February 10,2017

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Wyden Statement on Senate Floor on HHS Nominee Tom Price’s Unanswered Ethical and Legal Questions Regarding Stock Trades

As Prepared for Delivery

Introduction

The stock trades Congressman Price made while working on healthcare policy raise serious ethical and legal questions that deserve further inquiry.

But none of Congressman Price’s stock trades raise more questions than the hundreds of thousands of shares he bought in the obscure Australian biotech company, Innate Immunotherapeutics, so let’s start there. His stock in this company is by far his largest of all holdings, both in terms of the hundreds of thousands of shares he owns, and the value of those shares, which exceeds a quarter million dollars.

Congressman Price told the Finance Committee that he didn’t get a special deal. He told the Health, Education and Labor Committee that he didn’t get a special deal. But the fact is, Congressman Price paid bargain-basement prices for Innate stock in a private sale last August.

The private stock sale was limited to a small group of well-connected American investors, and Congressman Price’s participation has been described as a “sweetheart deal” by Kaiser Health News and a “privileged, discounted offer” by the Wall Street Journal.

As I said during his nomination hearing, Congressman Price’s participation in the private stock sale at best showed bad judgement. At worst, it raises serious questions about whether he violated the STOCK Act or other securities laws. Let me take a moment to read Section 3 of the STOCK Act, which states:

Members of Congress … may not use nonpublic information derived from such person's position … or gained from the performance of such person's official responsibilities as a means for making a private profit.

It is well known that Congressman Price learned about Innate from a House colleague – Chris Collins of New York. But Collins is not just a casual reader of the Australian business pages. He’s actually a member of the company’s board and its largest shareholder. This raises several questions:

Did Congressman Price have access to nonpublic information about Innate or its private stock sale because of his position as a Member of Congress?
Did he get special access to the discounted private sale because of his position?
Does he stand to profit because of the information or access he may have received?
Finally, did Congressman Price tell the Finance Committee the truth about how he learned about the private stock sales and the ability of average investors to participate?

Congressman Price would have us believe that he decided to make these investments based on his own research into the company. At least that’s what he told the Senate Finance Committee. But let me quote from the Wall Street Journal’s article published January 30th:

Mr. Price wasn’t in line to buy shares in the last private placement because he hadn’t previously participated in private fundraising rounds …Mr. Price first invested in the company a year ago, buying shares through the open market on the Australian exchange. He learned about the company from Mr. Collins, who holds a 17% stake in it. Mr. Collins said Mr. Price is “one of my friends” and that he sits “next to him” on the House floor. … Mr. Price got in on the discounted sale after Mr. Collins filled him in on the company’s drug trial, according to Mr. Collins.

The fact of the matter is that you don’t just get in on private stock offerings by accident. As the Wall Street Journal explained, Congressman Price didn’t originally even meet the criteria for participating in the 2016 private offering because he hadn’t participated in any previous offerings. Yet, he was able to buy over 400,000 shares of stock with Congressman Collins’ help.

My view, and the view of my Democratic colleagues, is that Congressman Price failed to come clean with the Finance Committee on details of this special discounted deal. He has assured the Committee that he followed the law, but straightforward questions have been met with dodging, weaving, and obfuscation. Details of his purchase continue to emerge and the public’s understanding of his involvement continues to evolve.

Meanwhile, as scrutiny of the deal continues to mount, Innate’s top executives are defending Congressman Price at the behest of his colleague Congressman Collins who sits on the company’s board of directors. After the Wall Street Journal story was published, the company and Congressman Price went into spin control. The public knows this only because Congressman Collins made a mistake that everybody who uses email for work has seen made at least once. He mistakenly hit “reply all” when responding to an email from the company’s CEO, Simon Wilkinson. So instead of a private note to Mr. Wilkinson, the note wound up going to a CNN reporter covering the story.

In the email, Congressman Collins, the company’s top shareholder calls the Wall Street Journal story “yellow journalism” and thanked Innate’s chief executive – Mr. Wilkinson – for defending Congressman Price and the company. According to CNN, Congressman Collins acknowledged the email to be authentic.

The Finance Committee’s own experience with Innate only adds to the sense that there is a cover-up as Republicans seek to race Congressman Price across the confirmation finish line. The day after the Wall Street Journal story ran, I wrote my own letter to Innate’s CEO, Mr. Wilkinson. I asked the company to respond to the article and the inconsistencies in Congressman Price’s explanations and for documentation of details of the private stock sales. The company refused to answer my letter.

This looks to me like a cover up, and it ought to shake this body’s confidence in Congressman Price’s nomination. This situation, in my view, demands that further questions be asked and answered. But instead of taking time to explore these issues, Republicans took the unprecedented step of suspending the Finance Committee’s rules to rush his nomination to the floor before any more questions could be asked – much less answered.

In years past, as with the nominations of Senator Daschle, Secretary Geithner and Ambassador Kirk, the committee left no stone unturned in the vetting process. Not this time. The majority party has set an ethical double standard to cut off the vetting process. That leaves me with a question for Congressman Price and my Republican colleagues in the Senate – what is there to hide?

Before I continue –

I ask unanimous consent that the following items be included in the record:

“Trump’s HHS Nominee Got a Sweetheart Deal from a Foreign Biotech Firm” a story published by Kaiser Health News on January 13, 2017
“Representative Tom Price Got Privileged, Privileged Discounted Offer on Biomedical Stock, Company Says,” a story published by the Wall Street Journal on January 30, 2017
“In accidental ‘reply all’ to reporter, Collins thanks CEO for defending HHS nominee” a story published by CNN on January 31, 2017, and
The letter that I sent to Simon Wilkinson, chief executive of Innate Immunotherapeutics, on January 31, 2017

The Facts

So let’s discuss what is known about the facts and timing of Congressman Price’s investments in Innate. This timeline is based on public documents, press reports and information the nominee provided the Finance Committee.

If you’ve never heard of Innate until the last few weeks, you would be forgiven. The New York Times described it as a “tiny pharmaceutical company from Australia that has no approved drugs and no backing from flashy venture capital firms.”

Innate has fewer than a dozen full-time employees. The company’s stock was first listed on the Australian Stock Exchange in 2013, and until recently its market capitalization was well below 100 million dollars. Innate has never generated revenue from drug sales. It has repeatedly teetered on the brink of running out of cash. It has just 2,500 shareholders. By way of comparison, a major American pharmaceutical company could have hundreds of thousands of shareholders.

Innate is planning to submit an investigational drug application with the Food and Drug Administration, and its ultimate goal is to one day sell itself to a large pharmaceutical manufacturer, which would take its early stage experimental therapy to market.

What I’m trying to say is that Innate Immunotherapeutics is the poster child for obscure companies. It is so small and so obscure that it doesn’t even have a Wikipedia page.

So the question is how did Congressman Price come to learn about this company? And how did he decide to make it the single largest investment in his sprawling portfolio of healthcare stocks?

The answer is that Congressman Price learned about Innate Immunotherapeutics in 2014 during a conversation with his colleague, Congressman Collins of New York. As I said before, Congressman Collins sits on Innate’s board of directors. He also is the company’s largest shareholder, holding 38 million shares. Congressman Collins’ adult children, his chief of staff and many of his political backers are also heavily invested in the company. I will address those issues in greater depth later.

According to disclosures with the House Ethics Committee, Congressman Price bought some 61,000 shares of Innate stock in three separate purchases during January 2015. At the time, the stock was trading at roughly 10 cents a share. Congressman Price testified to the Health Education Labor and Pensions Committee that he directed his broker to make the January 2015 purchases.

Fast forward to August 2016. Congressman Price bought another 400,000 shares of Innate as part of a private stock sale for U.S. investors. When the private sale took place, Innate’s shares were trading on the Australian Stock Exchange for the equivalent of 31 American cents. But participants in the private sale got the shares at a steep discount.

In written testimony to the Finance Committee, Congressman Price said he paid 84,000 American dollars to buy the 400,000 shares.
He bought 250,000 of those shares for 18 American cents per share in one private stock placement.
He bought another 150,000 shares for 26 American cents each in a second private stock placement.
Congressman Price’s House Ethics Committee disclosures show that he acquired the stock on August 31^st. On that day, Innate’s stock was trading for the U.S. equivalent of 31 cents a share on the Australian Stock Exchange.

In my book, that’s a special deal. The bottom line is that Congressman Price bought these shares for $40,000 less than an average investor would have paid to buy the same amount of stock off the open market. That’s nearly 33 percent off the price on the Australian Stock Exchange at the time. And since that time, Innate’s stock has more than doubled. These facts are not in dispute.

At this point – M. President, I ask unanimous consent that the following items be included in the record:

“Australian Drug Maker has Low Profile but Powerful Backers in Washington,” an article published in the New York Times on January 13, 2017.
“Aussie shareholding puts heat on President’s Ally,” an article published in The Australian on February 6, 2017.
Congressman Price’s written testimony dated January 27, 2017, regarding his stock purchases in response to questions for the record from the Finance Committee.
The 2016 Annual Report to Shareholders of Innate Immunotherapeutics, Limited,
A Periodic Transaction Report that Congressman Price filed with the House Ethics Committee on September 12, 2016.
A list of the 20 largest investors in Innate Immunotherapeutics dated January 17, 2017
A stock price history of Innate Immunotherapeutics

Misleading testimony

What remains unresolved are major inconsistencies between Congressman Price’s testimony to the Finance Committee, and statements by Congressman Collins and Innate’s CEO, Simon Wilkinson published last week in the Wall Street Journal.

Simply put, Innate’s chief executive and Congressman Collins, the company’s top shareholder, provided one version of events to one of the world’s most respected newspapers. Congressman Price provided a different version of events to the Finance Committee and the Health Committee. These inconsistencies are among the reasons that Democrats boycotted last week’s Finance Committee markup.

The Senate has an obligation to know the truth about these transactions in order to protect the integrity of this body and its constitutional duty to consider executive branch nominees.

Exclusivity of the Sale

First, Congressman Price told the Finance Committee that the August sale was available to all Innate shareholders, which contradicts what Innate’s management told the Wall Street Journal.

Congressman Price was definitive in his response to my question during the hearing. Reading back the transcript, I said:

“Well, you purchased stock in an Australian company through private offerings at discounts not available to the public.”

Congressman Price responded:

“Well, if I may, those -- they were available to every single individual that was an investor at the time.”

But that’s not what Innate executives told the Wall Street Journal. Here’s an extended passage from the Journal report:

Rep. Tom Price got a privileged offer to buy a biomedical stock at a discount, the company’s officials said, contrary to his congressional testimony this month…

The cabinet nominee was one of fewer than 20 U.S. investors who were invited last year to buy discounted shares of the company—an opportunity that, for Mr. Price, arose from an invitation from a company director and fellow congressmen. …

At Mr. Collins’s invitation, Mr. Price in June ordered shares discounted in the private placement at 18 cents apiece, and then more in July at 26 cents a share, Mr. Collins said in an interview. Those orders went through in August, after board approval. Mr. Price invested between $50,000 and $100,000, according to his disclosure form. …

Mr. Wilkinson said investors who had bought in a previous private placement were called to “make friends and family aware of the opportunity…We are always looking to increase our shareholder base. But those new parties have to meet the definition of sophisticated financial investor.”

Only six U.S. investors, including Mr. Price, fell into the friends-and-family category, Mr. Collins said. About 10 more U.S. investors were offered discounted shares by the company because they had previously been invited to partake in private placement offerings.

In other words, Congressman Price not only got a deal that wasn’t publicly available, he was in a special group of six investors, in a special category called “friends-and-family.”

Whereas other American investors got in on the private deal because they had previously participated in the company’s private placements, Congressman Price bypassed that requirement. He got in as what can only be called a special guest – a “friends-and-family” guest of his House colleague Congressman Collins.

As I mentioned earlier, when I asked the company how Congressman Price was able to get this special status, the company refused to provide an explanation.

The Wall Street Journal also reported a key distinction between U.S. investors, and the company’s shareholders in Australia and New Zealand. The paper reported:

The discounted stock offer in Innate Immuno, as the company is known, was made to all shareholders in Australia and New Zealand—but not in the U.S., according to Mr. Collins and confirmed in a separate interview with Innate Immuno CEO Simon Wilkinson.

The Wall Street Journal’s account is supported by company documents, specifically a “Rights Issue Booklet” that Innate published on June 10, 2016. The booklet advertised that shareholders could buy one new share for every nine shares they already owned. The booklet noted that the shareholders would have – and I quote – “the option to pay for their New Shares in either Australian dollars or New Zealand dollars.”

The booklet goes on to describe the private stock sale in which Congressman Price participated. I will read from the booklet:

In conjunction with this Rights Issue, Innate has announced that is has also completed a Private Placement at an issue price of US$0.18 … raising US$1.8 million

The booklet states clearly that the private placement was announced on the 10^th of June, 2016, — the same day Innate announced the rights issue for investors in Australia and New Zealand.

My staff has reviewed all of the company’s publicly available documents and found no similar advertisements for the private placement to American investors.

This paper trail pokes more holes in Congressman Price’s argument that the private stock sale was open to all the company’s investors. First off, the company didn’t announce the existence of the private sale until after it had already been completed. So unless an investor was on the company’s short list of go-to people, they were excluded.

Second, the company documents clearly show that Congressman Price and other participants in the private stock sale were able to buy far more discounted shares than the company’s typical investors. Innate’s documents show that the company restricted the number of shares everyday investors could buy in the rights issue to just one new share for every nine they already owned. No such limit appears to have been imposed on Congressman Price and the other American participants in the private stock sale.

In fact, Congressman Price owned just over 60,000 shares at the time of the sale. His participation in the private stock sales allowed Congressman Price to buy 400,000 more shares. If Congressman Price had been held to the same rules as everyday investors, he would have been restricted to buying less than 7,000 shares.

Bottom line, what Congressman Price said was untrue. The deal Congressman Price got was not open to every other shareholder.

Again, when I sent a letter last week to Innate’s CEO asking him to explain all of this, he declined to do so. He told my staff that as an Australian firm, the company was under no obligation to cooperate.

So, to re-cap, Congressman Price told the Finance Committee and the Health Committee that the stock sales he participated in were open to all shareholders. That is not true. The private sale does not appear to have been widely marketed to American investors, and was certainly not advertised in the company’s public documents. The private sale reportedly included less than 20 American investors.

Congressman Price was part of an even smaller subgroup known as “friends and family,” who were invited by other investors – in his case by his House colleague Congressman Collins.

And how many people qualified to be eligible in the “friends and family” group? Just six.

Communications with Chris Collins

This brings me to the second issue – how did Congressman Price learn about the special sale in the first place? Congressman Price told the Finance Committee that his conversations with Congressman Collins had no influence on his investment decisions. I will again quote from his written response to questions for the record that asked Congressman Price to describe any communications with Congressman Collins regarding Innate Immunotherapeutics:

I had a conversation with Representative Collins in the fall of 2014 that brought Innate, as a company, to my attention. The nature of that conversation did not, however, influence my decision to invest in the company in either 2015 or 2016. I believe I had subsequent general communications with Representative Collins regarding Innate. I do not have a specific recollection of when those conversations occurred or their substance. Any such communications did not impact my investment decisions, however, because my purchases of Innate stock were based solely on my own research.

Now, let me quote from the Wall Street Journal:

Mr. Price got in on the discounted sale after Mr. Collins filled him in on the company’s drug trial, according to Mr. Collins. … Mr. Collins said he told Mr. Price of the additional private placement. He said Mr. Price asked if he could participate in it. “Could you have someone send me the documents?” Mr. Collins recalled Mr. Price asking him.

Congressman Price wants us to believe that Congressman Collins had no influence on his decision to buy Innate’s stock. But Congressman Price would not have known about the company in the first place if he hadn’t talked to Congressman Collins. And he wouldn’t have known about the private placements without hearing about them from Congressman Collins.

Congressman Price characterizes his conversations with Congressman Collins in 2015 and 2016 as being “general” in nature. But according to the Wall Street Journal, Congressman Collins:

Told Congressman Price about the upcoming drug trial,
Alerted him to the private stock sale, and
Arranged to ensure he could participate.

To me, these seem like more than – and I quote – “subsequent general communications with Congressman Collins regarding Innate” as Congressman Price put it in his written response to the Committee.

Reporting to the Committee and OGE

The issues I outlined above are serious enough on their own. However, it took no small amount of effort to unravel Congressman Price’s holdings in the company because he failed to fully disclose them to Federal ethics officials, to the American people and the Finance Committee. I do not believe this issue would have come to light if not for the work of the committee’s minority investigators.

On February 7^th, two days ago, Congressman Price sent a letter to the independent federal ethics officials at the Office of Government Ethics that amended his original public ethics disclosure. This letter confirmed the suspicions of Finance Committee Democrats that Congressman Price’s original ethics disclosure to the public understated the value of his Innate stockholding by roughly a quarter of a million dollars. Put another way, his stake in Innate was more than five times larger than the figure initially reported to the American people.

Congressman Price’s original disclosure reported that he owned less than $50,000 of Innate stock. At the time, the disclosure was filed, by my calculation, his shares had a value of more than $250,000. Today his stake is valued at more than $300,000. Quite simply, it appears that the shares he bought in the private stock sales in 2016 were excluded entirely from the congressman’s financial disclosure to OGE. And because it’s the OGE disclosure that’s posted on the public website so that the public can see the business ties and investments the President’s nominees hold, the public too was kept in the dark about how much stock Congressman Price held in this company.

In addition, Congressman Price was also less then forthcoming in his disclosure of the value of his Innate holdings to the Finance Committee. In his response to the Committee questionnaire, Congressman Price valued the Innate stock he bought in the private stock sale at between $50,000 to $100,000. However, that amount was based on the $84,000 discounted price that Congressman paid to buy his stock August’s private stock sale. It was not based on the actual value of the stock on the Australian Stock Exchange – the true value of his holdings.

By December, when he made his disclosure to the Finance Committee, the stock price had nearly tripled and the shares he bought in those private sales were worth nearly $230,000. In other words, he told the Committee these private purchases were less than half the value they really were.

Before going any further, M. President, I ask unanimous consent that the following items be included in the record:

An announcement by Innate Immunotherapeutics on June 10, 2016, titled “Private Placement and Rights Issue to raise Additional Working Capital”
A memo from Finance Committee Staff to Finance Committee Memos dated January 23, 2017
The Public Financial Disclosure Report signed by Congressman Price on December 15, 2016, and filed with the Office of Government Ethics.
A letter from Congressman Price to the Office of Government Ethics dated February 7, 2017, amending his public ethics disclosure.

Innate and Chris Collins

Now I want to take a moment and turn to Innate Immunotherapeutics itself. As I noted earlier, the company has put on a full court press to defend Congressman Price in recent weeks, as details of his special deal come to light.

Let’s examine why that might be.

Innate’s executives have sought to portray the company as being a small firm from Down Under that has been inadvertently caught in political crossfire on the other side of the world. But the fact is that Innate Immunotherapeutics has longstanding connections to Congressman Collins and his inner circle – a circle that includes Congressman Price. As The Australian, a Sydney newspaper, wrote this week, “Mr. Collins, his children and his ‘intimate political allies’ and donors controlled at least 27.25%” of Innate’s voting shares.

Then there is the baffling assertion made by Mr. Wilkinson, the CEO, that he only recently learned of Congressman Price’s existence through news articles. This is a stretch to believe – and flies in the face of Congressman Price’s own testimony.

On January 13^th, the New York Times reported:

Mr. Wilkinson and Michael Quinn, Innate’s chairman, said they had never heard of many of the company’s more prominent investors, and said they first learned that Mr. Price had invested in the company from an article in The Wall Street Journal, which first reported his investment.

On February 5^th, Wilkinson told the Buffalo News – and I quote:

“I think the first time I heard that a gentleman named Tom Price had invested was after the U.S. media started reporting it.”

But Congressman Price was quite clear that he had communicated with Wilkinson. In written testimony responding to questions for the record, he said:

I also communicated with Simon Wilkinson of Innate regarding my interest in participating in the 2016 private placement of company stock. According to Innate's website, Mr. Wilkinson is currently the Managing Director and CEO of Innate.

Congressman Price’s name was also listed twice in the company’s documents that reported the private stock sales’ participants to the Australian Stock Exchange last summer. Congressman Price also appears to have bought nearly five percent of the discounted shares made available in the private stock sale.

Given all that, it seems very difficult to believe Mr. Wilkinson’s story that he had no idea who Congressman Price was.

Finally, The Australian, the Sydney paper I mentioned earlier, reported on Monday that Innate and Congressman Collins are facing questions about possible violations of Australian corporations law with regard to his holdings in the company.

Why does this matter? It matters because a nominee to be a cabinet secretary – Congressman Price – was brought into this web of questionable stock transactions and obfuscations about just how special the “special deal” he got really was, by a company insider – his friend Congressman Collins.

I ask unanimous consent that the following items be included in the record:

“Chris Collins under fire for ‘suspicious’ stock trades,” an article published by the Buffalo News on January 17, 2017
“Collins shared biotech stock news with big Buffalo names,” an article published by the Buffalo News on January 19, 2017
“Collins’ controversial stock venture could be boom or bust,” an article published by the Buffalo News on February 5, 2017
The Notice of Innate Immunotherapeutics’ 2016 Annual Meeting and Explanatory Statement, filed on July 29, 2016
Documents filed by Innate Immunotherapeutics on September 12, 2016 and September 26, 2016, reporting results of the 2016 private stock placements

Conclusion

As I wrap up, let me return to Section 3 of the STOCK Act that says:

So – Did Congressman Price have access to nonpublic information about Innate or its private stock sale because of his position as a Member of Congress?

I believe the answer is yes.

And – Did he get special access to the discounted private sale because of his position?

I believe the answer is yes.

Does he stand to profit because of the information or access he may have received?

I believe the answer is yes.

Finally, did Congressman Price tell the Finance Committee and the Health Committee the truth about how he learned about the private stock sales, and the ability of average investors to participate?

Congressman Price told the Finance Committee and the Health Committee that the special stock deal he got in on was open to everyone. According to the Wall Street Journal and company documents, that is not true. The deal he got was clearly different than what was offered to everyday investors. According to the Journal, his previous purchase of Innate stock did not qualify him to participate in the private placement without being a specially invited “friends and family” guest. This arrangement allowed Congressman Price to buy more shares than other investors were allowed to buy.

Second, Congressman Price told the Finance Committee that his conversations with Congressman Collins – again, a director of the company, and its largest shareholder – had no influence on his investment decisions. According to the Journal, this is not true. The Journal report makes clear that Congressman Collins told him about the upcoming drug trial, alerted him to the private stock sale, and arranged to ensure he could participate.

And now, the majority party has shut down the vetting process, allowing Congressman Price’s nomination to reach the floor for only 30 hours of debate before all the facts come into view.

This body can do better and it must do better. The American people are owed better.

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