Back in January, Cheng Yi Liang and his son made $379,602 after they bet on the success of Clinical Data's depression drug. In fact, Liang proved absolutely prescient about the fate of several drug apps at the FDA, eventually reaping $3.6 million after he nailed one FDA decision after the next. But the SEC says the game was rigged in his favor. Liang was a chemist at the FDA, and now he's been charged with insider trading.
"Liang's conduct was calculated, repeated and egregious. Liang was a serial insider trader who violated the public's trust for his own profit on numerous occasions," said the SEC, outlining 27 instances when the chemist and his son, Andrew, traded ahead of a decision. Now they also face charges of conspiracy, securities fraud and wire fraud.
Liang had been making these trades since 2006, and the SEC says he went to considerable lengths to hide his tracks, eventually opening seven different trading accounts. And he went for the kill, focusing on biotech stocks which often undergo wild swings in the wake of an FDA decision.
"Liang traded in the securities of developmental drug companies, as opposed to larger drug companies. With respect to developmental drug companies, an FDA decision positive or negative would likely have a significant impact on the stock price of the drug company, and therefore generate a greater opportunity to profit," the SEC said. In just one trade back in 2009--the approval of Vanda's schizophrenia drug--Liang made more than $1 million.
- here's the press release
- here's the story from the Wall Street Journal
- here's the trading timeline from Reuters