Crime Doesn’t Pay: Former FDA Chemist Life in Tatters For Insider Trading

Crime Doesn’t Pay: Former FDA Chemist Life in Tatters For Insider Trading

March 6th, 2012 // 1:51 pm @

Source: Pharmalot

One year after his scheme was discovered, FDA chemist Cheng Yi Liang was sentenced to five years in prison for insider trading. Liang, 58, used confidential information about upcoming announcements of 27 different FDA approval decisions involving 19 publicly traded companies over a five-year period, and generated more than $3.7 million in illegal profits for himself.

Last fall, the chemist pleaded guilty to one count of securities fraud and one count of making false statements, and was ordered to forfeit his profits. He faced up to 20 years in prison for the insider trading charge and another five years, plus a $5 million fine, for the other charge. The feds, by the way, claimed Liang fell within the top 14 percent of insider trading cases filed between 2006 and 2010.

Beginning in July 2006, Liang traded in seven brokerage accounts, including six listed in the names of other people, including his 25-year-old son, who was also charged, and his 84-year-old mother who lives in China. The profits, some of which were stashed in offshore accounts, were used to pay credit card debts and purchase cars, according to court documents (read the complaint here).

Liang, by the way, joined the FDA in 1996, working in the Office of New Drug Quality Assessment in the Center For Drug Evaluation and Research. And he was able to gather info about New Drug Applications from the FDA’s Document Archiving, Reporting, and Regulatory Tracking System. The feds described his efforts as “sophisticated,” and required “long-term planning and forethought” (read the sentencing memo here).

He traded in these stocks: 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 this chart).

The arrest raised a thorny issue for the FDA. There has long been speculation among investors – disgruntled and otherwise – that some agency employees may take advantage of insider info themselves or horsetrade with others. Such assumptions may be unfair to FDA employees, but this episode cast yet another harsh spotlight on the agency.

His son, Andrew Liang, last fall pleaded guilty to possessing child pornography found during the insider trading investigation and was sentenced to one year in prison. He was also required to register as a sex offender. The feds had discovered child pornography material that was seized during searches of his Gaithersurg, Maryland, home.

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