2nd UPDATE: FDA Chemist Pleads Guilty To Insider Trading
October 18 2011 - 4:31PM
Dow Jones News
A U.S. Food and Drug Administration chemist pleaded guilty
Tuesday to charges that he made millions of dollars by trading
drug-company stocks based on confidential drug-approval
information.
Cheng Yi Liang, 57, a longtime chemist at the FDA, pleaded
guilty in a suburban Maryland federal court to two felony counts,
one for securities fraud and one for concealing his trading
activities.
The insider-trading case, disclosed in March, jolted the FDA
because Dr. Liang worked on new-drug approvals, a visible and
sensitive area for the agency.
The pharmaceutical industry has long worried about security in
this area, given how much secret corporate information is shared
with employees at the FDA.
Dr. Liang's guilty plea came as part of a plea deal with the
government. In halting English, Dr. Liang acknowledged that, from
2006 until March 2011, he made more than $3.7 million trading
pharmaceutical stocks based on his access to inside information
about experimental new drugs that were progressing through the FDA
approval process.
He acknowledged using online brokerage accounts in the names of
his relatives and acquaintances, making trades from his home
computer or tablet computer ahead of FDA announcements.
Federal authorities alleged Dr. Liang illegally traded shares of
at least 25 companies based on FDA inside information. The chemist
allegedly traded stocks of smaller companies developing new drugs,
rather than major corporations, to take advantage of the relatively
larger swings in these companies' stocks.
A charging document filed in connection with the plea deal
discussed only one insider transaction in detail: Dr. Liang's
trading of nearly 47,000 shares in Clinical Data Inc., which was
seeking FDA approval of the antidepressant Viibryd. Prosecutors
said he sold his shares and made $384,000 after the drug was
approved in January. Clinical Data is now part of Forest
Laboratories Inc. (FRX).
The Securities and Exchange Commission has filed related civil
charges against Dr. Liang, and that case remains pending. Documents
in the SEC case indicate that other companies Liang traded include
Vanda Pharmaceuticals Inc. (VNDA), Momenta Pharmaceuticals Inc.
(MNTA) and CV Therapeutics Inc., which is now a unit of Gilead
Sciences Inc. (GILD).
U.S. District Judge Deborah Chasanow will sentence Dr. Liang on
Jan. 9. Prosecutors are seeking a sentence of between 70 and 87
months in prison.
Dr. Liang has agreed to forfeit the proceeds from his illegal
trades, including several investment accounts and a home and
condominium in Maryland. He is also in the process of resigning
from the FDA.
U.S. Assistant Attorney General Lanny Breuer said Dr. Liang's
actions amounted to "a shocking abuse of trust."
"Now, like many others on Wall Street and elsewhere, he is
facing the significant consequences of trading stocks on inside
information" Breuer said.
Prosecutors also initially charged Dr. Liang's son, Andrew
Liang, with insider trading, but later dismissed the charges. The
son pleaded guilty last month to possessing child pornography,
which authorities said they discovered while investigating the
insider-trading case.
-By Brent Kendall, The Wall Street Journal; 202-862-9222;
brent.kendall@dowjones.com
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