United States v. Collins

• Decision Date: 06 September 2019
• Docket Number: S1 18 Cr. 567 (VSB)
• Citation: 409 F.Supp.3d 228
• Parties: UNITED STATES of America, v. Christopher COLLINS, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

409 F.Supp.3d 228

UNITED STATES of America,

v.Christopher COLLINS, et al., Defendants.

S1 18 Cr. 567 (VSB)

United States District Court, S.D. New York.

Signed September 6, 2019

A. Damian Williams, Max Clement Nicholas, Robert Wood Allen, Scott Andrew Hartman, U.S. Attorney's Office, New York, NY, for United States of America.

Jonathan R. Barr, Kendall Eugene Wangsgard, Baker & Hostetler LLP, Patrick Scribner Brown, Thomas Andrew Hanusik, Crowell & Moring LLP, Washington, DC, Jonathan Adam Forman, Jonathan Brian New, Baker & Hostetler LLP, Rebecca Monck Ricigliano, Crowell & Moring LLP, Mauro Michael Wolfe, Arletta Kathleen Bussiere, Jovalin Dedaj, Duane Morris LLP, New York, NY, Sarah Fehm Stewart, Duane Morris, LLP, Newark, NJ, for Defendants.

OPINION & ORDER

VERNON S. BRODERICK, United States District Judge:

Currently pending before me are Defendants' pretrial motions. Each Defendant moves for an order directing the United States Attorney's Office for the Southern District of New York (the "Government" or "USAO") to (1) conduct a Brady review of and/or produce certain files of the United States Securities and Exchange Commission (the "SEC"), and materials seized or obtained from certain individuals, (2) produce Rule 16 material seized or obtained from certain individuals, and (3) produce the interview notes and the FBI interview reports ("FBI 302s") of two former staffer members of Defendant Christopher Collins. Defendant Christopher Collins also moves for an order compelling the Government to produce materials bearing on the Speech or Debate Clause of the United States Constitution.

Because the Superseding Indictment was not the product of a joint investigation between the Government and the SEC, and the Government does not have the legal right to search the non-responsive materials in, or produce the entire contents of, the devices and/or accounts at issue, Defendants' motions related to the SEC materials and Brady/Rule 16 materials is denied. With regard to the two FBI 302s and related notes, the Government fulfilled its Brady obligation by disclosing the substance of the exculpatory statements of the two former staff members. With regard to Defendant Christopher Collins's motion related to the Speech or Debate Clause, because Defendant Collins has failed to demonstrate (1) that he is legally entitled to the discovery he seeks, (2) that the Speech or Debate Clause was violated by the Government in obtaining either the indictment or superseding indictment, or (3) that the Government—with the exception of materials related to the Office of Congressional Ethics ("OCE") investigation related to Defendant Collins—intends to use documents or elicit testimony that implicate the Speech or Debate Clause, Defendant Christopher Collins's motion related to the Speech or Debate Clause is denied. With regard to the OCE investigation, I find that the mere fact that Defendant Christopher Collins was (1) the subject of an investigation by the OCE related to Innate Immunotherapeutics Limited ("Innate") and (2) interviewed in connection with that OCE investigation, are not protected by the Speech or Debate Clause.

I. Background ¹

Defendant Christopher Collins is a Congressman representing the 27th District of New York. (Sup. Ind. ¶ 3.) He was also a member of the Board of Directors of Innate, a biotechnology company headquartered in Sydney, Australia, and held approximately 16.8% of its stock. (Id. ¶ 1, 3). "Innate's primary business was the research and development of a drug called MIS416, which was intended to treat Secondary Progressive Multiple Sclerosis

("SPMS")." (Id. ¶ 2.) As part of Innate's work on developing MIS416, it undertook a drug trial designed to determine its "clinical efficacy in treating SPMS" (the "Drug Trial"). (Id. ) "Because there were few or no alternative treatments for SPMS, MIS416 had the potential to be enormously profitable if the Drug Trial was successful." (Id. )

As a member of Innate's Board of Directors, Defendant Christopher Collins "regularly had access to material, nonpublic information, including about MIS416 and the Drug Trial." (Id. ¶ 3). On June 22, 2017, the initial results from Phase 2B of the Drag Trial were made available to Innate's Chief Executive Officer ("CEO"), and the results established that "MIS416 lacked therapeutic value in the treatment of SPMS." (Id. ¶¶ 12, 15.) However, the results were not publicly released, and Innate issued a press release stating that (1) it had requested that the Australian Securities Exchange ("ASX") halt trading in Innate stock because Innate had received the Phase 2B results, and (2) that Innate expected that the halt would be lifted by June 27, 2017. (Id. ¶ 16.) Such a request was not unusual since the ASX "routinely halts trading at a company's request in situations in which the company has become aware of material information, either positive or negative, but is not yet ready to announce that information to the public." (Id. ¶ 17.) Although trading was halted in Australia, it was not halted in the United States over-the-counter ("OTC") market. (Id. )

On June 22, 2017 at approximately 6:55 PM, Innate's CEO sent an email concerning the Drug Trial results in which he stated, in part, "I have bad news to report ... the top line analysis of the ‘intent to treat’ patient population (ie every subject who was successfully enrolled in the study) would pretty clearly indicate[s] ‘clinical failure.’ " (Id. ¶ 20 (alteration in original).) The CEO went on, stating "Top-line 12-month data ... show no clinically meaningful or statistically significant differences in [outcomes] between MIS416 and placebo ... No doubt we will want to consider this extremely bad news ...." (Id. (alteration in original).) Defendant Christopher Collins received the CEO's email while attending the Congressional Picnic at the White House, and responded at approximately 7:10 p.m., stating, in part, "Wow. Makes no sense. How are these results even possible???" (Id. ¶ 21.) Between 7:10 and 7:11:23 p.m., Defendant Christopher Collins called his son, Defendant Cameron Collins, twice; the second of these calls lasted approximately 5 seconds. (Id. ¶ 22.) Defendant Cameron Collins then called Defendant Christopher Collins three times between approximately 7:14:16 and 7:15:27 p.m., and each call lasted approximately 5 seconds. (Id. ) Between 7:15:50 and 7:16:19 p.m., Defendant Christopher Collins called Defendant Cameron Collins twice; the first call lasted approximately 7 seconds and the second lasted approximately 6 minutes and 8 seconds. (Id. ) Of these seven telephone calls, only the last call was answered. (Id. ¶ 23.) During that six minute call, Defendant Christopher Collins told Defendant Cameron Collins, in substance, "that MIS416 had failed the Drug Trial." (Id. ) Defendant Christopher Collins disclosed this information "knowing it was in breach of his duties to Innate and anticipating that [Defendant Cameron Collins] would use it to trade and tip others." (Id. ) Defendant Cameron Collins on June 22, 2017, proceeded to disclose the results of the Drug Trial to the following individuals: his fiancée; her father, Defendant Stephen Zarsky; Zarsky's wife; and a friend of Defendant Cameron Collins. (Id. ¶ 28.)

Defendant Christopher Collins did not trade himself, because "he was virtually precluded from trading his own shares," which were held in Australia "and thus subject to the Australian trading halt."² (Id. ¶ 24.) However, the shares of Innate owned by Defendant Cameron Collins, Defendant Cameron Collins's fiancée, Defendant Stephen Zarsky, Zarky's wife, and Defendant Cameron Collins's friend could be traded in the domestic OTC market. (See id. ¶¶ 24, 28–34.) Indeed, Defendant Cameron Collins, Defendant Cameron Collins's fiancée, Defendant Stephen Zarsky, Zarky's wife, and Defendant Cameron Collins's friend sold most or all of their Innate shares between June 22 and June 26, 2017. (See id. ¶¶ 25–34.) These sales "preceded the public release of the negative Drug Trial results, and were timed to avoid losses that they would have suffered once that news became public." (Id. ¶ 10.)

"On the night of Monday, June 26, 2017, after the U.S. markets had closed, Innate issued a press release publicly stating, in substance and in part, that MIS416 had failed its Drug Trial (the ‘Public Announcement’)." (Id. ¶ 18.) Innate's stock price crashed. (Id. ¶ 19.) Specifically, on June 26, 2017, Innate's stock had closed at approximately $0.455 per share on the United States OTC market and on June 27, 2017, after the Public Announcement, the stock closed at approximately $0.0351 per share, a drop of over 92% in value. (Id. )

II. Procedural History

The Indictment was returned on August 7, 2018, and unsealed the following day. On August 8, 2018, the SEC filed insider trading charges against Defendant Christopher Collins, Defendant Cameron Collins, and Defendant Stephen Zarsky. (See generally 18-cv-7128, Doc. 1.) On that same day, the SEC filed insider trading charges against Defendant Cameron Collins's fiancée, (see generally 18-cv-7129, Doc. 1), and simultaneously filed documents indicating that the SEC had reached a settlement with Defendant Cameron Collin's fiancée, (see 18-cv-7129, Docs. 4, 4-1, 4-2).

On August 6, 2019, the Government filed Superseding Indictment S1 18 Cr. 567.³ (Doc. 107.) The Superseding Indictment charges (1) Christopher Collins, Cameron Collins, and Stephen Zarsky with conspiracy to commit securities fraud in Count One; (2) Christopher Collins, and Cameron Collins with securities fraud in Count Two; (3) Christopher Collins, Cameron Collins, and Stephen Zarsky with securities fraud in Count Three; (4) Christopher Collins, and Cameron Collins with securities fraud in Count Four; (5) Christopher Collins, Cameron Collins, and Stephen Zarsky with securities fraud in Count Five; (6) Steven Zarsky with securities fraud in Counts Six and Seven; (7) Cameron Collins with Securities Fraud in...