Durus Capital Management, the
hedge fund being sued by two companies after it "inadvertently" acquired huge percentages of their stock, has been selling millions of shares of other firms in which it had held substantial but less dominant stakes.
It is hard to ascertain from financial records the precise timing of all of Durus' transactions, or whether the fund made or lost money on these deals. But it is clear that since March 31, the fund run by Scott Sacane has sharply cut its investments in several companies in which Durus held stakes as high as 23%.
These holdings pale in comparison to the large chunks of stock that Durus owns in
Durus owns 79% of Aksys, a Lincolnshire, Ill.-based provider of kidney dialysis products and services. At one point, Durus owned 33% of Esperion, an Ann Arbor, Mich., company developing heart disease medications. Esperion recently completed a secondary public offering in August, effectively reducing Durus' stake to 29%.
Both companies are suing Durus under a federal law that prohibits major shareholders from generating short-term trading profits in a stock. Such profits must be returned to the companies.
Both companies are negotiating with Durus over how best to reduce Durus' involvement without sparking chaos among traders and without discouraging potential investors. They have said Durus is cooperating, adding that Sacane -- and his hedge fund -- have always acted as a passive investor.
And both companies
have signed agreements with Durus preventing the hedge fund from selling shares in their companies for a certain period of time. Esperion's lock-up provision extends through Jan. 31, 2004. Calls to Aksys were not returned; a spokesman for Durus declined to comment.
Aksys' shares were up 89% through the third quarter ended Sept. 30. The stock had nearly tripled by late July before the news broke about Durus' stake. Esperion's stock is up about 174% for the year, having also nearly tripled by late July.
Meanwhile, Durus is preventing its own investors from withdrawing their money from the hedge fund. The fund is under investigation by the
Securities and Exchange Commission
and the Nasdaq. A group of investors in early September replaced the board of one of the hedge fund's investment units.
Tracking up-to-date Durus investments is difficult because federal securities law requires hedge funds to file financial statements quarterly with the SEC. Judging from past practices, it will take Durus five or six weeks to give an accounting of its trading during the quarter that ended Sept. 30.
But other SEC documents show significant selling of shares in several companies, such as
( ALTH), of Westminster, Colo., which had been Durus' third-largest investment in terms of percentage ownership.
According to Allos' April proxy, Durus had acquired 5.9 million shares, or 23%, to become the largest institutional shareholder in the developer of drugs to improve the efficacy of chemotherapy and radiation treatments for cancer patients.
By the end of June, Durus had cut its stake to 4.1 million shares, or 15.8%. Then, in a flurry of activity, Durus made 35 transactions selling shares (as well as three small purchases) to cut its stake down to 1.25 million shares, or 4.8%, by Aug. 19, according to the latest SEC filings.
Allos has been a poor investment for Durus. One SEC filing shows that between July 23, 2001 and Aug. 19, 2003, Durus purchased 7.73 million shares for $51.6 million and sold 6.48 million shares for $26.2 million -- a loss of $25.4 million. Allos' stock is down 59% since the beginning of the year.
Durus also has a rapidly shrinking stake in
, which makes and sells a device that produces radiation to help reduce the reclogging of arteries. By March 31, Durus owned 1.74 million shares, or 10.6%, of the Norcross, Ga.-based company. At the time, Durus was the second-largest institutional shareholder.
Three months later, Durus had cut its stake to 1.49 million shares, or 9.3%, and was then the fourth-largest institutional shareholder. By Aug. 20, according to the latest available data, Durus' holdings dropped to 633,000 shares, or 3.8%. SEC records don't reveal whether Durus made a profit or a loss, but Novoste's stock is down 39% for the year.
( DFIB), Durus emerged as the largest institutional shareholder by March 31 with 3.29 million shares, or 4.9%, of the Irvine, Calif.-based maker of defibrillators -- the devices that monitor and correct potentially fatal irregular heartbeats.
Durus raised its stake to 4.3 million shares, or 6.4%, by June 30. Then, it started selling. By Aug. 19, according to the latest data available, Durus had cut its stake to 675,000 shares, or 1%. Cardiac Science's stock is up 88% this year.
Durus also was the largest institutional shareholder of
( MICU) by March 31, owning 2.3 million shares, or 4.9%, of the developer of antifungal medications and antibiotics. By June 30, Durus had raised its stake in the King Of Prussia, Pa. company to 2.81 million shares, or 5.2%.
In July, Vicuron completed a secondary offering of stock. By Aug. 19, according to the latest available data, Durus' involvement had dropped to 700,000 shares, or 1%, of a company whose stock price has gained 64% since the beginning of the year.
And last among Durus' larger holdings of March 31 is
Guilford Pharmaceuticals ( GLFD)
, a Baltimore-based developer of drugs for cancerous brain tumors. It's now also the least. Durus owned 1.25 million shares, or 4.2%, by March 31, down from 2.98 million shares in December 2002. By June 30, Durus had sold all of its Guilford stock. The company's shares are up 56% this year.
Absent the Sept. 30 financial statement, it is not possible to determine the extent of Durus' other trading during the third quarter. But thanks to the size of one investment, SEC records show there's at least one instance where Durus bought a big piece of another company. Between March 31 and June 30, the hedge fund bought 3.98 million shares of
, bringing its total holdings in the Palo Alto, Calif.-based company to 4.94 million shares. That's 6.9% of a company trying to develop cancer and anti-inflammatory drugs. And that's good enough to make Durus the second-largest institutional investor in Incyte, whose shares are up 2% for the year.
--Matthew Goldstein contributed to this report.