Skowron Freed On Bail; FrontPoint Settles With SEC

Apr 14 2011 | 1:42am ET

Accused hedge fund insider-trader Joseph Skowron was released on bail after his first court appearance as his former employer, FrontPoint Partners, settled civil charges stemming from the case.

Skowron was formally charged with securities fraud, conspiracy to commit securities fraud and conspiracy to obstruct justice in Manhattan federal court yesterday. The former head of FrontPoint’s $1.5 billion healthcare hedge funds did not enter a plea and was freed on $6 million bond, posting his Greenwich, Conn., home as collateral.

Skowron’s lawyer, James Benjamin, said his client would plead not guilty if a grand jury returns an indictment.

“We look forward to responding to the allegations more fully in court at the appropriate time,” Benjamin said.

Skowron is accused of paying French doctor Yves Benhamou for tips about Human Genome Sciences, a pharmaceutical company that Benhamou advised. One of the tips, about a disappointing hepatitis-C drug trial, helped FrontPoint save $30 million in 2008.

Benhamou, who was arrested in November, pleaded guilty on Monday.

Skowron’s actions are “yet another example of blatant cheating of both the market and the ordinary investor,” U.S. Attorney Preet Bharara said.

Also yesterday, FrontPoint agreed to pay $33 million to settle with the Securities and Exchange Commission for its alleged role in the case. The $29 million in disgorgement and $4 million in prejudgment interest will be paid for by FrontPoint’s former parent, Morgan Stanley, which had set aside money to cover just such an eventuality.

The deal “eliminates any future distractions from our focus on investing,” co-CEOs Dan Waters and Mike Kelly told investors in a letter.

“The payment of the settlement amount will not have any financial impact on FrontPoint,” Waters and Kelly added. “No investor funds are being used to make this payment.”

In addition to the criminal charges against him, Skowron was slapped with an SEC civil suit yesterday.

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