EVEN IF Rep. Chris Collins is not guilty of the insider-trading charges federal prosecutors lodged against him Wednesday, the New York Republican’s story would still be a scandal. The words “how can that be legal?” come to mind in considering that the lawmaker sat on the board of Innate Immunotherapeutics, a pharmaceutical company, while holding a position of public trust directly related to Innate’s interests.

Innate is a for-profit, publicly traded company both in Australia, where it is based, and on the U.S. over-the-counter market. Yet, amazingly, Mr. Collins was on the company’s board of directors and its largest shareholder, owning some 17 percent of Innate stock. At the same time, he served on the House Energy and Commerce Committee, which has jurisdiction over the pharmaceutical industry in which Mr. Collins was deeply invested.

Mr. Collins’s directorship gave him early access to highly sensitive information, such as the results of a trial for a potentially revolutionary multiple-sclerosis drug. Prosecutors allege that, when the company learned that the trial had gone sour, Mr. Collins promptly told his son, who, along with other acquaintances, saved some $768,000 by selling Innate stock before the uninformed public could. Innate’s stock price subsequently dropped 92 percent. Mr. Collins, who has asserted his innocence, protested that he never sold any of his own stock. Actually, that would have been impossible; the congressman’s holdings, unlike his son’s, were unavailable for trading at the time. That is the substance of prosecutors’ insider-trading case, backed up by phone and text records.

This is not the only instance of suspected insider trading involving Mr. Collins. In March 2017 — before the trading for which Mr. Collins has been indicted allegedly occurred — the Office of Congressional Ethics began investigating the congressman, ultimately referring him to the House Ethics Committee. The office found “substantial reason to believe” that Mr. Collins “shared material nonpublic information in the purchase of Innate stock” and that he “took official actions or requested official actions that would assist” Innate. The Ethics Committee took no action, even though a Daily Beast investigation found “at least four bills that Collins drafted or sponsored that would have directly affected the drug company.”

When the Office of Congressional Ethics issued its findings, Mr. Collins defended himself by noting that his success in the private sector appealed to voters, and that with such success, “some issues arise.” Indeed they do. That is why congressional rules should require lawmakers to steer clear of potential conflicts of interest. Currently, the rules fall far short. Though the Senate forbids members from serving on boards of publicly held or publicly regulated companies, the House of Representatives does not impose such restrictions. Perhaps this made sense back in the day, when a local bank director got elected to Congress or a lawmaker was invited to sit on the board of a local hospital. But Mr. Collins’s case illustrates the danger of such arrangements.

The House should forbid all of its members from sitting on the boards of for-profit companies, and the Senate should consider whether its own rules, which permit service on nonprofit boards, need tightening. The temptation for lawmakers to use Congress’s sprawling oversight and legislative powers to advance private interests is too great, and the appearance of impropriety practically unavoidable.