Rep. Chris Collins of Clarence was arrested on insider trading charges Wednesday, federal prosecutors in New York announced.
Collins' son, Cameron Collins, and Stephen Zarsky, the father of Cameron Collins' fiancee, also were arrested. All three surrendered to federal authorities in New York City, a spokesman for the U.S. attorney for the Southern District of New York said.
Collins has been charged with one count of conspiracy to commit securities fraud, seven counts of securities fraud, one count of wire fraud and one count of making false statements to the FBI. His son and Zarsky face similar charges.
Rep. Chris Collins pleaded "not guilty" Wednesday afternoon at his arraignment in federal court in Manhattan Wednseday afternoon on insider trading charges. The judge sets bail at $500,000 for Collins and his son, Cameron. The congressman also must surrender his diplomatic license and any firearms he might own.
In an indictment unsealed Wednesday morning, prosecutors described what went on: They said that Chris Collins, a major shareholder in an Australian biotech company called Innate Immunotherapeutics, passed information to his son, who also is a major shareholder in the company, and he relayed inside information to others so they could time advantageous trades in the company.
Central to the scheme according to the indictment was Innate's development of a multiple sclerosis drug called MIS416. When a drug trial failed in June 2017, prosecutors say, Chris Collins passed that information to his son who then provided the news to investors who were then able to unload their shares before the damaging news hit, causing the stock price to plummet by 92 percent. "All of the trades preceded the public release of the negative drug trial results," according to the indictment, "and were timed to avoid losses that they would have suffered once the news became public."
These trades allowed Chris Collins, 68; Cameron Collins, 25; and Zarsky, 64, along with six other conspirators not named in the indictment, to avoid more than $768,000 in losses, the indictment says. The co-conspirators are described in the indictment as Cameron Collins' fiancee, who is also Zarsky's daughter; Zarsky's wife; two brothers of Zarsky; a close friend of Zarsky's who is a Florida-based financial adviser; and a friend of Cameron Collins.
U.S. Attorney Geoffrey Berman said at a news conference in New York City Wednesday noon that Chris Collins had "a legal duty" to keep the information about Innate's drug test failures a secret – but failed to do so.
"He placed his family and friends above the public good," Berman said, as he began to outline the charges against the congressman. "He decided to commit a crime."
In a statement posted to Collins' Congressional website, his attorneys Jonathan Barr and Jonathan New of the lawfirm Baker Hostetler said: "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."
In an email obtained by The Buffalo News, Collins vowed to his supporters Wednesday that he will stay in office, run for re-election and fight to clear his name.
Following news of the indictment, House Speaker Paul Ryan removed Collins from the House Energy and Commerce Committee, according to multiple media outlets citing a statement from Ryan's office. "Until this matter is settled, Rep. Collins will no longer be serving on the House Energy and Commerce Committee," Ryan said according to the statement, cited by CNN and BuzzFeed News.
The Securities and Exchange Commission also announced Wednesday that it had filed insider trading charges against Collins, his son and Zarsky in a parallel action with the U.S. Attorney's office.
"We allege that Christopher Collins breached his duty of confidentiality to Innate’s shareholders, exploiting his access to nonpublic information about the company’s clinical trial results so that his son could avoid significant financial losses,” said Stephanie Avakian, Co-Director of the SEC Enforcement Division, said in a press release. “Our laws are designed to prevent and punish such misconduct, which undermines investors’ trust in the fairness and integrity of our markets.”
House Ethics investigation
In October, an Office of Congressional Ethics report on Collins' relationship with Innate Immunotherapeutics, found there was "a substantial reason to believe" that Collins violated federal law by touting the stock of an obscure Australian biotech firm based on inside information, while also possibly breaking House ethics rules by persuading National Institutes of Health officials to meet with a staffer from that company.
Based on that report, the House Ethics Committee said it was continuing its investigation of Collins, a Republican from Clarence and one of President Trump's strongest congressional allies. Unlike the Office of Congressional Ethics, the Ethics Committee has the power to sanction errant lawmakers.
The Office of Congressional Ethics recommended in that report that the Ethics Committee dismiss a third charge against Collins: that he got a discount on a private sale of Innate's stock based on the fact that he was a member of Congress.
But two remaining charges against Collins and the 155 pages of evidence released with the Office of Congressional Ethics report collectively portrayed a congressman working hard on behalf of an Australian company in possible violation of U.S. law and House ethics rules.
According to the Office of Congressional Ethics report:
• Three times in 2015 and 2016, Collins sent emails to Innate investors that included what appears to be private information about the company. By doing that, Collins may have violated the federal Stop Trading on Congressional Knowledge (STOCK) Act, a law barring insider trading among members of Congress, as well as House ethics guidelines.
• In November 2013, Collins met with officials at the National Institutes of Health and asked that an NIH researcher meet with Innate's chief science officer to discuss possible clinical trials for the company's experimental multiple sclerosis drug. That could have violated House rules that bar lawmakers from taking official actions that would benefit an entity in which they have a significant financial interest.
Collins, who resigned in April from the board of Innate Immunotherapeutics, denied any wrongdoing in October.
“Throughout my tenure in Congress I have followed all rules and ethical guidelines when it comes to my personal investments," he said in a statement then. "I was elected to Congress based upon my success in the private sector, and my willingness to use that experience every day to facilitate an environment that creates economic opportunity and jobs."
The ethics report had said Collins may have been guilty of a very different kind of insider trading than had originally been alleged in complaints to the ethics office.
Those complaints charged that Collins may have acted on inside information tied to his work in Congress in the summer of 2016 when he bought additional Innate stock while working on legislation that could boost clinical trials conducted by such companies.
But the allegation in the ethics report is that in late 2015 and early 2016, he may have engaged in "tipping" – using inside information that he knew about Innate to persuade investors to put more money down on the company.
In a December 2015 email, he provided Innate investors with information about clinical trials of Innate's multiple sclerosis drug that the company had not made public, the ethics office said.
Collins provided more previously undisclosed information about those clinical trials in an email to investors in January 2016, the ethics office said. In addition, that email included previously unknown details about Innate's plans to work with a large pharmaceutical company to produce its multiple sclerosis drug.
And in a June 1, 2016, email, Collins discussed Innate's upcoming private stock offering before the company announced it.
Adding up the information in those three emails, the ethics office said: "Some information Representative Collins shared with Innate investors was likely nonpublic and may have been important to investors making a decision on whether to purchase Innate stock."
To hear Collins' lawyer tell it, though, the ethics office doesn't prove its case.
"No facts sufficient to support these claims are present," said the lawyer, E. Mark Braden, in a letter to the Ethics Committee.