December 6, 2023

DealBook: Former FrontPoint Manager Charged With Insider Trading

Federal prosecutors have filed securities fraud charges against a former hedge fund manager at FrontPoint Partners, making him the latest target in the government’s sweeping insider trading investigation.

Joseph F. Skowron, the hedge fund manager, who specialized in health care funds, also faces charges for conspiring to hide his role in an illicit trading scheme, according to a complaint filed by federal prosecutors in Manhattan. Mr. Skowron, known as Chip, surrendered to the F.B.I. on Wednesday.

The move was widely expected after Mr. Skowron’s name surfaced in a related government investigation in November. At the time, federal prosecutors charged a French doctor of illegally leaking private and material information about a clinical drug trial to Mr. Skowron, who then traded based on the leak.

The doctor, Yves M. Benhamou, pleaded guilty this week to securities fraud and conspiracy to obstruct justice, according to court documents unveiled on Wednesday. He is “cooperating in hope of receiving a reduced sentence,” prosecutors said.

Prosecutors said the scheme took place from April 2007 to late 2010 and centered around clinical drug trials for Albuferon, a drug used to treat Hepatitis C.

Dr. Benhamou, a widely known expert in Hepatitis C treatment, worked as consultant on the clinical drug trials. He also had a consulting deal at the time with an expert networking firm, which connects hedge funds with industry experts.

One of Dr. Benhamou’s clients was FrontPoint. In December 2007, Dr. Benhamou alerted Mr. Skowron to some problems with the drug trials. Shortly thereafter, Mr. Skowron, himself a medical doctor, directed a FrontPoint trader to sell part of the fund’s stake in Human Genome Sciences, which owned the drug.

The insider tidbits, prosecutors say, helped FrontPoint avoid some $30 million in losses. FrontPoint has not been accused of any wrongdoing.

Dr. Benhamou was well compensated for his role in the scheme, according to the government. Mr. Skowron and Dr. Benhamou would meet in hotels around the world. In April 2007, for instance, the pair met in a hotel suite in Barcelona to exchange 5,000 euros in cash. In April 2008, inside a hotel bar in Milan, Mr. Skowron handed Dr. Benhamou an envelope containing $10,000 in cash.

“Dr. Benhamou has acknowledged his serious mistakes in judgment and intends to live up to his obligations under his cooperation agreement,” said his lawyer, David M. Zornow of the law firm of Skadden Arps Slate Meagher Flom. “Dr Benhamou’s conduct in this instance must fairly be considered in the overall context of his extraordinary contributions to his patients and to medical science.”

Mr. Skowron, who has been on leave from FrontPoint since November, is expected in court later Wednesday. Morgan Stanley completed its spinoff of FrontPoint to the fund’s managers last month.

The United States attorney’s office in Manhattan plans to hold a news conference on Wednesday afternoon.

Complaint Against Joseph F. Skowron

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