A U.S. Food and Drug Administration chemist and his son were arrested and charged on Tuesday with using sensitive inside information about the agency's drug approvals to reap more than $3.6 million.

The Securities and Exchange Commission charged Cheng Yi Liang, 57, and his son Andrew, 25, with illegally trading in advance of at least 27 public announcements about 19 publicly held companies, reaping $3.6 million in profits and avoiding losses.

"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," the SEC said in its complaint filed in federal court in Maryland.

The Justice Department also charged them with conspiracy, securities fraud and wire fraud for making $2.27 million in trades involving five pharmaceutical companies between November 2007 and March 2011. The sum includes $1 million from the FDA's approval of Vanda Pharmaceutical schizophrenia drug Fanapt.

The Justice Department said its investigation was ongoing. The two were arrested at their home in Gaithersburg, Md., on Tuesday morning and made initial appearances in court.

The judge granted them conditional release pending trial. It was not immediately clear if they had lawyers.

Information about prescription drugs can prompt big stock swings and has been the subject of other insider trading cases. However, one involving a government employee using his work for such activities is rare.

Last year, a French doctor was charged by U.S. authorities with tipping a hedge fund about negative results from a clinical trial of a Human Genome Sciences drug.

A major scandal involving FDA reviewers in the 1980s resulted in convictions of agency employees for taking cash payoffs and other gifts from generic drugmakers, but that case did not involve insider trading.

Home Line Of Credit Used To Fund Trades
Liang has worked at the FDA since 1996 in the Office of New Drug Quality Assessment and had access to the agency's internal tracking system for new drug applications. He earned a salary of $122,744 a year, according to a court document.

He was able to monitor confidential information about whether and when the FDA was about to approve certain drug applications. He and his son used several brokerage accounts to execute trades, prosecutors said. One account was in the name of Liang's 84-year-old mother, who lived in China, according to the SEC.

FDA spokeswoman Meghan Scott said the agency was cooperating with authorities on the case. "We will review the situation and take any appropriate action," she said.

They used a home equity line of credit taken out on their primary house to fund the insider trading activity and used the profits to buy another property, according to a court filing seeking to forfeit the property. They also used the funds to buy cars, pay for travel and pay credit card bills, the Justice Department said.

Investigators installed software on Liang's computer in January that collected screen shots, revealing he was collecting information about drug approvals, including for Clinical Data anti-depressant, Viibryd.

On Jan. 18, within minutes of reviewing an internal document recommending approval, several accounts controlled by Liang and his son bought nearly 5,000 shares of the stock, according to prosecutors.They eventually bought nearly 50,000 shares before the Jan. 21 announcement and made more than $379,000 in profit after the stock rose some 67% on the approval news.