John Marshall Mantel for The New York TimesJoseph F. Skowron leaving federal court in Manhattan in April.
6:06 p.m. | Updated
A former portfolio manager for the hedge fund FrontPoint Partners pleaded guilty on Monday to insider trading, less than a year after the charges that rocked the hedge fund first surfaced.
The portfolio manager, Joseph F. Skowron, known as Chip, admitted before a federal judge in Manhattan that he had avoided $30 million in losses by trading on tips leaked by a consultant for an expert network about the results of a clinical drug trial. He also admitted that he and the consultant, Dr. Yves Benhamou, had agreed to mislead the Securities and Exchange Commission about their actions.
Mr. Skowron faces as much as five years in prison for the one count of conspiracy to commit securities fraud and obstruct justice and will pay a $5 million fine.
“I knew my actions were wrong, and I deeply regret participating in these activities,” Mr. Skowron, 42, said in court.
The guilty plea is the latest victory for federal prosecutors in Manhattan, whose recent crackdown on insider trading has focused on the expert network industry. Dr. Benhamou was connected to Mr. Skowron through an expert network, which sets up meetings between industry executives and Wall Street for a fee to help money managers understand a given field. But prosecutors at the United States attorney’s office have said that many such arrangements have crossed the line.
The FrontPoint case was one of the first to emerge from the expert network investigation. In the subsequent weeks and months, several hedge funds were raided and the government arrested a number of consultants to and employees of expert networks. FrontPoint has since all but shut down, along with a few other funds that were caught up in the insider trading sweep, like Level Global Investors.
News of the insider scheme first surfaced last November, when Dr. Benhamou was arrested by federal authorities and pleaded guilty after being charged with leaking private information about the results of a clinical drug trial to a hedge fund. Shortly after, it became clear that FrontPoint was the hedge fund cited in the complaint, and Mr. Skowron was put on leave from the firm.
While simultaneously working as paid consultant for an expert network, Dr. Benhamou was retained by Human Genome Sciences to assist with a clinical trial for Albuferon, a hepatitis C drug. In January 2008, Dr. Benhamou told Mr. Skowron of a major setback in the trial before the information became public.
Mr. Skowron told one of his traders to sell all of its shares in the company, a move that saved the hedge fund $30 million when the information became public and the stock sank.
Later, when the S.E.C. began investigating the suspicious trading before the announcement by Human Genome Sciences, Mr. Skowron and Dr. Benhamou agreed to mislead the regulatory agency.
In the aftermath of the charges, investors withdrew billions of dollars from FrontPoint, once among the highest-flying hedge funds on Wall Street. The hedge fund struggled to stem the losses but fell short. In May, executives at the fund announced they were getting rid of most of their funds.
Article source: http://feeds.nytimes.com/click.phdo?i=1c6b5f1fff27b9e8c3b6a86785b270b0
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