FDA Chemist Charged With Trading On Confidential Information Related To Drug Approvals


The Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) announced on March 29, 2011, that civil and criminal proceedings are being brought against Cheng Yi Liang, a chemist employed by the Food and Drug Administration (“FDA”), for alleged insider trading. The complaints allege that Liang acquired confidential information about upcoming FDA drug approvals through his employment with the FDA, and that he traded on that information prior to public announcements concerning the status of drug reviews. According to the SEC, Liang traded on material nonpublic information related to 27 different FDA drug reviews, earning over $3.6 million in illicit profits. The SEC complaint asserts liability under SEC Rule 10b-5, promulgated pursuant to Section 10(b) of the Exchange Act, and Section 17(a) of the Securities Act. Criminal complaints filed against both Liang and his son, Andrew Liang, allege that the two conspired to commit securities fraud and wire fraud, and committed securities fraud and wire fraud. All of the complaints were filed in the U.S. District Court for the District of Maryland.

Liang was employed by the FDA’s Center for Drug Evaluation and Research (“CDER”), which is responsible for reviewing applications for new drugs and either approving the drug or identifying problems in the application. CDER’s review of drug applications is nonpublic. The FDA only discloses information related to the review of a drug when the drug is approved. According to the SEC’s complaint, Liang had access to a computer database detailing the review process for each drug. He routinely accessed that database to obtain material nonpublic information immediately prior to trading in companies with applications pending. Liang purchased shares in those companies shortly before positive announcements, and shorted or sold shares before negative announcements.

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