Few are better placed to beat the market – illegally – than employees intimately involved with new drug marketing approvals at the US Food and Drug Administration (FDA). The temptation was apparently too much for Cheng Yi Liang, a 57-year-old chemist in FDA’s Center for Drug Evaluation and Research (CDER), the agency power center that approves new drugs (building at right).
Liang was charged by the Securities and Exchange Commission (SEC) on 29 March with insider trading; the Department of Justice also unsealed criminal charges against Liang. Liang, a Gaithersburg resident, has worked at the FDA since 1996, and in CDER since at least 2001.
According to this SEC press release, Liang has collected a tidy $3.64 million for himself since 2006, by buying shares of companies, typically beginning two to three weeks ahead of FDA’s approval of their new drugs; and by shorting stock or selling shares in advance of unfavorable FDA decisions. In all, the SEC alleges, Liang profited from at least 27 insider trades, which are documented in this chart.
The SEC press release spells it out: “In each instance, he traded in the same direction as the announcement. 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,” the SEC press release says. Two others were in the name of his 25-year-old son.
Liang’s most spectacular winnings came on 6 May, 2009, when a trade in Vanda Pharmaceuticals netted him more than $1 million.
“As part of the ongoing investigation, federal agents are interviewing a number of other CDER staff and collecting documents and files. The Agency is cooperating fully with law enforcement officials regarding this matter and I encourage any of you who are contacted to cooperate fully as well,” Woodcock wrote.
It appears that Liang didn’t stash the money in his mattress. “Checks totaling at least $1.2 million were written from the accounts he used for trading to a bank account in his name, to Liang or his wife directly, or to credit card companies to pay off balances in accounts in his or his wife’s name,” the SEC notes. “Nearly $65,000 worth of checks were written from the brokerage accounts to car dealerships to purchase vehicles later registered to Liang and his wife.” (Those probing the SEC’s full, 30-page complaint can discover that the dealerships were Infiniti and Herson’s Honda, and that Liang bought, respectively, a luxury Infiniti sedan ($33,940) and a Honda Odyssey minivan ($30,400).)
In case any reader missed the point, the SEC’s formal complaint concludes that “Liang’s conduct was calculated, repeated and egregious.”
For instance, between 6 and 21 January this year, Liang spent more than $718,000 to buy 46,875 shares of a company called Clinical Data, which had applied to FDA for marketing approval for a drug called Viibryd, a “sex friendly antidepressant,” as Salon notes here. During the same period, Liang accessed confidential FDA documents about Viibyrd 23 times, including a confidential memo recommending the drug’s approval. The FDA approved the drug after the markets closed on Friday, 21 January this year. When the markets opened on the following Monday the company’s stock price skyrocketed by over 67 percent. Liang sold his entire Clinical Data position in less than 15 minutes for a profit of $379,602.