Regulatory Focus™ > News Articles > FDA Debars Former CDER Employee for Participation in Insider Trading Scheme

FDA Debars Former CDER Employee for Participation in Insider Trading Scheme

Posted 05 March 2013 | By Alexander Gaffney, RAC

Former US Food and Drug Administration (FDA) chemist Cheng Yi Liang almost certainly won't be finding work in the life sciences sector once he gets out of prison for profiting from the information he learned as an employee within FDA's Center for Drug Evaluation and Research (CDER).


Liang worked as a chemist at FDA, where investigators said he had broad access to its Documents Archiving, Reporting and Regulatory Tracking Systems (DAARTS), which the agency uses to keep track of its drug applications under review.

According to Securities and Exchange Commission (SEC) documents, at some point in 2006, Liang started to use his position within FDA and his access to the DAARTS database to obtain information regarding upcoming drug approvals, which he then used to buy and sell securities, earning him a profit.

A huge profit, in fact. Liang reportedly made more than $3.7 million on 19 publicly traded companies between 2006 and when he was finally caught in 2011.

"Liang purchased stock for a profit before nineteen positive announcements; short sold stock for a profit before six negative announcements; and sold stock to avoid losses before two negative announcements," SEC wrote in its filing.

The Hammer Drops

Liang resigned from FDA in September 2012 and settled his charges with SEC in November 2011, and on 5 March 2012 was sentenced to five years in prison and three years of supervised released for what the US Department of Justice (DOJ) called "securities fraud and making false statements."

"Taking advantage of his special access as a chemist at the FDA, Mr. Liang used sensitive inside information to reap illegal profits in the pharmaceutical securities market," said Assistant Attorney General Lanny Breuer in a statement. "For years, he exploited his position in the agency to make easy money on the stock market. But [this] sentence shows that easy money has consequences. Investors engage in insider trading at their peril."


With Liang in jail, FDA moved to make sure he would be unable to defraud others even after his release from prison. In November 2012, the agency said it sent Liang a notice proposing to "permanently debar him from providing services in any capacity to a person that has an approved or pending drug product application."

Notices to debar are regularly sent out by FDA after a person is convicted of a felony related to conduct prohibited under the Federal Food, Drug and Cosmetic Act. According to FDA, Liang never responded to its notice, thereby waiving his opportunity to appeal FDA's proposal to permanently debar him.

"Any person with an approved or pending drug product application who knowingly employs or retains as a consultant or contractor, or otherwise uses the services of Mr. Liang in any capacity during Mr. Liang's debarment, will be subject to civil money penalties," FDA explained. "If Mr. Liang provides services in any capacity to a person with an approved or pending drug product application during his period of debarment, he will be subject to civil money penalties. In addition, FDA will not accept or review any abbreviated new drug applications submitted by or with the assistance of Mr. Liang during his period of debarment."

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