SEC AND FORMER FDA CHEMIST SETTLE CHARGES

The following excerpt is from the SEC website: The following excerpt is from the SEC website: November 30, 2011 “The Securities and Exchange Commission announced that on November 29, 2011, the Honorable Deborah Chasanow, United States District Judge for the District of Maryland, entered a final judgment against Cheng Yi Liang, in SEC v. Cheng Yi Liang, et al., C.A. No. 8:11-cv-00819-DKC (D. Md.), an insider trading case the SEC filed on March 29, 2011. Liang is a former U.S. Food and Drug Administration (FDA) chemist who worked in the FDA's Center for Drug Evaluation and Research. The complaint, amended June 2, 2011, alleged that from at least July 2006 until March 2011, Liang traded based on confidential information he obtained from the FDA in advance of at least 28 public announcements about FDA drug approval decisions for profits and losses avoided of more than $3.7 million. Liang concealed his trading by trading in eight brokerage accounts in the name of six nominees, including his 84-year-old mother and 87-year-old father, both citizens and residents of China. For example, the SEC alleged that Liang traded in advance of an FDA announcement approving Clinical Data's application for the drug Viibryd. Liang accessed a confidential FDA database that contained critical documents and information about the FDA's review of Clinical Data's application, and then used that information to purchase more than 46,000 shares of Clinical Data at a cost of more than $700,000. After the markets closed on Friday, January 21, 2011, the FDA issued a press release approving Viibryd. Clinical Data's stock price rose by more than 67 percent the following Monday and Liang sold his entire Clinical Data position in less than 15 minutes for a profit of approximately $380,000. To settle the SEC's charges, Liang, without admitting or denying the allegations in the complaint, agreed to entry of a final judgment that: (i) enjoins him from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, thereunder; and (ii) requires Liang to pay disgorgement of $3,776,152, which will be deemed satisfied by the forfeiture order entered in the parallel criminal case, United States v. Cheng Yi Liang, Criminal No. 8:11-cr-00530-DKC8 (D. Md.). In that case, Liang pleaded guilty to charges of securities fraud and making false statements.”

SEC VS FDA INSIDER IN INSIDER TRADING CASE

My father always said that “honesty was the best policy”. Perhaps people who work in government should write “Honesty is the best policy” on a chalk board 1,000 times. In the following case the SEC alleges that an FDA chemist practiced trading stocks illegally in advance of drug approval decisions being made public. Take a look at the following case excerpts from the SEC web site:

" Washington, D.C., March 29, 2011 – The Securities and Exchange Commission today charged 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.
The SEC alleges that Cheng Yi 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. 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.


In a parallel action, criminal charges filed by the Department of Justice against Liang were unsealed today.
“Liang victimized both the investors who were disadvantaged by his theft of inside information and the American citizens whose trust he violated by placing private gain above public good,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

Daniel M. Hawke, Chief of the SEC’s Market Abuse Unit, added, “The insider trading laws apply to employees of the federal government just as they do to Wall Street traders, corporate insiders, or hedge fund executives. Many government agencies like the FDA routinely possess and generate confidential market-moving information. Federal employees who misappropriate such information to engage in insider trading risk exposing themselves to potential civil and criminal charges for violating the federal securities laws.”
According to the SEC’s complaint filed in the U.S. District Court for the District of Maryland (Greenbelt Division), 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.

For example, the SEC alleges that Liang traded in advance of an FDA announcement approving Clinical Data’s application for the drug Viibryd. Liang accessed a confidential FDA database that contained critical documents and information about the FDA’s review of Clinical Data’s application, and then used that information to purchase more than 46,000 shares of Clinical Data at a cost of more than $700,000. After the markets closed on Friday, Jan. 21, 2011, the FDA issued a press release approving Viibryd. Clinical Data’s stock price rose by more than 67 percent the following Monday and Liang sold his entire Clinical Data position in less than 15 minutes for a profit of approximately $380,000.

The SEC alleges that Liang used the trading profits for his own personal benefit. Checks totaling at least $1.2 million were written from the accounts he used for trading to a bank account in his name, to him or his wife directly, or to credit card companies to pay off balances in accounts in his or his wife’s name. 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.

The SEC’s complaint alleges that Liang violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and 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 – Liang’s mother Hui Juan Chen, his son Andrew Liang, Shuhua Zhu, Zhongshan Chen, and Honami Toda – as relief defendants for the purpose of recovering ill-gotten funds to which they have no legitimate claim. Criminal charges by the Department of Justice against Andrew Liang were unsealed today in the District of Maryland.

The SEC’s investigation was conducted by Deborah Tarasevich, Carolyn Welshhans, Owen Granke, and Ricky Sachar – members of the SEC’s Market Abuse Unit in Washington, D.C. The SEC’s litigation effort will be led by Matthew Martens and David Williams. The SEC thanks the Department of Justice’s Criminal Fraud Section, the Federal Bureau of Investigation, the Department of Health and Human Services Office of Inspector General, and the U.S. Attorney’s Office for the District of Maryland for their ongoing assistance in this matter. The SEC’s investigation is continuing.”

It looks like Mr. Liang has a lot of problems. It is of course critical that this is not just a single case that the Department of Justice decides to investigate regarding fraud committed by government employees, officials and political appointees and the politicians who appoint them.