The Food and Drug Administration chemist who booked $3.8 million in profits by snooping in the agency's files on new drug applications has tarnished the reputations of federal workers who handle sensitive decisions on which pharmaceuticals are approved for sale on the American market, authorities say.
FDA worker pleads guilty to securities fraud
Elton Malone, special agent in charge of HHS’ office of inspector general’s special investigations branch, said in a written statement that the serial criminal activity of Cheng Yi Liang “taints the image of thousands of hard-working government employees.”
Liang, 57, of Gaithersburg, Md., pleaded guilty Oct. 18 in U.S. District Court in Greenbelt, Md., to securities fraud and lying to investigators for conduct that started in July 2006 and continued until his arrest in March 2011. He faces penalties of up to 20 years in prison and fines up to twice his illicit earnings when he’s sentenced in January, though prosecutors recommended a small sentence reduction for Liang’s quick acceptance of guilt.
Court records say Liang frequently and flagrantly abused his position of trust with the FDA by accessing the internal system for tracking decisions on new-drug applications, the Document Archiving, Reporting and Regulatory Tracking System, or DAARTS, to see whether pending drugs would be approved for sale.
A separate, parallel civil lawsuit filed against Liang by the Securities and Exchange Commission says Liang used DAARTS for information on at least 28 drug-related announcements from the FDA (PDF). In some cases, he bought shares of a company just before the FDA approved its drug, while in others Liang established short positions in companies about to receive denials.
The FDA maintains strict rules against its employees profiting from non-public information, including regular ethics training and mandatory financial disclosures. Liang admitted to concealing the trades by using brokerage accounts established in the names of friends and relatives.
Although Liang bought and sold the stock during non-work hours on personal computers, he was finally caught after investigators installed software to monitor his use of the DAARTS system at the FDA.
The firms Liang traded in were not household names. The SEC complaint says he chose to trade in the stocks of smaller companies because their values changed significantly on Nasdaq following FDA announcements.
Lanny Breuer, assistant attorney general in the Justice Department’s Criminal Division, called Liang’s conduct a “shocking” abuse of trust. “Now, like many others on Wall Street and elsewhere, he is facing the significant consequences of trading stocks on inside information,” Breuer said in a written statement.
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