IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

Plaintiff Securities and Exchange Commission (the "SEC") alleges:

SUMMARY

1. Defendant Eric I. Tsao, an executive at MedImmune, Inc., engaged in three separate episodes of insider trading between September 1999 and December 2001 ("the relevant period"), from which he realized aggregate illicit profits in excess of $150,000. On each occasion, within days after learning that MedImmune was involved in confidential negotiations concerning a possible business combination with another public company - the first being U.S. BioScience, Inc., the second ImClone Systems, Inc., and the third Aviron - Tsao bought stock in the other company (and, in the case of ImClone, MedImmune stock as well). On each occasion, Tsao bought the stock over the Internet in a securities account that, although nominally held by his parents in Taiwan, Tsao had opened, controlled, treated as his own, funded with his own assets, and used to pay his household expenses. After Tsao learned that NASD Regulation, Inc. ("NASDR") was investigating trading in one of the stocks at issue, he took steps to distance himself from this account, and later provided a false explanation of his trading to the SEC staff.

2. By engaging in this pattern of insider trading, which is described more fully below, Tsao violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5]. Unless enjoined, Tsao is likely to violate these provisions again. He should be enjoined from doing so, ordered to disgorge his illicit profits (with prejudgment interest), ordered to pay civil monetary penalties, and prohibited from acting as an officer or director of any public company.

JURISDICTION

3. This Court has jurisdiction pursuant to Exchange Act Sections 21(d), 21(e), 21A, and 27 [15 U.S.C. §§ 78u(d), 78u(e), 78u-1, and 78aa].

4. Defendant Tsao used the means and instrumentalities of interstate commerce and the mails in connection with the conduct alleged herein, most of which occurred within the District of Maryland.

THE DEFENDANT

5. Defendant Tsao, age 42, resides in Potomac, Maryland and, throughout the relevant period, has been employed by MedImmune, Inc., a publicly traded biotechnology company. He has served as an executive at MedImmune since mid-2000, when he was named Vice-President of MedImmune's division of "process cell culture and fermentation." In February 2002, he was named Vice-President of "process and manufacturing sciences," a position he currently holds.

FACTS

The Relevant Brokerage Account and Tsao's Connection to It

6. All of the relevant trading in this case occurred over the Internet in a securities account at discount brokerage firm Charles Schwab & Co. (the "Account"). Defendant Tsao opened the Account in December 1998, solely in the name of his father, who was then a seventy-year-old retired sea captain living in Taiwan. Tsao's father has a limited ability to read or communicate in English.

7. Throughout the relevant period, Tsao maintained extensive control over, and a beneficial interest in, the Account. He regularly monitored activity in the Account, principally by accessing it over the Internet and reviewing its status - including the status of open orders.

8. Although the name on the Account was that of Tsao's father (and was six months later expanded to include Tsao's mother), throughout the relevant period, the address on the Account was Tsao's home address in Montgomery County, Maryland, rather than his parents' address in Taipei, Taiwan. Likewise, during the relevant period, the e-mail address for the Account was Tsao's work e-mail address at MedImmune, and the password for Internet access to the Account consisted of numbers and letters reflecting Tsao's personal information. Indeed, during the less than five years since the Account was opened, at least 40 trades have been placed from computers with Internet Protocol ("IP") addresses assigned to Tsao's employer, MedImmune.

9. Tsao contributed all of the assets that were used to open the Account. These assets consisted entirely of 3,400 shares of MedImmune common stock, which Tsao had obtained through his employment at MedImmune. These shares were worth about $330,000 when Tsao opened the Account in December 1998. In the spring of 2000, Tsao deposited 10,000 more of his own MedImmune shares into the Account. Indeed, during the relevant period, Tsao was the only person who contributed funds or securities to the Account. Although the Account was in his father's name, his father did not contribute any assets into the Account.

10. Tsao enjoyed a full power of attorney over the Account, which specifically authorized him to place trades as well as to withdraw or transfer money or securities. During the relevant period, every check written on the Account was used to pay household expenses of Tsao and his wife, including their credit card bills, car insurance, and home mortgage obligation. Neither of Tsao's parents completed any forms relating to the Account, nor did they write or sign any of the checks drawn on the Account. Instead, Tsao and his wife did so in every instance throughout the relevant period, with Tsao often signing his own name (under his power of attorney) and occasionally signing his mother's name, and Tsao's wife repeatedly signing her father-in-law's name. Tsao and his wife never disclosed these acts to Charles Schwab & Co.

11. For tax purposes, Tsao also treated the Account as his own - but only with respect to: (i) medical expenses paid from the Account; and (ii) capital losses. In the latter regard, Tsao claimed capital losses on at least six different stock positions after transferring them to another account in his and his wife's names and immediately selling them at a loss. In contrast, Tsao did not report gains in the Account. Instead, Tsao completed an account form representing that the Account belonged to a foreign national, i.e., his father, and was therefore not subject to taxation in the United States. As a result, the gains in the Account were not taxed.

Tsao's Knowledge That He Could Not Trade While Possessing
Material Non-Public Information

12. Tsao fully understood that as an employee, and later as an executive, of a public company, he was forbidden from trading while in possession of material, non-public information learned in the course of his employment. On numerous occasions during his employment at MedImmune, Tsao: (1) was provided with a copy of MedImmune's policies on insider trading and on the protection of confidential information, as well as revisions and updates to those policies; and (2) was asked to (and did) sign certifications acknowledging that he had read, understood, and agreed to comply with those policies.

13. MedImmune's policies prohibited trading on or tipping of "material, non-public" information, and identified "news of a proposed acquisition" as an illustrative example of such information. The written policies also required all officers, directors, and employees to "pre-clear" any trades in MedImmune stock with the company's chief executive officer, chief financial officer, or treasurer. Finally, MedImmune's policies expressly applied not only to all MedImmune employees, officers and directors, but also to the "members of their immediate families and households."

14. As an employee of MedImmune, and having agreed to comply with its policies concerning confidential information and insider trading, Tsao owed a fiduciary duty or similar relationship of trust and confidence to MedImmune and its shareholders, requiring him to safeguard the confidentiality of information obtained in the course of his employment and not misuse it.

Tsao's Insider Trading in U.S. BioScience

15. On or shortly before the morning of September 16, 1999, Tsao learned material non-public information that MedImmune was at an advanced stage in confidential negotiations concerning a possible acquisition of U.S. BioScience, another publicly-traded biotechnology company. A more senior MedImmune executive told Tsao this information while assigning Tsao to travel to the Netherlands (departing on September 19, 1999) as part of a MedImmune team to conduct a final stage of due diligence regarding U.S. BioScience's manufacturing facility there.

16. When he learned of the information concerning MedImmune's advanced-stage acquisition talks with U.S. BioScience, Tsao knew or was reckless in not knowing that it was confidential, that he was not permitted to trade securities based on the information he had learned, that he could not tip the information to anyone else who might trade on it, and that he had a duty to safeguard the confidentiality of the information and not misuse it. Nevertheless, in breach of his duty, Tsao misappropriated the material nonpublic information concerning MedImmune's advanced-stage acquisition talks with U.S. BioScience and, based on this information, purchased U.S. Bioscience stock in advance of the public announcement of the acquisition.

17. At 12:23 p.m. on September 16, 1999 - within hours (if not minutes) of learning about MedImmune's advanced-stage acquisition talks with U.S. BioScience - Tsao, using that information, placed or caused to be placed, over the Internet, a "day limit" order for the Account to purchase 5,000 shares of U.S. BioScience common stock, on margin, at $11.50 per share. The order was only partially filled, with only 3,500 shares purchased at $11.50 that day, and the remaining 1,500 shares of the buy order expiring unexecuted. On the following day, September 17, 1999, at 10:17 a.m., Tsao again placed or caused to be placed, over the Internet, a second U.S. BioScience "day limit" buy order for the Account to purchase 2,500 shares, on margin, at $11.50 per share. By 3:30 p.m. that day, this order had been fully executed. In all, the Account purchased 6,000 shares of U.S. BioScience over the two-day period, using nearly all of the margin funds then available for securities purchases.

18. On September 22, 1999, just three business days following Tsao's purchases of U.S. BioScience stock, MedImmune publicly announced that it had agreed to acquire U.S. BioScience in a stock swap deal that valued U.S. BioScience at $16.50 per share. That day, U.S. BioScience stock climbed $2-5/8 to close at $14-1/8 on heavy trading; it continued to climb on the following day, closing at $14-3/8.

19. On September 22, 1999 - the day of the acquisition announcement - Tsao placed or caused to be placed, over the Internet, a limit order to sell all 6,000 shares of U.S. BioScience in the Account at $16 per share. The next day, he had the order cancelled and replaced with a limit order at $15 per share. That order was not executed because, during the time it remained open, U.S. BioScience traded in a range between $14-3/8 and $14-5/8. On September 30, 1999 - after a full week had passed without the stock price reaching $15 - Tsao again had the open order cancelled and replaced with a new limit order to sell all 6,000 shares of U.S. BioScience at $14½. This third order was ultimately filled on October 4, 1999, yielding actual profits of $18,000 for the Account. Tsao thereafter used these profits to pay his household expenses.

Tsao's Insider Trading in MedImmune and ImClone

20. On November 14, 2000, MedImmune signed a confidentiality agreement with Imclone, another publicly-traded biotechnology company, concerning their negotiations to jointly manufacture and market ImClone's then leading cancer drug in development.

21. On November 15, 2000, Tsao learned material non-public information about these negotiations between MedImmune and ImClone when he attended a meeting between representatives of the two companies. During the next ten days, Tsao also received at least two subsequent e-mails about the companies' confidential talks and their progress.

22. When he learned of the negotiations between MedImmune and ImClone, Tsao knew or was reckless in not knowing that the negotiations were confidential, that he was not permitted to trade securities based on the information he had learned, that he could not tip the information to anyone else who might trade on it, and that he had a duty to safeguard the confidentiality of the information and not misuse it. Nevertheless, in breach of his duty, Tsao misappropriated the material nonpublic information concerning the ongoing negotiations with ImClone and, based on this information, purchased ImClone stock and MedImmune stock.

23. On November 29, 2000 - within days of learning about MedImmune's confidential talks with ImClone and the progress of those talks - Tsao, using that information, placed or caused to be placed, over the Internet, a limit order for the Account to buy 2,000 shares of ImClone at $40¼. The following day, November 30, 2000, Tsao, using the same information, placed or caused to be placed, over the Internet, another limit order in the Account to buy 2,000 shares of MedImmune at $50-1/8. Tsao did not "pre-clear" the MedImmune purchase in accordance with MedImmune's written insider trading policies. Each of these orders was placed from a computer having a MedImmune IP address.

24. The MedImmune buy order was executed first, on December 4, 2000, and the ImClone buy order was executed on December 14, 2000, both while the MedImmune-ImClone negotiations were ongoing and non-public. Ultimately, the contemplated business venture between MedImmune and ImClone fell through. However, ImClone eventually consummated a similar agreement with a major pharmaceutical company nearly a year later, which involved a partial tender offer from which the Account realized profits of $50,475 upon the tender of some of its ImClone shares.

25. Because the contemplated venture between MedImmune and ImClone was never consummated or publicized, and because MedImmune's market price dropped shortly after the Account purchased the MedImmune stock, there were no resulting illicit profits with respect to the MedImmune stock purchased in the Account on December 4, 2000.

Tsao's Insider Trading in Aviron

26. By Wednesday, November 21, 2001 - the day before Thanksgiving - Tsao learned material non-public information that MedImmune was in confidential negotiations concerning a possible acquisition of Aviron, another publicly-traded biotechnology company. Tsao learned this information from things he observed and heard through his employment at MedImmune, where he worked in close proximity to the MedImmune executives who were involved in the acquisition talks.

27. Among other things, Tsao observed on or about November 19, 2001 that his immediate supervisor and numerous other top executives of MedImmune, including the company's chief executive officer, were all absent from the office at the same time, which was unusual. On or about the same day, Tsao overheard that at least one of the absent executives was in San Francisco. Approximately two days later, one of the absent MedImmune executives returned to the office and told Tsao that MedImmune was looking into a flu vaccine. Because Tsao knew, among other things, that Aviron was based in San Francisco and had a leading flu vaccine in development, he concluded that MedImmune was in confidential business combination talks with Aviron, which might involve an acquisition of that company.

28. When he learned about MedImmune's confidential business combination talks with Aviron, Tsao knew or was reckless in not knowing that this information was confidential, that he was not permitted to trade securities based on the information, that he could not tip the information to anyone else who might trade on it, and that he had a duty to safeguard the confidentiality of the information and not misuse it. Nevertheless, in breach of his duty, Tsao misappropriated the material nonpublic information concerning MedImmune's confidential business combination talks with Aviron and, based on this information, purchased Aviron stock in advance of the public announcement of the acquisition.

29. On Thanksgiving day, November 22, 2001, the securities markets were closed. On Friday, November 23, 2001, at 10:15 a.m. - 45 minutes after the market opened - Tsao placed or caused to be placed, over the Internet, a "day limit" order for the Account to buy 5,000 shares of Aviron at $35.98. Two minutes later, he again placed or caused to be placed, over the Internet, a second "day limit" order for the Account to buy 5,000 more Aviron shares at $35.88. Both orders were executed later that morning at an average price of $35.80 per share. The total price paid for the purchased Aviron stock was $358,000, making this by far the largest single securities purchase in the Account since Tsao opened it in 1998.

30. On Monday, December 3, 2001 - only five business days later - MedImmune publicly announced that it had agreed to acquire Aviron. In heavy trading, Aviron's share price rose 11% on the day of the announcement, to close at $41.42, and continued to rise over the next two days, closing at $45.15 and $48.76, respectively.

31. On December 19, 2001 - two weeks after the acquisition announcement - Tsao placed or caused to be placed a limit order for the Account to sell half (5,000) of the Aviron shares at $50.20 per share. At the time, Aviron was trading in a range between $48.65 and $49.93, and did not reach $50.20 per share until December 26, 2001, when Tsao placed or caused to be placed a second limit order for the Account to sell the remaining 5,000 shares of Aviron at $50.60. The December 26th sell order was placed from Tsao's desktop computer at MedImmune. Both sell orders were executed that day at prices ranging from $50.21 to $50.63, resulting in illicit profits of $146,132. Tsao applied these proceeds to his personal benefit as he had done with the U.S. BioScience profits.

Tsao's Conduct After His Trading Came Under Scrutiny

32. In early February 2002, Tsao learned that NASDR was investigating suspicious trading in the securities of Aviron prior to the public announcement of its acquisition by MedImmune. Specifically, Tsao was shown a letter sent by NASDR to MedImmune, which attached a list of names of persons who had purchased Aviron stock shortly before the announcement (including Tsao's parents' names), and which inquired about any connections such persons might have to MedImmune.

33. Immediately after learning of the NASDR inquiry, Tsao began to take steps to obscure his connection to the Account and, later, to obtain information that would facilitate his creation of an innocent explanation for his Aviron trading. First, on February 9, 2002, Tsao telephoned Schwab to change the password for Internet access to the Account, so that it would no longer consist of characters reflecting his personal information. In the call, Tsao falsely claimed to be his father. Next, on February 20, 2002, Tsao accessed the Account online and twice changed the e-mail address on the account so that it no longer was his e-mail address at MedImmune. Ultimately, he changed it to his brother's e-mail address in Taiwan.

34. Over the next several days, Tsao again telephoned Schwab and asked a series of questions to determine whether (and for how long) Schwab kept records tracking the IP addresses of computers used to place trades and access accounts at Schwab. He also asked whether it was possible for Schwab's account holders to trade online from overseas. In response, Tsao was told that Schwab maintained records for two years reflecting the IP addresses and that Schwab clients can trade online from overseas locations if they can access a secure website.

35. Finally, on September 5, 2002 - after the SEC staff subpoenaed him to testify in its investigation, but before he testified - Tsao telephoned Schwab again, in a further effort to lay the groundwork for a false exculpatory explanation concerning the unlawful trading in the Account. In that call, Tsao falsely claimed, among other things, that his parents were suspicious about the online trades that had been made in their account in November 2001, and that they might request an investigation to find out the "log-in place" and the "online connection" for all trades during that period. Schwab informed Tsao that, if such an investigation determined that the trades had been authorized, the Account would be charged for all costs of the investigation. Subsequently, Tsao did not ask Schwab to conduct an investigation into the trading in the Account.

36. When Tsao testified before the SEC staff on October 15, 2002, he falsely denied having placed or authorized any of the above-described trades in U.S. BioScience or Aviron, and provided a false alternative explanation for the trading.

FIRST CLAIM

(Insider Trading in U.S. BioScience in Violation of Exchange Act Section 10(b) and Exchange Act Rule 10b-5)

37. Paragraphs 1 through 36 are realleged and incorporated by reference.

38. By reason of the foregoing, and in connection with his above-described purchases of U.S. BioScience stock, Tsao violated Exchange Act Section 10(b) and Exchange Act Rule 10b-5.

SECOND CLAIM

(Insider Trading in ImClone in Violation of Exchange Act Section 10(b) and Exchange Act Rule 10b-5)

39. Paragraphs 1 through 38 are realleged and incorporated by reference.

40. By reason of the foregoing, and in connection with his above-described purchases of ImClone stock, Tsao violated Exchange Act Section 10(b) and Exchange Act Rule 10b-5.

THIRD CLAIM

(Insider Trading in MedImmune in Violation of Exchange Act Section 10(b) and Exchange Act Rule 10b-5)

41. Paragraphs 1 through 40 are realleged and incorporated by reference.

42. By reason of the foregoing, and in connection with his above-described purchases of MedImmune stock, Tsao violated Exchange Act Section 10(b) and Exchange Act Rule 10b-5.

FOURTH CLAIM

(Insider Trading in Aviron in Violation of Exchange Act Section 10(b) and Exchange Act Rule 10b-5)

43. Paragraphs 1 through 42 are realleged and incorporated by reference.

44. By reason of the foregoing, and in connection with his above-described purchases of Aviron stock, Tsao violated Exchange Act Section 10(b) and Exchange Act Rule 10b-5.

RELIEF REQUESTED

WHEREFORE, plaintiff SEC requests the Court to enter a final judgment against defendant Tsao that:

(i) Enjoins Tsao from violating Exchange Act Section 10(b) and Exchange Act Rule 10b-5;

(ii) Orders Tsao to disgorge, with prejudgment interest, all illicit profits realized from the above-described trading in U.S. BioScience and Aviron;

(iii) Orders Tsao to pay civil monetary penalties pursuant to Exchange Act Section 21A [15 U.S.C. § 78u-1] for his unlawful trading in U.S. BioScience and Aviron, and pursuant to Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)] for his unlawful trading in ImClone and MedImmune;

(iv) Prohibits Tsao from acting as an officer or director of any public company pursuant to Exchange Act Section 21(d)(2) [15 U.S.C. § 78u(d)(2)]; and

(v) Grants such other and further relief as the Court deems just and appropriate.

Dated: June 2, 2003

http://www.sec.gov/litigation/complaints/comp18164.htm