May 19, 2024

F.D.A. Chemist Charged With Inside Trading in Drug Companies

The Securities and Exchange Commission charged Cheng Yi Liang, 57, and his son Andrew, 25, with illegally trading in advance of at least 27 public announcements about 19 publicly held companies, reaping $3.6 million in profits and avoided losses.

“Liang’s conduct was calculated, repeated and egregious,” the S.E.C. said in its complaint, filed in federal court in Maryland. “Liang was a serial insider trader who violated the public’s trust for his own profit on numerous occasions.”

The Justice Department also charged them with conspiracy, securities fraud and wire fraud for making $2.27 million in trades involving five pharmaceutical companies between November 2007 and March 2011. The sum includes $1 million from the F.D.A.’s approval of Vanda Pharmaceutical’s schizophrenia drug Fanapt.

The Justice Department said its investigation was continuing.

The two were arrested at their home in Gaithersburg, Md., on Tuesday morning and made initial appearances in court. The judge granted them conditional release pending trial.

The elder Mr. Liang has worked at the F.D.A. since 1996 in the Office of New Drug Quality Assessment and had access to the agency’s internal tracking system for new drug applications.

He was able to monitor confidential information about whether and when the agency was about to approve certain drug applications. He and his son used several brokerage accounts to execute trades, prosecutors said.

One account was in the name of Mr. Liang’s 84-year-old mother, who lived in China, according to the S.E.C.

An F.D.A. spokeswoman, Meghan Scott, said the agency was cooperating with authorities on the case. “We will review the situation and take any appropriate action,” she said.

Investigators installed software on the elder Mr. Liang’s computer in January that collected screenshots, revealing that he was collecting information about drug approvals, including for Clinical Data’s anti-depressant Viibryd.

On Jan. 18, within minutes of reviewing an internal document recommending approval, several accounts controlled by Mr. Liang and his son bought nearly 5,000 shares of the stock, according to prosecutors.

According to prosecutors, the Liangs eventually bought nearly 50,000 shares before the Jan. 21 announcement and made more than $379,000 in profit after the stock rose some 67 percent on the approval news.

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