CEOS CAUGHT SELLING STOCK ON BAD DRUG NEWS! MILLIONS VANISH!

SEC v. Dale B. Chappell, Black Horse Capital LP, Black Horse Capital Master Fund Ltd., et al. — U.S. Securities and Exchange Commission Litigation Release No. 26206, dated December 30, 2024.

The SEC charged Humanigen's CEO and Chief Scientific Officer with insider trading. They allegedly sold millions of dollars in company stock while possessing material nonpublic information that the FDA would likely deny approval for a key drug, leading to a significant stock price drop.

In Plain English

Imagine you know a big secret about a company before anyone else does. Two top executives at a drug company found out their new medicine probably wouldn't get approved by the FDA. Before this news became public, they sold a lot of their company's stock, making sure they wouldn't lose money when the stock price dropped after the bad news came out.

Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.

How the Alleged Scheme Worked

1. Executives Learn of FDA Concerns In April 2021, Humanigen's CEO Cameron Durrant and CSO Dale B. Chappell learned that the FDA had serious concerns about the clinical data for lenzilumab, a COVID-19 drug. They were informed directly in a meeting that the FDA was unlikely to approve an Emergency Use Authorization (EUA) without further confirmatory studies.
2. Company Submits EUA Application Despite Warnings Despite the FDA's warnings and knowing that no new trials had been conducted, Humanigen submitted its EUA application for lenzilumab on May 28, 2021. Chappell and Durrant were aware that this submission was made against the FDA's expressed reservations.
3. Chappell Sells Millions in Stock Between June and August 2021, Chappell, through investment vehicles he controlled (Black Horse Capital LP, Black Horse Capital Master Fund Ltd., and Cheval Holdings, Ltd.), sold over 3.8 million shares of Humanigen stock for more than $68 million. These sales occurred while he possessed the material nonpublic information about the likely FDA rejection.
4. Durrant Sells Stock On June 14, 2021, Durrant sold over 80,000 shares of Humanigen stock for approximately $1.68 million. He also possessed the same material nonpublic information regarding the FDA's concerns about the EUA application.
5. FDA Denies EUA On September 9, 2021, Humanigen announced that the FDA had denied the EUA for lenzilumab. This news was anticipated by Chappell and Durrant due to their prior knowledge of the FDA's concerns.
6. Stock Price Plummets Following the announcement of the FDA's denial, Humanigen's stock price dropped by nearly 50 percent, confirming the negative impact of the news that the executives had traded on.
7. Executives Avoid Significant Losses As a result of their timely sales, the SEC alleges that Chappell avoided losses of more than $38 million, and Durrant avoided losses of more than $1 million, by selling their shares before the stock price collapsed.

The Enforcement Action

The SEC charged Dale B. Chappell, the CEO of Humanigen, Inc., and Cameron Durrant, its Chief Scientific Officer, with insider trading. The SEC alleges that between June and August 2021, Chappell and Durrant sold Humanigen stock while in possession of material nonpublic information that the U.S. Food and Drug Administration was unlikely to approve Emergency Use Authorization (EUA) for Humanigen’s COVID-19 drug, lenzilumab. The SEC complaint alleges that Chappell and three investment vehicles under his control sold more than 3.8 million shares of Humanigen for more than $68 million, and Durrant sold more than 80,000 shares for more than $1.68 million. When Humanigen announced that the FDA had denied EUA for lenzilumab on September 9, 2021, Humanigen’s stock price dropped by nearly 50 percent. The SEC alleges that, as a result of their insider trading, Chappell avoided losses of more than $38 million while Durrant avoided losses of more than $1 million. The SEC’s complaint, filed in the U.S. District Court for the District of New Jersey, charges Durrant, Chappell, and three investment vehicles under Chappell’s control with violating antifraud provisions and seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and officer and director bars against Durrant and Chappell. On December 23, 2024, in a parallel action, the Department of Justice’s Fraud Section and the U.S. Attorney’s Office for the District of New Jersey announced unsealed criminal charges against Chappell.

Named in this action: Dale B. Chappell, Black Horse Capital LP, Black Horse Capital Master Fund Ltd., Cheval Holdings, Ltd., Cameron Durrant.

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