Three-term GOP congressman Chris Collins was indicted for insider trading after prosecutors determined that after Innate Immunotherapeutics alerted him to the failure of company’s clinical drug trials for a promising multiple sclerosis drug, Collins tipped off his son, allowing him and others to save hundreds of thousands of dollars by selling their stock in the firm before the news was made public. Now Collins faces prison time if convicted.
Collins was a member of the company’s board until May of this year, and at one point was its largest shareholder.
Speaker of the House Paul Ryan has stripped Collins of his seat on the Energy and Commerce Committee and asked the House Ethics Committee to investigate the allegations of insider trading. Collins has ended his re-election bid, but maintains that he is innocent. Such statements are like the puzzle about the White Foot and Black Foot tribes that look and sound identical but have one difference: the White Feet always lie, and the Black Feet always tell the truth. If you ask a member of either tribe, “Are you a truthful Black Foot or a lying White Foot?”, you will always get the same answer no matter what tribe the individual belongs to: “I am a truthful Black Foot!” And whether an indicted Congressman is guilty or innocent, he will always say, as Collins did, that the charges are “meritless” and that he will fight them to have his “good name cleared of any wrongdoing.”
Until the plea deal.
Collins’s involvement with Innate dates back all the way to 2005, before he ran for Congress. He organized support from wealthy friends and neighbors, many of whom would later become his political donors, to help bail out the company, which was flailing at the time. In addition to Innate Immunotherapeutics, Collins has held leadership roles in other biotech companies. Until his indictment, he was chairman of the board of directors of ZeptoMetrix, a private lab company based in Buffalo that he co-founded. That one has received millions of dollars in federal contracts, according to government records.
Collins reported owning between $25 million and $50 million in shares of ZeptoMetrix. In June, he sold about a million dollars of stock in Chembio Diagnostics, a medical tests and equipment manufacturer, according to his ethics disclosure forms.
The congressional ethics office found last summer that Collins may have violated ethics rules by asking the National Institutes of Health for help with the design of Innate’s now-failed clinical trial.
- Insider trading is one of those laws that is necessary to correct for an inherent structural flaw in investment capitalism, and which has no integrity nonetheless because it is impossible to enforce. Those who receive information about companies because of their involvement can use the information to benefit in too many ways to count, and do. Only when insider trading is on a large scale and obvious is it likely to be detected and prosecuted.
Like sexual harassment law, these are lousy laws that nonetheless must exist because we can’t rely on ethics.
- Prosecutions are selective, and generally focus on high-profile violators like Martha Stewart, or Collins. Less prominent violators often get away with insider trading.
Is that fair? No, of course it isn’t. Laws are supposed to be enforced, not just enforced against the rich and famous. This area is an anomaly: with most laws, being poor and anonymous is a handicap. With insider trading, the opposite is true.
- I have used a business ethics hypothetical in which you have urged your elderly parents to put their life’s savings into a company like Innate Immunotherapeutics, and you get a similar alert: a key drug has failed, and the whole company is about to crash. You don’t sell your holdings, but would you try to find some way to get word to your parents, who are infirm and will be ruined, to at least sell off some of their investments if you could be sure you (and they) could get away with it?
Under those conditions, almost 100% of the classes I ask say that they would alert their folks.
- Members of Congress have always benefited financially from inside information about the bills they pass and the information they acquire while passing them. After the news media began publicizing some of the most egregious examples—like Nancy Pelosi, but that was just media sexism, of course—a 2012 a federal law was passed that supposedly prevents members of Congress from trading stocks based on confidential information they receive as lawmakers.
I am dubious.
- Members of the Senate and Houses are both permitted to hold stock in companies that they may help by passing legislation. Incredibly, they don’t even have to recuse themselves from a vote or other action that might affect their own holdings. This is unethical (and ridiculous) of course, and essentially an institutionally-sanctioned conflict of interest that proves Congress isn’t serious about limiting the ability of elected officials to illicitly profit from their elected post.
As a result, don’t expect a lot of grandstanding by Democrats (especially Pelosi!) regarding Collins. Too many members of both parties are vulnerable on this topic.
- Members of the House of Representatives (but not the Senate) may serve on corporate boards as long as they disclose it. This is also outrageous, and explains why very few of the attacks on Donald Trump for his continuing financial interests and related conflicts have come from members of Congress.
In fact, this is the answer to the question I posed when Trump was elected and suddenly everyone was talking about the Emoluments Clause! I asked, more than once, why this wasn’t a major issue in the campaign. Neither the news media, nor Clinton, nor the Republicans seeking the nomination, nor supposed experts mentioned it for months. It was ignored in the debates, except for one fleeting mention that Trump brushed off. (I just plain missed it. No excuses.) How could that be?
This is how it could be: they–Clinton, the Democrats, the GOP candidates– were and are all vulnerable on the issue of inappropriate conflicts of interest involving stock holdings and business interests. If they aren’t personally, their colleagues are.
- Virtually every headline about the Collins indictment included Donald Trump’s name in the first sentence. “Rep. Chris Collins, one of President Trump’s most vocal supporters in the House…” To MSNBC (above), it was as if the President had been indicted too.
These are more news media cheap-shot games and cognitive dissonance manipulation in pursuit of undermining the President. Collins’ insider trading has nothing to do with Trump or his support of Trump. In contrast, when Harvey Weinstein was exposed a sexual predator in a New York Times piece, Hillary Clinton’s name was not included in the story until the 14th paragraph, though Weinstein was a close associate of the Clintons and a key figure in her campaign fundraising.