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SEC Char ges FDA Chem is t W i t h I ns ider Trad in g Ahead o fD rug A pp rova l A nnouncem en ts

FOR I MMEDI ATE RELEASE2 0 1 1 - 7 6

Washington, D.C., March 29, 20 11 TheSecurities and Exchange Commission todaycharged a U.S. Food and DrugAdministration (FDA) chemist with insidertrading on confidential information aboutupcoming announcements of FDA drug

approval decisions, generating more than$3.6 million in illicit profits and avoidedlosses.

The SEC alleges that Cheng Yi Liang illegallytraded in advance of at least 27 publicannouncements about FDA drug approvaldecisions involving 19 publicly tradedcompanies. Some announcementsconcerned the FDAs approval of new drugswhile others concerned negative FDAdecisions. In each instance, he traded in the same direction as theannouncement. 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.

Add i t i ona l Mate r ia l s

SEC ComplaintLitigation Release No. 21907

In a parallel action, criminal charges filed by the Department of Justiceagainst Liang were unsealed today.

Liang victimized both the investors who were disadvantaged by his theft ofinside information and the American citizens whose trust he violated byplacing private gain above public good, said Robert Khuzami, Director ofthe SECs Division of Enforcement.

Daniel M. Hawke, Chief of the SECs Market Abuse Unit, added, The insidertrading laws apply to employees of the federal government just as they doto Wall Street traders, corporate insiders, or hedge fund executives. Manygovernment agencies like the FDA routinely possess and generateconfidential market-moving information. Federal employees who

Char t : T rack ing

the Trades

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misappropriate such information to engage in insider trading risk exposingthemselves to potential civil and criminal charges for violating the federalsecurities laws.

According to the SECs complaint filed in the U.S. District Court for theDistrict of Maryland (Greenbelt Division), Liang works in the FDAs Centerfor Drug Evaluation and Research. Beginning as early as July 2006, Liang

purchased shares for a profit before 19 positive announcements regardingFDA decisions, shorted stock for a profit before six negativeannouncements, and sold shares to avoid losses before two negativeannouncements.

For example, the SEC alleges that Liang traded in advance of an FDAannouncement approving Clinical Datas application for the drug Viibryd.Liang accessed a confidential FDA database that contained criticaldocuments and information about the FDAs review of Clinical Datasapplication, and then used that information to purchase more than 46,000shares of Clinical Data at a cost of more than $700,000. After the marketsclosed on Friday, Jan. 21, 2011, the FDA issued a press release approvingViibryd. Clinical Datas stock price rose by more than 67 percent thefollowing Monday and Liang sold his entire Clinical Data position in less than15 minutes for a profit of approximately $380,000.

The SEC alleges that Liang used the trading profits for his own personalbenefit. Checks totaling at least $1.2 million were written from the accountshe used for trading to a bank account in his name, to him or his wifedirectly, or to credit card companies to pay off balances in accounts in hisor his wifes name. Nearly $65,000 worth of checks were written from thebrokerage accounts to car dealerships to purchase vehicles later registeredto Liang and his wife.

The SECs complaint alleges that Liang violated Section 17(a) of the

Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of1934 and Rule 10b-5 thereunder, and seeks a permanent injunction againstfuture violations, disgorgement of unlawful trading profits and lossesavoided plus prejudgment interest, and a financial penalty. The SECscomplaint names Liangs wife Yi Zhuge and the account holders for theseven trading accounts he used Liangs mother Hui Juan Chen, his sonAndrew Liang, Shuhua Zhu, Zhongshan Chen, and Honami Toda as reliefdefendants for the purpose of recovering ill-gotten funds to which theyhave no legitimate claim. Criminal charges by the Department of Justiceagainst Andrew Liang were unsealed today in the District of Maryland.

The SECs investigation was conducted by Deborah Tarasevich, Carolyn

Welshhans, Owen Granke, and Ricky Sachar members of the SECsMarket Abuse Unit in Washington, D.C. The SECs litigation effort will be ledby Matthew Martens and David Williams. The SEC thanks the Department ofJustices Criminal Fraud Section, the Federal Bureau of Investigation, theDepartment of Health and Human Services Office of Inspector General, andthe U.S. Attorneys Office for the District of Maryland for their ongoingassistance in this matter. The SECs investigation is continuing.

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For more information about this enforcement action, contact:


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Daniel M. HawkeChief, Market Abuse Unit, SEC Division of Enforcement(215) 597-3191

Sanjay WadhwaDeputy Chief, Market Abuse Unit, SEC Division of Enforcement(212) 336-0181

Deborah A. TarasevichAssistant Director, Market Abuse Unit, SEC Division of Enforcement(202) 551-4726

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