U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19379 / September 15, 2005

SECURITIES AND EXCHANGE COMMISSION v. JAMES J. FARLEY and SHELLEY J. FARLEY, DEFENDANTS, Civil Action File No. 05-CV-8016 (S.D.N.Y.).

SEC CHARGES A SALES EMPLOYEE OF CRYOLIFE, INC. AND HIS WIFE WITH ILLEGAL INSIDER TRADING

The Securities and Exchange Commission today announced the filing of an action against two 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, James J. Farley, a former salesman for CryoLife and his wife, Shelley J. Farley, both of Medford, New Jersey, obtained material nonpublic information pertaining to a nationwide hold on tissue shipments that they used to avoid losses in CryoLife securities.

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 morning of August 14, the defendants learned that there was a FDA imposed 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.

The Farleys, while in possession of nonpublic information, sold CryoLife stock during the morning of August 14 at prices ranging from $9.30 to $9.45. In addition, J. Farley tipped S. Farley’s sister and her husband who also sold CryoLife stock. 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 from 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 totaled approximately $56,832.00.

The complaint alleges that by their conduct, the Farleys violated 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. The Commission seeks a permanent injunction, disgorgement plus prejudgment interest, and civil penalties against each defendant.

In a separate action, the Commission filed a complaint in the United States District Court for the Southern District of New York against four CryoLife sales persons, Rodney R. Drinen, Gerald R. Holmes, Thomas P. McHugh, and Prescott B. Nash, and the wives of McHugh and Nash for engaging in similar illegal insider trading activity. Simultaneously with the filing of the Commission’s action, each of the defendants in the separate action agreed, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining each 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, requiring disgorgement of ill-gotten gains and ordering payment of a civil penalty.

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.

http://www.sec.gov/litigation/litreleases/lr19379.htm