The chief executive of

Aksys

(AKSY)

said Wednesday it will "likely take weeks" to develop a strategy to protect shareholder value in light of revelations that a hedge fund has acquired more than three-fourths of his company's stock.

"We are navigating in uncharted waters," said Bill Dow, the company's president and CEO, referring to the massive acquisition of Aksys stock by Durus Capital Management, a Connecticut hedge fund run by Scott R. Sacane. Dow's comments, in a conference call with analysts and investors, came a day after Aksys, a maker of home-based kidney dialysis machines, sued Sacane and his fund in a federal district court in Connecticut, alleging an assortment of securities law violations.

Dow said Wednesday that his Lincolnshire, Ill.-based company has been seeking legal and investment advice from several sources, adding that he wouldn't hypothesize on Aksys' next moves.

(To see a related story on policing hedge funds, click here.)

Sacane, in a terse statement issued Tuesday night, said Aksys' management "has assured that they intend to work cooperatively with us to resolve this issue. We are committed to our investment in Aksys and believe in the soundness of its long-term prospects."

Dow told investors Wednesday that his relationship with Sacane and Durus had been "great," that Sacane had introduced potential investors to Aksys and that Sacane had wished to remain a passive investor. According to Dow, Sacane said the acquisition of such a gigantic stake in the company was due to a "breakdown in his system," similar to the hedge fund's insistence last week that it had "inadvertently" acquired its dominant stake in Aksys as well as a 33% stake in

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Dow said the lawsuit, which didn't seek specific damages, was an obligation to shareholders to protect their investments and to make sure the company isn't impaired in its future efforts. Dow said he can't disprove Sacane's claim of being a passive investor.

But the lawsuit portrays a different tone to Aksys' response to Sacane and Durus, which -- based on data from the lawsuit and the company's second-quarter earnings report released Wednesday -- holds about 21.8 million, or 79%, of Aksys' common shares. Aksys alleges that the defendants "have severely impaired the company's ability to attract additional equity investors, and have imposed an unsustainable capital structure upon the company that constrains its ability to raise capital to fund its future growth."

Aksys says its stock's reduced liquidity will cause "wide price fluctuations" and that the company "likely will lose its institutional investor base and research coverage." Aksys says the dollar-value damage is difficult to quantity, arguing that Durus' undisclosed accumulation of shares "has been and continues to be an extremely disruptive force in the trading market for Aksys' stock."

Durus Capital couldn't be reached for comment.

The lawsuit accuses Sacane and Durus of making multiple trades in Aksys stock without proper, complete and/or timely notification to the company or the

SEC

. The suit says Sacane and Durus made their first purchase in December 2001, securing 8% of the company's shares. By June 2002, Sacane -- through Durus and through another fund in which he was portfolio manager -- had raised his stake to 11%. By November 2002, Sacane controlled 22% of the shares, prompting Aksys to enact a poison pill plan that could be triggered if a purchaser owned 15% or more of the company's stock.

The suit says that Aksys and the hedge fund entered into a standstill agreement on April 11, 2003, in which Sacane acknowledged owning 19.5% of the company shares, crossing the poison pill threshold "inadvertently," and promising to remain a passive investor. Sacane, the suit says, agreed to "take any and all actions necessary" to reduce the hedge fund's position to less than 15% within two years and promised not to buy more than 15% in the future without the board of directors' written consent. But, the suit charges that Sacane actually owned or controlled 50% of the Aksys shares at this time.

And on the day that the standstill agreement was signed, Sacane/Durus bought an extra 27,800 shares of Aksys stock, the suit says. Three days later, on the first day the standstill agreement took effect, the defendants bought another 10,500 shares.

Aksys alleges that the defendants made more than 200 purchases of Aksys stock from April 11 through July 24, resulting in a net purchase of some 10 million shares. It accused the defendants of failing to file "dozens of amendments" to SEC documents on stock ownership from November 2002 through last month as well as failing to timely file "hundreds" of other SEC forms required of large shareholders.

Aksys' stock ended down 4.6%, or 42 cents, at $8.78.

The company reported a second-quarter loss of $5.22 million, or 19 cents a share, compared with a loss of $3.65 million, or 15 cents a share, for the same period last year. Revenue for the three months ended June 30 was $301,000. Aksys had no revenue for the same period last year.