SEC Charges FDA Employee Who Traded On Upcoming Announcements Of Drug Approvals

The U.S. Securities and Exchange commission (SEC) announced in a news release that it had charged a U.S. Food and Drug Administration (FDA) chemist with insider trading based on confidential information about upcoming announcements of drug approvals, generating over $3.6 million in profits and avoided losses. It is alleged that Cheng Yi Liang illegally traded in advance of at least 27 public announcements about FDA drug approval decisions that involved 19 publicly traded companies. Some of the announcements related to the FDA’s approval of new drugs and some involved negative FDA decisions. Liang’s trades followed the direction of the upcoming news announcement in each of his seven anonymous brokerage accounts, including one for his 84 year old mother.

As early as 2006, Liang purchased shares for a profit before 19 positive announcements regarding FDA approvals, shorted stock for profit before 6 negative announcements and sold shares to avoid losses before 2 negative announcements. In one case, Liang bought 46,000 shares of Clinical data at a cost of $700,000. After the market closed on Friday, January 21, 2011, the FDA announced that it had approved a new drug for Clinical Data, Viibryd. Clinical’s stock price vaulted by more than 67% and Liang sold his shares earning himself a profit of roughly $380,000 in less than 15 minutes. The SEC claims he wrote checks totaling at least $1.2 million, with profits from his insider trading, to himself, his wife, credit card companies and car dealerships.

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