 28 U.S.C. ¤ 1331. This Court has jurisdiction over Count II of the Complaint pursuant to Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. ¤ 78aa, and pursuant to 28 U.S.C. ¤ 1331. This Court has jurisdiction over Count IV of the Complaint on the basis of diversity of citizenship pursuant to 28 U.S.C. ¤ 1332 and the amount in controversy of Count IV exceeds $75,000 exclusive of interest and costs. This Court has supplemental jurisdiction over Counts III through VIII of the Complaint pursuant to 28 U.S.C. ¤ 1367(a) in that the claims in Counts III through VIII of the Complaint are so related to the claims in Counts I and II of the Complaint that they form a part of the same case or controversy.
14. Venue is proper in this Court pursuant to Sections 1965(a) and (b) of RICO, 18 U.S.C. ¤¤ 1965(a) and (b), pursuant to Section 27 of the Exchange Act, 15 U.S.C. ¤ 78aa, and pursuant to 28 U.S.C. ¤ 1391 in that defendants can be found in, and a substantial part of the events or omissions giving rise to the claim occurred in, this district.
Background
15. In 1972, Dr. William A. Carter, Chairman and Chief Executive Officer of HBI, with assistance from John Hopkins University Medical School, co-invented and had patented a broad-based anti-viral compound known as AMPLIGEN. AMPLIGEN is a naturally occurring drug compound consisting of mismatched, double-stranded RNA, which promotes the production of immunological agents in the human body, thereby increasing the immunological response of the body to serious medical conditions that result from, or thrive in the face of, immune deficiencies. In the twenty-six years since Dr. Carter co-invented AMPLIGEN, he has dedicated his lifes work to refining, testing, and promoting AMPLIGEN in the treatment of various immuno-deficiency diseases.
16. In September, 1980, Dr. Carter reorganized HBI (formerly a contract services company) for the purpose of testing and promoting AMPLIGEN in the treatment of any number of serious medical diseases, including AIDS, cancer, chronic hepatitis, and most recently, CFS. In connection with this effort and the concomitant effort to obtain regulatory approval for the use, commercialization and sale of AMPLIGEN from the Food & Drug Administration ("FDA"), AMPLIGEN has undergone years of testing, evaluation and regulatory review by the FDA, including clinical testing in closely supervised human trials.
17. AMPLIGEN, and its related laboratory and clinical testing, has been the subject of over two hundred peer-reviewed publications and articles by highly respected doctors, physicians, research professionals and clinicians throughout the world. AMPLIGEN research grants awarded by the National Institute of Health have exceeded $10,000,000.
18. AMPLIGEN is also the subject of, and protected by, over three hundred patents worldwide.
19. Since its inception, in the direct interest of the public health and welfare, HBI has dedicated in excess of one hundred fifty million dollars to the development of AMPLIGENs revolutionary and potentially lifesaving drug technology. Toward that end, in October, 1995, HBI participated in its first public offering of securities, and has continued to raise capital through subsequent secondary and private offerings of additional securities, such that HBI currently has outstanding over 41,000,000 shares on a fully diluted basis. Prior to the manipulative, deceptive, and fraudulent practices set forth more fully below, as of early September, 1998, HBI had a market capitalization of $520,000,000. HBI is currently traded on the American Stock Exchange, and its trading symbol is HEB.
20. For the past several years, HBI has dedicated its resources to the research, testing, regulatory approval, and eventual commercialization of AMPLIGEN in the treatment of CFS. HBI recently successfully completed Phase II human testing of AMPLIGEN on over two hundred CFS patients at various sites in the United States, Canada, Belgium, and Austria.
21. As a result of such testing, AMPLIGEN has received IND ("investigative new drug") status from the FDA, has been approved by the FDA for Phase III clinical trials, and has recently applied for "Fast Track" treatment by the FDA toward prompt approval and availability of the drug for emergency treatment of certain CFS patients who are critically ill. AMPLIGEN is the only drug compound in advance testing, and the only drug given cost-recovery status by the FDA, for the treatment of CFS. As such, AMPLIGEN has been determined by the FDA to be reasonably safe at the dosages being studied. 22. Throughout its current round of testing under the aforementioned FDA-approved treatment IND protocol, AMPLIGEN has produced no clinically significant side effects, and it has generated substantial evidence of quantitative improvement in the vast majority of those in treatment. The treatment protocol included both open label and double blind, placebo-controlled testing in the United States and Europe.
23. As a result of its current success in testing, AMPLIGEN has generated considerable investor interests in HBI, thereby causing a rise in the price of HBIs publicly traded securities between July, 1998 and early September, 1998, to a high in excess of $13 per share.
24. Notwithstanding all of the foregoing, in mid-September, 1998, Defendants Asensio and ACI produced, published and disseminated through means of interstate commerce, including the Internet, a libelous and wholly inaccurate research report, together with a "strong sell recommendation," which contained numerous material misrepresentations and omissions of fact and other falsehoods about HBI, Dr. Carter, and AMPLIGEN, causing the stock price of HBI to plummet >from 13 3/8 to as low as 4 7/8 in a matter of days in mid to late September, 1998.
25. During the same time, Defendants Asensio and ACI disseminated similarly slanderous comments to Business Week Magazine, which comments were published in the September 28, 1998 issue of Business Week. Copies of the research report and "strong sell recommendation," and the Business Week article, are attached hereto as Exhibits "A" and "B," respectively.
26. During this same period of time, Defendants Asensio and ACI, through and/or in conspiracy with Defendants Fort Hill, Mesirow, Flagship, FSC, Sharpe, "LXE" and Defendants John Does 1 through 20, engaged in heavy, illegal short selling of HBIs common stock in a successful effort to drive down the price of the stock to the substantial profit of the defendant short sellers and the substantial detriment of HBI. On information and belief, defendants illegal short selling included, but was not limited to, selling on the "down tick" in violation of AMEX Rule 7 and SEC Rule 10a-1, and selling short "naked" at a time when the defendant short sellers neither owned, nor had reason to believe they could borrow, sufficient shares to make delivery on their short sales in violation of applicable industry rules and regulations.
27. In support of their unlawful scheme to manipulate and depress the price of HBI common stock, and in an effort to profit handsomely from the decline in HBIs stock price, Defendants Asensio and ACI made numerous material misstatements or omissions of fact, including but not limited to the following:
(a) that HBI overestimated the probable size of the population of CFS sufferers and the market for AMPLIGEN in the United States (and in so doing has denied the very existence of a Harvard University study substantiating the same);
(b) that HBI has no proprietary patent position in AMPLIGEN;
(c) that AMPLIGEN is "a highly toxic, obsolete drug that is ineffective in the treatment of any disease";
(d) that HBI misrepresented the results of its Phase II trials and the efficacy of AMPLIGEN, as well as its Phase III trial and cost-recovery filing status with the FDA.
28. In further support of the aforementioned material misrepresentations and omissions of fact, Defendants Asensio and ACI further materially misrepresented orally, in print and over the Internet, by misstatement, omission, and baseless innuendo, numerous aspects of HBI, its business, AMPLIGEN, and Dr. Carter, including but not limited to the following:
(a) fraudulently misrepresenting the outcome of previous human trials conducted over ten years ago by DuPont in partnership with HBI, and the outcome of the litigation between HBI and DuPont resulting from that business venture, without disclosing that (1) the test results were directly related to the manner in which the drug was packaged and administered by DuPont and (2) the subsequent litigation was settled favorably to HBI with a multimillion dollar exchange of cash and equities from DuPont to HBI;
(b) making unsubstantiated allegations of extortion, securities fraud, and scientific fraud against Dr. Carter, when none was ever proven to have any merit;
(c) falsely implying HBIs participation in penny stock fraud in connection with the initial public offering of HBI securities through Stratton Oakmont, Inc., in October, 1995 when no claim, charge, allegation or investigation of such has ever been made against or involving HBI, and no shareholder has ever challenged the offering;
(d) mischaracterizing AMPLIGENs safety profile, which Defendants Asensio and ACI characterized as including "numerous, serious side effects," when, by approving Phase III testing on humans, the FDA has specifically found AMPLIGEN reasonably safe at the dosages being tested;
(e) falsely accusing HBI of lacking any "legitimate business purpose for HBI operations" when HBI has an uninterrupted eighteen year history of drug development and testing;
(f) falsely accusing HBI of making false claims of AMPLIGENs safety and efficacy "purposely cultivated to defraud investors," when both safety and efficacy have once again been documented to the FDA and in the medical press in furtherance of HBIs most recent treatment protocols;
(g) mischaracterizing AMPLIGEN as "a toxic, twenty-five year old off-patent drug," when AMPLIGEN is subject to over three hundred patents worldwide;
(h) mischaracterizing AMPLIGENs recently completed trials as "the drugs failed Phase II trials," when the results of those trials engendered further approval by the FDA for advanced Phase III multi-center, double-blind, randomized, placebo trials on a cost-recovery basis under treatment protocol AMP 516;
(i) mischaracterizing the completed trials as "neither placebo controlled" nor "double blind," without any factual or medical basis to do so;
(j) mischaracterizing HBIs most recent Fast Track NDA filing as having "no legitimate support," and HBIs goal of 1999 approval and potential profits as "completely absurd and baseless," without offering any basis for the mischaracterizations;
(k) inaccurately portraying AMPLIGEN as ineffective and non-efficacious because AMPLIGEN testing is "not designed to test if the patients were cured," when "cure" is not the scientific basis for determining drug efficacy;
(l) falsely implying non-efficacy and scientific fraud on the part of HBI by stating that HBI "did not develop AMPLIGEN to treat CFS" and in mischaracterizing the challenge of diagnosing CFS as making "the study of CFS or any potential CFS treatment highly susceptible to scientific fraud";
(m) falsely implying misuse of HBIs initial public offering ("IPO") proceeds when repayment of previous debtholders from IPO proceeds is common and customary;
(n) falsely accusing HBI of "blatantly false representations" concerning the outcome of its clinical trials, without any reference to a single inaccuracy in such reporting by HBI;
(o) mischaracterizing wholly legitimate pre-offering bridge financing as inappropriate private transactions with officers and investors of the offerings underwriter;
(p) falsely warning investors of dilution of their HBI stock holdings by exercise of options and warrants, without including any statement of the substantial additional capital in the amount of approximately $55 million that would be received by HBI in the event of any such exercise; (q) falsely implying illegal and manipulative issuance of options and warrants in HBI common stock, both before and after the public offering of HBI securities, without any mention of the substantial limitations on resale imposed by the lock-up provisions to which the publicly traded securities were subject and by SEC Rule 144 respecting private sales of unregistered securities;
(r) falsely accusing HBI of promoting "non-FDA approved CFS treatments" when all testing to date has been reviewed by and received appropriate approvals from the FDA.
Each of the foregoing statements was false when made, or failed to include other facts which would have rendered the statements when made not misleading.
29. As a direct and proximate result of defendants illegal short selling, HBIs market capitalization has declined by in excess of Three Hundred Million Dollars ($300,000,000), on a fully diluted basis. |
