Source: Office of United States Attorneys
NEWARK, N.J. – An indictment was unsealed today charging a former executive of a publicly traded company with securities fraud and insider trading, U.S. Attorney Philip R. Sellinger announced.
Dale Chappell, 54, a former United States citizen and current resident of Switzerland, was charged by indictment with five counts of securities fraud. Chappell was formerly the Chief Scientific Officer and member of the Board of Directors of Humanigen, Inc., a publicly traded clinical-stage biopharmaceutical company with offices in New Jersey and California. Chappell was arrested on December 20 in Switzerland based on the U.S. criminal charges. The United States will seek Chappell’s extradition to stand trial in the District of New Jersey.
According to court documents, between June and August of 2021, Chappell avoided more than $38 million in losses by selling millions of shares of Humanigen stock while in possession of material, nonpublic information about Humanigen’s application to the Food and Drug Administration (FDA) for approval a drug to treat COVID-19 called Lenzilumab. Chappell—who sold the Humanigen shares through funds that he controlled—is alleged to have engaged in an insider trading scheme in which he fraudulently used Rule 10b5-1 trading plans to trade Humanigen stock.
The indictment alleges that in March 2021, Humanigen announced that it planned to seek emergency-use authorization (EUA) for Lenzilumab. However, between April and May of 2021, FDA staff allegedly informed Humanigen that it was unlikely to meet the criteria for issuance of an EUA. As alleged, knowing that Humanigen had not disclosed this information publicly, Chappell sold the funds’ Humanigen stock, and later also implemented Rule 10b5-1 plans to trade more Humanigen stock holdings. After Humanigen publicly announced that the FDA had declined EUA approval for Lenzilumab, Humanigen’s stock price declined approximately 50%.
“Our office is committed to holding accountable those who profit based on insider information,” U.S. Attorney Sellinger said. “Combatting securities fraud and protecting the integrity of the markets continues to be a priority for this office.”
Chappell is charged with one count of engaging in a securities fraud scheme and four counts of securities fraud for insider trading. If convicted, he faces a maximum penalty of 25 years in prison on the securities fraud charge and 20 years in prison on each of the insider-trading charges.
The case is part of a data-driven initiative led by the Criminal Division’s Fraud Section to identify executive abuses of 10b5-1 trading plans. Chappell’s alleged trading was identified by the Fraud Section through its data-analytics tools. A Rule 10b5-1 trading plan, which allows a corporate insider of a publicly traded company to set up a plan for selling company stock, can offer an executive a defense to insider-trading charges. However, the defense is unavailable if the executive is in possession of material nonpublic information at the time he or she enters into the 10b5-1 trading plan. Additionally, a plan does not protect an executive if the trading plan was not entered into in good faith or was entered into as part of an effort or scheme to evade the prohibitions of Rule 10b5‑1.
U.S. Attorney Sellinger credited special agents of the Federal Bureau of Investigation, under the direction of Acting Special Agent in Charge Nelson I. Delgado, with the investigation.
The government is represented by Assistant U.S. Attorney Katherine M. Romano of the Health Care Fraud Unit in Newark and Trial Attorneys Matthew Reilly and David Austin of the Criminal Division’s Fraud Section.
The charges and allegations contained in the indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.