Saturday, August 18, 2018

New York Congressman arrested for insider trading

If convicted, Chris Collins and his son could each face a maximum sentence of 150 years in federal prison.

Image Credit: Wall Street Journal

Accused of participating in a conspiracy to commit fraud and insider trading, Rep. Chris Collins (R-N.Y.) was arrested on Wednesday along with his son, Cameron Collins, and the father of Cameron’s fiancée, Stephen Zarsky. In addition to avoiding more than $760,000 in losses, Collins, his son, and Zarsky have also been charged with making false statements to FBI agents in an attempt to cover up their scheme.

“Congressman Christopher Collins is charged with insider trading and lying to the FBI, as are his son, Cameron Collins, and Stephen Zarsky, the father of Cameron’s fiancée,” stated U.S. Attorney Geoffrey Berman. “As alleged, Christopher Collins tipped confidential corporate information to his son, who traded on the inside information and passed it on to others, including Zarsky. Zarsky allegedly also traded on the information and tipped others. 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. The charges demonstrate again that no matter what the alleged crime, or who allegedly committed it, we stand dedicated to the pursuit of justice, without fear or favor.”

While serving on Innate Immunotherapeutics’ board of directors on June 22, 2017, Rep. Collins received an email from Innate’s CEO explaining that a multiple sclerosis drug that the Australian biotech firm was developing had failed a critical drug trial. Due to the fact that Innate had no other significant products in development, its stock price was tied to the success of the multiple sclerosis drug.

Already under investigation by the Office of Congressional Ethics (OCE) in connection with his holdings in, and promotion of, Innate, Collins did not trade his own stock and instead immediately tipped off his son to sell his Innate shares. Before the results of the drug trial were made public on June 26, 2017, Collins’ son sold approximately 1,391,500 shares of Innate stock which allowed him to avoid approximately $570,900 in losses.

According to the indictment, Collins’ son and Zarsky illegally tipped off their friends and family members to sell their Innate shares before the public announcement of the failed drug trial. As a result of the insider trading, Collins’ co-conspirators avoided a total of approximately $768,000 in losses.

Innate’s stock price subsequently crashed, dropping 92% on the first trading day following the public announcement on June 26, 2017.

“Congressman Christopher Collins sat on Innate Immunotherapeutics’ Board of Directors for a period of more than three years, spanning the run-up to the company’s clinical drug trial announcement in 2017,” stated FBI Assistant Director-in-Charge William Sweeney Jr. “When he received confidential information that the drug had failed its trial, he tipped off investors with whom he shared a personal relationship, as we allege. Congressman Collins thought giving his family and friends a heads-up about material, nonpublic information would benefit them in the long run, but here’s a better inside tip for those who think they can play by different rules: Access to this kind of information carries with it a significant responsibility, especially for those who hold a position of trust in our society.”

On Wednesday, Collins, his son, and Zarsky were each charged with conspiracy, securities fraud, wire fraud, and making false statements to the FBI. According to the indictment, they separately made false statements to the FBI to cover up their participation in the insider trading scheme on April 25.

In a separate action, the U.S. Securities and Exchange Commission (SEC) filed a civil action against them for insider trading. On Wednesday, the SEC also announced settled charges against Lauren Zarsky, Cameron Collins’ girlfriend, and her mother, Dorothy Zarsky, for trading on the basis of material, nonpublic information.

Lauren Zarsky agreed to disgorge her ill-gotten gains of $19,440, plus prejudgment interest of $839, and pay a civil penalty of $19,440. Dorothy Zarsky agreed to disgorge her ill-gotten gains of $22,600, plus prejudgment interest of $975, and pay a civil penalty of $22,600.

In an email sent to his supporters on Wednesday, Collins wrote, “I’m sorry to tell you that I have some very bad news to share. I understand that the U.S. Attorney’s Office in Manhattan is filing charges against me alleging that I shared information with my son Cameron about the negative drug trial results of Innate in June of 2017 and that Cameron sold shares based upon that information. Charges have also been filed against Cameron related to his trading. We both look forward to clearing our good names and being exonerated at trial.”

If convicted, Collins and his son could each face a maximum sentence of 150 years in federal prison.

Before his resignation last year, former U.S. Health and Human Services Secretary (HHS) Secretary Tom Price was under investigation for failing to properly disclose information regarding his stock trades in Innate Immunotherapeutics during a confirmation hearing. Price resigned in disgrace last September after reports emerged of the then-HHS Secretary wasting hundreds of thousands of taxpayer dollars on unnecessary commercial and charter jet travel expenses.

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