Last week, U.S. Rep. Chris Collins was arrested on insider trading charges for allegedly tipping off his son about a failed drug test at Innate Immunotherapeutics Ltd. (OTC:INNMF).
The federal grand jury that indicted Collins for insider trading and lying to federal agents also indicted his son Cameron Collins and Stephen Zarsky, the father of Cameron Collins’s fiancée.
According to the indictment, Collins gave his son material, nonpublic information about a failed drug test the company they were invested in. That, says the feds, prompted Cameron Collins to sell his shares and pass the bad news along to his future father-in-law.
Chris Collins himself, however, didn’t sell any of the large stake he held in the company, whose stock plummeted 92% after those failed tests were announced publicly.
There’s a good reason for that.
The Origin of the Company
Chris Collins’s involvement in Innate Immunotherapeutics goes back years.
Before running for Congress, Collins and a partner owned and managed ZeptoMetrix Corp., a privately held corporation that grows and maintains inventories of bacteria, viruses, and parasites that it then sells to researchers.
For example, ZeptoMetrix supplied HIV to Virionyx Corp., a New Zealand-based company that was working on a cure for HIV/AIDS.
In 2005, Collins, a Republican who represents New York’s 27th District around the suburbs of Buffalo and Rochester, introduced Virionyx, looking to raise money from U.S. investors, to his Buffalo-area friends and acquaintances. They invested more than $6 million in the company.
For his efforts, Collins was appointed to the Virionyx board.
But in April 2009, Virionyx changed its name to Innate Immunotherapeutics Ltd., following the failure of Virionyx’s HIV/AIDS efforts. The name change distanced the old company from its new standalone drug, MIS416, which the company claimed benefited suffers of secondary progressive multiple sclerosis (SPMS).
Innate expected MIS416 to trigger “anti-inflammatory and reparative functions inside the central nervous system.” That made MIS416 a highly relevant drug candidate for the treatment of [SPMS] and other neurological conditions.
In 2014, Innate commenced a Phase 2B randomized, double-blind, placebo-controlled trial to test MIS416. The trial was conducted at sites in Australia and New Zealand.
The trial concluded in April 2017, and on June 27, 2017, Innate announced that the drug “did not show clinically meaningful or statistically significant outcomes.”
A Scathing Indictment
Innate trades under the symbol “ILL” on the Australian Securities Exchange and in the United States as INNMF in “over the counter” pink sheets.
According to a report from the Board of the Office of Congressional Ethics (OCE), which I draw heavily from here, “many individuals based in the U.S. purchased Innate stock prior to the pink sheet listing.”
None of those purchases is part of any private-placement offering. Former U.S. Rep. Tom Price made three purchases of Innate stock in January 2015. You may remember Price as the U.S. Secretary of Health and Human Services in the Donald Trump administration from February to September last year. He was brought down by different ethics scandal, one involving private plane expenses.
Besides his initial investment in December 2005, Rep. Collins made several loans to Innate and purchased additional stock, bringing his ownership to 16.8%. He is Innate’s largest shareholder.
Collins’s children own about 4.6% of the company’s stock. Collins also told the OCE that “most” of his congressional staff owns Innate stock.
The OCE report states, “When asked about his communications with Members of Congress and staff regarding Innate, Representative Collins responded, ‘The bigger question would be, who haven’t I talked to?'”
No one else in Congress has been charged with any wrongdoing related to Innate, though five other Republican congressmen also purchased stock in the company in January 2017: John Culberson and Michael K. Conaway of Texas, Doug Lamborn of Colorado, Billy Long of Missouri, and Markwayne Mullin of Oklahoma.
When the CEO of Innate called board member Chris Collins in June 2017 to tell him the bad news about MIS416, Collins was at a congressional picnic at the White House. According to prosecutors, Collins repeatedly phoned his son Cameron until he got through to him and revealed the info about the failed drug test.
Regulators consider that sort of info “material, nonpublic information.” And that’s a big no-no.
The feds allege that Cameron Collins called Stephen Zarsky and the two sold shares of the company.
The indictment further alleges that Cameron avoided a loss of $768,000 by selling his shares before the announcement was made public.
Rep. Collins didn’t sell any shares, but like I implied up top, that’s not because he didn’t want to. It was because prior to the public disclosure about the drug’s failed trial, Innate’s shares on the Australian Securities Exchange were halted pending the announcement. And the congressman’s shares are on the ASE.
After being arrested and posting bond, Rep. Collins said, “I believe I acted properly and within the law at all times with regard to my affiliation with Innate.”
He also stated, “The charges that have been levied against me are meritless, and I will mount a vigorous defense in court to clear my name.”
A few days later, Collins suspended his reelection bid.
The Cat’s Out of the Bag
House ethics regulations clearly state, “If the Member or employee chooses to trade on [material nonpublic] information, they may have engaged in insider trading.”
And: “Material nonpublic information is any information concerning a company, security, industry or economic sector, or real or personal property that is not available to the general public and which an investor would likely consider important in making an investment decision. A good rule of thumb to determine whether information may be material nonpublic information is whether or not the release of that information to the public would have an effect on the price of the security or property.”
If it wasn’t for the House OCE investigation into Collins’s involvement with Innate and his soliciting other investors, perhaps wooing them with nonpublic information, the U.S. Department of Justice may never have taken notice and a grand jury might never have been convened.
Maybe if Chris Collins hadn’t been the first congressman to endorse Donald Trump in 2016, his detractors in the House might not have pressed the internal investigation and Collins’s links to Price and Price’s investment in Innate.
But, the cat’s out of the bag, and, no doubt, there’s more to this story.
In fact, I won’t be surprised if other House members are drawn into this sinkhole as the House’s initial report morphs into another investigation.
And now you won’t be either.
You may be even more cynical than you were when you started reading this report… but you’re also more informed.
And that’s a good place to be.
P.S. Scandals similar to the one Chris Collins has found himself in are not limited to Washington and Wall Street. Far from it. They reach all the way into the institutions we must trust most – like the companies that produce the drugs so many of us depend on for our well-being. In fact, the team here has just uncovered details on a greed-fueled disaster that’s contributing to the deaths of men over 50 every 18 minutes on average. To me, it’s the biggest scandal in recent medical history. Fortunately, a revolutionary scientific breakthrough could put an end to that scandal – and help protect millions of American men from a gruesome, untimely end. This major medical game-changer could also deliver a chance at massive gains, but you must act fast – a crucial announcement is set to be released by September 30, potentially taking this company’s value to new, enormous highs… More details here.