Rep. Chris Collins, R-Clarence, was arrested Wednesday morning after a federal grand jury indicted him on insider trading charges as well as lying to federal agents.
Collins and two co-defendants surrendered to authorities Wednesday morning in Manhattan, according to the U.S. Attorney’s Office for New York’s Southern District.
They pleaded not guilty in federal court and bail for each was set at $500,000.
Wednesday afternoon, Collins announced he would be holding a press conference in downtown Buffalo to address the charges.
"These charges are a reminder that this is a nation of laws and that everybody stands equal before the bar of justice," said Geoffrey Berman, the United States Attorney for the Southern District of New York, at a noon press briefing. "Congressman Collins, who by virtue of his office helps to write the laws of this nation, acted as if the law didn't apply to him. The charges today demonstrate once again that no matter what the crime or who committed it, we stand committed in the pursuit of justice without fear or favor."
A federal indictment charges Collins his son Cameron, and Stephen Zarsky, the father of Cameron's fiancée, with wire fraud, conspiracy to commit securities fraud and seven counts of securities fraud.
Rep. Collins is also charged with making false statements to the FBI.
Specifically, Rep. Collins is accused of receiving inside information about negative clinical trial tests conducted by Innate Immunotherapeutics, an Australian biotech company with which he has long been associated.
He then is accused of passing that information on to his son, prompting the son and others to sell 1.78 million Innate shares shortly before the bad news was made public in June 2017 and the share price plummeted.
Those others included Cameron Collins' fiancée Lauren Zarsky, her mother Dorothy, and other friends and family members.
They avoided losses of $768,600, according to the complaint filed by the Securities and Exchange Commission.
"Congressman Collins had a legal duty to keep that inside information secret until it was released by the company to the public," Berman said. "Instead, as alleged, he decided to commit a crime. He placed his family and friends above the public good."
In a message to supporters Wednesday afternoon, Collins said he and his son look forward to clearing their names and being exonerated at trial.
"Because my focus is to defeat these charges in Court, after today, I will not address any issues related to Innate Immunotherapeutics outside of the courtroom," Collins said. "As I fight to clear my name, rest assured that I will continue to work hard for the people of the 27th Congressional District of New York while remaining on the ballot for re-election this November."
Details of allegations
The experimental drug in question, a compound known as MIS416, was intended to be a treatment for second-stage multiple sclerosis.
Clinical trials to determine if the compound was safe and effective had begun in October 2014, according to the indictment. MIS416 was Innate’s primary product, and the company’s fortunes were directly tied to the success of the trials.
On June 22, 2017, Innate’s leadership learned the trials had determined the compound “lacked therapeutic effectiveness.”
The company asked that trading of its stock in its home country of Australia be suspended for several days until it released the results of the trials.
The company’s chief executive, Simon Wilkinson, also emailed members of the board of directors that day, including Collins, at 6:55 p.m. “I have some bad news to report,” his email said, according to the indictment. The trials had found the experimental drug was a "clinical failure."
Collins was at the White House, attending the annual Congressional Picnic, when he opened the email. At 7:10 p.m., he responded with an email of his own, allegedly exclaiming “Wow. Makes no sense. How are these results even possible???”
The SEC complaint alleges that 15 seconds later, the congressman placed a call to his son Cameron. He made six calls in five minutes before connecting, at which point Collins told his son the bad news about the trial. He conveyed that information “knowing that it was in breach of his duties to Innate and anticipating that Cameron Collins would use it to trade and tip others,” the indictment alleged.
Berman said following that phone call, Cameron Collins drove to his fiancée's parent's home. At 9:34 p.m., the fiance's mother, Dorothy Zarsky, called her broker to initiate selling her stock.
Over the next four days, Cameron Collins sold more than 1 million of his own shares of Innate stock, Berman said.
Cameron Collins avoided losses of $570,900, according to court documents. Stephen Zarsky avoided losses of $143,000.
When news of the failed clinical trial was made public after the markets closed on June 26, the share price of Innate fell 92 percent, from 45 cents a share to 3 ½ cents.
"This was the drop in value anticipated by the co-conspirators and the drop in value that the co-conspirators avoided by selling their shares before the public announcement," said Berman. "And they could only sell their shares by virtue of the initial tip by Congressman Collins."
The document goes on to say that Collins himself did not sell his own considerable holdings in the company, because his shares were registered in Australia and thus frozen. The shares that his son and his son's associates owned were registered in the United States and not subject to the freeze.
In addition to the three defendants, the indictment and SEC complaint say the inside information was shared with six other people, all of them friends or relatives of Cameron Collins or Zarsky. Five of them sold Innate stock after receiving the tip and the sixth attempted to.
Cameron Collins' fiancée, Lauren Zarsky, and her mother have reached a settlement with regard to the SEC's civil charges, according to Stephanie Avakian, co-director of enforcement for the SEC. The two women have agreed to surrender the proceeds of their stock sales, subject to court approval. Lauren Zarsky also agreed to suspend her practice as a certified public accountant for at least five years.
Additionally, the SEC is seeking a court order barring Chris Collins from ever serving as an officer of any public company.
The documents lay out a detailed timeline of the tip-sharing and stock sales based on emails, phone calls, texts and broker records that investigators presumably obtained by subpoena. The legal documents make no reference to any participants in the alleged conspiracy cooperating with authorities.
"While Congressman Collins may have thought that giving family and friends a head's up about material nonpublic information would benefit them in the long run, I have a better tip for those who think they can play by a different set of rules," said William Sweeney Jr., assistant director in charge of the FBI's New York field office. "Access to this kind of information carries with it significant responsibility, especially for those in society who hold a position of trust, and they should act responsibly, and in accordance with the law and do not lie to the FBI."
House ethics investigation
Before her death, the late Rep. Louise Slaughter, a New York Democrat in Collins’ neighboring district, raised concerns about Collins’ relationship with Innate Immunotherapeutics and possible insider trading with the U.S. Attorney for the Southern District of New York, the Securities and Exchange Commission, the Office of Government Ethics and the House Ethics Committee.
After Slaughter filed an ethics complaint against Collins in October 2017 for hearing nonpublic information about Innate stock, Collins reportedly called her "a despicable human."
Slaughter authored the 2012 “STOCK Act,” which prohibits members of Congress and their staff from using information learned on the job to make money on the stock market
Former Slaughter staffers, who still work for the district, were not authorized to comment.
Even before the June 2017 trades covered in the indictment, Congressional ethics investigators concluded earlier that month there was “substantial reason to believe” Collins engaged in insider trading and either took or requested official actions to benefit a company in which he’s the largest shareholder, according to their report.
The independent Office of Congressional Ethics sent its report in July to the House Ethics Committee, which announced it would extend its review of the matter under a procedure that does not set deadlines for further public announcements and rarely results in punishment. No action has been taken.
According to the report, Collins attended a meeting of the National Institutes of Health in November 2013 and during the meeting, discussed Innate and asked that NIH employees meet with company employees to discuss clinical trial designs. The report says if Collins took official actions or requested official actions that would “assist a single entity in which he had significant financial interest” he may have violated House rules and standards of conduct.
In June 2017, Collins was the largest investor in Innate, holding nearly 17 percent of its stock. When news broke of the failure of the company’s drug to treat multiple sclerosis had failed in a 93-patient trial, the company’s share price fell to 4 cents a share. The value of his holdings plummeted from $45.5 million to barely $1.5 million.
The company is currently trading at 30 cents a share.
In April, Collins resigned from the board of the Australian biotech firm, one week after The Daily Beast reported that the congressman has sponsored several bills that would have benefited the company.
Reaction
Collins' attorneys, Jonathan Barr and Jonathan New, issued a statement shortly after his arrest.
"We will answer the charges filed against Congressman Collins in court and will mount a vigorous defense to clear his good name. It is notable that even the government does not allege that Congressman Collins traded a single share of Innate (Immunotherapeutics) stock. We are confident he will be completely vindicated and exonerated. Congressman Collins will have more to say on this issue later today."
U.S. Sen. Charles Schumer, D-NY, during a visit to Rochester on Wednesday, declined to comment on the matter, other than to say "I have faith in law enforcement."
Collins is being challenged in November’s election by Democrat Nate McMurray, supervisor of the town of Grand Island.
In a press release, McMurray said Collins' arrest underscores the reasons he's running.
"This is why I got in this race, because I understand that the man who claims to represent this community doesn’t actually represent it," he said. "Chris Collins has openly admitted that he serves only wealthy donors and that his proudest accomplishment is making millions for his friends here in western New York and in Washington. That’s not what Congress is for and not what our democracy is about."
House Speaker Paul Ryan removed Collins from the powerful House Energy and Commerce Committee following the congressman's arrest.
"While his guilt or innocence is a question for the courts to settle, the allegations against Rep. Collins demand a prompt and thorough investigation by the House Ethics Committee," Ryan said in a prepared statement. "Insider trading is a clear violation of the public trust. Until this matter is settled, Rep. Collins will no longer be serving on the House Energy and Commerce Committee.
Democratic House Minority Leader Nancy Pelosi called for the Ethics Committee to accelerate its investigation into Collins and said the criminal charges against him "show the rampant culture of corruption and self-enrichment among Republicans in Washington today."
Byron Brown, Buffalo mayor and chair of the New York State Democratic Committee, called on Collins to resign.
Collin's congressional district, the 27th, includes all of Genesee, Orleans, Livingston and Wyoming counties; western Ontario County; Hamlin and a small part of the town of Clarkson in Monroe County, and most of Erie and Niagara counties.
Includes reporting by staff writers Steve Orr and Gary Craig, Albany correspondent Jon Campbell and Washington bureau correspondent Nicole Gaudiano, all part of the USA TODAY Network.