New York GOP Rep. Chris Collins arrested on insider trading charges

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Virginia Butler, Democrat and Chronicle

Rep. Chris Collins was arrested Wednesday morning after a federal grand jury indicted him on insider trading charges as well as lying to federal agents.

Collins and his co-defendants surrendered to authorities Wednesday morning in Manhattan, according to the U.S. Attorney’s Office for New York’s Southern District. 

They are scheduled to be arraigned at 2:30 p.m. Wednesday in federal court.

Officials there have scheduled a press conference for noon to discuss the charges.

A federal indictment charges Collins his son Cameron, and Stephen Zarsky, the father of Cameron’s fiancee, with wire fraud, conspiracy to commit securities fraud and seven counts of securities fraud.

Rep. Collins is also charged with making false statements to the FBI.

Specifically, Collins is accused of receiving inside information about negative clinical trial tests conducted by Innate Immunotheraputics, an Australian biotech company with which he has long been associated.

He then is accused of passing that information on to his son, prompting the son and others to sell 1.78 million Innate shares shortly before the bad news was made public in June 2017 and the share price plummeted.

They avoided losses of $768,600, according to the complaint filed by the Securities and Exchange Commission.

Details of allegations

The drug in question, a compound known as MIS416, is a treatment for second-stage multiple sclerosis.

Clinical trials to determine if the compound was safe and effective had begun in October 2014, according to the indictment. MIS416 was Innate’s primary product, and the company’s fortunes were directly tied to the success of the trials.

On June 22 of last year, Innate’s leadership learned the trials had determined the compound “lacked therapeutic effectiveness.”

The company asked that trading of its stock in its home country of Australia be suspended for several days until it released the results of the trials.  

The company’s chief executive, Simon Wilkinson, also emailed members of the board of directors that day, including Collins, at 6:55 p.m. “I have some bad news to report,” his email said, according to the indictment.

Collins was at the White House, attending the annual Congressional Picnic, when he opened the email. At 7:10 p.m., he responded with an email of his own, allegedly exclaiming “Wow. Makes no sense.”

The SEC complaint alleges that 15 seconds later, the congressman placed the first call to his son, Cameron Collins. When they connected shortly thereafter, Collins told his son the bad news about the trial. He conveyed that information “knowing that it was in breach of his duties to Innate and anticipating that Cameron Collins would use it to trade and tip others,” the indictment alleged.

When news of the failed clinical trial was made public on June 26, the share price of Innate fell 92 percent, from 45 cents a share to 3 ½ cents.

The document goes on to say that Collins himself did not sell his own considerable holdings in the company, because his shares were registered in Australia and thus frozen.  The shares that his son and his son’s associates owned were registered in the United States and not subject to the freeze.

In addition to the three defendants, the indictment and SEC complaint say the inside information was shared with six other people, all of them friends or relatives of Cameron Collins or Zarsky. Five of them sold Innate stock after receiving the tip and the sixth attempted to, though none of them were charged or identified by name Tuesday.

The documents lay out a detailed timeline of the tip-sharing and stock sales based on emails, phone calls, texts and broker records that investigators presumably obtained by subpoena. The legal documents make no reference to any participants in the alleged conspiracy cooperating with authorities.

House ethics investigation

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Before her death, the late Rep. Louise Slaughter, a New York Democrat in Collins’ neighboring district, raised concerns about Collins’ relationship with Innate Immunotherapeutics and possible insider trading with the U.S. Attorney for the Southern District of New York, the Securities and Exchange Commission, the Office of Government Ethics and the House Ethics Committee.

After Slaughter filed an ethics complain against Collins in October of 2017 for hearing non public information about Innate stock, Collins reportedly called her “a despicable human.”

Slaughter authored the 2012 “STOCK Act,” which prohibits members of Congress and their staff from using information learned on the job to make money on the stock market

Former Slaughter staffers, who still work for the district, were not authorized to comment.

Even before the June 2017 trades covered in the indictment, Congressional ethics investigators concluded earlier that month there was “substantial reason to believe” Collins engaged in insider trading and either took or requested official actions to benefit a company in which he’s the largest shareholder, according to their report.

The independent Office of Congressional Ethics sent its report that July to the House Ethics Committee, which announced it would extend its review of the matter under a procedure that does not set deadlines for further public announcements and rarely results in punishment. No action has been taken.

According to the report, Collins attended a meeting of the National Institutes of Health in November 2013 and during the meeting, discussed Innate and asked that NIH employees meet with company employees to discuss clinical trial designs. The report says if Collins took official actions or requested official actions that would “assist a single entity in which he had significant financial interest” he may have violated House rules and standards of conduct.

In June 2017, Collins was the largest investor in Innate, holding nearly 17 percent of its stock. When news broke of the failure of the company’s drug to treat multiple sclerosis had failed in a 93-patient trial, the company’s share price fell more than 90 percent, to 4 cents a share. The value of his holdings plummeted from $45.5 million to barely $1.5 million.

The company is currently trading at 30 cents a share.

In April, Collins resigned from the board of the Australian biotech firm, one week after The Daily Beast reported that the congressman has sponsored several bills that would have benefited the company. 

Collins’ attorneys, Jonathan Barr and Jonathan New, issued a statement shortly after his arrest.

“We will answer the charges filed against Congressman Collins in Court and will mount a vigorous defense to clear his good name.  It is notable that even the government does not allege that Congressman Collins traded a single share of Innate Therapeutics stock.  We are confident he will be completely vindicated and exonerated. Congressman Collins will have more to say on this issue later today.”

Collins is being challenged in November’s election by Democrat Nate McMurray, supervisor of the town of Grand Island.

Reached by phone early Wednesday, the McMurray campaign declined to comment on Collins’ arrest, but said the candidate would hold a press conference later today.

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