Rodney R. Drinen, Gerald R. Holmes, Thomas P. Mchugh, Nancy M. Mchugh, Prescott B. Nash, and Christina H. Nash

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19378 / September 15, 2005

SECURITIES AND EXCHANGE COMMISSION v. RODNEY R. DRINEN, GERALD R. HOLMES, THOMAS P. McHUGH, NANCY M. McHUGH, PRESCOTT B. NASH, and CHRISTINA H. NASH, DEFENDANTS, Civil Action File No. 05-CV-8015 (S.D.N.Y.).

SEC CHARGES FOUR SALES EMPLOYEES OF CRYOLIFE, INC. AND TWO SPOUSES WITH ILLEGAL INSIDER TRADING

The Securities and Exchange Commission today announced the filing of an action against six individuals for engaging in illegal insider trading in the securities of CryoLife, Inc., a Georgia company that preserves and sells implantable human tissue. The Commission's complaint, filed in the United States District Court for the Southern District of New York, alleges that in August 2002, four CryoLife employees and the spouses of two of them obtained material nonpublic information pertaining to a nationwide hold on tissue shipments that they used to obtain ill-gotten gains and to avoid losses in CryoLife securities.

The six defendants are:

Rodney R. Drinen of Phoenix, Arizona, was a CryoLife salesman in the Mountain Region prior to being promoted to regional manager in November 2002;

Gerald R. Holmes of Blue Springs, Missouri, is a CryoLife salesman in the Mountain Region;

Thomas P. McHugh of Hollis, New Hampshire, was a CryoLife salesman in the Northeast Region during the relevant period;

Nancy M. McHugh of Hollis, New Hampshire, is the wife of Thomas P. McHugh;

Prescott B. Nash of Englewood, Colorado, was a manager for CryoLife's Mountain Region until September 2002; and

Christina H. Nash of Englewood, Colorado, is the wife of Prescott B. Nash.

The Commission's complaint alleges that on August 13, 2002, after the stock market closed, the FDA issued a Recall Order ("Recall Order"), requiring, among other things, that CryoLife retain, recall and destroy the majority of its human tissue products. During the evening of August 13 and the morning of August 14, each of the defendants learned that there was a nationwide hold on tissue shipments by CryoLife. On the morning of August 14, trading resumed in CryoLife securities without the public dissemination of information about the Recall Order.

Each of the defendants, while in possession of nonpublic information, sold CryoLife stock during the morning of August 14 at prices ranging from $9.20 to $9.41. In addition, the McHughs also bought PUT options and sold CryoLife stock short. All of the trades at issue occurred before the news was widely disseminated by the wire services and prior to CryoLife issuing a press release.

Later that morning, after various news services learned of the Recall Order from the FDA and began to report that news, the trading volume of CryoLife stock dramatically increased and the stock price dropped 42% from $9.46 to $5.50 . Subsequently, the New York Stock Exchange halted trading in the stock and shortly thereafter CryoLife issued a press release disclosing the Recall Order. The next day, on August 15, trading in CryoLife stock resumed and traded actively before closing at $2.03 per share. Cumulatively, the defendants' losses avoided and ill-gotten gains totaled approximately $136,334.
Simultaneously with the filing of the Commission's action, each of the defendants agreed, 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 Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Additionally, the six defendants consented cumulatively to disgorge $136,334 of losses avoided and ill-gotten gains, plus pay prejudgment interest of $19,583 and a one-time penalty on their profits of $136,334.

In a separate action, the Commission filed a complaint in the United States District Court for the Southern District of New York against a former CryoLife sales person, James J. Farley and his wife, Shelley J. Farley, both of Medford, New Jersey, for engaging in similar illegal insider trading activity.

The Commission acknowledges the assistance of the New York Stock Exchange, Chicago Board Options Exchange, Food and Drug Administration, and the Centers for Disease Control and Prevention  in this matter.