Former FDA Chemist Sent To Prison

Chen Yi Liang, a former chemist with the Food and Drug Administration (FDA), has been sentenced to five years in prison for using his access to the agency´s drug approval process in an insider trading scheme.

U.S District judge Deborah Chasanow preceded over the hearing against the former FDA chemist who was found guilty of insider trading on Monday.

Liang, the retired FDA chemist, pleaded guilty to two counts of felony last fall, one for concealing trading activities and the other for securities fraud. Though the five year sentence was less than what the federal government had requested, it was more than double the length that Liang´s attorney had suggested.

New drug approvals are often sensitive and quite a visible area for the agency, and as such the news of Liang’s case sent shockwaves throughout the FDA. Such a case is rare within the agency, which prides itself on its rigorous ethical standards. Employees of the FDA are also subject to strict trading restrictions. Upon the announcement of his case, Chen Yi resigned in March 2011.

Liang admitted that he had made more than $3.7 million from trading pharmaceutical stocks between 2006 and March 2011. He used his inside information about the FDA´s drug approval process to buy and sell stock.

If Liang knew that an upcoming agency announcement would shed positive light on a new pharmaceutical, he would buy stock in that company. Alternatively, when he knew that negative news was forthcoming, he would sell short those companies. Liang would then close his positions after the FDA released their information.

For example, Mr. Liang traded Vanda Pharmaceuticals ahead of a 2009 announcement that the FDA had approved its drug Fanapt.

Chen Yi´s son, Andrew Liang, was also arrested last March on similar charges. Sharing several brokerage accounts, the Liangs gathered more than $1 Billion in profits, comprising nearly 800 percent profit, according to court documents.

The 58 year old Ex-FDA chemist agreed to relinquish his $3.7 million in profits as well as his home in Gaithersburg, Maryland. The younger Andrew Liang received a sentence of a year in prison. He was also charged with possession of child pornography and will therefore have to register as a sex offender.

The court hopes that this will send a very clear message to the Liangs and anyone else who may look to engage in similar activities. In a statement given to the New York Times, Attorney General Lanny A. Breuer said “Taking advantage of his special access as a chemist at the F.D.A., Mr. Liang used sensitive inside information to reap illegal profits in the pharmaceutical securities market. “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.”

According to court documents, Mr. Liang told the judge, “I’m terribly sorry for what I’ve done.”

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