Congressman, Son Settle Insider Trading Charges with SEC, DOJ
Congressman Christopher Collins, his son Cameron and the father of his finance, Stephen Zarsky, settled insider trading charges with the Commission. Each previously pleaded guilty in the parallel criminal case. SEC v. Collins, Civil Action No. 18-cv-7128 (S.D.N.Y.); see also U.S. v. Collins, No. 18 crim 567 (S.D.N.Y.).
The action centered around the announcement by Australian Pharmaceutical Company Innate Immunotherapeutics, Ltd. after the close of trading on Monday, June 26, 2017 of negative drug trial results for the firm’s only actual pharmaceutical, according to the Commission’s complaint. The share price plunged 90%.
Congressman Collins had been a member of Innate’s Board of Directors for three years. He was one of the firm’s largest shareholders. Mr. Collins’ involvement with the company was well known — it was the subject of an on-going Congressional ethics probe tied to his stock holdings and promotion of the firm. Just days before the announcement of the drug trials on which this action centered he had been interviewed as part of that investigation. His son Cameron was also a large shareholder, having purchased or received from his father over 5.2 million shares of stock.
By 2014 Innate began developing a drug known as MIS416 which was intended to treat multiple sclerosis. A clinical trial to test the efficacy of the drug began. As the trial continued, in April 2017 the firm announced that the last patient had completed the clinical portion of the study. The final results were expected to be available in August or September 2017. The top line results – the preliminary conclusions – might be released earlier.
In early June the board of directors was informed that they would not be permitted to trade firm shares between June 5 and July 11, 2017 because the drug trial results were expected. A few days later the firm’s CEO told the directors that the top-line data had been delivered to the firm’s consultants and that the “verdict” would be available after the close of business, June 22, 2017.
Many expected the “verdict” to be positive. On June 5, 2017, for example, Christopher Collins discussed the possibility that if the company received a strong “efficacy signal” from the trial the drug would be a candidate for accelerated approval by the FDA. In the period leading up to the announcement Cameron added to his then already large position in the stock. His girlfriend also purchased shares in an account she opened. The girlfriend’s father, Stephen Zarsky, and her mother had purchased shares the year before.
On June 22, 2017 Innate’s CEO sent an email at 6:55 p.m. to the board of directors, including Christopher Collins, with the results. The trial had been a failure: “Top-line 12 month data . . . show no clinically meaningful or statistically significant differences in [outcomes] between MIS416 and placebo.” The Congressman was attending a Congressional Picnic at the White House. He responded immediately, noting that the results made no sense. The Congressman then began trying to call his son. Six missed calls were placed from 7:11 p.m. to 7:15 p.m. At 7:16 p.m. father and son spoke on the phone for over six minutes. Cameron learned what his father already knew – the drug trial failed. While the firm informed the directors it also decided not to announce the results of the drug trial until after the close of business on Monday, June 26, 2017.
The next morning Cameron Collins began placing orders to sell his Innate shares. On Friday and Monday he continued to place orders, at times cancel them, and then place additional orders. By the time of the company announcement on Monday evening he had sold almost 1.4 million, avoiding losses of about $570,000.
Others Cameron Collins or Mr. Zarsky told about the trial failure also sold shares. His girlfriend began selling shares on Thursday evening almost immediately after learning about the drug trial results. Mr. Zarsky, his wife and a friend of Cameron’s also traded as well as Mr. Zarsky’s brother, his sister and a long standing friend. At times their trading represented the bulk of the volume in the stock. All avoided substantial losses.
Subsequently, Congressmen Collins, his son and Mr. Zarsky were interviewed by the FBI. All lied, according to the indictment. The indictment alleges five counts of securities fraud, two counts of conspiracy, one count of wire fraud and three counts of making false statements. The SEC’s complaint alleged violations of Exchange Act section 10(b) and Securities Act section 17(a).
The Congressman, his son and Mr. Zarsky each consented to the entry of permanent injunctions based on the sections cited in the complaint. Mr. Collins is also barred from serving as an officer or director of a public company. Cameron Collins and Stephen Zarsky, who avoided losses by trading agreed to pay disgorgement and prejudgment interest of $$634,249 and $159,880 respectively.
Separately, Lauren Zarsky, Cameron’s girlfriend, and her mother Dorothy settled with the Commission at the time the cases were initiated. Each consented to the entry of permanent injunctions based on the sections cited in the complaint. Lauren Zarsky agreed to pay disgorgement of $19,440, prejudgment interest of $839 and a penalty equal to the amount of the disgorgement. Dorothy Zarsky agreed to pay disgorgement of $22,600, prejudgment interest of $975 and a penalty equal to the amount of the disgorgement. Lauren Zarsky, a CPA, also agreed to be suspended from appearing or practicing before the Commission as an accountant with the right to apply for reinstatement after five years. See SEC v. Lauren Zarsky, Civil Action No. 18-cv-7129 (S.D.N.Y. filed August 8, 2018); SEC v. Dorothy Zarsky, Civil Action No. 18-cv-7130 (S.D.N.Y. Filed August 8, 2018).