Rep. Chris Collins (R-NY) was arrested Wednesday on federal charges of insider trading for allegedly using his position at a pharmaceutical company to leak information to his son, who then used it to dump company stock before it crashed. He is also charged with lying to the FBI about those trades.
Hours later, Collins called the charges “meritless”, and said he would still run for re-election, but House Speaker Paul Ryan temporarily booted him from the House Energy and Commerce Committee until the House Ethics Committee reviews the matter.
Collins sat on the board of directors of Innate Immunotherapeutics, an Australian pharmaceutical company where he was also lead shareholder. Cameron Collins, his son, was also a shareholder, as was Cameron’s father-in-law to-be. All three have been charged with conspiracy to commit securities fraud by the U.S. Attorney’s Office for the Southern District of New York.
“Representative Collins, who, by virtue of his office, helps write the laws of this country, acted as if the law did not apply to him,” U.S. Attorney Jeffrey Berman said at a press conference. “These charges are a reminder that this is a nation of laws, and everyone stands equal before the bar of justice.”
All three defendants pleaded not guilty at their arraignment in a Manhattan federal courtroom. A judge released them each on the condition that they get two people to co-sign a $500,000 bond.
House Speaker Paul Ryan said Collins will not serve on the Energy and Commerce Committee “until this matter is settled.”
Innate was anxiously awaiting the results of an FDA trial for its experimental multiple-sclerosis drug in 2017 when it got news the drug had failed its latest clinical trial. Innate’s CEO informed Collins and his colleagues on the company’s board of directors of the devastating news via email.
“I have bad news to report,” the CEO wrote.
Minutes later, Collins frantically called his son from a congressional picnic at the White House. After trying six times, Collins finally got through to Cameron and allegedly told him Innate’s drug was a bust. Cameron then gave the news to his fiancée Lauren Zarsky’s family, who were also invested in Innate: Zarsky’s father Stephen, her mother Dorothy, and Stephen Zarsky’s friend. (Stephen Zarsky also allegedly tipped off his brother, his sister, and a long-standing friend, who were all invested in Innate.)
Ironically, it was Cameron who convinced the family to invest in the first place, according to the indictment.
When U.S. markets opened the following morning, Cameron placed an order to sell 16,508 shares of Innate stock. Over the next few days, he placed dozens more orders. Cameron was on the phone with his father when he placed an order to dump 50,000 shares, according to the indictment.
Zarsky’s family also sold off stock, the feds say.
The government said the trades allowed them all to “avoid over $768,000 in losses that they would have otherwise incurred if they had sold their stock in Innate after the drug trial results became public.”
When the news finally did go public, Innate’s stock dropped 92 percent in value in one day.
Though Collins is accused of providing inside information, he did not trade on it because his Innate shares were listed on the Australian stock exchange, where trading was halted ahead of the announcement of the results of the drug trial (a precautionary measure designed to avoid the exact type of insider trading Collins is accused of helping his son and Zarsky take part in).
Collins’s lawyers highlighted that in a statement defending him.
“We will answer the charges filed against Congressman Collins in Court and will mount a vigorous defense to clear his good name,” they said. “It is notable that even the government does not allege that Congressman Collins traded a single share of Innate Therapeutics [sic] stock. We are confident he will be completely vindicated and exonerated.”
The government seemed to anticipate that line of defense.
As Collins “well knew, he was virtually precluded from trading his own shares for practical and technical reasons,” which included the Australian trading halt, the government said. Additionally, the government noted, “Collins was already under investigation by the Office of Congressional Ethics (OCE) in connections with his holdings in, and promotion of, Innate.”
Indeed, just days before the alleged insider trading, he was interviewed by the OCE about his dealings with Innate. OCE recommended the House Ethics Committee probe Collins over his apparent use of office to benefit Innate. Berman declined to answer whether his office received a referral from OCE.
Collins’s son and Zarsky are also charged with lying to the FBI. They and Collins also face counts of wire fraud and mail fraud.
The Securities and Exchange Commission also announced Wednesday it settled insider trading charges against Lauren and Dorothy Zarsky. Both agreed to pay five-figure fines, the SEC said.
Since he was elected to Congress in 2012, Collins has risen to become one of President Donald Trump’s most vocal supporters. The first member of Congress to endorse Trump for president, Collins became one of the president’s most vocal supporters, seen often on cable news steadfastly defending him. That dedication paid off when, in September 2017, Vice President Mike Pence traveled to Buffalo for a Collins fundraising event that netted more than $400,000 for his reelection campaign.
Before his time in Congress, Collins was a self-made millionaire businessman in Buffalo. In 2005, he invested $5 million in the company that later became Innate. Over the next decade, Collins pitched friends, family, and even fellow congressmen on Innate. By mid-2017, almost 30 percent of the company was owned by Collins or his associates. Shareholders included his two children, four campaign donors, his chief of staff, and six Republican congressman.
For the past year and a half, reporters across a variety of publications, including The Daily Beast, raised serious questions about conflicts of interest with Collins’s dual positions as a lawmaker and director at Innate.
Daily Beast partner Kaiser Health News was the first to report on Collins’s intimate relationship with Innate, which included investments from Collins’s family, friends, and business associates. Innate shareholder James Wheeldon of Australia discovered the relationships and reported them to Australian securities officials, alleging that Collins may have skirted the law by effectively taking over the company through the investments made by his friends and family.
“It is very hard to see how he did not commit offenses under Australian law,” Wheeldon told The Daily Beast on Wednesday from Sydney.
The Australian Securities Exchange would not confirm or deny that it is investigating Collins for that alleged crime in previous statements to The Daily Beast.
Collins told supporters via email he will run for re-election in November. Berman, the U.S. attorney, was asked at a press conference if the election’s timing played a role in the timing of the indictment.
“Politics does not enter into our decision-making in charging a case. We bring a case when a case is ready to be brought. That being said, we are cognizant about the potential concerns surrounding an election, but here we are, months away from an election, those concerns do not apply,” he said.
At the arraignment, the congressman had a stiff, somewhat dour, demeanor when he walked into the courtroom, wearing a dark suit and white shirt, without a tie. His son, Cameron, looked somewhat shell-shocked. Zarsky didn’t appear worried.