Tags: FDA Chemist | Insider Trading

FDA Chemist, Son Charged With Insider Trading

Wednesday, 30 Mar 2011 07:39 AM

A chemist with the Food and Drug Administration and his son were arrested Tuesday on charges of running a $2.27 million insider trading scheme.

Prosecutors say Cheng Yi Liang, 57, and his son, Andrew Liang, 25, used confidential information from a password-protected FDA tracking system to buy and trade the stocks of companies with pending drug applications. Both were arrested Tuesday on charges including securities fraud and wire fraud and made an initial court appearance in U.S. District Court in Greenbelt, Md.

Their lawyers did not immediately return calls seeking comment.

A criminal complaint charges the men, both of Gaithersburg, Md., with trading on inside information from November 2007 to this month. Prosecutors say the father and son used the proceeds to pay for travel and credit card bills and to buy new cars, prosecutors said.

Prosecutors say that by accessing an internal FDA database used to track and receive drug applications, Cheng Yi Liang repeatedly obtained inside information on when the agency would make a decision on drug applications and what that decision would be. He and his son would then use that information to purchase and trade the companies' shares days ahead of the FDA's formal announcement, according to the complaint. Federal authorities say they were able to take screen shots of Cheng Yi Liang's work computer that show him entering the database, which warns users that it is for "U.S.-government authorized use only."

In one example cited by the complaint, the men allegedly acquired 48,875 shares of Clinical Data Inc. after learning through the secure database that the company's anti-depression drug, Viibryd, was about to win approval. The drug was approved three days later, and the men sold their shares for a profit of more than $379,000, according to the complaint.

The FDA said in a statement that it was aware of the arrests. Cheng Yi Liang has worked for the FDA since 1996.

"The agency is cooperating fully with the authorities and will review the situation and take any appropriate action," the statement said.

In a related action, the Securities and Exchange Commission filed civil insider-trading charges against Liang. In a lawsuit filed in federal court in Greenbelt, the SEC is seeking unspecified restitution and fines against him.

"Liang victimized both the investors who were disadvantaged by his theft of inside information and the American citizens whose trust he violated by placing private gain above public good," SEC Enforcement Director Robert Khuzami said in a statement.

In addition, the agency named as relief defendants Liang's wife Yi Zhuge and the holders of the seven trading accounts he allegedly used. They are not accused of wrongdoing but the SEC is seeking to recover funds from them which it says they aren't entitled to. The account holders are named as Liang's mother Hui Juan Chen, his son Andrew, Shuhua Zhu, Zhongshan Chen and Honami Toda.

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