Source: United States Department of Justice Criminal Division

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.

Source: United States Department of Justice 2

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.

Source: United States Department of Justice

A Federal Bureau of Prisons (FBOP) lieutenant was found guilty this past weekend of violating the civil rights of an inmate by showing deliberate indifference to the inmate’s serious medical needs. The lieutenant and a FBOP nurse were also found guilty of making false statements to a federal agent with the intent to obstruct the investigation into the inmate’s death.

According to court documents and evidence introduced at trial, Lieutenant Shronda Covington, 49, of Chesterfield, Virginia, and Registered Nurse Tonya Farley, 53, of Chesterfield, were on duty and working in their official capacities at the Federal Correctional Institution at Petersburg, Virginia, on Jan. 9, 2021. Covington willfully failed to ensure that the inmate, a 47-year-old man identified as W.W., was provided with necessary medical care, even though she knew that W.W. had a serious medical need, and Covington and Farley each made false statements to federal agents during the investigation into the inmate’s death.

Another FBOP official, Lieutenant Michael Anderson, previously pleaded guilty for his role in the inmate’s death and was sentenced to three years in custody.

“These defendants showed an appalling indifference and disregard for the victim’s life, and their failure to act caused his death,” said Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division. “The Justice Department will continue to hold accountable those who work inside our prisons and jails, including our federal facilities, when they fail in their duty to provide basic care and humane treatment to the people held in their custody.”

“Federal inmates are human beings in a uniquely vulnerable environment,” said U.S. Attorney Jessica D. Aber for the Eastern District of Virginia. “Their care is the responsibility of corrections staff entrusted to uphold the highest standards of professional conduct. The defendants in this case failed to honor that trust, and the inmate died.”

“Covington’s inexcusable apathy to the medical needs of W.W. over the course of two days caused his unnecessary death,” said Special Agent in Charge Tim Edmiston of the Justice Department’s Office of the Inspector General Mid-Atlantic Region. “Covington and Farley also decided to lie about their involvement in order to escape accountability. The Justice Department Office of the Inspector General will continue to investigate civil rights violations at the hands of Federal Bureau of Prisons employees.”

Evidence presented at trial established that, in the early morning hours of Jan. 9, 2021, W.W.’s cellmate reported to facility staff that W.W. was exhibiting bizarre and unprecedented behavior, including that he was suddenly incontinent and unable to talk and walk normally. Over the course of two days, FBOP officials knew of but disregarded W.W.’s symptoms of a sudden neurological crisis, including his sudden incontinence, incomprehension, inability to talk and struggles to stand or walk without falling.

Without medical attention to address his sudden and serious medical need, W.W. fell into walls and other objects numerous times, causing significant bruising and bleeding to his head and body. Although FBOP policy requires staff to provide necessary medical care to inmates, Covington and Anderson ignored the policy and their training and failed to respond to repeated calls for help from inmates and line staff.

W.W. finally fell head-first into a wall and then to the floor in an observation cell, where — despite inmate-observers’ continued calls for help — he lay for an hour and 40 minutes before officers rendered aid. An autopsy concluded that W.W. died of blunt force trauma to his head and that the lack of medical assistance he received during his series of falls and after his last fall contributed to his death.

Covington and Farley will be sentenced on a later date. Covington faces a maximum penalty of 15 years in prison, and Farley faces a maximum penalty of five years in prison. A federal district court judge will determine any sentence based on the U.S. Sentencing Guidelines and other statutory factors.

The Justice Department’s Office of the Inspector General investigated the case.

Assistant U.S. Attorney Thomas A. Garnett for the Eastern District of Virginia and Special Litigation Counsel Kathryn E. Gilbert and Trial Attorney Katherine McCallister of the Civil Rights Division’s Criminal Section are prosecuting the case and were previously assisted by then-Trial Attorney Matthew Tannenbaum of the Justice Department’s Civil Rights Division.

Source: United States Department of Justice

Two Greek shipping companies pleaded guilty and were sentenced today for violating the Act to Prevent Pollution from Ships (APPS), falsifying records and obstruction of justice. The charges arose out of two United States port calls in which crew members of the Motor Tanker Kriti Ruby presented false records to the U.S. Coast Guard (USCG) to conceal illegal transfers and discharges of oily bilge water from the vessel.

As part of the plea, Avin International Ltd. and Kriti Ruby Special Maritime Enterprises were ordered to pay a criminal fine of $3,375,000 and a $1,125,000 community service payment to the National Fish and Wildlife Foundation. Both companies were also sentenced to serve five-year terms of probation during which they will be subject to environmental compliance plans with a monitorship to ensure future compliance.

The companies pleaded guilty and were sentenced for violating APPS in May and September 2022 during port calls by the Kriti Ruby to Jacksonville, Florida, and the Sewaren Terminal of the port of Newark, New Jersey, respectively. The companies also pleaded guilty and were sentenced for falsification of records and obstruction of justice in connection with the September 2022 port call.

The Kriti Ruby’s former chief engineer, Konstantinos Atsalis, was sentenced today to time served and a $5,000 fine after previously pleading guilty to charges related to the discharge of oily waste into the sea — including concealing the pollution by falsifying records — from the Kriti Ruby near the petroleum terminal in Sewaren, New Jersey. Second engineer Sonny Bosito was sentenced to time served for concealing pollution by falsifying records.

“Prioritizing profits over the environment by discharging oily waste into the sea and working to cover up that pollution is illegal,” said Assistant Attorney General Todd Kim of the Justice Department’s Environment and Natural Resources Division (ENRD). “We are committed to enforcing the law and fighting against maritime pollution.”

“Maritime pollution is extremely harmful to the environment, and so difficult to detect, especially when the polluters take elaborate steps to falsify records to conceal their crimes,” said U.S. Attorney Philip R. Sellinger for the District of New Jersey. “Law protecting our seas exist for a reason, and we will work together with our enforcement partners to ensure they are followed, and violators are punished.”

“Today’s plea demonstrates our unwavering commitment, in partnership with the Environmental Crimes Section and the U.S. Attorney’s Office, to ensuring compliance of critical domestic oil pollution laws and holding violators of these laws accountable,” said Rear Admiral Michael E. Platt, Commander of USCG’s First District. “Please assist the Coast Guard in these vital efforts by promptly reporting any suspicions of similar illegal activity onboard vessels directly to the Coast Guard Investigative Service.”

According to court documents and statements made in court, the Kriti Ruby is an ocean-going oil tanker registered in Greece. It is owned by Avin International and operated by Kriti Ruby Special Maritime Enterprises. On multiple occasions between May and September 2022, crew members discharged oily waste into the sea via the ship’s sewage system, bypassing required pollution prevention equipment. They did not, as required, record these discharges in the vessel’s oil record book. To make it difficult for the USCG to discover, crew members concealed most of the pumps and hoses used to conduct the bypass operations in a sealed void space called a “cofferdam.”

As part of his guilty plea, Atsalis admitted to falsifying the vessel’s oil record book and he acknowledged that the vessel’s crew had knowingly bypassed required pollution prevention equipment by discharging oily waste from the vessel’s engine room through its sewage system into the sea. Additionally, he admitted that he directed crew members to hide equipment used to conduct these transfers.

Bosito admitted to causing a false oil record book to be presented to the USCG during its inspection of the Kriti Ruby. He also admitted to directing crew members to hide equipment used to conduct transfers from the bilge wells to the sewage tank before the USCG’s inspection. 

The USCG’s Investigative Service (CGIS) investigated the case. Individuals can report suspicious activity onboard vessels to CGIS TIPS at www.p3tips.com/878.

Senior Trial Attorney Kenneth E. Nelson and Trial Attorney Lauren D. Steele of ENRD’s Environmental Crimes Section, Assistant U.S. Attorneys Joseph Stern and Kathleen P. O’Leary for the District of New Jersey and Special Assistant U.S. Attorney Katherine E. Ward for the District of New Jersey prosecuted the case.

Source: United States Department of Justice Criminal Division

The Justice Department’s U.S. Trustee Program (USTP) and Tax Division recently obtained denial of bankruptcy discharge for a married couple in Oklahoma who failed to keep sufficient records, failed to file tax returns for several years and could not satisfactorily explain their loss of $90 million in assets in the years leading up to the bankruptcy.

On Nov. 22, after a three-day trial, the Bankruptcy Court for the Northern District of Oklahoma entered judgment denying a discharge for chapter 7 debtors Tucker and Vickie Link. The Links listed about $79,000 in assets and debts of more than $30 million, mostly tax liabilities to the IRS. The Links maintained a web of foreign and domestic corporate structures that they used to support a lavish lifestyle, including a yacht, an operating ranch and three homes. Despite Tucker Link’s substantial experience in financial services and accounting, the couple had not filed individual tax returns or maintained business records beyond bank statements and promissory notes since 2016. At trial, the evidence revealed that the Links had lost about $90 million in assets since 2006.

The United States — represented by the Tax Division — and the U.S. Trustee filed separate complaints seeking to bar the debtors’ discharge on numerous grounds. After trial, the court issued an opinion denying the discharge. The court based its decision on the debtors’ failure to keep books and records in a way that creditors and the court could gain a meaningful understanding of their financial condition and the debtors’ failure to satisfactorily explain their loss of assets. As the court noted, “[t]o say the Links have created a tangled mess of financial structures that defy understanding is an understatement of epic proportions.”

One of the USTP’s core functions is to combat bankruptcy fraud and abuse through civil enforcement actions against debtors who engage in fraud or otherwise abuse the bankruptcy system. When circumstances warrant, the USTP takes action to deny those debtors a discharge. Under section 727(a)(3) of the Bankruptcy Code, debtors are not entitled to a discharge if they unjustifiably conceal, destroy, mutilate, falsify or fail to maintain or preserve records about their financial condition or business transactions. Under section 727(a)(5), the court can deny a discharge based on a debtor’s failure to satisfactorily explain any loss or deficiency of assets to meet the debtor’s liabilities.

“Bankruptcy requires transparency by debtors seeking the fresh start of a bankruptcy discharge,” said Director Tara Twomey of the Executive Office for U.S. Trustees. “In cases such as this, involving financially sophisticated debtors, there is no excuse for haphazard recordkeeping and opaque explanations for such significant losses.”

The USTP’s mission is to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders — debtors, creditors and the public. The USTP consists of 21 regions with 89 field offices nationwide and an Executive Office in Washington, D.C. Learn more about the USTP at www.justice.gov/ust.