One of the easiest things in the world is to describe an unethical politician in terms of party affiliation. I say “easy,” because you can always be assured that under most circumstances, at least half of your audience will cheer for you. They will think you’re great. Of course, you may run the risk of having the other half of the audience grumbled.
Over the years of analyzing the news stories of the day, I have detailed unethical behavior on the parts of Democrats, Republicans, and independents. No one party has a monopoly on unethical behavior. What is important to me is not party affiliation, but that slippery slope they went down to get indicted. For example, Chris Collins indicted on insider trading.
Chris Collins and Insider Trading
Chris Collins, a Congressman from New York, along with two other men were charged with multiple counts of security fraud in relation to an insider trading scam tied to an Australian pharmaceutical company. Troubling to me ethically, is that one of the other men being indicted is the Congressman’s son.
The charges center on the fact that Collins, who is a board member of the pharmaceutical company (Innate Immunotherapeutics Limited), had knowledge of an apparently unsuccessful drug testing trial, and he traded on that information through proxies. That is, he did not trade in the stock itself but passed on the information to his son and his fiancée’s father.
The SEC prosecutors allege that in dumping the stock before the results were made public, Collins, his son and the future father-in-law, were able to avoid nearly $770,000 in losses. When the federal agents noted the unusually large block of stock that had been dumped by the three men, they lied about their insider knowledge.
Top of Form
Bottom of Form
“Congressman Collins cheated our market and our justice system in two ways,” US Attorney Geoffrey Berman said at a news conference Wednesday. “First, he tipped his son to confidential corporate information at the expense of regular investors. And then he lied about it to law enforcement to cover it up.”
Of course, lawyers for the defendants claim:
“We will answer the charges filed against Congressman Collins in court and will mount a vigorous defense to clear his good name. It is notable that even the government does not allege that Congressman Collins traded a single share of Innate Therapeutics stock. We are confident he will be completely vindicated and exonerated.”
What Rules?
In addition to his legal career, Chris Collins has an M.B.A. and a successful history of mergers and acquisitions. He is certainly not naïve on the topic of insider trading. The SEC and its enforcement branch are hardly unsophisticated in tracking down insider trading patterns. In this particular case, the SEC has knowledge of the CEO of the biotech company informing Collins of the failed trial, and then, in turn, Collins repeatedly calling his son, and even his son texting back to Collins verifying the failed tests.
Though the charges against Collins will not impede, in the short term, his political career, he has been at least, temporarily removed from the House Energy and Commerce Committee. He and his alleged “conspirators” have been ordered to pay fines of $500,000 apiece. The SEC is also seeking to ban Collins from ever again serving as a director of a public company, as well as prevent him from “trading in penny stocks.”
Naturally, other politicians have turned this into a political issue. One politician has stated:
“Congressman Collins, who by virtue of his office helps to write the laws of our nation, acted as if the law did not apply to him.” This is a good point at which to explore the ethical implications in a bit more depth.
My Best Guess
The world of penny stocks, of which Innate Immunotherapeutics Limited is a proud member, was recently trading for about $.30 a share. No, it is not very much money, but Collins and his associates owned millions of shares.
The Australian penny stock world is fraught with a long history of scams and scandals. Collins did not invent that world, any more than the world of Salt Lake City-based penny stock companies, another area of investing known for its crooked ways and dubious promises. Investors in penny stocks live on the news and the promise of news. Some manage to “make it,” but most fizzle out.
Had this stock, trading for a few dimes a share been successful in their human trials, the stock may have doubled or tripled – or more. Collins, his son and his future father-in-law, didn’t invest in the somewhat obscure stock because they were hoping for an MS cure (supposedly the focus of the company), they were hoping to become richer. They had a need to become rich.
The stock had been pushed up by market forces to as high as $1.35 per share. It doesn’t sound like much, but it had been as low as $.25 per share, undoubtedly close to the point where Collins and his cohorts bought in for many hundreds of thousands, perhaps millions of shares per individual.
As with any fraud, there was a period of opportunity that the three men could not resist. It was in that period where the stock, possibly near its all-time high, would have had no other choice but to report the negative results of the trials. It would have been painful, but they would have known far ahead of everyone else that the stock was going to crash.
Had Collins been ethical, he would have thrown up his hands and said, “Well, that’s the way it goes.” He seized the opportunity to cash out with a lot of money.
He and his partners rationalized the entire fraud by thinking, “Who in America, especially if I trade through intermediaries, would bother with an Australian penny stock?” Obviously, the SEC for starters, and then the other investors and Congress and the voters.
Collins is not unique to the long history of insider penny stock investors, but he was unique in his antiquated thinking that no one was looking. Thus, Chris Collins indicted on insider trading.
