Ex-FrontPoint exec charged in insider case

Reuters News
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Posted: Apr 13, 2011 10:59 AM
Ex-FrontPoint exec charged in insider case

By Matthew Goldstein and Svea Herbst-Bayliss

NEW YORK/BOSTON (Reuters) - A former manager at the hedge fund FrontPoint Partners LLC has been charged with insider trading, becoming the most prominent investor embroiled in a crackdown on illegal stock tips solicited from so-called expert network industry consultants.

Chip Skowron, a doctor who ran healthcare-oriented hedge funds, was expected to appear later Wednesday in federal court on criminal securities fraud and conspiracy charges, a person familiar with the matter said. The FBI said he had surrendered to federal authorities in Manhattan.

The case comes as the insider trading trial of Galleon Group hedge fund manager Raj Rajaratnam nears its conclusion, also in Manhattan federal court.

Skowron's case stems from November's arrest of French doctor Yves Benhamou, the person familiar with the case said.

Benhamou, an expert in infectious disease who worked as a consultant for drug maker Human Genome Sciences Inc, has admitted to illegally providing tips to Skowron, according to court papers unsealed on Wednesday.

He also has pleaded to securities fraud, conspiracy and making false statements to the FBI after his arrest, according to the court documents.

At the time Benhamou was working with Human Genome, he also served as a paid consultant with Guidepoint Global, an expert network firm that matches hedge funds with industry analysts in medicine, technology and other fields.

The U.S. Attorney's office in Manhattan announced a press conference for later in the day. A representative for U.S. Attorney Preet Bharara declined further comment.

Skowron is expected to appear before a federal magistrate in Manhattan, a court official said.

A FrontPoint spokesman declined to comment. Benhamou's lawyer did not immediately return phone calls seeking comment.

TIPS ON HEPATITIS DRUG TRIA

In the wake of Benhamou's arrest, FrontPoint put Skowron on leave and investors in his $1.5 billion medical-focused funds pulled most of their money. Skowron's funds were subsequently closed.

Meanwhile, investment bank Morgan Stanley recently completed its planned spinoff of FrontPoint, which had been announced before Benhamou's arrest. The hedge fund has offices in Connecticut and New York.

Reuters first named FrontPoint and Skowron as the hedge fund and manager involved in the Benhamou case.

Prosecutors said the fund had avoided $30 million of losses by selling its 6.16 million-share Human Genome stake before the biotechnology company on January 23, 2008 revealed a higher incidence of lung problems in patients who took higher dosages of an experimental treatment for hepatitis C. Human Genome shares fell 44 percent that day.

The arrest of Benhamou came a few weeks before federal agents in November raided three hedge funds in a growing trading probe focused on the misuse of expert networking consultants.

Prosecutors say expert network relationships are not inherently wrong, but that some consultants crossed the line by taking fees to leak corporate secrets to hedge fund traders and analysts.

IVY LEAGUE TO WALL STREET

As a surgeon-turned-stock picker with Ivy League credentials and blue chip hedge fund experience, Skowron was wooed to FrontPoint in 2003.

He earned a medical degree and doctorate in cell biology from Yale University, before moving to Boston for an orthopedic surgery residency at Harvard University.

He quit the five-year program to work on Wall Street, and found jobs at two of the best-known hedge fund firms, Steven Cohen's SAC Capital Advisors and Millennium Partners LP, before moving to FrontPoint.

Healthcare executives remember Skowron as an aggressive investor who pushed for information that could affect share prices.

(Reporting by Matthew Goldstein, Grant McCool and Jonathan Stempel in New York and Svea Herbst-Bayliss in Boston, editing by Gerald E. McCormick, Matthew Lewis, Dave Zimmerman)