FrontPoint To Close Healthcare Funds Under Insider-Trading Cloud

Nov 19 2010 | 6:43am ET

FrontPoint Partners will liquidate its healthcare hedge funds in the wake of an insider-trading scandal.

The Greenwich, Conn.-based hedge fund plans to close the funds and return the $1.5 billion they manage to investors by the end of the month, Bloomberg News reports. The move follows the suspension of lead healthcare manager Joseph Skowron earlier this month, following the arrest of a French doctor accused of passing confidential information on to several hedge funds.

Neither Skowron nor FrontPoint, which is being spun-off from Morgan Stanley, have been accused of any wrongdoing. But FrontPoint acknowledges that it is one of the unidentified hedge funds referred to in Yves Benhamou’s insider-trading indictment. The indictment says Benhamou passed a tip about a disappointing drug trial at Humane Genome Sciences to a “co-portfolio manager” at the fund—that person is believed to be Skowron. Trading on the tip allegedly allowed FrontPoint to avoid $30 million in losses after news of the drug trial became public.

FrontPoint said it is cooperating fully with the investigation. Benhamou has denied any wrongdoing.

Investors have already been heading for the door: Clients filed redemption requests totaling about half of the funds’ assets within a week of Benhamou’s arrest.

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