The Securities and Exchange Commission is seeking to force Rep. Chris Collins, his son and the father of his son's fiancee to pay back any "ill-gotten gains" and pay fines in separate civil insider trading charges also filed Wednesday.
The lawsuit also seeks a ban against Collins serving as an officer and director of a public company.
The SEC's complaint in federal court in Manhattan charged Collins with tipping off his son, Cameron, about negative clinical trial results for Innate Immunotherapeutics Ltd.'s multiple sclerosis drug. According to the litigation, Cameron then allegedly took that "material, nonpublic" information and used it to trade and tip off others, including Cameron Collins' now-fiancee Lauren Zarsky and her parents, Stephen and Dorothy.
The SEC alleges 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."
The filing parallels related criminal charges filed by the U.S. Attorney for the Southern District of New York. The FBI also assisted in the investigation.
"Our laws are designed to prevent and punish such misconduct, which undermines investors' trust in the fairness and integrity of our markets," said Stephanie Avakian, co-director of the SEC Enforcement Division.
The SEC's lawsuit seeks to force Collins, Cameron Collins and Stephen Zarsky to pay back "ill-gotten gains, plus interest, penalties and permanent injunctions," and also seeks a ban against Collins serving as an officer and director of a public company.
"In the hours and days after learning of the drug trial results, Christopher Collins, his son, and their associates exchanged a flurry of calls,” said Steven Peikin, co-director of the SEC's enforcement division. "The investigation yielded a detailed footprint left by the defendants, revealing their frantic efforts to sell shares and warn others before Innate announced bad news."
Separately, the agency also settled insider trading charges against Lauren Zarsky, a certified public accountant, and Dorothy Zarsky. Neither woman admitted or denied the charges that they sold shares of Innate based on tips from Cameron Collins.
But Lauren Zarsky agreed to give up $19,440 in "ill-gotten gains," plus "prejudgment interest" of $839, and will also pay a $19,440 fine. She will also be suspended from public accounting for five years, which means she can't participate in the financial reporting or audits of publicly traded companies. She can apply for reinstatement after five years.
Dorothy Zarsky will "disgorge" $22,600 plus $975 in interest, and will pay a $22,600 fine.
According to the SEC complaint, the elder Collins received an email on the evening of June 22, 2017, from Innate's CEO to the company's board of directors, which included Collins. The CEO said in the email that he had "extremely bad news" indicating that the clinical trial results "pretty clearly indicate 'clinical failure' " of the drug.
The SEC said Collins replied to the email "within minutes, expressing his surprise at the results," and then called his son minutes later. Cameron Collins then drove to Stephen Zarsky's home later that evening to tip him off.
Two hours before the stock market opened for trading the following morning, Cameron Collins and Stephen Zarsky submitted orders to sell Innate stock, the SEC alleges. Those orders were executed after the market opened, with Collins selling nearly 1.4 million Innate shares.
The company publicly announced the negative clinical trial results just a few hours after the last of the stock sales, prompting the share price to plunge by more than 90 percent. According to the SEC, Cameron Collins and Zarsky avoided more than $700,000 in losses through their advance stock sales and also contacted other family members and friends, who also sold their stock in advance.