The government has charged another individual in its widening insider trading probe of hedge funds and Expert Networks and obtained a guilty plea from another individual previously charged.
Joseph Skowron III, former co-portfolio manager of FrontPoint’s health care funds, was charged with securities fraud and conspiracy to obstruct justice by the U.S. Attorney for the Southern District of New York.
According to the government, Skowron, who is a medical doctor, sold shares of Human Genome Science after being tipped off by Dr. Yves M. Benhamou, a French doctor and consultant that the company was about to make a negative announcement regarding its clinical trial for the drug Albumin Interferon Alfa 2-a, a potential drug to treat hepatitis-C.
As a result, FrontPoint’s hedge funds were able to avoid $30 million in losses, according to the government.
Benhamou was a medical doctor who worked as an Associate Professor of Hepatology and Chief of Department, Clinical Research in Hepatology, at Hopitaux de Paris and widely known as an expert in the treatment of hepatitis C. Benhamou also worked as a consultant to HGSI on clinical drug trials.
Back in November, the U.S. Attorney charged Benhamou with tipping a hedge fund portfolio manager material, non-public information concerning Human Genome Science’s clinical trial. The then-unnamed hedge fund manager was subsequently identified in the media to be Skowron.
At the time, Benhamou was a member of the Steering Committee overseeing HGSI’s clinical trial of Albuferon.
Skowron was placed on leave pending the outcome of the government’s investigation.
On Wednesday, Benhamou agreed to plead guilty to a four-count criminal information. He faces up to 35 years in prison. In exchange, he agreed to cooperate with the government’s investigation. He also faces likely deportation.
The U.S. Attorney and SEC are holding a joint press conference later Wednesday.
Meanwhile, FrontPoint’s healthcare funds, which have been charged as relief defendants in the SEC’s amended complaint, have agreed to pay $33 million to settle the charges.
“Our decision to settle this matter eliminates any future distractions from our focus on investing,” the hedge fund firm said in a statement. “It is also very important to note that the alleged conduct of the former portfolio manager is completely contrary to FrontPoint’s principles and represents a clear violation of FrontPoint’s policy against insider trading.”
FrontPoint, which was spun off from Morgan Stanley several months ago, stressed that the FrontPoint Healthcare Funds are not charged with any securities law violations. The FrontPoint Healthcare Funds are named solely as relief defendants, and have agreed to make a disgorgement payment to the SEC for the alleged losses avoided. In addition, no investor funds are being used in making this payment.
The hedge fund firm added that the settlement was funded by an amount set aside prior to the recent restructuring of Morgan Stanley’s ownership interest in FrontPoint. So, the settlement payment will not have any financial impact on FrontPoint. “FrontPoint remains a strongly capitalized independent entity,” it added.
As a result of the agreement announced today, FrontPoint is pleased to put this issue behind us and is looking forward to continuing to generate attractive returns for our investors. We thank you for your support and please do not hesitate to call us with any questions.
