FrontPoint's Skowron Charged In Insider-Trading Case

Apr 13 2011 | 11:18am ET

FrontPoint Partners healthcare chief Joseph Skowron was arrested today and charged with insider-trading.

Skowron surrendered to the Federal Bureau of Investigation this morning. According to prosecutors, he used confidential information about Human Genome Sciences supplied by a French doctor, who advised the pharmaceutical, to help his hedge funds at FrontPoint avoid $30 million in losses.

Skowron's alleged tipster, Yves Benhamou, a prominent nephrologist, pleaded guilty on Monday as part of a deal with prosecutors, the U.S. Attorney's office in New York said today. Benhamou, who consulted with at least six hedge funds, was arrested in November.

While authorities only publicly named FrontPoint and Skowron as the hedge fund and hedge fund manager referred to in their complaint against Benhamou, the two were quickly identified in the press, and FrontPoint acknowledged that it was the hedge fund in the case. Investors quickly ran for the door, leading FrontPoint to liquidate its healthcare hedge funds and shutter its healthcare unit, laying off its healthcare team. Skowron himself has been on leave since Benhamou's arrest.

"Dr. Benhamou has acknowledged his serious mistakes in judgment and intends to live up to his obligations under his cooperation agreement," Benhamou's lawyer, David Zornow of Skadden, said. "Dr. Benhamou's conduct in this instance must fairly be considered in the overall context of his extraordinary contributions to his patients and to medical science."

According to prosecutors, Benhamou warned Skowron that a Human Genome hepatitis-C drug trial had produced disappointing results. FrontPoint sold 3.3 million shares of Human Genome in January 2008, before the company announced the results of the drug trial. The move saved the hedge fund some $30 million.

For its part, FrontPoint has continuously said it is "cooperating fully" with the investigation.

Skowron, who holds a Ph.D. in cellular and molecular biology from Yale University, is expected to appear in court later today. He formerly worked at Millennium Partners and SAC Capital Advisors.

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