FrontPoint Partners has seen investors in its health care funds race for the doors in the wake of their link to an insider-trading case.
Clients have filed redemption requests totaling about half of the $750 million managed by the funds, which FrontPoint has admitted are among the unidentified hedge funds referred to in the case against Yves Benhamou. Benhamou was arrested last week and charged with passing on confidential information about the results of a drug trial to the funds.
That information allegedly enabled FrontPoint to escape $30 million in losses it would have suffered after the negative information about the hepatitis-C drug became public. Neither FrontPoint nor Morgan Stanley, which is spinning off the hedge fund, have been accused of any wrongdoing. But the firm has placed the health care funds' lead portfolio manager, Joseph Skowron, on leave; Skowron is believed to be the unidentified "co-portfolio manager" who allegedly received the tip from Benhamou, a former adviser to pharmaceutical company Human Genome Sciences, the maker of the drug.
FrontPoint has also decided to give investors in Skowron's funds an extra two weeks to decide whether or not to flee, extending the deadline for Dec. 31 redemption requests from Nov. 15 to Dec. 1, Reuters reports.
According to The Wall Street Journal, FrontPoint and Morgan Stanley executives, including FrontPoint co-CEO Michael Kelly, had warned Skowron about trading company stocks that he and his team had discussed with their network of health-care advisers, of whom Benhamou was one. Kelly reportedly told Skowron to be cautious about who he spoke to and how their information factored into his trading decisions.
Others at FrontPoint questioned whether some of those advisers were investors with FrontPoint, creating a potential conflict of interest. The increased scrutiny of Skowron's activities came after Morgan Stanley and FrontPoint learned two years ago that the Securities and Exchange Commission was looking into the hedge fund's Human Genome trades.