Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, March 29, 2011

SEC CHARGES FDA CHEMIST WITH INSIDER TRADING AHEAD OF DRUG APPROVAL ANNOUNCEMENTS

The SEC charged Cheng Yi Liang, a U.S. Food and Drug Administration (FDA) chemist, with insider trading on confidential information about upcoming announcements of FDA drug approval decisions, generating more than $3.6 million in illicit profits and avoided losses.  According to the SEC, Liang illegally traded in advance of at least 27 public announcements about FDA drug approval decisions involving 19 publicly traded companies. Some announcements concerned the FDA’s approval of new drugs while others concerned negative FDA decisions. Liang went to great lengths to conceal his insider trading. He traded in seven brokerage accounts, none of which were in his name. One belonged to his 84-year-old mother who lives in China.

In a parallel action, criminal charges filed by the Department of Justice against Liang were unsealed today.

According to the SEC’s complaint, Liang works in the FDA’s Center for Drug Evaluation and Research. Beginning as early as July 2006, Liang purchased shares for a profit before 19 positive announcements regarding FDA decisions, shorted stock for a profit before six negative announcements, and sold shares to avoid losses before two negative announcements.

The SEC’s complaint seeks a permanent injunction against future violations, disgorgement of unlawful trading profits and losses avoided plus prejudgment interest, and a financial penalty. The SEC’s complaint names Liang’s wife Yi Zhuge and the account holders for the seven trading accounts he used  as relief defendants.

http://lawprofessors.typepad.com/securities/2011/03/sec-charges-fda-chemist-with-insider-trading-ahead-of-drug-approval-announcements.html

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