Congressman Christopher Collins, the U.S. Representative for New York’s 27th Congressional District, his son, Cameron Collins and a third individual, Stephen Zarsky, have been charged by the Securities and Exchange Commission with insider trading. The U.S. Attorney’s Office for the Southern District of New York also filed related criminal charges on Wednesday.

Christopher Collins served as an independent director of an Australian biotech company, Innate Immunotherapeutics Ltd.

During the congressman’s tenure with the firm, Christopher Collins allegedly tipped off his son Cameron Collins after receiving confidential information about negative clinical trial results for Innate’s multiple sclerosis drug. Armed with the information, Cameron Collins and his girlfriend’s father, Zarsky, allegedly made trades and tipped off others regarding the nonpublic information.

According to the SEC, Christopher Collins learned of the negative clinical trial results in late June 2017 from Innate’s CEO. He and the board of directors were told that the drug trial results “pretty clearly indicate ‘clinical failure.'” Immediately thereafter, the SEC alleges that Christopher Collins called and spoke to his son regarding the sensitive information.

Electronic Footprints 

According to the SEC’s complaint, the alleged illegal activity continued when Cameron Collins drove to Zarsky’s home and tipped him off regarding the confidential information.

The following morning, almost two hours prior to the market opening, Cameron Collins and Zarsky allegedly entered orders to sell Innate shares just after the stock market opened. Over the next two trading days, Cameron Collins allegedly sold nearly 1.4 million Innate shares.

After the trades had been made, Innate publicly announced the negative results of the clinical trial, which caused the company’s stock price to plummet more than 90 percent.

Through the trades, Cameron Collins and Zarsky avoided losses of more than $700,000. The SEC complaint also alleges that the duo contacted other friends and family members, who also sold Innate shares to avoid catastrophic losses.

“The investigation yielded a detailed footprint left by the defendants, revealing their frantic efforts to sell shares and warn others before Innate announced bad news,” said Steven Peikin, co-director of the SEC's enforcement division.

The SEC’s complaint charged Christopher Collins, Cameron Collins and Zarsky with violating Section 10(b) of the Securities Exchange Act of 1934, along with Rule 10b-5 and Section 17(a) of the Securities Act of 1933. The complaint seeks disgorgement of ill-gotten gains plus interest, penalties and permanent injunctions. It also seeks an officer and director bar against Christopher Collins going forward.

“We allege that Christopher Collins breached his duty of confidentiality to Innate’s shareholders, exploiting his access to nonpublic information about the company’s clinical trial results so that his son could avoid significant financial losses,” said Stephanie Avakian, co-director of the SEC's enforcement division. “Our laws are designed to prevent and punish such misconduct, which undermines investors’ trust in the fairness and integrity of our markets.”

The SEC has settled the charges for co-conspirators Lauren Zarsky, Cameron Collins’ girlfriend, and her mother, Dorothy Zarsky, for trading on the basis of material, nonpublic information. Both agreed to pay back the money earned and pay fines.