Former FDA Chemist Sentenced to 60 Months in Prison for Insider Trading

WASHINGTON—Cheng Yi Liang, a former Food and Drug Administration (FDA) chemist from Gaithersburg, Maryland, was sentenced today to 60 months in prison for engaging in insider trading on multiple occasions based on material, non-public information he obtained in his capacity as an FDA scientist. Liang was previously ordered to forfeit $3.7 million representing the proceeds of the insider trading scheme.

The sentence was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney for the District of Maryland Rod J. Rosenstein; James W. McJunkin, assistant director in charge of the FBI’s Washington Field Office; and Elton Malone, special agent in charge, Department of Health and Human Services, Office of the Inspector General (HHS-OIG), Office of Investigations, Specials Investigations Branch.

“Taking advantage of his special access as a chemist at the FDA, Mr. Liang used sensitive inside information to reap illegal profits in the pharmaceutical securities market,” said Assistant Attorney General Breuer. “For years, he exploited his position in the agency to make easy money on the stock market. But today’s sentence shows that easy money has consequences. Investors engage in insider trading at their peril.”

“Cheng Yi Liang bought and sold stocks based on non-public information, and he tried to conceal his crimes by using the names of friends and relatives,” said U.S. Attorney Rosenstein. “Mr. Liang violated his duty of loyalty to the FDA and profited from inside information.”

“Liang brazenly sought to profit based on sensitive, insider information. What he didn’t know is that investigators have been utilizing sophisticated technical tools to identify and track criminal behavior,” said Special Agent in Charge Malone of HHS-OIG. “We will continue to insist that federal government employee conduct be held to the highest of standards.”

“Mr. Liang breached the trust of his employment by obtaining sensitive information and using it for his own profit,” said Assistant Director in Charge McJunkin. “Together with our partner agencies, the FBI will continue to pursue and hold accountable those who perpetrate such financial crimes, as we work to protect American taxpayers and our financial markets.”

Liang, 58, was sentenced by U.S. District Judge Deborah K. Chasanow in the District of Maryland. He pleaded guilty on October 18, 2011, to one count of securities fraud and one count of making false statements.

According to court documents, Liang had been employed as a chemist since 1996 at the FDA’s Office of New Drug Quality Assessment (NDQA). Through his work at NDQA, Liang had access to the FDA’s password-protected internal tracking system for new drug applications, known as the Document Archiving, Reporting, and Regulatory Tracking (DARRTS) system. FDA uses DARRTS to manage, track, receive, and report on new drug applications. Liang reviewed DARRTS for information relating to the progression of experimental drugs through the FDA approval process. Much of the information accessible on the DARRTS system constituted material, non-public information regarding the pharmaceutical companies that had submitted their experimental drugs to the FDA for review.

In his plea, Liang admitted that between in or about July 2006 and in or about March 2011, using material, non-public information from DARRTS and other sources, he traded in the securities of pharmaceutical companies in violation of the duties of trust and confidence he owed the FDA. Liang utilized accounts of relatives and acquaintances, including his son, to execute the trades. When the FDA insider information about a company’s product was positive, Liang purchased securities through the accounts he controlled. When the FDA insider information was negative, Liang would sell short a company’s stock. After the FDA’s action with respect to a drug was made public, Liang executed trades to profit from the change in the company’s share price as a result of the FDA announcement, resulting in total profits gained and losses avoided of $3,776,152.

During the time he was employed by the FDA, Liang was required to file a confidential financial disclosure form, disclosing, among other things, investment assets with a value greater than $1,000 and sources of income greater than $200. During the time period of his insider trading scheme, Liang annually filed these forms and failed to disclose using various brokerage accounts under his control or his income from the illicit securities trading. For example, on February 16, 2010, Liang signed and submitted the 2010 confidential financial disclosure form, failing to disclose that during 2009 he earned approximately $1,040,000 from trading on material, non-public information obtained from the FDA.

In related actions, the Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS) filed a civil complaint in the District of Maryland for forfeiture of proceeds related to the insider trading scheme. To date, the government has obtained over $1 million through the civil forfeiture of nine bank and brokerage accounts. The forfeiture of two real properties—a house and a condominium in Montgomery County, Maryland—is still pending. Liang previously consented to the entry of final judgment as to the U.S. Securities and Exchange Commission’s (SEC) civil enforcement action against him, also in the District of Maryland.

This case is being prosecuted by Trial Attorneys Kevin Muhlendorf and Thomas Hall of the Criminal Division’s Fraud Section, Assistant U.S. Attorney David Salem for the District of Maryland, and AFMLS Senior Trial Attorney Pamela J. Hicks and Trial Attorney Jennifer Ambuehl. The case was investigated by the FBI’s Washington Field Office and the HHS-OIG. The department acknowledges the substantial assistance of the SEC, in particular its Market Abuse Unit, which referred the matter to the Criminal Division’s Fraud Section.

This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state, and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit Stopfraud.gov.