Case 3:15-cr-00024-DMS Document 4 Filed 01/07/15 Page 1 of 16

l LAURA E. DUE'FY Attorney 2 VALERIE H. CHU Assistant United States Attorney 3 Bar Nos. 241709 Federal Off ice Building 4 880 Front Street, Room 6293 San Diego, California 92101-8893 5 Telephone: ( 619) 546-6750 Email: [email protected] 6 Attorneys for United States of America

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CAL~FORNIA

10 UNITED STATES OF AMERICA,

11 Plaintiff, v. DEFERRED PRO~J:!:.£UTION AGREEMENT 12 ANSUN BIOPHARMA, INC., 13 14 Defendant. 15

16 IT IS HEREBY AGREED between the plaintiff I UNITED STATES OF 17 AMERICA, through its counsel, Laura E. Duffy, United States Attorney, 18 and Valerie H. Chu, Assistant United States Attorney, and Defendant 19 1 !ANSON BIOPHARMA, INC. {"Defendant"), with the advice and consent of 20 Mark Geragos, counsel for Defendant, as follows: 21

22 CRIMINAL INFORMATION AND ACCEP'l'ANCE Oli' RESPONSIBILITY

23 1. Defendant acknowledges and agrees that the United States ·

24 Attorney's Office for the Southern District of California {the "USAO")

25 will file a one-count criminal Information in the United States 26 District Court for the Southern District of California charging it 27 with one felony count of knowingly executing a scheme to defraud the 28

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United States in a contract valued at more than $1 1 000,000, in 1 violation of Title 18, United States Code, Section 1031(a). In doing 2 3 so, Defendant knowingly and voluntarily waives: (a) its right to

4 Indictment on this charge and {b) its right to a speedy trial pursuant

5 to the Sixth Amendment of the United States Constitution, Title 18, 6 United States Code, Section 3161 and Federal Rule of Criminal

Procedure 4 8 ( b) .

2. Defendant admits, accepts, acknowledges and stipulates that

the facts set forth in the Statement of Facts, attached hereto as 10 11 Exhibit A (and incorporated into this Agreement by reference), are 12 true and accurate. Should the USAO pursue the prosecution that is

13 deferred by this Agreement, Defendant agrees that it will neither l4 contest the admissibility of, nor contradict the facts as stated in, 15 the Information and the Statement of Facts in any proceeding,

1 nq r: r: L't , 1--:y 17 'I'~ OB' 'l'HE AGREJl:MEN'l' 18 3. This Agreement is effective for a period beginning on the 19 20 date on which the Information is filed and ending six months from that 21 date (the "term"). However, Defendant agrees that, in the event the

22 USAO determines that Defendant bas knowingly violated any provision of

23 this Agreement, an extension of the term may be imposed by the USAO 24 · for up to a total additional time period of one year, without 25 prejudice to the USAO's right to proceed as provided in Paragraphs 8- 26 11 below. 27 1 28

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4. Conversely, in the event the USAO finds, in its sole

3 then the USAO may shorten the term, or terminate this Agreement in its

4 entirety, at any time.

OBLIGATIONS UNDER THE AGREEMENT

5. During the term, Defendant will comply with the following

conditions:

a. Defendant shall not violate any federal, state or local law;

b. Defendant shall not violate any regulation promulgated by 10

11 the Department of Health and Human Services; 12 Defendant shall provide complete, truthful and accurate 13 information to the USAO in connection with any investigation

14 of contract fraud, overbilling, or fraudulent billing; and 15 Defendant shall pay to the United States 16 reW"4..AV"'/_ lfH.C ~the amount of $1,654,600.26 on or before ~m:xer)l"'D.)1 2015. 17 L ftf411'Henrt ~a.>-. ~\'I'his f!!e.RaH.~t shall be paid to the National Institutes 18 1 Health at the following address: 19 Richard L. Hartmann Chief, Microbiology and Infectious Diseases Research Contracts Branch-A (MIDRCB-A} Office of Acquisitions, DEA, NIAID, NIH, HHS 6700-B Rockledge Drive, Room 3154, MSC7612 Bethesda, MD 20892-7612 23 24 On the same day this Agreement is filed, Defendant shall 25 sign the Contractor's Release of Claims for the total amount 26 of the Fludase Contract, as well as for any other amount, as 27 28

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part of any other grant or contract, billed prior to the

date this Agreement is filect.

CONl>I~lONAl. R.l!!:LmASE FROM CRIMINAL LlA<tTY

6. In return for Defendant's complete, truthful and accurate

5 cooperation with the USAO' s investigation and prosecution of contract

6 fraud, overbilling and fraudulent billing, and its compliance with the 7 conditions of this Agreement, the USAO agrees, subject to paragraphs

8-11 belo\.;, that any pcosecution of Oefend.<1nt for th~~ .:;onduct set

~ forth in the Statement of Facts shall be and hereby is deferred for 10

11 the term of this Agreement. 12 7. The OSAO further agrees, subject to paragraphs 8-11 below, 13 not to use any information related to the conduct described in the

14 Statement of Facts against Defendant in any criminal case, except in a 15 prosecution arising from conduct that postdates the filing of this 16 agn;u~ment for: 17

18 below, that 30 days after the term of the Agreement has run, the USAO 19

20 will seek dismissal with prejudice of the Information filed in this I 21 !case.

22 BREACH 01' THE AGREEMENT

23 8. If, during the term of this Agreement, the USAO determines 24 that Defendant has violated any term of this Agreement, Defendant 25 shall thereafter be subject to prosecution for the conduct set forth 26 in the Statement of Facts. The statute of limitations for any 27 conduct shall be deemed tolled between the date Defendant 28 [ criminal I I Initials Mt[ ! Case 3:15-cr-00024-DMS Document 4 Filed 01/07/15 Page 5 of 16

sign this Agreement and the term - including any extension of the term 1 - plus one year .. 2 9. In addition, in the event the USAO determines Defendant has

4 violated this Agreement, the USAO agrees to provide Defendant with

5 written notice of such violation prior to instituting any prosecution.

6 Defendant shall, within 30 days of such notice, have the opportunity 7 to respond to the USAO in writing to explain the nature and

circumstances of the violation, as well as the actions Defendant has

taken to remedy the situation. 10

11 10. Furthermore, in the event the USAO is unsatisfied with 12 Defendant's response: (a) all statements made by or on behalf of

13 Defendant to the USAO or to the Court, including the Statement of

14 Facts attached hereto as Exhibit A, and any testimony given by 15 Defendant before a , a court, or any tribunal, or at any 16 legisiative hearings, whether prior or subsequent to this Agre~ment, 17 or any leads derived from such statements or testimony, shall be lB admissible in evidence in any and all criminal proceedings brought by 19 20 the USAO against Defendant; and (b) Defendant shall not assert any 21 claim under the United States Constitution, Rule ll(f) of the Federal

22\ Rules of Criminal Procedure, Rule 410 of the Federal Rules of

23 j Evidence, or any other federal rule, that statements made by or on 24 Ibehalf of Defendant to the USAO prior or subsequent to this Agreement, 25 ! land any leads derived therefrom, should be suppressed. 261 11. Defendant acknowledges that the USAO has made no 271 28 r representations, assurances or promises concerning what sentence may

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be imposed by the Court if Defendant breaches this Agreement and this 1 matter proceeds to judgment and sentencing. At any such future 2 J sentencing hearing, the USAO may advocate for any lawful sentence.

4 Defendant further acknowledges that any such sentence is solely within

5 the discretion of the Court and that nothing in this Agreement binds

6 or restricts the Court in the exercise of such discretion. 7 LIMITATION ON BINDING EFFECT OF AGREEMEN~

12. This Agreement is binding on Defendant and the USAO but

specifically does not bind any other federal agencies, or any state, 10

11 local or foreign law enforcement or regulatory agencies, or any other 12 authorities, in any criminal, civil or administrative proceeding,

13 although the USAO will bring Defendant's cooperation under this

1 4 Agreement to the attention of such agencies and authorities if 15 requested to do so by Defendant. 16 II 17 II 18 II 19

20 II 21

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NO'fICE

· 13. "Any notice under this Agreement shall be made by personal 2

3 delivery, overnight delivery by a recognized delivery service, or

4 registered or certified mail, addressed to the Chief - Major Frauds

.'.:! and Special Prosecutions Section, United States Attorney's Office,

6 Room 6293, 880 Front street, San Diego, California 92101, and for

Defendant c/o Mark Geragos, 644 South Figueroa Street, ,

California 90017.

10 AGREED:

11 FOR THE USAO: LAURA E. DUFFY 12 United States Attorney 13

~Jf~s· ·~·~-"-'L--· 14 DA ED VALERIE H. CHU Assistant U.S. Attorney 15 FOR DlllFENDAN'l' : 16 17 12/18/14 18 DATED MARK GERAGOS Defense Counsel 19

20 December 18, 2014 21 i DATED ...... ~~~-· Vice President and General Counsel 221 ANSUN BIOPHARMA, INC. 23! 241 2sl 26 27 28

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COMPANY OWNER'S CERTXFICA~E

I certify that I am the Vice President and General Counsel of 3 ANSUN BIOPHARMA, INC. As such, I have been authorized, empowered and 1 directed to enter into the Agreement. :'I I have read this Agreement and carefully reviewed every part of

,7 it with outside counsel for ANSON BIOPHARMA, INC. I understand the · a terms of this Agreement and voluntarily agree, on behalf of ANSON

9 BIOPHARMA, INC. to each of the Agreement's terms. Before signing this lO Agreement, I consulted outside counsel for ANSON BIOPHARMA, INC. 11 Counsel fully advised me of the company's rights, of possible

13 consequences of entering into this Agreement. 14 15 I have reviewed the terms of this Agreement with the leadership 16 j of ANSUN BIOPHARMA, INC. I have been advised and caused outside

17 counsel to advise ANSUN BIOPHARMA, INC. of its rights, of possible

18 defenses, of the Sentencing Guidelines' provisions, and of the

of entering into the Agreement.

23 11

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No promises or inducements have been made other than those 1 contained in this Agreement. Furthermore, no one has threatened or 2 3 forced me, or to my knowledge any person authorizing this Agreement on

4 the company's behalf, in any way to enter into this Agreement. I am

5 also satisfied with outside counsel's representation in this matter.

By; MI ~··· Vice President and General Counsel ANS UN BIOPHARMA, INC. 10 11 12 13 14 15 16

17

18 19 20 21 22

23

24 25 i 261 27

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CERTIFICATE OF COUNSEL

I am counsel for ANSON BIOPHARMA, INC. in the matter covered by

3 this Agreement. In connection with such representation, I have

4 examined relevant documents and have discussed the terms of this

5 Agreement with the leadership of AN SUN BIOPHARMA, INC. Based on our 6 review of the foregoing materials and discussions, I am of the opinion 7 that: Mikael Havluciyan, the representative of ANSUN BIOPHARMA, INC.

has been duly autho.riz.ed to enter into this Agreement on the company' s

behalf and that this Agreement has been duly and validly authorized, 10 11 executed, and delivered on the company's behalf and is a valid and 12 binding obligation of ANSON BIOPHARMA, INC. Further, I have carefully

13 reviewed the terms of this Agreement with the company's leadership. I

14 have fully advised the leadership of possible defenses, of the 15 Sentencing Guidelines' provisions, and of the consequences of entering

i ntn th " the der;isicm of l\NSUN

s Agreement is knowingr intelligent, 18 informed and voluntary. 19

20 21 DATE: 12/18/1 ~ By: ·.~ .. ~?__ MARK GERAGOS 22 23 241 ' 2sj 26

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CERTIFICATE 01' CORPOllTJ!: RESOLUTIONS

WHEREAS, ANSUN BIOPHARMA, INC. has been engaged in discussions

3 with the United States Attorney's Office, in the Southern District of

4 California, Criminal Division ( "USAO-Criminal If) regarding the

5 submission of inaccurate timesheets to the National Institute of 6 Health in connection with grants to develop treatments for influenza;

WHEREAS, in order to resolve such discussions, it is proposed

that ANSU~ BIOPHARMAt INC. enter into a certain agreement with USAO­ (:t Criminal, and 10 11 WHEREAS, ANSUN BIOPHARMA, INC.' S outside counsel, Mark Geragos, 12 has advised the Board of Directors of ANSUN BIOPHARMA, INC. of its

13 rights, possible defenses, the Sentencing Guidelines 1 provisions, and

14 the consequences of entering into such agreement with USAO-Criminal. 15 Therefore, the Board of Directors of ANSUN BIOPHARMA, INC. has 16 RESOLVED that: 17 1. ANSUN BIOPHARMA, INC. consents to the filing of a one-count 18 Information charging ANSUN BIOPHARMA, INC. with knowingly 19

20 executing a scheme to defraud the United States in a contract 21 valued at more than $1, 000, 000, in violation of Title 18,

22 United States Code, Section 103l(a).

23 2. The Vice President and General Counsel, MIKAEL HAVLUCIAN, is

241 hereby authorized, empowered and directed, on behalf of ANSUN I 25 BIOPHARMA, INC., to execute the Deferred Prosecution Agreement 26 substantially in such form as reviewed by this Board of 27

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Directors at this meeting with such changes as the Vice

President and General Counsel may approve;

J 3. The Vice President and General Counsel, Mr. Havlucian, is

hereby authorized, empowered, and directed to take any and all

actions as may be necessary or appropriate and to approve the

forms, terms, or provisions of any agreement or other documents 7 as may be necessary or appropriate, to carry out and effectuate

the purpose and intent of the foregoing resolutions; and

4. All of the actions of ANSUN BIOPHARMA, INC's Vice President and 10 11 General Counsel Mr. Havlucian, which actions would have been 12 authorized by the foregoing resolutions except that such 13 actions were taken prior to the adoption of such resolutions,

14 are hereby severally ratified, confirmed, approved, and adopted 15 as actions on behalf of ANSUN BIOPHARMA, INC. 16

17 // DATE: Decef!!!Jer 18, 20:'14 By: 18 i/L~~····· v==~ Corporate Secretary 19 ANSUN BIOPHARMA, INC. 20 21! ' 22

23 24 25 26

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EXHIBIT A STATEMENT OF FACTS

The following Statement of Facts is incorporated by reference as 3 part of the Deferred Prosecution Agreement between the USAO and ANSUN

BIOPHARMA, INC. ("Defendant'') . Defendant admits, accepts and

acknowledges, and Defendant and the USAO stipulate, that the following 6 7 information is true and accurate.

At all relevant times, Defendant was a biotechnology company headquartered in San Diego, California.

Mang Yu ("Yu") was Defendant's Chief Executive Officer and Dong Mei Wang ("Wang"), who is charged elsewhere, was 12 Defendant's Vice President of Finance and Administration, 13 and was responsible for Defendant's accounting department. 14 At all times, Yu and Wang acted on behalf, and for the 15 benefit, of Defendant. 16 From 2004 through at least 2011, Defendant received several 17 research grants and a contract from the National Institutes 18 of Health ("NIH"), including a grant award for "Broad- 19 Spectrum Therapeutics for Influenza" (Award Number 20 R43AI056786), and a grant award for "Development of Fludase 21 as an Anti-Influenza AgentH (Award Number U01AI070281) . 22 As part of these grants, Defendant was required to track 23 employee labor using indi victual employee time sheets. The 24 timesheets should have tracked the number of hours each 25 employee spent on certain projects, holidays, employee 26 vacation and sick leave, and indirect labor categories, such 27 as Overhead and General and Administrative ("G&A"). 28

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Defendant hired an independent auditor to conduct audits of

the NIH-funded grants.

Yu directed accounting personnel, including Wang r to fabricate timesheets for all of Defendant's employees. Defendant then submitted the timesheets to the independent

auditor without disclosing that the timesheets had not been

I created by individual employees contemporaneously with the

labor reported therein, but rather had been created by Wang several months after the work was done.

10 During an audit of an NIH grant conducted in 2006, at the

111 direction of Yu, Wang again fabricated timesheets for all 12 j Defendant's employees~ Defendant then submitted these 13 fabricated timesheets to the independent auditor.

14 In September 2006, NIH awarded Defendant a $50 million

15' contract to develop a drug to combat influenza, Contract

Number HHSN266200600015C (the ~rludase Contract"}. The

E'ludase Contract was in place from September 29, 2006 to

18 September 28, 2011.

19 In 2009, Defendant created a time-keeping policy, which 20 required employees to accurately record the number of hours 21 devoted to certain projects, including projects covered 22 under the Fludase Contract and other NIH-funded grants. The

23 policy also required employees to accurately record the

24 number of hours attributed to Overheard, G&A and other labor

25 categories.

26 10. Despite these time-keeping requirements instituted by

27 Defendant, Yu directed accounting personnel to maximize

28 reimbursements from NIH, regardless of the actual number of 14 Ini tialsMH: Case 3:15-cr-00024-DMS Document 4 Filed 01/07/15 Page 15 of 16

l i employee hours spent on the Fludase Contract or the other NIH-funded grants. In particular, Yu directed Wang to bill

employee hours to the Fludase Contract, even if the project

the employee was working on did not fall with the scope of

the Fludase Contract. Yu told Wang that Defendant should use the money authorized by the Fludase Contract whenever

possible, in case NIH terminated the Contract before

Defendant had used all the allotted funds. In addition, Yu

told Wang to extend the funding available on the NIH grants

10 for as long as possible because he needed access to the

11 money from the grants to manage cash flow problems at the

12 company. Ii'inally, Yu instructed Wang to ensure Defendant's 13 final indirect labor rate either met or exceeded Defendant's 14 provisional indirect labor rate, so as to minimize the ! 15l possibility that Defendant would have to repay NIH for any t 16 indirect labor costs. 17 11. To comply with Yu's order, Wang, with the intent to defraud,

18 adjusted Defendant's indirect labor costs, regardless whether such adjustments accurately reflected the work done. Wang also, with the intent to defraud, corrupted the

integrity of the employee time-keeping system by fabricating

22 timesheets for certain employees, altering the number of

23 hours entered on certain timesheets and moving employee 24 hours from one labor category to another.

25 12. Wang, with the intent to defraud, fabricated timesheets for

26 Yu without regard to the actual work done. 27 13. Wang altered employee timesheets to move employee hours from

28 non-government projects not covered by the Fludase Contract 15 Initials Mff Case 3:15-cr-00024-DMS Document 4 Filed 01/07/15 Page 16 of 16

to either the Fludase Contract or one of the NIH grants.

The purpose and effect of this alteration was to obtain

money from NIH, even if the work was not covered under the

terms of the Fludase Contract or NIH grants.

[J 14. During the term of the Fludase Contract through June 2011, Wang altered employee timesheets to move hours from the NIH grants to the Fludase Contract and made these changes without regard to the actual work done by the employee. The purpose and effect of these alterations were to extend the

10 available funding for NIH grants and maximize reimbursement

11 under the Fludase Contract.

12 FOR THE USAO: 13 LAURA E. DUFFY 14 United States Attorney

15 16 DAT~l~-~ Assistant Attorney 17 18 i'OR DEFENDANT:

19 12118/14 20 DATED MA.RK GERAGOS Defense Counsel 21

22 peqenm~I 18~ 2014 -~ 23 DATED Vice President and General Counsel 24 ANSUN BIOPHARMA, INC.

25 26

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