FDA CHEMIST PLEADS GUILTY TO INSIDER TRADING
The FDA Chemist alleged to have engaged in insider trading using proprietary information from agency computers pleaded guilty insider trading charges. Specifically, Cheng Yi Laing entered a guilty plea to one count of securities fraud and one count of making a false statement. Mr. Laing also agreed to forfeit approximately $3.7 million representing his trading profits. Sentencing is scheduled for January 9, 2012. U.S. v. Laing, 8:11-mj-1236 (D. Md. Filed March 28, 2011).
Mr. Liang has been employed as a chemist since 1996 at the FDA’s Office of New Drug Quality Assessment. This gave him access to the password-protected internal tracking system of the agency for new drug applications known as the Document Archiving, Reporting and Regulatory Tracking System or DARRTS. Through this system Mr. Liang was able to track the progress of experimental drug applications through the FDA process.
In connection with his plea agreement Mr. Liang admitted that from July 2006 through March 2011 he used inside information from the DARRTS system and other sources to trade in the securities of pharmaceutical companies. When the inside information was positive about a company product he purchased the securities of the company. Conversely when it was negative he would make trades in anticipation of the downward movement of the stock.
During the investigation into Mr. Liang’s trading the HHS-OIG installed software on his computer which permitted it to take screen shots. Those shots demonstrated that Mr. Liang regularly accessed the DARRTS system. For example, in May 2010 the FDA accepted Clinical Data Inc.’s application for the drug Viibryd, an anti-depressant. After the instillation of the camera in his computer in early January 2011, shots captured Mr. Liang regularly accessing DARRTS to review information regarding the drug. On January20, 2011 he purchased 46,875 shares of Clinical Data stock. After the close of the markets on January 21, 2011 the company announced the approval of the drug. The next trading day the share price increased from its prior close at $15.03 to $24.76. Mr. Liang sold all of his shares at a profit of $384,300.
Mr. Liang conducted his trading through controlled accounts in the name of relatives.
As an employee of the agency he was required to file disclosure forms regarding his securities trades. His trading was not disclosed. The SEC has a parallel civil action pending. SEC v. Laing, Case No. 8:11-cv-00819 (D. Md. Filed March 29, 2011). The criminal case arose from a referral to the DOJ by the SEC’s Market Abuse unit.
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