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The Briefing: The Chris Collins, Innate coverage began with a lie

WASHINGTON — "Collins loses millions as stock collapses – but others may have gotten out early" — The Buffalo News, June 27, 2017.

It seems, in retrospect, that a clairvoyant wrote that story, but no. With the help of Google, an Australian blogger and an old source from Buffalo, I did.

I'm still gobsmacked that it even happened, but let me try to explain.

It all started with a news release — and my discovery of an oft-told lie.

I had been reporting on Rep. Chris Collins and his big-money investment in an obscure Australian biotech firm called Innate Immunotherapeutics for months by the time that news release landed in my inbox last June 21.

Headlined "Innate Immunotherapeutics receives FDA clearance for MIS416 Investigational New Drug application," it sounded like such inside baseball that it received almost no attention.

But that headline told me that Collins, a Republican from Clarence, lied to me – again and again.

Collins loses millions as stock collapses – but others may have gotten out early

When I asked him about Innate, he dismissed my questions as irrelevant, saying the company had no business before U.S. regulators. But suddenly it had business before the Food and Drug Administration.

So I wrote the story"Collins said drug company had no business before feds – but it does."

I finished that story on Monday, June 26, 2017, ignoring another news release that seemed nearly as boring. Issued by the Australian Stock Exchange, it said trading in Innate's shares halted the previous Friday, pending the release of news on the morning of Tuesday, June 27, Australia time. Yawn.

Attending a Roseanne Cash concert that Monday night (Tuesday morning in Australia), I took a bathroom break and checked my email. There I found news from Innate that rocked Collins' world – and made me very suspicious.

Innate's highly touted drug for multiple sclerosis – the very one it had bragged about in that news release about the FDA — failed in clinical trials in Australia. That made Innate a one-product company with a useless product. And it rendered Innate's stock practically worthless just as trading resumed on the Australian Stock Exchange.

Collins was, at that moment, losing millions of dollars, and I was stuck at a concert and couldn't write a word about it.

The next morning, I checked the web and found that Innate's stock had, as expected, tanked. So I wrote a quick story, focusing on drop in the stock price and Collins'  lost millions.

While working that story, I wondered: Why did Innate send out that good-news press release only a few days before announcing that its drug was a total failure? I suspected the worse: some sort of scheme to boost Innate's stock price before it crashed. And thanks to Google, I came across a hugely important observation from Sean O'Neill, a blogger for the Australian version of the Motley Fool investment website.

Before trading in Innate's stock had been halted, someone had started selling off their shares. The unusual trading activity "suggests that somebody with knowledge of the results was front-running the announcement," O'Neill wrote. "That’s something I'd hope the regulator will be looking closer at."

It turned out that O'Neill and I weren't the only ones who smelled something rotten in the state of Australia.

"TOTAL PUMP AND DUMP!" read the headline of one chain of commentary on Innate on HotCopper, an Australian stock investors' website.

The Securities and Exchange Commission's civil complaint spelled out how Rep. Chris Collins told his son Cameron inside information about Innate Immunotherapeutics — and how the inside information spread from there.

Then I called Anthony Ogorek, a financial planner in Williamsville and a great source of mine since my days as a business reporter in Buffalo 30 years ago. He told me that tiny biotech firms were notoriously prone to "pump and dump" schemes, where they tout good news to pump up the stock price while insiders sell — before releasing really bad news that sinks the stock price.

Reviewing what happened at Innate, Ogorek said: "This is not the way the markets are supposed to work."

So I had my story: "Collins loses millions as stock collapses — but others may have gotten out early."

The next day, I didn't feel great about it. No other reporter in America or Australia wrote about a possible "pump and dump" scheme, and that made me worry that I had gotten too far ahead of the story, that I had been unfair to Collins and unfair to Innate.

Beating myself up all the while, that day I did a story about the Collins family investments. Headlined "Collins' office says family, chief of staff held onto stock as it sank," the story quoted a statement from Collins spokeswoman Sarah Minkel.

"Neither Chris Collins, (daughter) Caitlin Collins nor (chief of staff) Michael Hook have sold shares prior, during or after Innate's recent stock halt," Minkel said. "Cameron Collins has liquidated all his shares after the stock halt was lifted, suffering a substantial financial loss."

I didn't think about that statement for more than a year until last Wednesday morning, which I was spending engaged in one of my sharpest journalistic skills: procrastination. Taking a break from my random web-surfing, I went to the bathroom – and heard my office phone and cellphone start ringing repeatedly while I did what needed to be done.

My editor reached me a couple minutes later and told me the news: New York news outlets reported that Collins had been arrested.

I started reporting – and found Minkel's statement in the indictment charging Chris Collins, Cameron Collins and Cameron's prospective father-in-law with securities fraud, wire fraud, conspiracy and lying to a federal agent.

"This statement was written in a manner designed to mislead the public," prosecutors said.

Collins himself explained why it was designed that way in an email prosecutors obtained. Discussing news coverage on Innate, Collins wrote: "We want this to go away."

Prosecutors didn't mention a word about any pumping, and instead focused on the dumping. Hearing about Innate's impending collapse in a phone call from his father, Cameron Collins dumped about 1.4 million shares on the over-the-counter American market where trading in the stock never stopped, saving himself from $570,900 in losses, the indictment said. Others who were in on the scheme, including Cameron's prospective father-in-law, Stephen Zarsky, saved themselves about $197,000, prosecutors said.

So it turns out the Securities and Exchange Commission, which polices insider trading, noticed Innate's strange stock trading pattern, too, although the agency didn't say exactly how.

The SEC gets going on insider trading probes in a number of ways. So perhaps a tipster complained. Perhaps the agency's routine scan of insider trading news reports came across what I wrote or what O'Neill wrote. Or perhaps the agency's sophisticated computer systems caught Collins and clan red-handed, prompting the SEC and the Justice Department to work together to bring both civil and criminal charges against them.

No matter how this case started, though, it left heads spinning on both sides of the Pacific.

Well, at last two heads – mine and O'Neill's.

"One year ago I wrote that Innate Immunotherapeutics likely had people front-running their disastrous trial results," he tweeted last week. "Soon after that, I was contacted by journalist @JerryZremski, who knew a U.S. congressman had been in the stock. One year later..."

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