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From Securities Regulation Daily, August 8, 2018

U.S. Rep. Chris Collins charged with insider trading, lying to FBI

By Lene Powell, J.D.

U.S. Rep. Christopher Collins (R-NY) has been charged by the SEC and Department of Justice with alleged insider trading. According to authorities, Collins told his son confidential, non-public information that a drug company’s leading drug had failed a clinical trial, which Collins learned in his capacity as a company board member. His son then sold his stock in the company and tipped his fiance, her father, and others about the information, who also sold their stock. Altogether, members of the tipping chain allegedly avoided over $768,000 in losses when the stock plummeted upon public release of the negative news (SEC v. Collins, August 8, 2018).

"Representative Collins, who, by virtue of his office, helps write the laws of this country, acted as if the law did not apply to him. These charges are a reminder that this is a nation of laws, and everyone stands equal before the bar of justice," said U.S. Attorney Geoffrey S. Berman.

In a statement, BakerHostetler attorneys representing Collins said they were confident he would be exonerated.

Alleged insider trading. Collins, U.S. congressman for New York’s 27th District, was at a congressional picnic when he received an email from the CEO of Innate Immunotherapeutics, Ltd., an Australian biotechnology company of which Collins was a shareholder and member of the board. The email informed board members the "extremely bad news" that MIS416, a multiple sclerosis drug that was Innate’s only product in the pipeline, had failed a critical drug trial.

As alleged, Collins immediately responded to the email, then one minute later called his son, Cameron Collins, and, after a rapid series of attempts to reach him, told him the news. Cameron relayed the information further to his fiance, her father, Stephen Zarsky, and other family and friends. In turn, Zarsky spread the news further to additional members of the tipping chain. Over the next few days, Cameron sold 1.39 million shares of Innate stock, while Zarsky sold all 303,005 shares of his Innate stock, and other tippees sold their stock as well. Innate’s stock fell 92 percent after announcing the drug’s failure. With the largest amount of stock sold, Cameron’s sale allowed him to avoid $570,000 in losses, while others avoided smaller losses.

Collins did not sell his own Innate stock. First, he was already under investigation by the Office of Congressional Ethics (OCE) in connection with his holdings in, and promotion of, Innate. Second, his shares were held in Australia, where Innate’s trading had already been halted, not at a U.S. broker. Therefore, he would not have been able to trade his shares in the U.S. OTC market.

In interviews with the FBI, Collins, his son, and Zarsky denied discussing the drug trial results.

Charges. The SEC’s complaint charges Collins, his son, and Zarsky with violating Section 10(b) of the Exchange Act. The SEC seeks disgorgement, along with prejudgment interest, and civil penalties, as well as officer and director and penny stock bars against Collins.

The SEC also announced settled charges against Lauren Zarsky, Cameron Collins’ girlfriend, and her mother, Dorothy Zarsky. In addition to disgorgement, interest, and a civil penalty totaling more than $39,000, Lauren, who is a CPA, agreed to be suspended from appearing or practicing before the SEC as an accountant.

The indictment charges each defendant with multiple counts of securities fraud, one count of conspiracy to commit securities fraud, one count of wire fraud, and one count of making false statements to the FBI.

The case is No. 18-cv-7128

Attorneys: Robert A. Cohen for the SEC.

Companies: Innate Immunotherapeutics, Ltd.

MainStory: TopStory DirectorsOfficers Enforcement FraudManipulation NewYorkNews

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