Rep. Chris Collins was at the annual White House picnic for members of Congress last summer when he learned a pharmaceutical company where he was a board member and the biggest shareholder had just suffered a complete “failure” in clinical testing on a key drug.
Federal investigators said he immediately alerted his son, who then told his girlfriend, her family and others. They all rushed to sell shares in Innate Therapeutics Ltd. before the failure went public — saving themselves a combined $760,000.
On Wednesday the FBI arrested Mr. Collins, New York Republican and a prominent backer of President Trump, on charges of insider trading.
“Congressman Collins, who by virtue of his office helps to write the laws of our nation, acted as if the law didn’t apply to him,” Geoffrey Berman, the U.S. attorney for the Southern District of New York, said as he announced the charges Wednesday.
House Speaker Paul D. Ryan, Wisconsin Republican, stripped him of his post on the Energy and Commerce Committee, while the House ethics committee already had been looking into Mr. Collins‘ behavior. Democrats said the upstate seat, while heavily Republican, is now a target for them in November’s elections.
The congressman was released on $500,000 bond after pleading not guilty in a federal courtroom in New York on Wednesday afternoon, and his lawyers predicted total exoneration.
“The charges that have been levied against me are meritless, and I will mount a vigorous defense in court to clear my name,” the New York Republican said in a statement read to reporters in Buffalo on Wednesday evening. “I look forward to being fully vindicated and exonerated — ending any and all questions relating to my affiliation with Innate.”
Mr. Collins, who did not take questions from reporters present, said he will remain on the ballot running for re-election in November, adding that “after today,” he won’t address any issues related to the company outside of a courtroom.
His legal team said it was noteworthy that neither prosecutors nor the Securities and Exchange Commission, which also filed a complaint against him, accused him of personally selling shares.
Mr. Collins was on the board of Innate Immunotherapeutics Ltd. and learned from an email of the failed trial — which he read while attending the White House’s annual picnic for members of Congress in 2017. He immediately reached his son Cameron, who not only sold his shares but got his girlfriend’s family and others to sell their shares, too, authorities said.
The day the failed trial went public, Innate’s stock plunged 90 percent.
Chris Collins didn’t dump any of his own shares, but he, Cameron Collins and Stephen Zarsky, the father of the younger Mr. Collins‘ girlfriend, all lied to federal investigators when they were questioned about the trading in April, authorities said.
Chris Collins, 68, Cameron Collins, 25, and Mr. Zarsky, 66, have been charged with conspiracy, securities and wire fraud, and making false statements to the FBI.
Each charge carries a maximum penalty of between five and 20 years in prison.
Cameron Collins and Mr. Zarsky also pleaded not guilty Wednesday. The next hearing in the case is set for Oct. 11.
The SEC also announced Wednesday that Lauren Zarsky, the girlfriend, and Dorothy Zarsky, her mother, have agreed to settle charges filed against them by the SEC for “trading on the basis of material, non-public information.”
They agreed to pay back their “ill-gotten gains” of about $20,000 apiece, plus interest and civil penalties totaling about $20,000 apiece.
Lauren Zarksy, a certified public accountant, also agreed to be suspended from practicing before the SEC as an accountant for at least five years, according to the SEC.
Chris Collins was not only a board member of Innate, but also its largest stock holder. According to The Hill, several U.S. lawmakers said he would tout it around them, but others maintained they learned of the then-promising company through media reports.
Another stockholder had been then-Rep. Tom Price, who sold his shares when he became Mr. Trump’s first health secretary — a position from which he has since been ousted.
At least five current GOP lawmakers — Reps. Mike Conaway and John Culberson of Texas, Doug Lamborn of Colorado, Billy Long of Missouri, and Markwayne Mullin of Oklahoma — also reportedly purchased stock in the company in the last few years.
Asked about other lawmakers potentially under investigation, Mr. Berman said that was “not an aspect of this indictment” and declined to comment further.
In a statement, Mr. Ryan said the case should play out in the courts, but that insider trading is a “clear violation of public trust” and that Mr. Collins would no longer serve on the Energy and Commerce Committee until the matter was settled.
House Minority Leader Nancy Pelosi, meanwhile, said the charges are further evidence of a culture of corruption and self-enrichment among Republicans, in Washington, D.C., and the House Democrats’ campaign arm proclaimed the seat “firmly in play” after the arrest.
The Cook Political Report, a nonpartisan election handicapper, moved the seat from “solid” to “likely” Republican Wednesday.
Nate McMurray, Mr. Collins‘ Democratic challenger in the race, said the accusations were “shocking and sad, but not surprising.”
“No matter how this is spun, it’s clear that the swamp is alive and well in Washington, D.C.,” he said.
Mr. Berman said he was aware that the November elections are coming up, but that there shouldn’t be concerns about the timing since voting is “months” away. A trial isn’t likely until later.
“Politics does not enter into our decision-making on charging a case. We bring a case when a case is ready to be brought,” he said.
Public Citizen, a public advocacy group, had asked the U.S. Office of Congressional Ethics and the SEC in January 2017 to look more closely at the stock trading activity of Mr. Collins and Mr. Price.
The ethics office then referred the matter to the House Ethics Committee after finding that there was “substantial reason” to believe that Mr. Collins shared “material nonpublic information” in the purchase of Innate stock.
The group said Wednesday that the case marks the first prosecution under the STOCK Act, a law passed in 2012 that bans members of Congress from insider trading and had been pushed by the late Rep. Louise Slaughter, who also had pressed investigators to look into Mr. Collins‘ conduct.
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