How Collins avoided a hefty fine
Chris Collins was the first congressman to endorse Donald Trump for president in 2016, and the first congress- man to be busted by the Securities and Exchange Commission and Department of Justice for engaging in insider trading while standing on the White House lawn. Why does he seem to be getting preferential treatment by the SEC?
Insider trading is not a victimless crime. The inside-trader is actually stealing from other investors who didn’t know the non-public information he knew when he bought or sold the company’s stock. The Department of Justice can sue the trader and put him in prison; the SEC can sue him only to recover money, and, for example, bar him from being an officer or director of a public company. Often, both the DOJ and the SEC sue the inside-trader in what are known as “parallel proceedings.”
Typically, the SEC goes after the profit made (or, as here, the loss avoided) by wrongdoers, which is called “disgorgement,” plus seeks interest on the money the thief stole, and, by law, a penalty of up to three times the amount of disgorgement.
If the inside-trader settles before trial, the SEC will generally limit the penalty to a one-time disgorgement amount. However, if the thief decides to fight, the SEC will seek the maximum penalty possible.
This is standard policy. Experienced attorneys in this field of law know it.
When, in August 2018, the SEC sued Collins and four others — including his son, who Collins tipped, and who then tipped the other three — it officially sought penalties. In fact, when the SEC announced a few days later that it had settled with two of the tippees, they had to pay disgorgement, interest and a one-time penalty.
Over a year later, the SEC announced that it had settled with Collins and the two tippees. Having negotiated several settlements with inside-traders during my 31 years as an attorney with the SEC, I was surprised when the SEC announced the settlement terms. Collins and the two tippees aren’t being required to pay any penalties at all.
If Collins, like other tippers, were on the hook for the total amount of disgorgement, plus interest, it would add up to, by my calculations, $794,179 (the three thieves should be collectively on the hook for at least $1.5 million). Not here. Collins owes nothing.
Curious whether the SEC’s policy concerning insider trading settlements had recently changed, I reviewed the agency’s Litigation Releases for 2018 and 2019. I noted 44 instances in which settling SEC defendants were required to pay penalties, including some in which the tipper hadn’t traded but was still on the hook for money.
The Collins settlement is glaringly different.
At the October 2019 hearing where Collins entered his criminal guilty plea, the assistant U.S. attorney told the judge that DOJ would not be seeking any money (restitution or forfeiture) from the three men. It was left up to the SEC, which dropped the ball.
Why isn’t the SEC requiring Collins and the two tippees to pay civil penalties? Why isn’t Collins jointly and severally liable with the tippees for disgorgement and pre-judgment interest? Why isn’t the DOJ seeking any money?
The SEC has a long history of going hard after high-visibility insider traders, such as Martha Stewart, to deter others. As a congressman, Chris Collins is about as high-visibility as an inside-trader can be. True, he may go to prison — as Stewart did — and he is enjoined from future insider trading, and barred from acting as an officer or director of any public company.
But he’s 69 years old, so the injunction and bar are largely meaningless. Why is he off the hook for the money?
On Jan. 17, the judge in the criminal case will sentence Collins. Separately, let’s hope the civil court rejects his SEC settlement, forcing the SEC to go back and do what it should have in the first place.
Britt served for over 31 years as an attorney with the SEC, including 18 years in the Division of Enforcement and 13 years in the Division of Corporation Finance.