FrontPoint Insider Trader: No Restitution For Morgan Stanley

Feb 1 2012 | 2:36am ET

Former FrontPoint Partners healthcare chief Joseph Skowron admits that his insider-trading scheme had victims—just not former FrontPoint parent company Morgan Stanley.

A lawyer for Skowron, who began serving a five-year prison sentence last month, objected to a $37.4 million restitution request submitted by the bank to the federal judge who is determining how much Skowron will have to pay over and above the $38.2 million he's already been levied in the Securities and Exchange Commission's civil case against him. Morgan Stanley is seeking at least $32 million in compensation paid to Skowron during his four-year fraud.

But Morgan Stanley is not a victim of the crimes of Skowron, who pleaded guilty to trading on confidential information about Human Genome Sciences he received from a former adviser to the company, his lawyer said.

Morgan Stanley's "purported losses were not directly and proximately caused by the conduct underlying the offense of conviction," Joshua Epstein said. "Neither Dr. Skowron's employment by FrontPoint nor his receipt of compensation was an 'integral part of the single scheme' that he 'devised' in contrast to the facts giving rise to the restitution orders."

FrontPoint, which has all-but gone out of business, assigned its restitution claims against Skowron to Morgan Stanley. The bank wrote off its investment in the hedge fund, which spun off just months after the allegations against Skowron became public and which saw its assets all but evaporate as spooked investors headed for the doors.

Currently, only five investors have been found victims of Skowron's scheme, which saved FrontPoint more than $30 million in losses. Among them are Galleon Group and Deutsche Bank.

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