WASHINGTON—A longtime chemist at the Food and Drug Administration was charged Tuesday with insider trading by federal authorities, who alleged he made as much as $3.6 million trading drug company stocks based on confidential drug-approval information. 
 
 Charges Against Cheng Yi Liang View Document 
 
 The Securities and Exchange Commission filed civil charges against Cheng Yi Liang, 57, an FDA employee since 1996, alleging he illegally traded in advance of at least 27 different FDA announcements involving 19 publicly traded companies. 
 
 The Justice Department filed related criminal charges and also charged Mr. Liang's son, Andrew Liang, in the case. Both are residents of Gaithersburg, Md. 
 
 The charges stunned the FDA. Mr. Liang works in the division in charge of approving new drugs, the agency's most visible and sensitive role. The pharmaceutical industry has long worried about security in this area, given how much secret corporate information is shared with employees at the agency. 
 
 "This is the kind of stuff I lost sleep over," said former FDA commissioner David Kessler, because pharmaceutical companies and Wall Street depend on FDA officials never using their proprietary knowledge "to play the market." 
 
 The SEC and the Justice Department said the men traded shares dating back to 2006 of companies whose drugs were used for colon cancer, schizophrenia, insomnia, severe constipation, osteoarthritis and heart disease. 
 
 Some of the FDA announcements at issue involved delays in the approval process due to the drugs' safety or efficacy tests. Mr. Liang allegedly bought stock for profit before positive announcements, bet on shares falling after negatives ones and sold shares to avoid losses. 
 
 Mr. Liang traded stocks of smaller companies developing new drugs, rather than major corporations, to take advantage of the relatively larger swings in these firms' stocks, the SEC said. The SEC said he went to great lengths to conceal his trading—which was financed in part with a home-equity line of credit—using seven brokerage accounts that weren't in his name. One belonged to Mr. Liang's 84-year-old mother in China, the SEC alleged. 
 
 In the most profitable transaction, the Liangs allegedly traded ahead of a May 2009 announcement by Vanda Pharmaceuticals Inc. that its schizophrenia drug Fanapt had received FDA approval. They netted more than $1 million on the trades, government lawyers alleged. 
 
 Another of the companies whose stock he allegedly traded was Momenta Pharmaceuticals Inc., a small biotechnology company from Cambridge, Mass., which was vying with two other companies to make a generic version of the blockbuster blood thinner Lovenox. 
 
 The FDA unexpectedly told the companies in November 2007 that they needed to do further testing, holding up the approval process. The SEC claimed Mr. Liang made $130,000 by trading shares a day before the news was made public, cutting Momenta's stock nearly in half. 
 
 When the drug was finally approved, in July 2010, Mr. Liang made another $85,000 buying shares three days ahead of the announcement, the SEC alleged. 
 
 Momenta's chief executive, Craig Wheeler, said the company had no comment, and hoped to soon review the SEC complaint. 
 
 SEC investigators don't believe Mr. Liang is part of a wider insider-trading ring, said a person familiar with the matter. But agency officials are checking to see if other FDA employees have been abusing market-moving information. 
 
 The FDA said Tuesday it is aware of the insider-trading charges. "The agency is cooperating fully with the authorities, and will review the situation and take any appropriate action," its written statement read. 
 
 Neither the Liangs nor their attorneys could be reached for comment. 
 
 The Justice Department said Mr. Liang's position at the FDA gave him access to the agency's password-protected tracking system used to manage drug applications and drug-safety issues. That allowed Mr. Liang to review documents as they passed through the FDA approval process. 
 
 Mr. Liang's last completed transaction in the alleged insider-trading scheme involved Clinical Data Inc., which received FDA approval in January for the antidepressant Viibryd. 
 
 According to court documents, officials with the Department of Health and Human Services' inspector general's office installed software on Mr. Liang's work computer that collected screen shots showing how he accessed the tracking system to follow Viibryd matters, including a document recommending approval of the drug. 
 
 Over several days, Mr. Liang bought more than 46,000 shares that he sold for a $380,000 profit after the drug was approved, the government alleged. 
 
 —Jean Eaglesham contributed to this article. 
 
 Write to Brent Kendall at brent.kendall@dowjones.com and Alicia Mundy at alicia.mundy@wsj.com 

 A U.S. Food and Drug Administration chemist and his son were arrested by federal authorities and accused of reaping at least $3 million from trading on nonpublic information related to drug-approval applications. 
 
 Cheng Yi Liang, 57, and Andrew Liang, 25, face charges of conspiracy to commit securities and wire fraud, according to a Justice Department statement today. The Securities and Exchange Commission, in a parallel civil suit filed at federal court in Greenbelt, Maryland, said the elder Liang made $3.6 million by trading shares of 19 firms before 27 FDA decisions since 2006. 
 
 The chemist, who worked for the FDA’s Center for Drug Evaluation and Research, violated his duty as a federal employee not to engage in financial transactions using nonpublic government information and not to use such information for his personal benefit, according to the SEC. The agency is seeking disgorgement of illegal profits and unspecified fines. 
 
 “The insider trading laws apply to employees of the federal government just as they do to Wall Street traders, corporate insiders, or hedge fund executives,” Daniel Hawke, head of the SEC’s market abuse unit, said in a statement. 
 
 The SEC and Justice Department investigations are continuing. 
 
 Maximum Penalty 
 
 The maximum penalty for conspiracy to commit securities and wire fraud is five years in prison and a $250,000 fine, or twice the gross gain from the offense, according to the Justice Department. For wire fraud, the maximum penalty is 20 years in prison and a fine of $250,000, or twice the gross gain, the department said. For securities fraud, the top penalty is 20 years in prison and a fine of $5 million for each count. 
 
 Liang, identified by the SEC as a resident of Gaithersburg, Maryland, didn’t respond to a phone call to his home seeking comment. 
 
 “FDA is aware that one of its employees has been charged with insider trading,” Erica V. Jefferson, a spokeswoman for the agency, said in an e-mail statement. “The agency is cooperating fully with the authorities and will review the situation and take any appropriate action.” 
 
 Liang traded in smaller developmental drug companies, where a government decision would be more likely to have a significant impact on the stock price, the SEC said. He gained more than $1 million trading stock of Vanda Pharmaceuticals Inc. (VNDA) a Rockville, Maryland, firm that rose more than 600 percent a day after the FDA cleared sales of its schizophrenia drug Fanapt in May 2009, according to the lawsuit. 
 
 Computer Access 
 
 An FDA employee since 1996 who has worked in the CDER unit since at least 2001, Liang had computer access to the nonpublic records of the review process for each drug examined by the office, the SEC said. 
 
 He profited from share purchases ahead of 19 positive announcements and on short sales before 6 negative decisions, the SEC said. He also avoided losses by selling stock before two other negative decisions, the agency said. His average profit on each announcement was $135,015, according to the lawsuit. 
 
 In June 2006, Liang made more than $75,000 on short sales of Encysive Pharmaceuticals Inc. shares after accessing confidential FDA information that approval for Thelin, a drug to treat pulmonary arterial hypertension, wasn’t forthcoming, the SEC said. He also made about $380,000 in advance of a Jan. 21 announcement that Newton, Massachusetts-based Clinical Data Inc.’s Viibryd, a drug to treat a depressive disorder, had been approved, the SEC said. 
 
 Rather than use his own or his wife’s brokerage accounts, Liang directed the trading through seven accounts held by other people, the SEC said. He typically began building a position two to three weeks before an announcement, according to the lawsuit. Most proceeds were moved to his bank account, the SEC said. 
 
 Car Dealerships 
 
 Checks totaling at least $1.2 million were written from the accounts Liang used for trading to a bank account in his name, to him or his wife directly, or to credit-card companies to pay off his balances. About $65,000 worth of checks were written from the brokerage accounts to car dealerships to purchase an Infiniti sedan and a Honda Odyssey minivan registered to Liang and his wife. 
 
 Illegal trading profits were also transferred to bank and brokerage accounts benefiting Andrew Liang, who used the proceeds to fund his personal retirement account, pay about $92,000 to the U.S. Internal Revenue Service, pay a travel service and purchase two cars, the Justice Department said. 
 
 The FDA is barred from disclosing that a drug application has been filed, whether it is conducting a review and whether it has issued a so-called complete response letter that describes specific deficiencies in the application, according to the lawsuit. The FDA only discloses information when it approves a new drug, the SEC said. 
 
 ‘Privileged Information’ 
 
 “Cheng Yi Liang was entrusted with privileged information to perform his job of ensuring the health and safety of his fellow citizens,” Assistant Attorney General Lanny Breuer said in a statement. “According to the complaint, he and his son repeatedly violated that trust to line their own pockets.” 
 
 The SEC’s case is Securities and Exchange Commission vs. Cheng Yi Liang, 8:11-cv-00819-RWT, District of Maryland (Greenbelt Division). The criminal cases are U.S. v. Chen Yi Liang, 8:11-mj-01236-WGC, and U.S. v. Andrew Liang, 8:11-mj-01237-WGC, District of Maryland. 
 
 To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net; Justin Blum in Washington at jblum4@bloomberg.net. 
 
 To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.
– Maybe just a wee bit too greedy? Feds say an FDA chemist figured out that his inside information about drugs under review by the agency could pay off in the stock market, and he reaped at least $3.6 million since 2006, reports Bloomberg. The SEC and the Justice Department filed charges against Cheng Yi Liang, 57, who allegedly made trades ahead of 27 FDA announcements involving 19 companies, notes the Wall Street Journal. His son also was charged. "Liang traded in the securities of developmental drug companies, as opposed to larger drug companies,'' explained the SEC. With these types of 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."