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Oct 17, 2005
 |  BioCentury  |  Finance

Ebb & Flow Focus

Ever since Scott Sacane disappeared from the biotech scene in 2003, people in the industry have wondered how his Durus Capital hedge fund managed to gain major positions in two healthcare companies without anyone realizing it. The curious need wait no longer, as a Securities and Exchange Commission complaint filed last week lays out how it allegedly was done.

The SEC's complaint against Founder and Managing Member Sacane, COO and Chief Compliance Officer J. Douglas Schmidt and Durus Capital alleges that the defendants lined their pockets at the expense of shareholders in Durus and two healthcare companies - cardiovascular play Esperion Therapeutics Inc., now part of Pfizer Inc., and hemodialysis company Aksys Ltd.

The upshot, according to the complaint, is that Durus' undisclosed purchases of Esperion and Aksys shares gave the false impression of pent-up demand for the stocks, which caused the stocks to soar, inflated the performance of Durus, and thus increased fees to the firm.

According to SEC, "defendants' undisclosed purchases of Esperion and Aksys stock artificially inflated the price of both stocks."

According to the complaint, which was filed in the U.S. District Court for the District of Connecticut on Oct. 12, the hedge fund's management fee was 0.125% of the fund's net asset value. But the key was the quarterly incentive fee, which was equal to 20% of the profits generated during the prior quarter.

In 2002, Durus'...

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