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SEC Charges FDA Chemist With Insider Trading Ahead of Drug Approval Announcements
FOR IMMEDIATE RELEASE 2011-76 Washington, D.C., March 29, 2011 The Securities and Exchange Commission today charged a U.S. Food and Drug Administration (FDA) chemist with insider trading on confidential information about upcoming announcements of FDA drug approval decisions, generating more than $3.6 million in illicit profits and avoided losses. Chart: Tracking the Trades

The SEC alleges that Cheng Yi Liang illegally traded in advance of at least 27 public announcements about FDA drug approval decisions involving 19 publicly traded Full-size (PDF) companies. Some announcements concerned the FDAs approval of new drugs while others concerned negative FDA decisions. In each instance, he traded in the same direction as the announcement. Liang went to great lengths to conceal his insider trading. He traded in seven brokerage accounts, none of which were in his name. One belonged to his 84-year-old mother who lives in China.

Additional Materials SEC Complaint Litigation Release No. 21907

In a parallel action, criminal charges filed by the Department of Justice against Liang were unsealed today. Liang victimized both the investors who were disadvantaged by his theft of inside information and the American citizens whose trust he violated by placing private gain above public good, said Robert Khuzami, Director of the SECs Division of Enforcement. Daniel M. Hawke, Chief of the SECs Market Abuse Unit, added, The insider trading laws apply to employees of the federal government just as they do to Wall Street traders, corporate insiders, or hedge fund executives. Many government agencies like the FDA routinely possess and generate confidential market-moving information. Federal employees who

http://www.sec.gov/news/press/2011/2011-76.htm

2/26/2012

SEC Charges FDA Chemist With Insider Trading Ahead of Drug Approval Announceme... Page 2 of 3

misappropriate such information to engage in insider trading risk exposing themselves to potential civil and criminal charges for violating the federal securities laws. According to the SECs complaint filed in the U.S. District Court for the District of Maryland (Greenbelt Division), Liang works in the FDAs Center for Drug Evaluation and Research. Beginning as early as July 2006, Liang purchased shares for a profit before 19 positive announcements regarding FDA decisions, shorted stock for a profit before six negative announcements, and sold shares to avoid losses before two negative announcements. For example, the SEC alleges that Liang traded in advance of an FDA announcement approving Clinical Datas application for the drug Viibryd. Liang accessed a confidential FDA database that contained critical documents and information about the FDAs review of Clinical Datas application, and then used that information to purchase more than 46,000 shares of Clinical Data at a cost of more than $700,000. After the markets closed on Friday, Jan. 21, 2011, the FDA issued a press release approving Viibryd. Clinical Datas stock price rose by more than 67 percent the following Monday and Liang sold his entire Clinical Data position in less than 15 minutes for a profit of approximately $380,000. The SEC alleges that Liang used the trading profits for his own personal benefit. Checks totaling at least $1.2 million were written from the accounts he used for trading to a bank account in his name, to him or his wife directly, or to credit card companies to pay off balances in accounts in his or his wifes name. Nearly $65,000 worth of checks were written from the brokerage accounts to car dealerships to purchase vehicles later registered to Liang and his wife. The SECs complaint alleges that Liang violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks a permanent injunction against future violations, disgorgement of unlawful trading profits and losses avoided plus prejudgment interest, and a financial penalty. The SECs complaint names Liangs wife Yi Zhuge and the account holders for the seven trading accounts he used Liangs mother Hui Juan Chen, his son Andrew Liang, Shuhua Zhu, Zhongshan Chen, and Honami Toda as relief defendants for the purpose of recovering ill-gotten funds to which they have no legitimate claim. Criminal charges by the Department of Justice against Andrew Liang were unsealed today in the District of Maryland. The SECs investigation was conducted by Deborah Tarasevich, Carolyn Welshhans, Owen Granke, and Ricky Sachar members of the SECs Market Abuse Unit in Washington, D.C. The SECs litigation effort will be led by Matthew Martens and David Williams. The SEC thanks the Department of Justices Criminal Fraud Section, the Federal Bureau of Investigation, the Department of Health and Human Services Office of Inspector General, and the U.S. Attorneys Office for the District of Maryland for their ongoing assistance in this matter. The SECs investigation is continuing. ### For more information about this enforcement action, contact:

http://www.sec.gov/news/press/2011/2011-76.htm

2/26/2012

SEC Charges FDA Chemist With Insider Trading Ahead of Drug Approval Announceme... Page 3 of 3

Daniel M. Hawke Chief, Market Abuse Unit, SEC Division of Enforcement (215) 597-3191 Sanjay Wadhwa Deputy Chief, Market Abuse Unit, SEC Division of Enforcement (212) 336-0181 Deborah A. Tarasevich Assistant Director, Market Abuse Unit, SEC Division of Enforcement (202) 551-4726

http://www.sec.gov/news/press/2011/2011-76.htm
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Modified: 03/29/2011

http://www.sec.gov/news/press/2011/2011-76.htm

2/26/2012