SEC v. Dale Chappell, 107 F.4th 114

The SEC brought a civil enforcement action against Dale Chappell and his investment entities (the Black Horse Funds), alleging insider trading based on trades made with nonpublic FDA feedback about Humanigen’s key COVID-19 drug not being likely to receive Emergency Use Authorization (EUA).
Chappell was a board member and executive at Humanigen and controlled the Black Horse Funds, which were Humanigen's largest shareholders.
After receiving repeated negative feedback from the FDA indicating a second clinical trial was needed for EUA approval, Chappell sold a significant portion of Humanigen stock, avoiding about $38 million in losses before the information was publicly disclosed and the stock price dropped.
The SEC obtained a temporary restraining order and then a preliminary injunction freezing Chappell’s assets, later permitting some living expense carveouts and appointing a receiver by agreement.
Chappell appealed the preliminary injunction, challenging the District Court's legal and factual determinations regarding materiality, scienter, and the appropriateness of the freeze.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Standard for SEC Preliminary Injunction	Traditional four-factor test should apply.	Second Circuit’s lesser standard (“inference” of violation) is sufficient, only likelihood of success required.	Traditional four-factor test required in 3rd Circuit for SEC preliminary injunctions.
Materiality of FDA Feedback	Feedback was akin to advance rejection; highly material for investors in single-product company.	Feedback was preliminary/interim and not material as it was not a binding agency decision.	The FDA feedback was materially equivalent to a likely rejection and thus material.
Scienter (Intent)	Circumstantial evidence shows intent to deceive; Chappell changed trading strategy after negative FDA info.	Chappell acted in good faith, planned sales in advance for diversification and personal reasons.	Record supports inference of scienter; timing and pricing of trades suggest bad faith.
Asset Freeze/Balance of Equities	Freeze justified to preserve assets for possible disgorgement; Chappell may move assets abroad.	Freeze is overly harsh and limits Chappell’s ability to live; no risk of dissipation.	Asset freeze was appropriate; equities and public interest favored preserve assets pending litigation.

Ferring Pharms., Inc. v. Watson Pharms., 765 F.3d 205 (3d Cir. 2014) (outlines the four-factor preliminary injunction standard)
Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7 (2008) (sets out the general standards for preliminary injunctions)
SEC v. Gentile, 939 F.3d 549 (3d Cir. 2019) (traditional equitable standards apply to statutory injunctions in securities law)
Deckert v. Indep. Shares Corp., 311 U.S. 282 (1940) (asset freezes are preliminary injunctions to preserve status quo)
United States v. O’Hagan, 521 U.S. 642 (1997) (duty to disclose or abstain from trading for corporate insiders)
Basic Inc. v. Levinson, 485 U.S. 224 (1988) (materiality standard for securities fraud is significance to reasonable investor)
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (scienter and materiality defined in securities fraud context)