When an Australian pharmaceutical company sought to raise money with the goal of entering the U.S. drug market, Rep. Chris Collins pitched in.
The Republican congressman purchased $2.2 million worth of stock in Innate Immunotherapeutics as part of its initial public offering in late 2013, according to a previously unreported document Collins filed with Australia’s securities authority. The IPO prospectus said Innate would seek FDA approval of its drug to treat multiple sclerosis. More than a year later, Collins wrote into a bill language to expedite the FDA’s approval process for such drugs. Four months before the bill was signed into law, Collins again purchased stock in Innate, this time as much as $1 million, according to congressional financial disclosure records.
Ethics experts say all of this amounts to a conflict of interest that warrants investigation by the Office of Congressional Ethics and the House Ethics Committee.
Collins said he did not participate in any IPO on a financial disclosure form filed in 2014 (PDF), but that’s not a crime, thanks to a gaping loophole in the STOCK Act discovered by The Daily Beast.
The law, passed to stop insider trading among members of Congress, only requires them to disclose involvement in U.S. IPOs, but not foreign ones, a House Ethics Committee official told The Daily Beast.
“This is simply outrageous,” Larry Noble, a former Federal Elections Commission lawyer, told The Daily Beast of the loophole. “One could argue that not only should foreign IPOs not be exempt, but that they present an even greater possibility of a conflict of interest because they’re involved with foreign persons.”
Collins owns approximately $22 million worth of Innate stock, or 16.5 percent of the company, and sits on its board of directors, according to the company. Since the IPO, Collins’s children, his chief of staff, and a score of campaign donors have bought into Innate, whose stock price has tripled since its initial offering in 2013.
“Do you know how many millionaires I’ve made in Buffalo the past few months?” Collins was overheard on Capitol Hill telling someone on the phone in January, though it is not known what exactly he was talking about.
Five other Republican congressman have also invested in Innate, including the new secretary of Health and Human Services, Tom Price.
All told, Collins and people with close personal and political ties to him own approximately 30 percent of Innate.
Collins’s office did not answer detailed questions about his relationship with Innate, but it did provide a statement.
“Despite the continued partisan attacks insinuating otherwise, Congressman Collins has followed all ethical guidelines related to his personal finances during his time in the House and will continue to do so,” Collins’s communications director, Michael McAdams, wrote in an email to The Daily Beast.
“Congressman Collins’s relationship with Innate Immunotherapeutics dates back more than 15 years,” the statement continued. “Secondary Progressive Multiple Sclerosis is one of the most debilitating diseases in the world and Congressman Collins saw its deadly impact first hand as it affected a close family member. As of now, it has no cure and no relief of symptoms. He is very proud of the progress the company has made over the years and hopeful it will develop a potentially life-saving treatment for the millions of individuals suffering from Secondary Progressive Multiple Sclerosis.”
Collins’s relationship with Innate began in 2005 when CEO Simon Wilkinson was the CEO of another Australian pharmaceutical company that was struggling financially: Virionyx. On a trip to the United States to look for new investors, Wilkinson reportedly met Collins. Collins, who was then an entrepreneur mostly in the manufacturing industry in Buffalo, invested $5 million in Virionyx, which became Innate Immunotherapeutics in 2009.
Innate has just one product, MIS416, a drug to treat secondary progressive multiple sclerosis, a worsening of the disease that affects 30 percent of MS patients. If approved by the FDA, MIS416 would be the only drug to treat this form of the disease, according to Innate. In its 2013 prospectus, Innate estimated that MIS416 could generate as much as $3 billion in profits in the U.S..
Innate’s prospectus also shows why Collins’s work on the 21st Century Cures Act presents such a potentially serious conflict of interest, ethics experts said. Collins’s provision in the bill makes it easier for companies to be granted investigative drug approval, something Innate’s prospectus repeatedly defines as its main strategy for reaching the U.S. market.
Money raised by the initial public offering that exceeded the amount needed for the second phase of clinical trials for MIS416 would go toward “initiating the Investigational New Drug process with the FDA,” according to Innate’s prospectus.
In a statement touting the Cures Act provision, Collins said that “the methods used to evaluate investigational drugs have remained the same for decades,” and called for the approval process for those drugs to be streamlined. That is now law, thanks to the passage of the Cures Act.
Noble, the former government lawyer and an ethics expert, said that because Collins’s provision will have a broad impact on companies across the pharmaceutical industry, it might not be seen as a direct conflict of interest. But it is the provision’s specific effect on Innate—and Collins’s lead role in pushing the provision—that should prompt an investigation, Noble said.
“It’s one thing for a member of Congress to simply vote on something like this, and it’s entirely another for that person to have been the one leading the charge on it,” Noble said. “This is a very serious conflict of interest matter. There’s a lot financially at stake for him, and there’s a serious question of whether or not he put a provision in a statute that will benefit that financial upside.”
Noble added that, at the very least, Collins should have informed ethics officials of his relationship with Innate before crafting legislation that would help the company. It is not known whether Collins consulted the House Ethics Committee, or disclosed the extent of his involvement with Innate prior to pushing for the provision included in the Cures Act.
Collins’s spokesperson did not say whether Collins has consulted with ethics officials regarding his relationship with Innate. Consultations between the committee and members of Congress are private, a committee spokesperson said.
Collins’s potential conflict of interest got deeper last year. In August 2016, he bought as much as $1 million in company stock, according to financial disclosure records (PDF). Two months later, Collins’s language was present in the Cures Act. Two weeks later, President Obama signed the bill into law.
Richard Painter, a former ethics lawyer in the George W. Bush administration, said Collins was being “highly reckless” in buying Innate stock while the Cures Act was working its way through Congress.
“You’re asking for an investigation and maybe criminal prosecution if you know your legislation will help the company, and you trade on the stock before the bill is passed,” Painter told The Daily Beast.
Not only is it in Collins’s interest to see Innate succeed, but getting MIS416 to the lucrative U.S. market would enrich a sprawling network of family, friends, and political donors of Collins.
Collins’s circle began investing heavily in 2013, when Innate offered its IPO.
That year, Collins’s two children, then a senior and freshman in college, purchased nearly $1 million in Innate stock combined, according to the company. Today Caitlin Collins is Innate’s fifth largest shareholder and Cameron Collins its sixth.
By the end of 2013, the company’s list of top 20 shareholders included Collins, his two children, and four people who have donated a combined total of $16,000 to Collins’s campaigns: Glenn Arthurs, a Buffalo financial adviser; Paul Harder, a friend of Collins who held a Trump fundraiser with the congressmen during the presidential campaign; Thomas Massung, a former vice president of Buffalo’s M&T Bank; and Tom McMahon, a Buffalo research-firm owner.
Joining them last year was Collins’s chief of staff, Michael Hook, who purchased Innate stock last summer and today owns nearly $800,000 worth of shares, according to the company’s shareholder list. Hook cracked the top 20 of Innate shareholders this year, according to the company.
James Wheeldon, an Innate shareholder and former attorney with the Australian Securities and Investments Commission, claims Collins has violated securities law with what is practically a by-proxy takeover of Innate.
In a letter to ASIC about Collins, Wheeldon pointed to a requirement that investors notify Australian securities officials if they exceed 20 percent ownership of a company (PDF).
“If Mr. Collins does in fact have any control over the voting or disposal of the shares held by his children, then he has prima facie contravened the ‘20 percent rule,’” Wheeldon wrote in a February letter to ASIC’s Takeovers Panel, which hears complaints about shareholder takeovers of companies.
While Collins owns 16.8 percent of Innate, 4.6 percent of the company is owned by his children, or 21.4 percent between the three of them.
Wheeldon argues the percentage of the company owned by Collins’s children puts the congressman over the 20 percent threshold that requires disclosure to shareholders.
“These investors—who were supporters and financial backers of Mr Collins before he introduced them to (Innate)—would be expected to continue to support Mr. Collins in his capacity as a director and major shareholder,” Wheeldon claimed. “It strains credulity to suggest that they would not accede to Mr. Collins’s wishes and instructions should a matter be put to a vote of the shareholders of this company located on the other side of the world.”
The Takeovers Panel determined that Wheeldon’s argument was flawed and lacked evidence that Collins controlled the shareholder voting practices of his children and his associates. The panel declined to recommend an ASIC investigation, it announced in February.
Wheeldon, a Harvard educated lawyer and dual citizen who is also licensed to practice law in New York, remains adamant that Collins had violated Australian securities law.
“There are many things that I don’t agree with when it comes to the Trump administration,” Wheeldon told The Daily Beast from Sydney, noting that Collins was the first congressman to endorse Trump for president and served on his transition team. “But one thing I do agree with is that foreigners should not be able to come into your country and break your laws.”
Last year, Innate needed money for a second round of clinical trials so it offered deep discounts on stock purchases to “sophisticated investors.” Called private placements, the company offered individual shares at less than half of their then-going rate on the Australian Stock Exchange. With a capital raising goal $10 million, according to Innate’s prospectus (PDF), the company looked to people Collins knew.
Sixteen people with close ties to Collins bought Innate shares at discounted prices of $0.18 or $0.26 cents per share. Those investors have given nearly $42,000 to Collins’s political campaigns over the years, a review of campaign finance records found. They include former congressman Price; Collins’s chief of staff, Hook; and Bill Paxon, a former congressman who Collins has credited with getting him into politics. Paxon and Hook started a lobbying firm together in the late 1990s.
Four other Republican congressmen also bought into Innate last year, though not with the discount: Mike Conaway of Texas, Doug Lamborn of Colorado, Billy Long of Missouri, and Markwayne Mullin of Oklahoma purchased as much as $356,000 in Innate shares combined, according to financial disclosure records. Long and Mullin sit with Collins on a subcommittee that has oversight over the FDA approval process. They purchased their Innate shares on the same day, Jan. 12.
Collins, Long, and Mullin sit on the Health Subcommittee of the Committee on Energy and Commerce. The subcommittee is “extremely influential” over matters related to the FDA approval process, said Susan Wood, a former FDA official who now teaches at George Washington University.
“This subcommittee has a great deal of influence by setting into law the standards and process of approval,” Wood told The Daily Beast.
The subcommittee sets fees paid by medical companies that help fund the FDA, Wood said.
“In the best world, the politics do not influence the FDA’s decision-making, and I am a believer in that, but it raises concerns when a member has a conflict of interest.”
When asked how Long learned of Innate, his office denied it was from Collins.
“Congressman Long did not learn of Innate Immunotherapeutics through a colleague, but rather through the news in January when the company became a daily topic in the news,” a spokesperson said in a statement. “He then researched what they do and eventually decided they would be a good addition to his portfolio.”
Innate’s stock price has risen from about $0.30—when the private placements were announced on July 29, 2016—to about $0.58 today, reaching a high of $1.21 on Jan. 20. When Price divested from his stock in Innate in March, he cashed out with a profit of between $154,983 to $489,981, ProPublica reported.
The 11 other people linked to Collins who received discounted shares in Innate bought in at 26 cents per share. Those shares are now worth twice that.
This story has been updated with a response from Rep. Long's office.
UPDATE 4/28/17: Rep. Louise Slaughter, a Democrat from New York, on Friday announced legislation that would close a loophole in the STOCK Act that allows members of Congress to participate in foreign IPOs. The loophole was utilized by Rep. Chris Collins in his 2013 purchase of stock in Innate Immunotherapeutics and was first reported by The Daily Beast in this story.