Friday, April 1, 2011

Now Scientists Are Trading on Inside Information?

The law of insider trading is still evolving, and has been since I started practicing law 30 years ago. Back in the 1980's I was part of the team that defended an SEC civil case against an employee of a financial printer who was accused of trading on inside information that he obtained because of his position as a proofreader. After a three week trial, an appeal to the Second Circuit, and a denial of a petition for a writ of cert was denied, the misappropriation theory of insider trading was born.

There have been hundreds of cases since then, involving cab drivers, truck drivers, loading dock employees, computer technicians, and more than an handful of corporate executives who have been accused of insider trading. Now we can add scientists to the list. The SECcharged a U.S. Food and Drug Administration (FDA) chemist with insider trading on confidential information about upcoming announcements of FDA drug approval decisions, generating more than $3.6 million in illicit profits and avoided losses.

The SEC alleges that Cheng Yi Liang illegally traded in advance of at least 27 public announcements about FDA drug approval decisions involving 19 publicly traded companies. Some announcements concerned the FDA’s approval of new drugs while others concerned negative FDA decisions. In each instance, he traded in the same direction as the announcement. 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.

The SEC Press Release with a copy of the complaint is at

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