Chief Science Officer of Publicly Traded Health Care Company Charged for Insider Trading Scheme Utilizing 10b5-1 Trading Plans

Note: View a copy of the indictment here.

An indictment was unsealed today charging a former U.S. citizen with engaging in an insider trading scheme involving the stock of Humanigen Inc., a publicly traded biopharmaceutical company. Dale Chappell, 54, who was formerly the chief scientific officer and member of the Board of Directors of Humanigen, was arrested on Dec. 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 of 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 2021, FDA staff allegedly informed Humanigen that Humanigen was unlikely to meet the criteria for issuance of an EUA. As alleged, knowing that this information was not disclosed publicly by Humanigen, 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%.

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 scheme charge and 20 years in prison on each of the insider trading charges. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

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.

Principal Deputy Assistant Attorney General Brent Wible, head of the Justice Department’s Criminal Division; U.S. Attorney Philip R. Sellinger for the District of New Jersey; and Assistant Director Chad Yarbrough of the FBI’s Criminal Investigative Division made the announcement.

The FBI is investigating the case. The Justice Department’s Office of International Affairs is handling the request for Chappell’s extradition.

Trial Attorneys David Austin and Matthew Reilly of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Katherine Romano for the District of New Jersey are prosecuting the case.

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.