Photographs by Bloomberg News/PETER FOLEY
Rep. Chris Collins, R-N.Y., (center) exits federal court Wednesday in New York after he and his son were indicted on charges of insider trading.
Friday, August 10, 2018
WASHINGTON -- Five House members bought shares of an Australian biotechnology company in January 2017 that's at the center of an insider trading indictment of New York Republican Chris Collins, congressional financial disclosures show.
Collins, who represents a district in western New York, is the only lawmaker accused by prosecutors of wrongdoing, which stems from his role on Innate Immunotherapeutics Ltd.'s board, not his position in the House.
But the allegations against him, along with the other lawmakers' holdings, highlight how members of Congress face few restrictions on their investments, creating the potential for conflicts of interest, or the appearance of a conflict.
At least one of the lawmakers, John Culberson of Texas, reported selling his holdings a few weeks before the company was privately informed in June 2017 of negative results from a clinical drug trial. When the news was announced, the company's share price tanked. He said in a statement Wednesday that he didn't have any inside information when he sold.
The other lawmakers, all Republicans -- Mike Conaway of Texas, Doug Lamborn of Colorado, Markwayne Mullin of Oklahoma, and Billy Long of Missouri -- either still hold the stock or didn't sell it in the weeks prior to the public announcement of the negative trial results.
Collins, one of the biotechnology company's largest shareholders, served on the board and had access to information that wasn't public. He is accused of tipping off his son about the trial results for a drug to treat a form of multiple sclerosis, according to federal prosecutors in New York.
His son Cameron Collins then passed along the information to others. The son and others who received the tip sold more than 1.78 million shares in the days before the trial results were announced, avoiding losses of $768,000, according to the indictment.
Unlike executive branch officials who must resign from outside positions and divest assets that could pose conflicts of interest, Congress relies on public disclosure as the main mechanism for keeping lawmakers honest.
"There are very few restrictions on members of Congress," said Larry Noble, a former general counsel of the Federal Election Commission. He said lawmakers only have to recuse themselves from voting on legislation that specifically benefits a personal investment. "The rationale for it is that almost anything you can do will affect business. It presents real conflicts."
In 2012, Congress tried to address some of the problems by passing the Stock Act, a measure that made it illegal for members of Congress and federal officials to trade on nonpublic information about pending regulatory or legislative decisions.
Congress should go further and consider banning lawmakers from serving on boards of public companies and trading individual stocks, said Virginia Canter, chief ethics counsel at Citizens for Responsibility and Ethics in Washington.
"They have an inherent conflict of interest in that their duty as a member of the board is to maximize profit, and their duty to the public is to maximize the public good," Canter said.
Even with the additional disclosures, members of Congress face fewer restrictions than those in sensitive positions in the private sector. Wall Street banks typically require employees to disclose all personal investments and get pre-approval for any new purchases and sales. Some firms, including Goldman Sachs Group Inc. and HSBC Holdings PLC, have gone even further, banning certain workers from trading individual stocks.
Innate Immunotherapeutics lost more than 90 percent of its value the day after the company reported that its trial for a multiple sclerosis treatment had failed. The losses followed a more than 10-fold run-up in the shares during 2016 as investors bet the company would succeed.
Collins, his son and another defendant pleaded innocent in a federal court appearance in Manhattan.
"We will answer the charges filed against Congressman Collins in court and will mount a vigorous defense to clear his good name," said Jonathan Barr and Jonathan New, attorneys for Collins.
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