2nd UPDATE: FDA Chemist Pleads Guilty To Insider Trading

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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