TO: SEC Division of Enforcement, SEC Commissioners

7 August 2011

Report to the Securities & Exchange Commission (SEC) to investigate trading and short-selling of Avanir (AVNR).

BACKGROUND. 1

AVANIR, A SMALL COMPANY AMONG NASDAQ’S TOP SHORT INTEREST POSITION. 2

CONSEQUENCE OF SEC’S HANDS-OFF APPROACH TOWARDS SHORT-SELLERS ON THE ECONOMY. 2

“CHANNEL CHECKS” 3

CONGRESSIONAL HEARING.. 3

MARTIN SHKRELI 3

ADAM FEUERSTEIN. 4

THOMAS WEI - JEFFERIES & COMPANY. 5

BACKGROUND

I am a proponent of Freedom of Speech. However, no form of freedom is absolute, and may not be abused. In the classic “short and distort” setting which the SEC is well aware of (reference: 5 May 2009 “Roundtable to Examine Short Sale Price Test and Circuit Breaker Restrictions” in which, I believe, it was Commissioner Walter who referred to the concept), this freedom is abused. The short who distorts often abuses freedom of speech. In certain cases companies who are victimized take action against such abuse, but in most cases, they don’t bother.

The purpose of this letter is to bring your attention to at least one such recent case, and also to bring to light other actions, which I believe, might  be abusive.

As in the case of the gun-shop owner in Texas who recently called the police because of a suspicious soldier, who turned out to be a terrorist, I believe, reporting suspicious activity to the SEC is prudent.

This complaint alleges that Avanir Pharmaceuticals may have been a victim of unethical and abusive short selling. Avanir (Nasdaq: AVNR) is a biopharmaceutical company focused on acquiring, developing, and commercializing novel therapeutic products for the treatment of central nervous system disorders. Within the past year it received approval for the first and only FDA-approved treatment for PBA, a debilitating condition which may occur in patients with ALS, MS, Parkinson's, Stroke, TBI, and other neurologic conditions.

AVANIR, A SMALL COMPANY AMONG NASDAQ’S TOP SHORT INTEREST POSITION

As of 26 July 2011, according to Bloomberg, Avanir was the 14^th largest short interest position on Nasdaq – just behind Sirius Intel Dell Yahoo Cisco Microsoft etc., with 10’s of millions of shares of volume while Avanir’s volume was 1.2 million and the market caps are not comparable. 

The short thesis has been that PBA is not a real disease, and Avanir is going after a fictitious market. Science says otherwise. Credible surveys show there are hundreds of thousands of PBA patients in the US.

CONSEQUENCE OF SEC’S HANDS-OFF APPROACH TOWARDS SHORT-SELLERS ON THE ECONOMY

The SEC, specially, its Republican Commissioners, in the roundtable stated above, have demonstrated to be pro-short selling, supposedly as a tool to help liquidity, but while Wall Street enjoys its freedom to abuse short selling, Main Street is faced with the ugly, unethical, and almost criminal side of this practice on a day to day basis – something which our policeman, the SEC, doesn’t seem to care a bit about.

I believe you will go on for years seeking public comment and holding round tables but never acting, never mandating that large short sellers publicly report their position in a timely manner. The “frontrunner” excuse is just an excuse not to act. It just lets abusive short selling, together with its abuse of freedom of speech, to rape investors and small companies. This includes using journalists, and trolls who disparage Avanir around the clock on public forums attempting to persuade investors to sell their shares by causing fear uncertainty and doubt.

I also believe you will never put a stop to this lack of pre-borrow requirement which according to every criminal justice system, except the SEC’s, is just that: criminal. It is very simple: if I sell your car without even asking you if I could borrow it, it is criminal. This criminal abise happens in the US stock market every single day: people are selling things that they don’t own and not even bothered borrowing.

The consequence of the SEC not caring about these unethical acts of “short and distort” and “lack of timely disclosure of large short positions” and “lack of pre-borrow requirement” is that innovation is killed, which in turn hurts the US and the global economy.

In the case of Avanir, the company spent years and hundreds of millions of dollars in developing its medication to help hundreds of thousands of patients in the US and many more abroad, with a debilitating condition for which no other treatment had been approved. And a bunch of unethical cunning short sellers are doing everything they can to hurt the company. Avanir has enough cash to not depend on its stock in the short term but there are many other victims of short attacks which are destroyed because they can’t raise funds at attractive prices because short sellers have killed the stock.

“CHANNEL CHECKS”

In a recent Tweet, Martin Shkreli (see below) wrote: “DNDN simply breathtaking-Some hedge fund careers will end tomorrow -and I'm sure a few new superstars will be born. so much 4 channel checks”. I assume what is meant by “channel checks” is insider information. What else could it mean in this context? That if “channel checks” were effective we would have known Dendreon had poor earnings. That information is not public until it’s made public. Is it that in the world of these hedge funds, receiving public information before it’s public is not unusual? Isn’t that criminal?

CONGRESSIONAL HEARING

In 9 trading days the price of Avanir soared from $3.25 to $4.80. This translates to about $50,000,000 of losses for the short interest. Reaching $5 would have meant new funds would be eligible to buy, potentially sending the losses for short sellers into hundreds of millions of dollars as a whopping 31.6% of the float is short.

On May 23, Senator Herb Kohl, Congressman Henry Waxman, Congressman Frank Pallone, Congresswoman Diana DeGette wrote the following letter to Avanir: http://aging.senate.gov/hearing_detail.cfm?id=332993&

There are so many pharmas and so many have drugs which are much more expensive than Avanir’s. Avanir is just a new kid of the block and is just learning how to kick the ball, and just as its stock is about to reflect the true prospects for the company these congress people decide to pick on Avanir to investigate the pricing. We do not know the facts, but a lot of people, including respectable industry analysts were appalled not just by this investigation, but by its timing or considered it a non event. Influenced by shorts or not, it did set off a momentum to push the stock down.

Recently, the Senate Commission on Aging came to the conclusion that Avanir is off the hook (http://aging.senate.gov/events/hr236rpt.pdf), citing Avanir had spent $239 Million in developing the drug, etc., and outcome everybody could predict, nevertheless, the company wasted precious resources and tax payers wasted precious resources. Was this inquiry influenced by short sellers? Many believe it did. I do not know. But I collected some of the comments which can be found here: http://home.datacomm.ch/rezamusic/avanir_congress.html

MARTIN SHKRELI

Martin “Marty” Shkreli of MSMB Capital Management (212-983-1310 330 Madison Avenue, 6th Floor New York, NY 10017) is a hedge fund manager and short seller of AVNR.

Some info about his background can be found on https://sites.google.com/site/vatsire/Searching-for-Martin-Shkreli

Noteable in his background:

- Four years at Jim Cramer’s company, “Cramer Berkowitz”. I’d like to remind you of Jim Cramer’s famous statement which perfectly portrays the corrupt values of some powerful elements of Wall Street:

"But what’s important when you’re in that hedge fund mode is to not do a thing remotely truthful, because the truth is so against your view that it’s important to create a new truth to develop a fiction."

- Mr. Shkreli was sued by Lehman Brothers and a $2,300,600.00 judgment was levied against Mr. Shkreli, et al. by the Supreme Court of the State of New York.

On May 31, 2011, Mr. Shkreli published an article in which he disparaged Avanir and its patents. According to an Avanir spokesman, Shkreli’s arguments were flawed, inaccurate, and misleading. Details of his flawed arguments have been argued extensively on public forums but fact is, he is short and he uses an inaccurate argument to disparage the stock. What else is “short and distort” if not this?

The timing of this article was also suspect. It was released a few days after the Congress inquiry while the market was ignoring the congress inquiry as insignificant and the stock was beginning to rally again. The day he released the letter the stock was $4.74. Avanir was a victim of further short attacks again, the short interest rose, and the price went as low as $3 in the following weeks.

Mr. Shkreli continues to disparage Avanir in his Tweets and discourage investors from buying Avanir stock.

ADAM FEUERSTEIN 

Mr. Feuerstein is a senior columnist for TheStreet.com, again, associated with Jim Cramer, and reportedly in contact with Martin Shkreli (according to his Tweets). He has touted and celebrated when Avanir showed a weak week sales data in the earlier stages of the launch but remained awfully quiet on many weeks when the sales data were very good. He just tweeted a statement which some interpret as making fun of PBA: “For those who haven't laughed or cried uncontrollably enough over the past 2 days, we have $AVNR earnings on Monday.”

Neither Shkreli nor Feuerstein have any academic degrees we know about which qualifies them to judge biotech companies. Here’s one website dedicated to exposing Feuerstein: http://www.exposeadam.com. “Adam Feuerstein wouldn’t know good science if it bit him in the ass" - Dr. William A. Carter

THOMAS WEI - JEFFERIES & COMPANY 

Around November 2010 Jefferies had a $10 and then $15 price target for Avanir. They underwrote a public offering for the company at a price of around $4.40. Their analyst Andrew Fein was very bullish about the stock: "To add icing to the cake, there is no black box warning on Nuedexta's label, which gives Nuedexta no restrictions in its target patient population".

Things have only gotten better since then for Avanir. Weekly script numbers have been rising. Yet short interest grew to over 33 Million shares. But Jefferies’ analyst Thomas Wei “initiated” coverage of Avanir and gave it a price target to $3.50 despite citing a $4B market potential.

Three other analysts who follow the stock all have much higher price targets (e.g. Wedbush: $13, covered by the notable analyst with excellent credentials and track record, Dr. Gregory Wade). Thomas Wei has consistently done a hatchet job on Avanir including his latest so called report which we have indication to believe it makes the short interest happy. I suspect Jefferies might have clients who hold large short interests in Avanir.

In his latest hatchet job, Thomas Wei took a stab at European estimates which he’s entitled to, but whether they’re fair or accurate, and whether they’re a part of a short-and-distort scheme or not is another question. It happened on the day the company released a good news article about Europe, and the stock had enjoyed a 7 day rally. 

I tried to contact the firm, both Mr. Wei and their CEO, Mr. Handler, for comments but either they were not reachable (Mr. Handler) or rude and refused to talk to me after giving me the run around (Mr. Wei’s organization). Other analysts who stand behind what they say are not afraid of talking with investors and journalists. Whose side is Mr. Handler on? Truth, fairness, or short sellers?

Public opinion about Jefferies’ hatchet jobs have not been kind. Jefferies has been accused of “representing the interests of those who are short”, and of being a "short propagandist”. I do not know if these charges are true or not but am only including these as a citizen journalist.

If the SEC has any interest in investigating the trades in Avanir, this tiny company’s shares, which is among the top shorted stocks on Nasdaq, you may get surprised at what you find.

The least Main Street is asking the SEC for is:

-        Enforcement of rules that require fair analyst reports which includes disclosure of number of clients who have a large short position

-        Timely public disclosure of short interest by large short sellers

-        A pre-borrow requirement

-        Criminal prosecution of “short-and-distort” incidents and not leaving it up to victimized companies to litigate civil cases against cash rich hedge fund perpetrators

I hope I have provided some tips and hints in this letter. Please investigate the trading in Avanir (AVNR) shares.

Thanks & Regards

R. Ganjavi

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Dec  2011 -- Hedge Funds & Congress in Bed !

http://money.cnn.com/2011/11/03/markets/jefferies_hedgefunds/index.htm

"Dozens of Jefferies (JEF) hedge fund clients are scrambling to find another investment bank where they can warehouse client's money and execute trades, according to sources in the prime brokerage divisions at three competing banks. These sources said they spent all day Thursday fielding calls from hedge funds who could be potential clients....Jefferies has roughly 400 hedge fund clients that use its prime brokerage services to execute trades. It typically takes months, if not years, to win new hedge fund clients.... two sources said they inked deals with several Jefferies customers Thursday and were in constant conversations all day about signing on other clients. Lehman's demise killed several hedge funds and made operations difficult for others. "