==========================================START OF PAGE 1====== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. Litigation Release No. 15322 / April 10, 1997 SECURITIES AND EXCHANGE COMMISSION v. MILTON MUTCHNICK, ET AL., Civil Action No. 1:97CV00709 JLG (D.D.C. April 10, 1997). SECURITIES AND EXCHANGE COMMISSION v. RANGARAO PANGULURI, ET AL., Civil Action No. SACV 97-298 GLT (EEX) (C.D. Cal. April 9, 1997). The Securities and Exchange Commission today announced the filing of two "bad news" insider trading cases involving the securities of Alpha 1 Biomedicals, Inc. ("Alpha 1") and SciClone Pharmaceuticals, Inc. ("SciClone"). In each case, a group of traders was tipped about negative news concerning how a new drug developed by Alpha 1 and licensed to SciClone had performed in a crucial clinical trial. The traders were tipped about the fact that initial analysis of the test data from the clinical trial indicated that the trial had not proven the drug to be effective. One group of traders, located in Ohio and Michigan, obtained this information, directly or indirectly, from Dr. Milton Mutchnick, the lead investigator on the clinical trial, and his wife, Renee Mutchnick; the second group, located in California, obtained this information, directly or indirectly, from Dr. Rangarao Panguluri, Mutchnick's assistant. The Complaints allege that Alpha 1's primary product-in- development during the relevant period was the experimental, anti-hepatitis drug, Thymosin alpha 1 ("Thymosin"). The drug underwent a well-publicized, double-blinded, Phase III clinical trial at three medical research institutions. Successful performance by Thymosin in the Phase III clinical trial was a necessary step towards approval by the Food and Drug Administration. Prior to the unblinding of the Phase III clinical study, the share price of the common stock of both Alpha 1 and SciClone was substantially determined by investor expec- tations as to the outcome of the study. The Complaints also allege that, on April 25, 1994, Mutchnick and his assistant, Panguluri, unblinded the study and learned that patients treated with Thymosin fared no better than patients given a placebo with respect to the study's most significant test parameter. The Complaints further allege that on the evening of April 25, 1994, Mutchnick tipped a group of friends and family members, and Panguluri tipped a separate group of friends and business associates, about their initial analysis of test data from the Phase III clinical trial, which strongly indicated that the study had failed to demonstrate Thymosin to be effective in the treatment of hepatitis B. Each of the individuals to whom Mutchnick and Panguluri spoke that evening ==========================================START OF PAGE 2====== immediately sold all of their Alpha 1 or SciClone securities, thereby avoiding losses in the aggregate of approximately $300,000. Prior to the opening of the market on April 28, 1994, Alpha 1 announced the negative news about the Thymosin clinical trial. The share price of both stocks declined that day by approximately two-thirds. The Commission filed its Complaint against the Mutchnicks and their tippees in the United States District Court for the District of Columbia on April 10, 1997. Simultaneous with the filing of this Complaint, the Mutchnicks, Michael DeWood, Dennis M. Gill, Yvonne Graham, Paul H. Holloway, William M. Leuchter and Richard Liebich each consented, without admitting or denying the allegations in the Complaint, to the entry of a Final Judgment permanently enjoining each of them from future violations of the antifraud provisions of the Exchange Act. In addition, the Final Judgment to which the Mutchnicks have consented orders them to pay, pursuant to the Insiders Trading Sanctions Act of 1984, a civil penalty of $163,494.75, an amount equal to the total of all of their tippees' avoided losses. Further, the Final Judgments to which Holloway, Leuchter and Liebich have consented order them to disgorge losses avoided of $40,265, $9,150 and $4,900, respectively, plus prejudgment interest thereon, and to pay civil penalties of $40,265, $9,150 and $1,100, respectively, pursuant to the Insider Trading Sanctions Act of 1984. The Final Judgments to which Gill, DeWood and Graham have consented order them to disgorge their losses avoided of $90,488.50, $5,675 and $13,016.25, respectively, plus prejudgment interest thereon, but waive payment of such amounts and of civil penalties in light of their demonstrated inability to make such payments. The Commission filed its Complaint against Dr. Panguluri and his tippees in the United States District Court for the Central District of California on April 9, 1997. That Complaint alleges that Panguluri tipped, directly or indirectly, his friends, Dr. Ravindra Alapati and Dr. Syam Gaddam, at a time when he was negotiating with them about joining their medical practice. The Complaint also alleges that Alapati not only avoided losses of $52,825 by liquidating his 7,800 shares of SciClone stock and his 150 shares of Alpha 1 stock, but also made a profit of $8,000 from the bad news by selling short 2000 shares of Alpha 1 stock. The Complaint further alleges that Dr. Gaddam and his wife avoided losses of $13,431 by selling 2,595 shares of Alpha 1 stock and 4,041 Alpha 1 warrants. The Complaint also alleges that, after being tipped by Panguluri, Alapati, in turn, tipped his professional and social friend, Dr. Ravi Makam, who avoided losses of $59,325 by selling his 9,100 shares of SciClone stock. The Complaint further alleges that the Gaddams tipped Mrs. Gaddam's sister, who is not named as a defendant in the case but who avoided losses of $3,500 by selling 1000 shares of Alpha 1 ==========================================START OF PAGE 3====== stock. The Complaint also alleges that Drs. Alapati, Gaddam and Makam concocted phony alibis and enlisted the help of others in an attempt to cover up their insider trading.