On April14, 2011, James Fan, 39, stood on a parking garage landing at Newark Liberty International Airport, a letter from his young son in his pants pocket, about to jump four stories to his death. Fan had been charged a day earlier with insider trading based on his knowledge of confidential test results at Seattle Genetics (SGEN), a health-care company where he was manager of clinical programming. Also charged: his younger brother, Zishen, who was scheduled to take the oath of U.S. citizenship a month later. The total take, a judge later determined, was about $200,000. James Fan was trying to help his brother, who had found himself deep under water after the California real estate market collapsed in 2008, prosecutors said later. The Fan case is such a cautionary tale, says Jenny Durkan, the U.S. attorney in Seattle. Both brothers were promising.

The markets are awash in insider trading, and the health-care industry has been particularly hard-hit. Health-care businesses offer illegal traders abundant opportunities to profit from unpublicized data about earnings and deals. Pharmaceutical companies can live or die on the results of drug trials. And the industry has undergone significant consolidation, leading to several multibillion-dollar mergers. Health care is particularly attractive to criminals because so much turns on the government regulatory approval, says Rod Rosenstein, the U.S. attorney for Maryland. If you have a pending application for a new drug, the difference between yes and no on approvals can be tens or hundreds of millions of dollars.

The Fans are among at least 83 people who have been sued by the U.S. Securities and Exchange Commission or charged since 2008 with passing or receiving insider-trading tips involving pharmaceutical, biotechnology, or other health-care stocks. On Nov. 20, federal prosecutors charged Mathew Martoma, a former portfolio manager for Steven Cohens SAC Capital Advisors, with trading on insider tips about clinical trials of bapineuzumab, a drug to treat Alzheimers disease. They said the scheme netted as much as $276million for the hedge fund. Martomas lawyer said his client would be exonerated. An SAC spokesman said, Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the governments inquiry.

A day earlier, three executives at health-care companies Celgene (CELG), Sanofi (SNY), and Stryker (SYK) were among six people charged for their roles in an insider-trading ring that prosecutors said generated $1.48million in illicit profit. Lawyers for the six men declined to comment.

The lineup of accused health industry inside traders illustrates how widespread the problem is: CEOs, hedge fund traders, bankers, lawyers, doctors, accountants, baseball players, a retired pilot, and a film producer have been charged or sued by regulators. Martha Stewart went to prison in 2004 for obstructing justice and false statements about her sale of shares of health-care company ImClone Systems (LLY), whose founder Sam Waksal was ordered to spend 87 months in jail for insider trading.

While the number of insider-trading cases in the technology industry has been roughly the same since 2008, many of those were intertwined with Raj Rajaratnam, the billionaire hedge fund manager appealing his conviction while serving an 11-year prison sentence. Whats notable about health-care corruption is its breadth. The cases include husbands stealing information from wives, fraternity brothers conspiring, and an attorney making trades on information he overheard from his daughter. (She was a lawyer visiting home for the holidays while working on Abbott Laboratories (ABT) acquisition of Advanced Medical Optics.) A health-care inside trader turned confidential informant on another case said he was once on a golf course with three doctors whose beepers all went off at the same moment with the same inside tip, according to an FBI agents interview summary obtained by Bloomberg.

James Fan, originally named Zizhong Fan, was born in 1971 in Beijing, a year before his brother. Their parents later divorced. James and his wife trained as physicians in China, where doctors pay was low, says his attorney in Los Angeles, Adam Braun, a former federal prosecutor. James never practiced medicine and moved to the U.S. in 1999, a year after Zishen.

In July2008, James began work at Seattle Genetics in Bothell, Wash., as a senior statistical programmer. His job was to convert raw data from clinical trials into statistics measuring the effectiveness of drugs. In 2010 he was leading a group of programmers who analyzed the data from a pair of clinical trials on the companys flagship drug, SGN-35, for patients with Hodgkins lymphoma. James learned in July2010 that the raw data showed progress for a large majority of the patients.

Because of the drug trials, Seattle Genetics began a blackout period on employees trading company securities starting on June22. Soon after, James wired money to China, and the money ended up in an account in his fathers name at TDAmeritrade (AMTD). On Aug.24, Zishen Fan began using the TD Ameritrade account to buy Seattle Genetics shares and options. Over a month, the brothers spent $514,314 on Seattle Genetics stock and options. On Sept.27, Seattle Genetics announced that SGN-35 cut tumor size by at least half for 75percent of the patients in a group of 102. Shares rose almost 18percent. Zishen Fan began exercising the options and selling shares.

The activity aroused suspicions at TDAmeritrade, which filed a complaint about possible insider trading on Oct.27 with federal regulators. TDAmeritrade utilizes a variety of risk management tools and surveillance methodologies to identify potentially problematic activity, says Kristin Petrick, a company spokeswoman. The Options Regulatory Surveillance Authority, or ORSA, which monitors trading for the Chicago Board Options Exchange (CBOE) and other exchanges, also flagged the account and alerted the SEC on Dec.13.

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Health Care's Epidemic of Insider Trading