House Republican Chris Collins’ indictment for insider trading exposed a glaring loophole in a 2012 law intended to curb the practice among lawmakers, advocates say.
The New York lawmaker is the first congressman to be indicted for insider trading since passage of the 2012 STOCK Act, which was designed to combat insider trading. Some lawmakers said the indictment proves the need for stronger rules. Patient advocacy groups say that Collins’ indictment raises serious questions about conflicts of interest between lawmakers who oversee industries in which they own stocks.
“Congress absolutely can, and should, explore new rules to tighten our securities law and shut down any sort of insider trading, including by members of Congress,” said Rep. John Sarbanes, D-Md., in a statement to the Washington Examiner.
The FBI indicted Collins on Wednesday on charges that he shared confidential information while on the board for the Australian biotech firm Innate Immunotherapeutics. Federal authorities charge that Collins shared data on a pivotal clinical trial before it became public so that his son and others could short shares of the company, which dramatically dropped in value after the trial results for a multiple sclerosis drug were released.
The advocacy group Public Citizen asked the U.S. Office of Congressional Ethics and the U.S. Securities and Exchange Commission to look into Collins’ stock trading in January 2017. The group also wanted to investigate then-Rep. Tom Price, R-Ga., who left Congress last year to serve as Health and Human Services secretary. Price resigned last fall after reports of his rampant private jet usage.
The Office of Congressional Ethics found last October that Collins had violated insider trading laws and House rules by taking actions that benefited the biotech firm.
It forwarded the report to the House Ethics Committee, which has not taken any public action. The committee did not have any comment on the investigation when contacted by the Washington Examiner. The committee had said in a statement last October that it would review the matter.
The STOCK Act prohibits a lawmaker from using confidential information they glean from their official position for personal gain. It also included stronger disclosures of stock purchases by lawmakers.
The disclosure part of the STOCK Act helped Public Citizen identify questions with Collins’ stock trading, said Craig Holman, government affairs lobbyist for the group. However, there remains a major loophole the law doesn’t address.
[New York Gov. Andrew Cuomo: Chris Collins was unfit for office before he was indicted]
“We should not allow members of Congress to trade in businesses that they oversee in their official capacity,” he said.
The executive branch already has that standard in place: requiring cabinet heads to divest their business interests in the areas they will be overseeing. Coincidentally, it was Tom Price’s nomination to serve as HHS secretary that led him to sell his Innate shares before the stock plunged.
The indictment alleges Collins learned of the poor clinical trial results for a multiple sclerosis drug while at the congressional picnic at the White House in July.
It doesn’t link Collins’ insider information to his role in the House, where he serves on the powerful House Energy & Commerce Committee. The indictment also doesn’t cite any of the other five House Republicans who bought shares of Innate.
The SEC complaint said Collins became aware that a key drug failed in a clinical trial because he was on the board of the company. He then phoned his son, Cameron Collins, at the picnic. Cameron Collins then sold shares of Innate before the trial results went public and told his then-girlfriend and her mother, according to the complaint.
Collins, for his part, has called the charges “meritless” and has refused to resign.
However, Public Citizen and other advocacy groups charge that Collins’ work on Energy & Commerce has benefited Innate.
The group AIDS Healthcare Foundation said Wednesday that Collins has attacked a controversial drug discount program called 340B. The program mandates drug companies provide discounts to safety net hospitals in exchange for getting their products covered under Medicaid.
“In the name of reform, he falsely accused the program of abuses without showing a shred of evidence,” said President Michael Weinstein in a statement. “All the while, he himself was engaged in a secret conspiracy to enrich himself and his family by engaging in insider stock trading on drug industry publicly-traded securities.” Collins is not the only person to criticize that program or allege abuses. The Trump administration has sought to scale back 340B.
The foundation also points to an April investigation by the Daily Beast that found Collins touted several bills that would have benefited Innate. These include a 2017 draft bill that would have changed the 340B program to exclude patients that need “infusion” drugs like the type Innate was researching, according to the investigation.
The Senate already has a rule that lawmakers can’t serve on any publicly traded company while serving on the Senate.
“It is now critical that the House follow the Senate and change its rules to end this practice and prevent these potential conflicts of interest in the future,” said Meredith McGehee, executive director of the ethics advocacy group Issue One.
But it remains unclear if Congress will pursue changes to the STOCK Act.
Sarbanes pointed to a resolution he introduced earlier this year that touted several reforms to campaign finance that include overturning Citizens United, the Supreme Court decision that led to the creation of super PACs.
House Speaker Paul Ryan, R-Wis., called for the House Ethics Committee to probe Collins’ stock trading, 19 months after Public Citizen sent its complaint to the Office of Congressional Ethics. Ryan also pulled Collins from the House Energy & Commerce Committee.
Ryan’s office did not return a request for further comment on the indictment.
