U.S. v. Collins: Former House Rep. Collins Sentenced For Insider Trading

In U.S. v. Collins, 409 F.Supp.3d 228 (S.D.N.Y. 2019), former United States Representative Chris Collins (“Collins”), a New York Republican, plead guilty to conspiracy to commit securities fraud and lying to federal investigators. The court sentenced him to 26 months in prison after hearing arguments from both Collins and the government, and receiving dozens of letters from Collins’s former constituents overwhelmingly urging a harsh sentence.

Collins, who resigned from the House of Representatives (“The House”) in the wake of his indictment, became the first sitting member of The House to be charged with insider trading. Collins sat on the board of directors for the Australian biotechnology company Innate Immunotherapeutics (“Innate”) while in office and received an email from Innate’s CEO regarding a failed clinical trial done on its proprietary drug “MIS416” on June 22, 2017. Collins, 409 F.Supp.3d at 234. The drug was designed to treat Secondary Progressive Multiple Sclerosis (“SPMS”). Id. Because, by the court’s account, there are currently “few or no” alternative treatments for the disease, Innate stood to make a large profit if the drug trial was successful. Id.

According to the court, Innate’s CEO alerted Collins via email of the trial failure, but Innate did not immediately make the news public. Id. Instead, it released a statement saying it had requested a halt in trading of its stock on the Australian Securities Exchange and that it expected the halt to be lifted by June 27, 2017. Id. According to the court, this kind of halt - when material information becomes available to a company, but the company is not ready to announce it to the public - is not unusual. Id. Collins, who owned about 16% of Innate’s stock, was unable to take advantage of this information because his stock was frozen in the Australian market. Id at 235. However, Collins called his son from the White House lawn, where Collins was taking part in the annual White House congressional picnic, and alerted him of the failed trial, anticipating that his son would sell his shares of Innate in the American market and tip others. Id at 234-235. His son then did exactly that, unloading his shares and alerting five others to do the same. Id at 235. Innate’s stock price closed at $0.455 per share on June 26, 2017. Id. The next day, Innate announced the results of the trial, and the price resultingly dropped to $0.035 per share by closing that day. Id.

Rule 10b of the Securities Exchange Act forbids using information that was gained via a confidential relationship for personal benefit before such information is released to the public. Chiarella v. United States, 445 U.S. 222 (1980).

At the sentencing, the government asked that Collins be sentenced to between 46 and 57 months in prison, citing the sentencing guidelines of 18 U.S.C. 3553(a) and its goals of “promoting respect for the law, providing just punishment, and achieving general deterrence.” (Gov’t’s Sent’g Mem. ¶ 1) On the issue of respect for the law, the government argued that a sentence of this magnitude would send the message that elites, like Collins, with large assets and the power to actually make the law are still subordinate to the law. (Id. at ¶ 19) The government also argued that a harsh punishment would be just, in this case, because “insider trading is a serious crime” that Collins “doubled down” on when he lied to federal investigators. (Id. at ¶ 22) As to general deterrence, the government made a two-pronged argument: (1) deterrence is particularly important when, as here, the crime is lucrative, and (2) deterrence is particularly important when, as here, the crime is difficult to detect and punish. (Id. at ¶ 27-29)

Collins requested not to be imprisoned, instead arguing that home confinement, extensive community service, and a considerable fine would be a more just sentence. (Def.’s Sent’g Mem. ¶ 2) He argued that the general deterring effect desired by the court for white collar crimes like his would already be achieved by the fact that his guilty plea ended his public career and collaterally damaged his reputation. (Id. at ¶ 187) Specific deterrence, he further argued, would be achieved without a prison sentence, as well, due to his remorse, age, and the same collateral damage. (Id. at ¶ 188) Collins also argued that because he is a public figure, he will require special care in prison that will cost the community money, when instead he could be paying the community back with community service. (Id. at ¶ 190)

The court sided mainly with the government, citing Collins’s duty to the nation as a federal representative and his betrayal of that duty as reasons for issuing a prison sentence. The goal of deterrence further required harsh punishment for Collins, according to the court, and lying to the FBI during their investigation also made his conduct more reprehensible. Therefore, the court sentenced Collins to 26 months in prison.