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FDA Chemist Gets Five Years in Prison for Insider Trading

A U.S. Food and Drug Administration chemist was sentenced to five years in prison for using his access to the agency’s drug-approval process to make $3.78 million in an insider-trading scheme.

Cheng Yi Liang, who worked for the FDA’s Center for Drug Evaluation and Research, was sentenced today by U.S. District Judge Deborah Chasanow in Greenbelt, Maryland, after pleading guilty last year to one count of securities fraud and one count of making false statements.

Liang, 58, was also ordered to forfeit more than $3.7 million. The government sought a sentence at the “high end” of the guidelines’ range of 57 to 71 months, claiming that Liang’s “insider trading conduct” falls within the top 14 percent of insider trading cases filed between 2006 and 2010, according to court papers.

“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,” U.S. Attorney Rod J. Rosenstein said in an e-mailed statement. “Mr. Liang violated his duty of loyalty to the FDA and profited from inside information.”

From July 2006 to March 2011, Liang bought and sold stock in more than 25 companies based on inside information from the FDA, according to a charging document.

As part of his plea, Liang agreed to forfeit more than $3.7 million in bank and brokerage accounts and property, including his home in Gaithersburg, Maryland. Liang resigned from the FDA on Sept. 9.

‘Deeply Sorry’

About $1 million of the forfeited funds have already been recovered, Liang’s lawyer, Joseph Evans, said in an e-mail.

“Dr. Liang is deeply sorry for his misconduct,” said Evans, an assistant federal public defender. “Along with the shame that he has brought to his family and friends, he feels especially bad for the FDA for whom he had worked for so many years. He also understands that his actions harmed the United States of America which took him in and permitted him to become a citizen.”

Liang, an FDA employee since 1996, worked in the drug evaluation unit since at least 2001. He had access to nonpublic records of the review process for each drug examined by the office, Assistant U.S. Attorney David Salem said during Liang’s Oct. 18 plea hearing.

$1 Million Gain

The Securities and Exchange Commission, in a parallel civil lawsuit also in Greenbelt, said Liang traded in smaller developmental drug companies, whose stock prices would be more likely to be affected significantly by government decisions. He gained more than $1 million trading stock of Vanda Pharmaceuticals Inc. (VNDA), a Rockville, Maryland, firm that rose more than sevenfold a day after the FDA cleared sales of its schizophrenia drug Fanapt in May 2009, according to the lawsuit.

He profited from share purchases ahead of 19 positive announcements and on short sales before six negative decisions, the SEC said. He also avoided losses by selling stock before two other negative decisions, the agency said. His average profit on each announcement was $135,015, according to the lawsuit.

Liang settled the SEC case in November.

Liang made the trades using his home computer or an Apple iPad, according to the plea agreement.

He made about $380,000 in advance of a Jan. 21 announcement that Newton, Massachusetts-based Clinical Data Inc. (CLDA) ’s Viibryd, a drug to treat a depressive disorder, had been approved, prosecutors said.

Initial Charges

Liang and his son Andrew were initially charged in March 2011 with conspiracy, wire fraud and securities fraud.

Andrew Liang was sentenced to one year in prison after pleading guilty to possession of child pornography found in the course of the fraud investigation. He must also register as a sex offender.

The securities case against Andrew Liang was dismissed at the request of prosecutors.

The cases are U.S. v. Chen Yi Liang, 11-cr-0530, and U.S. v. Andrew Liang, 11-cr-00501, U.S. District Court, District of Maryland (Greenbelt).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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