In a startling announcement, the Department of Justice and the Securities and Exchange Commission filed charges against Congressman Christopher Collins from New York.
There has long been controversy around lawmakers and their staff trading on information obtained during their government service. That resulted in the passage of the Stop Trading on Congressional Knowledge (STOCK) Act in 2012. That law prohibits the use of non-public information for private profit, including insider trading by members of Congress and other government employees. Members of Congress are no longer allowed to use information garnered through official business for personal reasons
That is separate from Congressman who gain material non-public information outside the scope of their governmental jobs. They are still bound by the complex web of what is illegal insider trading.
Congressman Collins, a U.S. Congressman representing, the 27th Congressional District of New York sat on the board of Innate Immunotherapeutics, Ltd. Innate was developing a drug to treat multiple sclerosis. The results of the drug’s clinical trial were to be released between June 5 and July 11 and the board members were instructed not to trade during this period. On June 22, the CEO told the board there was bad news. The results indicated a clinical failure.
According to the SEC complaint, the email with this news came as Congressman Collins was attending an official event on the south lawn of the White House. While still at the event, he began calling his son, Cameron Collins. He knew his son had invested in millions of Innate shares. That night Cameron, his girlfriend, and his girlfriend’s parents all entered orders to sell shares in Innate. Their selling volume accounted for more than half of the trading volume that day and exceeded the 15-day average trading volume by more than 1,454%.
It’s a very clear cut case of trading on material non-public information. Christopher Collins, as a member of the board of directors clearly knew he was not supposed to share this material non public information.
Was the trading illegal insider trading?
Under Newman the U.S. Court of Appeals for the 2nd Circuit said that the insider must “also receive something of a ‘pecuniary or similarly valuable nature’ to prove illegal insider trading. The US Supreme Court, in Salman v. US, made it clear that the passing material non public information to a friend or relative is still illegal insider trading.
“In these situations, the tipper personally benefits because giving a gift of trading information to a trading relative is the same thing as trading by the tipper followed by a gift of the proceeds. Here, by disclosing confidential information as a gift to his brother with the expectation that he would trade on it, Maher breached his duty of trust and confidence to Citigroup and its clients—a duty acquired and breached by Salman when he traded on the information with full knowledge that it had been improperly disclosed.”
That leaves the case against Collins as being clearly illegal insider trading, assuming the SEC and DOJ have the evidence to back up their complaint and indictment.
Congressman Collins would not be the first sitting Congressman to be indicted. There have been been more than two dozen indicted since 1980. Looking back at charges, Cogressman Collins may be the first indicted on insider trading.
Sources:
- US v collins
- SEC v Collins
- New York Congressman Chris Collins Arrested on Insider-Trading Charges
- More than two dozen members of Congress have been indicted since 1980
- List of American federal politicians convicted of crimes
- A Brief History of Members of Congress Breaking the Law
- The Supreme Court Weighs in Insider Trading