A former U.S. citizen is facing serious charges of insider trading, which is a significant legal development in the biopharmaceuticals and banking industries. The charges, unsealed today, involve Dale Chappell, the former chief scientific officer and member of the Board of Directors of Humanigen Inc., a publicly traded company focused on developing drugs for serious diseases. Chappell allegedly took part in an insider trading scheme that resulted in him avoiding significant losses through illegal stock trading. The case highlights how criminal actions in the business world are often uncovered through technology and detailed investigations.
Insider Trading Scheme Uncovered
Between June and August of 2021, Chappell is said to have made millions of dollars in gains by trading stock in Humanigen, Inc. while having confidential information. This information related to the company’s application for approval of a COVID-19 treatment called Lenzilumab. Humanigen was then requesting an emergency use authorization (EUA) from the U.S. Food and Drug Administration (FDA) to use the medication. However, behind the scenes, FDA staff allegedly informed Humanigen that its application was likely to be rejected. This was not public information, but Chappell, who had access to this insider knowledge, took advantage of it to avoid financial losses by selling shares of Humanigen stock.
Chappell is accused of secretly trading millions of dollars worth of Humanigen stock using funds he controlled, while aware that the company was facing a significant setback. He allegedly exploited Rule 10b5-1 trading plans, which are meant to allow executives to trade shares without violating insider trading laws, but only if they are not in possession of material, non-public information. Chappell’s trades occurred after Humanigen’s stock dropped around 50% following the FDA’s rejection of Lenzilumab for emergency use, with Chappell allegedly selling millions of shares based on this insider knowledge before the information became public.
Criminal Charges and Legal Consequences
Chappell is facing significant legal consequences. He has been charged with one count of engaging in a securities fraud scheme and four counts of securities fraud related to insider trading. If convicted, he could face up to 25 years in prison for the securities fraud scheme charge and 20 years for each of the insider trading charges. The case is being prosecuted in the District of New Jersey, where a judge will ultimately decide what sentence Chappell will face if he is found guilty.
The charges highlight the severity of insider trading offenses and their potential consequences. While many people may not be familiar with terms like Rule 10b5-1 or securities fraud, these laws are critical in maintaining fairness and trust in the financial markets. Insider trading undermines this trust, as it gives some people an unfair advantage over others by using confidential information that is not available to the public.
The investigation that led to these charges was part of a broader effort by the U.S. Department of Justice to combat insider trading and other forms of financial fraud. Through the use of advanced data analytics tools, the Fraud Section of the Criminal Division was able to track Chappell’s illegal trading activity. These tools have become increasingly important in detecting and investigating financial crimes, and they played a key role in uncovering Chappell’s alleged wrongdoing.
The Role of Rule 10b5-1 Trading Plans
The case highlights concerns over the misuse of Rule 10b5-1 trading plans, which are intended to allow executives to buy or sell stock without violating insider trading laws. These plans must be set up in good faith and without access to material, non-public information. Chappell is accused of abusing this system by using the plans while aware of the FDA’s rejection of Humanigen’s drug application, which led to significant stock losses.
The Justice Department is closely scrutinizing the use of these trading plans to ensure they are not exploited for illegal financial gain. While these plans can be legal when used properly, they can be manipulated to hide illicit trades. This case serves as a reminder of the need for transparency in financial markets to prevent manipulation.
Chappell’s arrest in Switzerland on December 20 and the U.S. government’s request for his extradition emphasize the global nature of financial crimes. The case underscores the importance of international cooperation in prosecuting insider trading and ensuring that all investors have equal access to information.
