FDA CHEMIST CHARGED FOR SERIAL INSIDER TRADING

FDA chemist Cheng Yi Liang was named as a defendant along with his son Andrew Liang in a criminal insider trading complaint. U.S. v. Liang (D. Md. Filed March 29, 2011). The SEC filed a parallel action against the chemist. His son was only named as a relief defendant along with several others. SEC v. Liang, Case 8:11-cv-00819 (D. Md. Filed March 29, 2011). A civil forfeiture action was also filed regarding seven brokerage accounts, two bank accounts and two parcels of real estate alleged to have been involved with the illegal trades.

Mr. Liang has been employed at the U.S. Food and Drug Administration since July 2006. During that period he worked at the Center for Drug Evaluation and Research. The Center evaluates new drug applications before the product can be sold in the U.S. It either approves the request or issues a “complete response letter” specifying the difficulty. All of this information is non-public.

By accessing the Center’s confidential data, Mr. Liang was able to secure material non-public information about the application and a specific drug. In each instance he is alleged to have accessed the Center’s confidential information before engaging in a stock transaction involving the shares of a drug manufacturer. Mr. Liang is alleged to have purchased stock prior to the issuance of a positive announcement in 19 instances. On six occasions he sold stock short prior to the release of negative information. In two instances he was to avoid to trade and avoid a loss prior to the announcement.

In January 2011 HHS-OIG installed software on Mr. Liang’s work computer which allowed it to collect “screen shots,” according to the criminal complaint Shots from the computer show Mr. Liang accessing a secure Center data base to retrieve information about a drug. Within minutes several accounts controlled by Mr. Liang purchased shares in the manufacturer.

Mr. Lange is alleged to have traded through several different accounts. Shares were not purchased in his account. Rather, they were bought and sold through accounts of his son, wife, mother who resides in China and others. The SEC complaint details instances where trades in a particular stock were made sequentially for each account. On some occasions the trades came from the same IP address or one associated with Mr. Liang’s Verizon internet account.

Attached to the SEC complaint is a chart listing the stocks, the dates of the trades, the date and time of the FDA announcement and the trading profits or loss avoided. In most instances the trades began shortly before and continued up to and including the date of the announcement.

The criminal complaint charges the father and son with conspiracy to commit securities and wire fraud, securities fraud and wire fraud relating to their trading in the securities of five companies. The SEC complaint against the father alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). It is based on trading in advance of 27 announcements involving 19 stocks. All three cases are pending.