Congressional Insider Trading Law Doesn’t Apply to Collins’ Case

Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...

By Jennifer Bennett

Rep. Chris Collins (R-N.Y.) is the first member of Congress charged with insider trading since the passage of a 2012 law banning lawmakers and their staffs from profiting on the confidential information they hear on the Hill.

Prosecutors who charged Collins with securities fraud Aug. 8, however, didn’t rely on the law known as the STOCK Act since the alleged insider knowledge came from his role as a biotech company’s board member.

Lawmakers had an entirely different scenario in mind when they clamored overwhelmingly to pass the Stop Trading on Congressional Knowledge Act in 2012.

“There was a concern that members of Congress and their staff were able to obtain information that was market-sensitive because of their role on committees,” Jim Fieweger, a former assistant U.S. Attorney in the Northern District of Illinois who prosecuted insider trading cases, told Bloomberg Law.

That type of information didn’t violate traditional insider trading laws, which are aimed at corporate insiders who owe fiduciary duties to their companies, said Fieweger, now a partner in Michael Best & Friedrich LLP’s Chicago office.

The STOCK Act also required lawmakers and agency officials to provide details about securities transactions within 45 days and disclose terms of their mortgages. It also prohibited them from receiving special access to initial public offerings.

The version of the bill signed into law by President Barack Obama didn’t include limits sought by sponsors on political intelligence firms that critics say rely on nonpublic information shared by lawmakers and their aides.

Traditional Insider Case

Collins allegedly learned in 2017 about failed drug trial results through his role on the Innate Immunotherapeutics Ltd. board, on which he served until resigning in April.

Collins, who began investing in the Australian biotechnology firm in the early 2000s, didn’t make any trades himself, the Securities and Exchange Committee and Department of Justice said. Instead, he allegedly tipped his son. His son then made trades and told other family members, who also made trades, according to the complaints.

“We’re not talking about information that came to a member of Congress in a capacity involving government information,” Donna Nagy, a securities professor at Indiana University Maurer School of Law who’s written about the STOCK Act, told Bloomberg Law.

As a board member, Collins would have a duty of confidentiality to the company, regardless of his role in Congress, Fieweger said.

‘Rare’ Scrutiny

Members of Congress have faced “scrutiny for violating ethics rules when it comes to stock trading activity” on “rare” occasions in the past, Craig Holman, a government affairs lobbyist with Public Citizen, a consumer advocacy watchdog, told Bloomberg Law. “The ambiguity of the law and questions whether it applied to Congress prevented any prosecutions of members of Congress for insider trading, until now.”

Public Citizen in January 2017 requested an ethics investigation into Collins and former Rep. Tom Price (R-Ga.) for insider trading based on the STOCK Act, Holman said. The Office of Congressional Ethics “unanimously recommended further action by the House Ethics Committee, which has been sitting idly on the complaint ever since,” Holman said. “The Department of Justice has filled the void.”

Price, who served as President Donald Trump’s secretary of Health and Human Services, previously traded Innate shares, hasn’t been accused by the government of insider trading, and he wasn’t named in any complaints against Collins.

‘Vigorous Defense’

Collins denied the allegations through his attorneys, who promised a “vigorous defense to clear his good name” in an Aug. 8 statement.

Speaker of the House Paul Ryan (R-Wis.) said Collins will no longer serve on the House Energy and Commerce Committee while the House Ethics Committee investigates.

“While his guilt or innocence is a question for the courts to settle, the allegations against Rep. Collins demand a prompt and thorough investigation by the House Ethics Committee,” Ryan said. “Insider trading is a clear violation of the public trust.”

To contact the reporter on this story: Jennifer Bennett in Washington at

To contact the editor responsible for this story: Seth Stern at

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Securities & Capital Markets on Bloomberg Law