Rep. Christopher Collins, a Republican congressman from New York, was arrested Wednesday and charged with participating in an insider-trading scheme to sell the shares of an Australian biotechnology company before the public disclosure of a failed drug trial.

Federal prosecutors in Manhattan accused Rep. Collins, 68 years old, of tipping off his son last summer about the results of a multiple-sclerosis drug trial completed by Innate Immunotherapeutics Ltd., a biotechnology company based in Sydney. Rep. Collins was a member...