Alleged Insider Trader Working for VC Firm (Still!)

Update: 5AM Ventures has terminated Chen Tang

In April 2008, buyout firm Friedman Fleischer & Lowe learned that chief financial officer Chen Tang was under investigation for insider trading. The firm immediately suspended Tang, cooperated with the SEC and fired him two months later.

What a contrast between FFL and 5AM Ventures, where Tang has been working for at least the past six months as a back-office consultant. 5AM has neither suspended nor terminated its agreement with Tang, even though he was formally charged last Friday with helping to reap more than $8 million in illicit profits via an insider trading scheme.

5AM has declined to say exactly when Tang began work, but we know that he’s essentially been manning the books since VP of finance Amy Berliner left in early August to join Andreessen Horowitz. He also was with 5AM while Berliner was still at 5AM, but on maternity leave.

The firm says that it recently agreed to hire a fulltime replacement for Berliner (and, by extension, Tang), but that it cannot identify her because she has not yet informed her current employer. Attempts to reach Berliner were unsuccessful (AH does not have a website, nor a listed phone number).

Chen Tang… has had a limited, back-office role with 5AM, and is assisting in our transition to our new VP, Finance,” managing partner Andy Schwab told peHUB.

Schwab says that 5AM was unaware of the insider trading investigation until the formal charges were brought last week. “We read it like everyone else,” added Paul Stone, 5AM’s general counsel and chief operating officer.

I’m not sure if this means Tang lied to 5AM about the circumstances surrounding his brief tenure with FFL, or if 5AM just never asked (no fulltime salary = no basic background check?). I do know, however, that 5AM is acting very strangly by keeping Tang on board. He even had a working voicemail in the firm’s Menlo Park office, when I rang earlier today.

Bizarre. Just bizarre.

Prior to joining FFL, Tang had been a fulltime CFO with both Tallwood Venture Capital and Prospect Venture Partners. 5AM is an early-stage VC firm focused on the life sciences sector, and has offices in both Menlo Park and Waltham, Mass. Earlier this year, 5AM raised just over $150 million for its third fund, based on regulatory filings. According to CalPERS, 5AM’s second fund (2007) had an IRR of -4.3% with 55% called as of 3/31/09, while its first fund (2004) had an IRR of 22.7 percent with over 90% called.