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Representative Collins and Insider Trading

Representative Chris Collins of New York
By: Katie Thomas and Sheila Kaplan – – August 11, 2018

Representative Christopher Collins once said that the success of an obscure Australian company’s drug would be carved on his tombstone. Instead, its failure has upended his congressional career.

The three-term congressman’s infectious enthusiasm for Innate Immunotherapeutics, the tiny biotech firm, led to his indictment on Wednesday, when he and several other investors were accused of insider trading.

Prosecutors said that he tipped off his son to the poor results of the company’s clinical drug trial for a notoriously intractable form of multiple sclerosis before they were public, allowing the son and others to dump their stock and save hundreds of thousands of dollars.

Mr. Collins sat on the company’s board until May, and at one point was its largest shareholder.

The stock scandal has rippled through Congress, where his favorite stock tip had enticed at least seven former or current House Republicans into investing along with him, his two grown children and other friends.

It provided new ammunition for Democrats seeking to take back the House, and forced Mr. Collins to announce on Saturday that he would not seek re-election to a fourth term.

In his statement, Mr. Collins called the insider trading charges “meritless” and vowed to fight them to have his “good name cleared of any wrongdoing.”

While the other congressmen who invested in Innate were not implicated in the indictment, the allegations against Mr. Collins have revived calls for stricter rules about financial investments or corporate board seats held by members of Congress while they are sitting on committees with oversight into those businesses.

Mr. Collins may have been the largest investor in health companies on the House Energy and Commerce Committee, but one-third of its members also bought and sold biotech, pharmaceutical and medical device stocks, an analysis by The New York Times has found.

Republican Representatives William Long II and Markwayne Mullin served with Mr. Collins on the panel’s health subcommittee and invested in Innate. The subcommittee weighed in on topics ranging from the Food and Drug Administration’s authority over speeding up approval of new drugs to the Affordable Care Act.

Beyond Innate Immunotherapeutics, Mr. Collins, among the wealthiest members of Congress, has held leadership roles in other biotech companies that were little known or mentioned on Capitol Hill.

Until this past week, he was chairman of the board of directors of ZeptoMetrix, a private lab company based in Buffalo that he co-founded and that has received millions of dollars in federal contracts, according to government records.

He also reported owning between $25 million and $50 million in shares of the company, but has since transferred an unknown amount into his wife’s name, a company spokesman said. In June, he sold as much as $1 million of stock in Chembio Diagnostics, a medical tests and equipment manufacturer, according to his ethics disclosure forms.

Mr. Collins did not disclose these ties in committee hearings when topics overlapped with his business interests, including the development of a test for the Zika virus and whether the F.D.A. should more closely regulate some types of lab tests.

Earlier, in 2013, he brought up the experimental drug that Innate was developing in a hearing about brain research, but did not mention his financial stake in the company.

“Mr. Collins had no business serving on this publicly traded company from the get-go,” said Meredith McGehee, executive director of Issue One, a Washington ethics watchdog organization, who noted that such a practice was not permitted in the Senate. “The House needs to update its rules.”

Since 2012, a federal law has prevented members of Congress from trading stocks based on confidential information they receive as lawmakers. Members of both chambers are permitted to hold stocks and members of the House of Representatives may serve on boards as long as they disclose it.

Generally, lawmakers don’t have to recuse themselves from a vote or other action that might affect their holdings unless they are virtually the only investor who would benefit.

While many lawmakers have opted to invest using broad mutual funds to avoid potential conflicts on individual holdings, some — like Mr. Collins — have not.

In July of last year, a congressional ethics office found that Mr. Collins may have violated ethics rules by asking the National Institutes of Health for help with the design of Innate’s now-failed clinical trial.

This week, the speaker of the House, Paul Ryan, stripped Mr. Collins of his seat on the energy and commerce committee and asked the House Ethics Committee to investigate the allegations of insider trading.

Mr. Collins’s involvement with Innate dates back to 2005, when he leveraged his wealthy circle of friends and neighbors — many of whom would become political donors — to help bail out the struggling company.

One local investor was Lindy Ruff, the former coach of the Buffalo Sabres, the congressman told federal ethics investigators last year. “I live in an upscale neighborhood with people that have means,” he explained in the interview.

He became acquainted with Innate’s chief executive, Simon Wilkinson, because ZeptoMetrix, his other company, was supplying H.I.V. to Innate, then called Virionyx, which was developing a treatment for the disease using antibodies harvested from a herd of New Zealand goats.

Mr. Collins eventually became Innate’s top shareholder and a member of the board, sticking with the company after it shifted gears to pursue a treatment for multiple sclerosis and changed its name to Innate.

Many investors had lost money with Virionyx. “They burned through an incredible amount of money back then,” Mr. Collins told the ethics investigators. “It was toxic, a toxic name.”

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Source: A Congressman, a Financial Deal and an Intricate Web of Conflicts

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