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From picnic to facing jail time: A congressman snared in insider trading plot

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From picnic to facing jail time: A congressman snared in insider trading plot

On a warm clear evening on June 22, 2017, Rep. Chris Collins, R-NY., was desperately trying to reach his son Cameron — placing six calls from the south lawn of the White House before finally connecting with him on the seventh.

Collins, a key supporter of President Donald Trump, was among the guests at the annual White House congressional picnic that day.

But the New York congressman had just gotten some bad news that he wanted to share with his son: A critical clinical trial testing a multiple sclerosis drug had failed.

Collins was not sick with the disease, nor was his son. Rather, the congressman was on the board of the company that was developing the medicine — Innate Immunotherapeutics Ltd., a small Australian biotechnology manufacturer.

The lawmaker was also Innate's largest shareholder. His son also owned a large percentage of the company's stock. In addition, Cameron's fiancée, her father, mother, uncle and some family friends were all Innate shareholders.

Collins allegedly divulged the confidential information about the study failure to his son, starting a "tipping chain," in which Cameron's girlfriend and her family members and the other friends were given a forewarning about the secret, nonpublic study results, said Geoffrey Berman, the U.S. Attorney for the Southern District of New York.

Cameron Collins and his friends used the inside information they gleaned from the New York lawmaker to trade on the U.S. stock market — selling off their shares before Innate revealed the trial's failure on June 26, 2017.

When news of the poor study results broke, shares of Innate nosedived, plummeting 92% the next trading day.

Because they had sold their shares, Cameron Collins and his friends avoided total losses of about $768,600.

The problem was, their actions were illegal. And after months of a federal investigation, the congressman, his son and the father of Cameron's fiancée, Stephen Zarsky, were arrested and charged on Aug. 8 on multiple counts — some that carry maximum prison terms of 20 years each.

Not only had they allegedly schemed to commit insider trading, but when confronted by federal law enforcement agents, the defendants lied and tried to cover up their crimes, Berman told reporters during an Aug. 8 briefing.

They "lied plain and simple," Bill Sweeney, assistant director-in-charge of the New York Field Office of the FBI, said at the briefing.

The New York congressman knew he could not trade on the information, because he was already under investigation by the Office of Congressional Ethics, which was probing the lawmaker's holdings in Innate and promotion of the company, Berman said.

But Collins broke his obligation to Innate and "decided to commit a crime," he said.

While the congressman may have thought that giving his family and friends a heads-up about material, nonpublic information would benefit them in the long run, "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 in society who hold a position of trust in our society," Sweeney said. "Act honorably and in accordance with the law and do not lie to special agents of the FBI."

Payback

Now, the Securities and Exchange Commission wants those "ill-gotten gains" from the illegal stock trading, plus interest, turned over to the federal government, said Stephanie Avakian, co-director of the agency's Enforcement Division. The SEC also is seeking penalties and permanent injunctions against the defendants, she told reporters.

In addition, the agency wants the New York congressman barred from ever serving as an officer or board member of a public company.

"Being a director of a public company is a privilege — a privilege that comes with responsibilities," Avakian said. "Christopher Collins is alleged to have abused this privilege and breached his responsibilities by engaging in illegal insider trading."

Collins, his son and Zarsky each pleaded not guilty on Aug. 8 and were released on bail. They are due back in court in October.

Cameron Collins' fiancée, Lauren Zarsky, a certified public accountant, settled her charges of trading on material, nonpublic information with the SEC and agreed to the disgorgement her ill-gotten stock winnings of $19,440, plus prejudgment interest of $839 and to pay a civil penalty of $19,440. She also agreed to be suspended from appearing or practicing before the SEC as an accountant for at least five years.

"Accountants who engage in illegal insider trading should not serve in the role of gatekeeper in our securities markets," Avakian said.

Zarsky's mother, Dorothy, also settled her charges of trading on material, nonpublic information and agreed to turn over $22,600 she got from the sale of her shares, plus prejudgment interest of $975. She also agreed to pay a civil penalty of $22,600.

Not just a family affair

Not only did Collins' family and friends buy stock in Innate — which is now solely focused on cancer and fibrosis treatments after discontinuing its multiple sclerosis program and acquiring Amplia Therapeutics — but so did some of the New York lawmaker's fellow members of Congress, including now-former Rep. Tom Price, a Republican from Georgia.

Price's ownership of the shares became a sore point during his confirmation hearings when he was vying to become Trump's first secretary of Health and Human Services.

Sen. Ron Wyden, D-Ore., ranking member on the Senate Finance Committee, said Collins' indictment was evidence the Republican majority failed to take Democrats' concerns about lawmakers' stock trading seriously. The Democrats had complained that Price may have violated the Stop Trading on Congressional Knowledge Act, which is aimed at preventing lawmakers and their staff members from engaging in insider trading.

Price later resigned as the HHS chief, but because of a different scandal involving his taxpayer-funded flights on chartered and government jets — $341,000 of which a government watchdog said he should pay back to taxpayers.

Consumer watchdogs had also condemned Collins' and Price's stock trading activities, along with those of other members of Congress.

Public Citizen noted it had called on the Office of Congressional Ethics and the SEC in January 2017 to look more closely at the stock trading activities of Collins and Price and determine if they used their public office for personal financial benefit.

"The Collins indictment drives home the point that members of Congress and their staffs sit in unique positions of power that offer the opportunity to manipulate the market for personal gain — be it insider trading or promoting public policies that affect their own fortunes," the consumer advocacy group said in an Aug. 8 statement.

In March 2017, Citizens for Responsibility and Ethics in Washington, or CREW, complained that four other Republican members of the House bought shares of Innate: Reps. Mike Conaway of Texas, Doug Lamborn of Colorado, Billy Long of Missouri and Markwayne Mullin of Oklahoma.

CREW noted that Collins served on the House Energy and Commerce Committee, which oversees the U.S. Food and Drug Administration — the regulator of the biopharmaceutical industry — while Mullin and Long were on the panel's health subcommittee, creating a conflict of interest for the lawmakers.

Speaker Paul Ryan, R-Wis., however, on Aug. 8 removed Collins from the committee "until this matter is settled."

"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. Insider trading is a clear violation of the public trust," Ryan stated.

In an Aug. 8 statement, Collins' attorneys said they were "confident he will be completely vindicated and exonerated."

Collins, who represents the 27th congressional district of New York, faces voters in November.