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New York GOP Rep. Chris Collins arrested on insider trading charges

CNBC logo CNBC 8/8/2018 Kevin Breuninger

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Rep. Chris Collins, R-N.Y. was arrested Wednesday morning on federal insider trading charges, law enforcement officials said.

An indictment obtained from a federal grand jury relates to Australian biotech company Innate Immunotherapeutics, on which Collins served as a board member.

It alleges Collins, 68, scrambled to call his son from the White House lawn and tell him non-public information about a failed drug trial in which they both owned shares.

Collins' son, Cameron Collins, 25, as well as the father of his fiancee, Stephen Zarsky, 66, were also charged, according to the court filing.

The Republican representative from upstate New York, President Donald Trump's earliest backer in Congress, felt an almost immediate political fallout in the wake of the charges.

Rep. Chris Collins, R-N.Y. © Provided by CNBC Rep. Chris Collins, R-N.Y. In June 2017, according to the indictment, Collins passed nonpublic information about Innate's drug trial results to his son in order to help him "make timely trades in Innate stock and tip others."

His son then traded on that inside information and passed it to Zarsky, along with numerous unnamed co-conspirators, "so that they could utilize the information for the same purpose," according to the indictment.

Zarsky, too, allegedly traded on the inside knowledge and passed it along to yet more unnamed co-conspirators.

In total, the three defendants avoided "over $768,000 in losses that they would have otherwise incurred" had they sold their stock after the information was made public, according to the indictment.

In a statement to CNBC, attorneys for Collins vowed to "mount a vigorous defense to clear his good name."

They added: "It is notable that even the government does not allege that Congressman Collins traded a single share of Innate Therapeutics stock. We are confident he will be completely vindicated and exonerated."

The lawyers said Collins will have more to say on the indictment later on Wednesday.

Cameron Collins' attorney, Rebecca Ricigliano, said, "We look forward to addressing these charges in court, and will not be commenting on this case outside of the courtroom."

An attorney for Zarsky told CNBC they had no comment at this time.

Collins was Trump's first supporter in Congress, and was reportedly a member of his transition team after the 2016 presidential election. The 27th congressional district in New York, which Collins currently represents, voted for Trump at a higher level than any other district in the state in 2016.

The indictment related to Innate draws new attention to an ex-Trump administration official: former U.S. Health and Human Services Secretary Tom Price, who was grilled by lawmakers during his confirmation hearings in January 2017 about a tip on the company he allegedly received from Collins.

Price resigned last September following an embarrassing series of news stories detailing his use of pricey commercial and charter jet travel during his brief tenure as HHS chief.

HHS' Office of Inspector General last month said the department should try to recoup at least $341,000 that Price had wasted on the flights. Just one out of the 21 such flights he took met all federal requirements, the watchdog said in a report.

A spokesman for Price told CNBC, "Dr. Price addressed his ownership of Innate Immunotherapeutics stock during his confirmation hearings for HHS Secretary and sold any stock he held in February 2017." The spokesman declined to respond to CNBC's questions about whether Price has been contacted by the DOJ in relation to this case, or if he has hired attorneys.

Separately, a source close to Price told CNBC that the former HHS secretary was not questioned by investigators from the Southern District of New York.

Collins had already been being probed by the Office of Congressional Ethics, which found in October 2017 that "there is a substantial reason to believe that Representative Collins shared material nonpublic information in the purchase of Innate stock." The committee recommended further review, and the House Ethics Committee was investigating Collins on the heels of that recommendation.

The defendants are accused of multiple counts of securities fraud, as well as one count of wire fraud, one count of conspiracy to commit wire fraud, one count of conspiracy to commit securities fraud and one count each of making false statements.

The GOP congressman reportedly surrendered to federal agents in Manhattan on Wednesday morning. He is expected to appear in federal court in lower Manhattan later today.

Geoffrey Berman, the U.S. Attorney for the Southern District of New York, said at a press conference on Wednesday that Collins "acted as if the law didn't apply to him."

Zarsky, Collins and his son each face a maximum of 20 years in prison for each count of the most serious charges in the indictment.

Innate did not immediately respond to CNBC's request for comment.

Collins' alleged leak

The indictment reveals that the results from a more than three-year-long clinical trial for Innate's primary multiple sclerosis drug were passed to the company's board members on June 22, 2017. The trial, Innate CEO Simon Wilkinson told the board in an email, was a failure.

"I have bad news to report," Wilkinson wrote, explaining the "clinical failure" of the trial. The company's stock price "was tied to the success" of the drug, the indictment says.

Collins was attending a congressional picnic at the White House at the time he received the email. He replied: "Wow. Makes no sense. How are these results even possible???"

The Republican representative held about 16.8 percent of Innate's stock, making him one of the company's largest shareholders, according to the indictment.

About a minute after responding to the email, Collins called his son twice, but was not able to get through. Cameron Collins called him back three more times, apparently to no avail, as well.

On his fourth attempt, Collins connected with his son and spoke for just over six minutes, explaining that Innate's drug trial had failed.

The next morning, Cameron Collins sold more than 16,500 shares of Innate, and placed numerous subsequent orders to sell stock before the company issued its press release on the night of June 26, the indictment says.

In total, Cameron Collins allegedly sold nearly 1.4 million shares from his 2.3 percent stake in Innate before the company announced the results of the drug trial, saving him about $570,900 in potential losses.

In the next trading session after the failed drug trial was revealed to the public, the company's stock plummeted more than 92 percent.

--CNBC's Dan Mangan contributed to this report.

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