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Chris Collins' likely scenario? Fines, prison, SEC penalties

WASHINGTON – Chris Collins faces a likely criminal sentence of up to 57 months in federal prison, but his troubles don't begin and end there.

Collins also likely faces fines of tens if not hundreds of thousands of dollars, as do his son and his son's future father-in-law.

And that's not even taking into account what they might have to pay to settle a separate civil lawsuit filed by the Securities and Exchange Commission.

In other words, last week's guilty pleas in the Collins insider trading case merely serve as dramatic chapters in the ongoing saga of the Republican congressman from Clarence who resigned in disgrace effective last Tuesday.

Much will be decided when U.S. District Court Judge Vernon S. Broderick sentences Collins and his co-conspirators in January – but it's possible the SEC case could linger deeper into next year.

That's the lay of the land in the Collins story as it's spelled out in the plea agreements the three defendants signed last last month, which The Buffalo News obtained Friday. Other hints about the felons' future can be found in the court filings in that separate SEC case.

Republican county chairmen in the 27th Congressional District will hit the pause button until after the Nov. 5 elections when it comes to efforts to find a replacement for Chris Collins (Jefferson Siegel/Special to The News)

Those documents are written in less than luminous legalese, but one short sentence in the plea deal Collins signed stands out:

"The total maximum term of imprisonment on Counts One and Eleven is ten years."

The prison terms

The former congressman, 69, pleaded guilty to one count of conspiracy to commit securities fraud and one count of making false statements. In court, he admitted that he shared some secret bad news about Innate Immunotherapeutics, an Australian biotech, with his son Cameron – who then dumped his Innate shares and spread the bad news to others. The four-term congressman and longtime Boy Scout leader also admitted in court that he lied about the episode to the FBI.

In acknowledging that he did all that and pleading guilty to two felony counts, Chris Collins likely assured himself a far lesser prison sentence than he would have received if he had faced a jury and been convicted of all the original charges against him, which included securities fraud and wire fraud. The cumulative maximum sentence of all the charges in the original indictment against Collins was 150 years.

The question is: Will U.S. District Court Judge Vernon S. Broderick stick with the sort of sentence that the two sides agreed to in the plea deal, which calls for the former congressman to be imprisoned for between 46 and 57 months?

Broderick will make his judgment on Collins' sentence based not only on the plea deal, but also on a pre-sentencing report to be drawn up by probation officers. Submissions from the prosecution and the defense, as well as comments from the public, could also figure in to Collins' sentence.

Usually, federal judges stick to something close to the sentences mentioned in plea agreements. But Broderick reminded Collins there's no guarantee of that.

"The agreement is binding on yourself, it's binding on your attorneys, it's binding on the government attorneys, but it's not binding on me," the judge said. "I have my own obligation to determine what the correct guideline range is for you and what an appropriate sentence is for you in this case."

The same standard applies to Cameron Collins and Stephen Zarsky, Cameron Collins' prospective father-in-law, who also pleaded guilty in the case.

The defense agreed not to appeal sentences of between 37 and 46 months for those two men, but Broderick could give them the legal maximum of five years in prison for the guilty plea on the one count: conspiracy to commit securities fraud.

No matter what their sentences turn out to be, they will likely have to serve 85 percent of them. There's no parole in the federal system, although inmates can get their sentences cut short by up to 15 percent as a reward for good behavior.

Collins, his son and Zarsky also could be sentenced to up to three years of supervised release once they leave federal prison. The three also could get sent back to prison if they violate a strict set of rules during that period of supervised release.

Those who complained about Chris Collins breathe sigh of relief

The fines

Collins and his accomplices also face the possibility of stiff fines.

Under the plea deal, the former congressman said he would not contest a fine – to be determined by the judge – of between $20,000 and $200,000.

Similarly, Cameron Collins and Zarsky agreed to not contest fines of between $15,000 and $150,000.

Those actually are bargains.

For the former congressman, the two charges to which he pleaded guilty could, under federal sentencing guidelines, leave him liable for fines of more than $3 million. That's because each of the charges carries a penalty of either $250,000 or "twice the gross pecuniary loss to persons other than the defendant resulting from the offense."

Prosecutors said that Cameron Collins, Zarsky and the people they told about Innate's pending bad news saved themselves more than $768,000 by dumping their stock before it collapsed in value by 90%. That means other Innate investors lost as much as the inside traders saved.

Multiply those ill-gotten savings by two, and you get $1.54 million. Multiply that figure by two again – Chris Collins pleaded guilty to two charges – and that puts Collins' maximum potential fine at $3.1 million.

Since they pleaded guilty to only one federal charge, Cameron Collins and Zarsky would have to pay no more than half that, or about $1.5 million each.

Broderick still could impose fines up to those levels, but it's unlikely that he will impose a fine on Cameron Collins or Zarsky that's anywhere near the one that the former congressman will have to pay.

That's because the judge will determine the fines against the defendants "after determining the defendant's ability to pay," the plea agreements say.

According to a personal financial disclosure report filed in May, Chris Collins – a businessman turned politician – was worth somewhere between $40.4 million and $114.1 million at the end of last year.

It's implausible that his 26-year-old son, who has been out of college for only four years, would be anywhere near as wealthy as his father.

And as for Zarsky, 67, he gave Broderick a hint about his personal finances when he explained why he dumped $143,900 in Innate stock based on inside information before the stock price dropped 90 percent.

"I was beside myself over losing all of my retirement savings," Zarsky said.

The SEC case

One of the striking exchanges during the hearing in which Cameron Collins pleaded guilty Thursday came when Broderick asked prosecutors: "Am I correct with regard to restitution and forfeiture, that neither are being sought in this case?"

Assistant U.S. Attorney Scott Hartman replied: "Yes, your honor."

That might make it seem that the court was letting Cameron Collins get away with his ill-gotten gains of $570,900, and that Zarsky could keep the $143,900 he saved by dumping his Innate stock.

But that's not so. It's just that prosecutors aren't trying to get the two men to pay up – the Securities and Exchange Commission is.

On the same day in August 2018 when Collins and his accomplices were indicted, the SEC filed civil charges against them.

And in that complaint, the federal agency that oversees stock trading asked U.S. District Court Judge Katherine Polk Failla to issue a judgment "ordering defendants to disgorge, with prejudgment interest, all illicit trading profits, avoided losses, or other ill-gotten gains received by any person or entity as a result of the actions alleged herein."

There's been no news about that SEC civil case for a long time, and for a reason: Prosecutors asked Failla to hold off and delay almost all action in that case until the criminal charges against the men are resolved.

Last Nov. 9, Failla agreed.

Asked last week if anything had changed in the civil case, an SEC spokesman said: "Thanks for checking. No change in status."

It's possible that lawyers for the former congressman and the other defendants will settle that case with the SEC before the three men are sentenced on the criminal charges next January.

But if not, the three men could face additional court dates even if, and after, they head off to federal prison.

Proof can be found in the heading of the SEC lawsuit.

"Jury trial demanded," lawyers for the agency wrote.

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