FDA Chemist Charged With Insider Trading

NEW YORK ( TheStreet) -- U.S. Food and Drug Administration chemist Cheng Yi Liang was charged by the Securities and Exchange Commission Tuesday with insider trading on information regarding upcoming FDA drug approval decisions.

The SEC alleges that Liang illegally generated more than $3.6 million in illicit profits by trading with advanced knowledge on at least 27 public FDA drug approval decisions involving 19 publicly traded companies.

According to the SEC's complaint filed in the U.S. District Court for the District of Maryland, Liang traded in advance of FDA announcements concerning both the approval of new drugs and negative FDA decisions.

The complaint says that while working in the FDA's Center for Drug Evaluation and Research, Liang purchased shares for a profit before 19 positive FDA decision announcements and sold shares to avoid losses before two negative announcements.

In January 2011, Liang made a profit of approximately $380,000 in less than 15 minutes when he traded in advance of an FDA announcement approving Clinical Data's ( CLDA) application for the drug Viibryd, the SEC alleges.

The SEC says that Liang used insider information about the FDA's review of Clinical Data's taken from the confidential FDA database to purchase more than 46,000 shares of Clinical Data at for more than $700,000.

After the market closed on Friday, Jan. 21, the FDA announced its approval of Viibryd, sending Clinical Data's stock price up more than 67%. The next week Liang sold his Clinical Data position to make $380,000, the news release says.

In an effort to conceal his insider trading, he allegedly traded in seven brokerage accounts under seven different names. The complaint names his wife, Yi Zhuge; his 84-year-old mother Hui Juan Chen; his son, Andrew Liang; and Shuhua Zhu, Zhongshan Chen and Honami Toda as the account holders for the seven trading accounts he used.

The SEC complaint alleges that Liang used the profits garnered from his insider trading for his own personal benefit. Checks totaling at least $1.2 million were written from his trading accounts to him or his wife, and nearly $65,000 worth of checks were written from the accounts to purchase vehicles later registered to Liang and his wife, the SEC charges.

--Written by Theresa McCabe in Boston.

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