The SEC charged the U.S. Representative for New York's 27th Congressional District, his son and a third individual with insider trading. The three defendants are also facing DOJ charges for the same misconduct as well as for lying to federal investigators in connection with the investigation.

According to the SEC Complaint, Christopher Collins (R-NY) ("Collins") served as a member of the Board of Directors of an Australian biotech company, Innate Immunotherapeutics, Ltd. ("Innate"), and tipped his son, Cameron Collins ("Cameron"), to material nonpublic information regarding negative clinical trial results for the company's multiple sclerosis drug. The SEC further alleged that Cameron subsequently drove to the home of Stephen Zarsky – the father of Cameron's girlfriend – and informed Mr. Zarsky of the negative results that evening. The next morning, Cameron and Mr. Zarsky allegedly began to sell their Innate shares before the market had officially opened. Mr. Zarsky is accused of calling additional friends and relatives after selling all of his Innate shares to encourage them to do the same prior to the public announcement three days later.

The SEC also claims that Cameron was unable to sell his Innate shares all at once without instigating a negative effect on the share price. Cameron therefore systematically placed smaller orders over the course of the next two trading days. Cameron avoided losses of nearly $570,000, while Mr. Zarsky avoided losses of roughly $143,900.

Cameron's girlfriend and her mother reached settlement agreements with the SEC for trading on material nonpublic information.

Commentary / Lex Urban

The egregiousness of the alleged behavior in this case is particularly striking. According to the Complaint, it took Collins approximately 16 minutes to pass along the MNPI to Cameron. After Cameron disseminated the information to his girlfriend's family, he systematically sold over 1.4 million shares of Innate prior to the public announcement, thereby avoiding the losses in excess of $500,000. After the public announcement, Cameron then sold 500,000 additional shares at a substantial loss, supposedly in an effort to avoid suspicion. Collins' office then issued a statement indicating that "Cameron Collins has liquidated all of his shares . . . suffering a substantial loss," omitting any reference to the 1.4 million shares sold prior to the public announcement.

Notably, the Congressman did not execute any trades himself, taking substantial losses on Innate stock he owned. However, tipper-tippee liability does not require the tipper to actually trade. While there has been substantial movement in insider trading law over the past few years, culminating with a revised Martoma decision this summer, there is little doubt that tipper-tippee liability exists where a father provides a son with a tip that led to the avoidance of over a half a million dollars in losses. (For a discussion of the first Martoma decision articulating an "expectation to trade" requirement for tipper-tippee liability, see " Insider Trading After Martoma: Benefits Without Friends?")

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.