FDA Chemist Charged With Insider Trading

By Ed Silverman 

An FDA chemist named Cheng Yi Liang was charged today by the US Securities and Exchange Commission with insider trading on confidential info about upcoming announcements of 27 different FDA approval decisions involving 19 publicly traded companies and generated more than $3.6 million in illegal profits for himself. And would you believe that he avoided incurring any losses?

Some of the FDA announcements involved approval of new drugs while others concerned were negative decisions. In each instance, the SEC says he traded in the same direction as the announcement, but worked hard to disguise his work. Beginning in July 2006, Liang traded in seven brokerage accounts, including six listed in the names of other people, including his 25-year-old (who was also charged) and his 84-year-old mother who lives in China (read the complaint and his trading history here).

Here is one example: the SEC alleges Liang, 57, who worked for the Center for Drug Evaluation and Research since 1996, traded in advance of an FDA announcement approving Clinical Data’s application for its Viibryd depression pill. He accessed a confidential FDA database and used the info to buy more than 46,000 Clinical Data shares costing more than $700,000. After the markets closed on Friday, January 21, 2011, the FDA issued a press release approving Viibryd. Clinical Data’s stock price rose by more than 67 percent the following Monday and Liang sold his entire position in less than 15 minutes for a profit of about $380,000, the SEC charges.

The SEC alleges that Liang used the trading profits for his own personal benefit. Checks totaling at least $1.2 million were written from the accounts he used for trading to a bank account in his name, to him or his wife, or to pay credit card debts. And nearly $65,000 worth of checks were written from the brokerage accounts to car dealers to buy vehicles later registered to Liang and his wife.

Which other stocks did he traded illictly? Well, there was… Adolor, Anesiva, Connetics, Cornerstone Therapeutics, CV Therapeutics, Encysive Pharmaceuticals, EPIX Pharmaceuticals, MannKind, Middlebrook Pharmaceuticals, Momenta Pharmaceuticals, Novadel Pharmaceuticals, Pharmacyclics, Pozen, Progenics Pharmaceuticals, Santarus, Somaxon Pharmaceuticals, Spectrum Pharmaceuticals and Vanda Pharmaceuticals (look at the chart here).