Breaking: Congressman surrenders to FBI on securites fraud; Update: "Will mount a vigorous defense to clear his good name"; Update: Indictment released

Well, this might make the midterms just a wee bit tougher for Republicans. NBC News reports that three-term GOP Rep. Chris Collins surrendered to the FBI earlier this morning on charges relating to securities fraud. The indictment alleges insider trading relating to an Australian company on whose board Collins sits:

Collins, 68, faces insider trading charges along with his son, Cameron Collins, and Stephen Zarsky, the father of Cameron Collins’ fiancée, according to the U.S. Attorney’s Office in the Southern District of New York.

The case is related to Innate Immunotherapeutics, an Australian biotech company, on which the elder Collins served on the board.

It’s not the first time that Collins has faced questions about his investment at Innate Immunotheapeutics. Collins raised eyebrows two years ago when he bought 4 million shares of the firm, at roughly the same time former HHS Secretary Tom Price bought shares valued at between $100,000 to $250,000. Last year the House Ethics Committee began looking into whether Collins had used his office to impact his stock trades; separately, the Office of Congressional Ethics reported that “substantial reason” existed to believe Collins acted improperly in using his office to benefit his investment in Innate.

That mostly flew under the radar, however, especially after the House Ethics Committee declined to pursue an investigation. This arrest will leave them with substantial egg on their faces, and even more if prosecutors manage to get a conviction against Collins and the others.

Where does that leave the GOP in NY-27, the Buffalo-area district Collins represents? In bad shape, only helped out marginally by how poorly Democrats were performing there:

New York’s primaries took place several weeks ago, so it’s not clear at all whether the GOP can replace him on the ballot. If they can’t and Collins can’t clear himself ahead of the election, the GOP might have to run a write-in campaign for NY-27. At that point, though, we can expect the state Democratic Party to dump a bunch of money into NY-27 to boost McMurray.

Had the House Ethics Committee done its job last year, Republicans might not have been in this position less than 90 days out from an election. That’s a lesson that will go unlearned in the Beltway, but shouldn’t.

Update: Through his attorneys, Collins declared his innocence this morning:

We haven’t yet seen the indictment, but insider trading doesn’t require that the suspect himself trade stock. If someone passes inside information along to another person to benefit trades, especially in a strawman arrangement, that qualifies as insider trading too. That’s what makes the inclusion of Collins’ son and his son’s future father-in-law in the indictment somewhat intriguing.

Update: The indictment alleges exactly what I described above. And it turned out to be lucrative:

10. In or about June 2017, CHRISTOPHER COLLINS, the defendant, violated the duties he owed to Innate by passing material, nonpublic information regarding the Drug Trial results to his son, CAMERON COLLINS, the defendant, so that CAMERON COLLINS could use that information to make timely trades in Innate stock and tip others. CAMERON COLLINS traded on the inside information and passed it to STEPHEN ZARSKY, the defendant, as well as to and so that they could utilize the information for the same purpose. ZARSKY, in turn, traded on the information and used it to tip CC-4, and so that they too could engage in timely trades in Innate stock. All of the trades preceded the public release of the negative Drug Trial results, and were timed to avoid losses that they would have suffered once that news became public.

11. In total, these trades allowed CHRISTOPHER COLLINS, CAMERON COLLINS, and STEPHEN ZARSKY, the defendants, and through to avoid over $768,000 in losses that they would have otherwise incurred if they had sold their stock in Innate after the Drug Trial results became public.

The government still has to prove that in court, but the rest of the indictment suggests that they have a case. The board discovered that their major developmental product had failed its trial testing on June 22nd, four days before the company made the news public. Collins immediately called his son and told him the news, even though the board had a fiduciary duty to keep it quiet until the news was made public. The next morning, Cameron Collins began placing the first of 18 sell orders for Innate over the next three days as he and his father continued consulting, the indictment alleges. Cameron sold almost 1.4 million shares of Innate between June 23rd and June 26th, when the bad news finally went public.

Why didn’t Chris Collins sell? He couldn’t:

24. CHRISTOPHER COLLINS, the defendant, did not trade himself, and his Innate stock ultimately declined by millions of dollars in value when the Drug Trial results were made public on June 26, 2017. As CHRISTOPHER COLLINS well knew, however, he was virtually precluded from trading his own shares for practical and technical reasons. First, CHRISTOPHER COLLINS was already under investigation by the Office of Congressional Ethics in connection with his holdings in, and promotion of, Innate. Indeed, he had been interviewed by OCE personnel on or about June 5, 2017, just 17 days earlier. Second, CHRISTOPHER Innate shares were held in Australia and thus subject to the Australian trading halt. Unlike his son’s shares, CHRISTOPHER shares were not held at a U.S. broker where they could be traded in the domestic OTC market. Accordingly, he did not trade his own stock and instead tipped CAMERON COLLINS, the defendant.

Their case appears to be bolstered by several cooperating co-conspirators in the insider trading scheme, labeled CC-1 through CC-6. CC-1 is Cameron’s wife, CC-2 is his mother-in-law, and two (CC3, 4) are his wife’s uncles. The other two are friends of Zarsky and Cameron Collins. It’s not exactly a criminal-genius construct here. The main mystery here, if the indictment turns out to be true, is how anyone thought this would sneak under the radar.