FDA Chemist Pleads Guilty to Using Insider Information in Connection with Trade of Pharmaceutical Stocks
October 18th, 2011
Cheng Yi Liang, a chemist who has worked for the Food and Drug Administration (FDA) since 1996, has pleaded guilty to one count of securities fraud and one count of making false statements in connection with a $3.7 million insider trading scheme. Liang, by virtue of his employment as a chemist at the FDA’s Office of New Drug Quality Assessment, had access to the FDA’s internal tracking system for new drug applications, which is used to manage, track, receive, and report on new drug applications. Much of the information contained on the tracking system constitutes material, non-public information concerning pharmaceutical companies that submit their experimental drugs to the FDA for review.
Liang admitted during his guilty plea that from approximately June 2006 through March 2011, he used the inside information he learned from the FDA’s internal tracking system to trade on pharmaceutical stocks. Using accounts of relatives and friends to execute the trades, Liang purchased and traded pharmaceutical company securities based on positive or negative information he learned about the company’s product. According to the DOJ, Liang’s insider trading scheme resulted in total profits and losses avoided of more than $3.7 million.
Sentencing is currently scheduled for January 9, 2012. The maximum penalty for the securities fraud count is twenty (20) years in prison and a fine of $5 million, or twice the gross gain from the offense. The maximum penalty for the false statement count is five years in prison and a fine of $250,000.
Pursuant to his plea agreement, Liang has agreed to forfeit $3,776,152, including a home and condominium, as well as funds held in ten (10) different bank or investment accounts.
According to the DOJ, the U.S. Securities and Exchange Commission is currently pursing civil charges against Liang and several accounts he controlled.