FDA Chemist Cheng Yi Liang’s Very Bad Day: Busted By The Feds, Sued By The SEC For Trading On Information Lifted From Confidential Government Database

A chemist who works for the U.S. Food and Drug Administration has been charged criminally by federal prosecutors, arrested by federal agents in Maryland, sued by the SEC — and will go to bed tonight knowing his son has been arrested in the same case.

Cheng Yi Liang, 56, of Gaithersburg, was accused of abusing his position of trust at the FDA by mining the agency’s database for information on drug approvals or denials — and then trading on the information he gleaned to “generate more than $3.6 million in illicit profits and avoided losses,” the SEC said.

Liang’s son, Andrew Liang, 25, also of Gaithersburg, was arrested, too.

And high-ranking public officials minced no words when announcing the charges against the men, which included a stunning allegation that the senior Liang sought to conceal the scheme in part by trading in the account of his elderly mother in China.

“Cheng Yi Liang was entrusted with privileged information to perform his job of ensuring the health and safety of his fellow citizens,” said Assistant U.S. Attorney General Lanny Breuer. “According to the [criminal] complaint, he and his son repeatedly violated that trust to line their own pockets.”

Breuer is the head of the Justice Department’s Criminal Division.

“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.

Khuzami is director of the SEC’s Division of Enforcement.

Another high-ranking official summarized today’s events by saying Liang’s actions made government workers look bad.

“Profiting based on sensitive, insider information — as Liang is charged with today — is not only illegal, but taints the image of thousands of hard-working government employees,” sighed Elton Malone, special agent in charge of the office of special investigations for the U.S. Department of Health and Human Services, Office of the Inspector General.

Liang, an FDA employee since 1996, began snatching information as early as July 2006, the SEC charged.

He “illegally traded in advance of at least 27 public announcements about FDA drug approval decisions involving 19 publicly traded companies,” the agency charged.

In a bid to cover his tracks, Liang “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 charged.

“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,” said Daniel M. Hawke, chief of the SEC’s Market Abuse Unit.

Father and son were charged with conspiracy to commit securities fraud and wire fraud, securities fraud and wire fraud. Federal prosecutors said investigators caught Liang after special software was installed on the work computer he was using.

See this SEC exhibit that outlines the trades.