The Financial Fraud Blog

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.

The Department of Justice (DOJ) recently announced that two Houston-based principals of A&O Resource Management Ltd. (“A&O”) were sentenced in Virginia for their roles in a $100 million life settlement fraud scheme, which included more than 800 victims across the United States and Canada.  Christian Allmendinger, A&O’s co-founder and vice president, was sentenced on September 29, 2011 to 45 years in prison.  A&O’s hedge fund manager and co-owner, Adley H. Abdulwahab, was sentenced on September 30, 2011 to 60 years in prison.

According to the evidence presented at trial, Allmendinger and Abdulwahab engaged in a scheme to defraud investors (most of whom were elderly and invested all of the money they had saved for their retirement) by misrepresenting A&O’s prior success, its size and office locations, its number of employees, the risks of its investment offerings, and its safekeeping and use of investor funds.  Abdulwahab also misrepresented to investors that he had a college degree in economics, and failed to disclose to investors that he previously pleaded guilty to a felony charge of forgery of a commercial instrument in Texas state court.

The evidence at trial demonstrated that Allmendinger and Abdulwahab caused more than 800 investors to lose more than $100 million, and that they used investors funds for personal enrichment, including purchasing multi-million dollar homes, luxury cars, and a 15-carat diamond ring.

Earlier this year, five other individuals connected with the A&O fraud scheme were also sentenced: Russell E. Mackert, A&O’s general counsel, was sentenced to 188 months in prison; Brent Oncale, A&O’s former owner and founder, was sentenced to 120 months in prison; David White, A&O’s former president, was sentenced to 60 months in prison; Eric M. Kurz, a wholesaler of A&O investment products, was sentenced to 60 months in prison; and Tomme Bromseth, an A&O sales agent, was sentenced to 36 months in prison.

According to the DOJ, the A&O investigation was conducted by the U.S. Postal Inspection Service, Internal Revenue Service, and the FBI, with significant assistance from the Texas State Securities Board, the Virginia Corporation Commission, and the SEC.  The investigation was coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases.  The task force is an investigative arm of President Obama’s Financial Fraud Enforcement Task Force, an interagency national task force that was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.