Hemispherx Suffers Major Loss in Federal Court.

On March 12, 1999, the United States District Court for the Eastern District of Pennsylvania issued a Memorandum Decision in the litigation between Hemispherx Biopharma, Inc. (Amex: HEB) (Price: $6.375),and Asensio & Company, Inc. (“Asensio”). The decision is a major tactical victory for Asensio as four of the six counts against it were dismissed. While the decision represents an important victory for Asensio, it also represents a victory for traders, brokerage and clearing firms, and other short sellers.

The litigation between HEB and Asensio arises out of a research report and sell recommendation issued by Asensio regarding HEB’s stock in September 1998. As a consequence of that report and alleged trading activity by the defendants, HEB filed a multiple count complaint naming as defendant Asensio, its Chairman Manuel P. Asensio, and several other traders, brokerage houses and clearing houses of HEB’s common stock. HEB asserted in its complaint that the defendants engaged in a conspiracy to drive down the price of HEB’s stock.

Asensio and several other defendants immediately moved to dismiss certain counts in the complaint. These counts included the claims for alleged violations of the Racketeer Influenced and Corrupt Organization’s Act (“RICO”), Section 10(a) of the Security Act, fraud and negligence.

The District Court in Philadelphia ruled in favor of defendants and Asensio. Specifically, the Court dismissed the RICO count, the Section 10(a) count, the fraud count and the negligence count. This decision ends HEB’s ability to continue to pursue any RICO and securities regulation claims against Asensio.

“Dr. William A. Carter, HEB’s lead fraudulent promoter, has stated that defendants in this lawsuit were seeking immunity from prosecution. The truth is that he is not a prosecutor and his securities related charges have been entirely dismissed for all of the defendants. Richard F. Syron has left the Amex. He failed to regulate HEB’s fraudulent stock promotion. We believe and sincerely hope that the Amex’s new leader will act to rid its marketplace of one of America’s most offensive, deliberate and visible stock frauds,” Mr. Asensio stated.

Because HEB’s complaint alleged several novel theories of law, the Philadelphia Court’s decision establishes some important precedents. Thomas S. Biemer, an attorney at Dilworth Paxson LLP of Philadelphia that represented Asensio, explained, “The decision should be a welcome relief to anyone who issues research reports, engages in short selling or processes or clears such sales. Essentially, the Court rejected HEB’s attempt to turn alleged technical violations of the short sale rules into private causes of actions including RICO. Obviously, if the Court had reached the opposite conclusion, it could have resulted in a flood of litigation.”

The Court’s decision also has the effect of substantially narrowing the dispute between HEB and Asensio. Several defendants have been dismissed, including defendants who acted as clearing houses for the short sales and other traders who simply sold HEB’s stock short. At this point, the parties will proceed on the remaining two claims and Asensio intends to vigorously defend those claims on the merits, including seeking a summary judgment against HEB.

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