Criminal Charges Filed Against Chemist for Disclosing Confidential Information

Jack Humphrey, Regulatory journalist
March 30, 2011 /

Using his position as chemist of the US Food and Drug Administration (FDA), Cheng Yi Liang illegally traded several confidential information of the government office involving drug approval decisions and raked in about $4 million in profits from the stealthy transactions.

The Securities and Exchange Commission claimed in a complaint filed before the US District Court for the District of Maryland that Liang used several names for his brokerage accounts to hide his illegal trades of more than 25 public disclosures covering 19 companies regarding FDA’s decisions on new drugs, affirmative or otherwise.

Commenting on Liang’s illegal trading of confidential information, SEC’s enforcement head Robert Khuzami said the chemist did not only prey on the investors but as well as on public trust for “placing private gain” above the US citizens’ interest. Likewise, a related lawsuit has been filed by the Department of Justice against Liang.

Liang has been working at FDA’s Center for Drug Evaluation and Research. According to the securities regulator, from July 2006 he bought shares for profit prior to 19 positive announcements, shorted stock for a profit before public announcements of six negative decisions, and sold stocks to evade losses prior to two negative public disclosures.

In one instance, Liang allegedly accessed a confidential information about FDA’s decision on Clinical Data’s application for the drug Viibryd. He then purchased at least 46,000 shares of Clinical Data for more than $700,000 using the confidential information. After the Clinical Data’s stock price inched up by more than 67 percent following FDA’s approval of the drug on January 21, 2011, the chemist quickly sold all of his Clinical Data position, gaining illegal profits worth about $380,000.

According to the securities regulator, Liang breached Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934. The SEC ordered for a disgorgement of the chemist’s illegal profits and and a permanent injunction avoid further securities laws violation by Liang.

Also named as relief defendants were Yi Zhuge, Liang’s wife, and five others who stood as holders of his brokerage accounts, which include his mother Hui Juan Chen, his son Andrew Liang, Shuhua Zhu, Zhongshan Chen, and Honami Toda.

SEC’s head for Market Abuse Unit, Daniel M Hawke, said federal employees who cross their line and breach confidential information are risking themselves to criminal charges, specifically in the FDA which runs highly sensitive data in the market, just as corporate staff and executives do.

 

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