Rep. Chris Collins, R-N.Y., was standing on the White House lawn last June when, prosecutors say, he received word that a drug in which he was heavily invested had failed a clinical trial, then tipped off his son.
The flurry of activity that followed — as the news spread to family and friends who dumped millions of shares of the stock — led to Collins’ arrest Wednesday in what would otherwise appear to be a garden-variety insider trading case.
But Collins’ status as a member of Congress sets it apart and raises new questions about the propriety of lawmakers both serving on public boards and trading stock.
Collins was tipped to the drug trial’s failure because he served on the board of the company — a small Australian biotech business called Innate Immunotherapeutics — a position that ethics experts called unusual and potentially problematic for a lawmaker, if within bounds of congressional ethics rules.
Collins maintains he is innocent. In a Wednesday news conference, he pledged to face down the charges while campaigning to keep the western New York seat he’s held for three terms.
The legal fight ahead complicates what likely would have been an easy march to re-election.
“Throughout my tenure in Congress, I have followed all rules and ethical guidelines,” Collins said.
Collins’ position on the board technically was kosher because he didn’t draw a fee.
Nevertheless, Stan Brand, a former general counsel to the House, said he would advise against it.
“Obviously, there are entanglements in Congress between your duties as a member and your fiduciary obligation to the corporation,” he said.
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Collins already was facing heat for mixing the two. A House ethics watchdog last October said it found “substantial reason to believe” the lawmaker broke both federal law and congressional rules by advocating for the company in his capacity as a public official.
As the Washington Post reported at the time, the Office of Congressional Ethics zeroed in on a Nov. 18, 2013, visit that Collins and a staffer made to the National Institutes of Health, where he is alleged to have asked for help in designing Innate Immuno’s drug trial.
“The meeting came after Collins, in a July 2013 hearing of the House Committee on Science, Space and Technology, mentioned Innate Immuno’s drug to a top NIH official without disclosing his stake in the company. The official then invited Collins for a visit,” the report said.
House Speaker Paul Ryan, R-Wis., announced Wednesday Collins would be removed from the House Energy and Commerce Committee while a House Ethics Committee investigation proceeds.
Rick Boucher, a former 14-term congressman now practicing law at Sidley Austin, tells me he doesn’t recall lawmakers serving on public boards.
“You can certainly see the potential for conflicts of interest,” Boucher said. “My sense is it’s probably not a good idea to allow it.”
Collins didn’t sell his own stock after receiving the news of the drug trial’s failure, absorbing a $17 million loss he highlighted Wednesday. He also promoted the company to colleagues in the House, five of whom bought its stock.
Geoffrey Berman, the U.S. attorney for the Southern District of New York, would not say whether those members were under investigation, saying it was “not an aspect of this indictment,” per Politico.
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But the story underscores how the phenomenon of lawmakers playing the stock market has gained significant steam in recent years.
About a fifth of federal lawmakers owned stock in 2001, which doubled by 2013, when they had collectively invested up to $1 billion directly in hundreds of stocks, according to CNN Money.
The Harvard Business Review examined the matter last year and found over half of Congress owns stock, “many with holdings in excess of $100,000 in stocks alone, not to mention mutual funds and other forms of investments.”
A Washington Post analysis in 2012 of 45,000 individual stock transactions by lawmakers found an eighth of them intersected with legislation before Congress.
That year, Congress passed the Stock Act to clarify that lawmakers can’t trade on non-public information.
Last year, the late-Rep. Louise Slaughter, D-N.Y., a sponsor of the original law, introduced an update prompted in part by Collins’ participation in an initial public offering in a foreign market that he didn’t disclose on financial forms.
Per the Washington Post’s Kimberly Kindy, the bill “expressly prohibits members from taking part in foreign IPOs, purchasing stock at discounted prices, selling stock at higher than market value or participating in private-placement stock offerings.”
It’s drawn a single co-sponsor and hasn’t budged.
Virginia Canter, chief ethics counsel for watchdog Citizens for Responsibility and Ethics in Washington, D.C., said Collins’ promotion of the stock raises the appearance “of using public office for private gain,” and points to the broader question: “People have to give some serious thought to whether Members of Congress should be trading,” she said.
“If it were up to me, I’d recommend they not do that.”