Legal News

SEC: FDA Chemist Puts Down His Beakers, Makes Illegal Trades

By Ashby Jones

Advice to FDA workers: If you’re privy to sensitive drug-approval information, it might be prudent to refrain from buying and sell shares of the companies that own those drugs shortly before approval announcements are made.

We might think that someone, somewhere, after a while, might detect a pattern. Before you know it, you’re staring down the barrel of a nasty little insider-trading complaint.

Indeed, that’s the type of complaint facing an FDA chemist named Cheng Yi Liang. The SEC on Tuesday sued Liang, accusing him of insider trading in regard to 19 public companies. Click here for the WSJ story; here for the Bloomberg story; here for the SEC’s 30-page complaint, filed in Maryland federal court.

The Justice Department filed related criminal charges, and also charged Liang’s son, Andrew Liang, in the case. Both are residents of Gaithersburg, Md.

A call to Liang’s office was not immediately returned.

The Securities and Exchange Commission charged a U.S. Food and Drug Administration employee with insider trading on 19 public companies, according to court documents filed Tuesday in a federal court in Maryland.

The SEC alleged that Liang was privy to highly confidential FDA drug-approval information and used it to engage in unlawful insider trading in advance of at least 27 different FDA announcements. According to the complaint, Liang’s insider trading generated more than $3.6 million in illegal profits and losses avoided.

Over at the WSJ’s Marketbeat blog, Dave Kansas points out that even when armed with inside dope, gains aren’t necessarily guaranteed:

Remarkably, though, Liang, who has worked at the FDA since 1996, sometimes stumbled. After racking up more than $243,000 after his first three trades, he must have become a bit confused by his own insider dope.

On Aug.1, 2007, he went short 29,520 shares of Pozen. But the negative FDA news for Pozen on Aug. 2 didn't have the intended effect, and the SEC says he lost $174,409 on the trade. Like many a trader, he wasn't necessarily wrong – he was early! He made two subsequent trades (long this time) on Pozen that netted him nearly $100,000.

But Liang allegedly did bounce back, writes Kansas:

He then re-discovered his mojo, snapping off 19 straight winners through July 2010, including a $1.04 million gain in one week after Vanda surged upon getting an FDA approval.

Full post as published by Law Blog - WSJ.com on March 29, 2011 (boomark / email).