FrontPoint Insider-Trader Ordered To Pay Morgan Stanley

Mar 21 2012 | 12:56pm ET

Jailed former hedge fund trader Joseph Skowron is on the hook for another $10.2 million for his role in the insider-trading scandal that brought down FrontPoint Partners.

A federal judge in Manhattan ordered Skowron, who led FrontPoint's healthcare funds, to pay FrontPoint's former parent, Morgan Stanley. U.S. District Judge Denis Cote ruled that the investment bank "is a victim because it was directly and proximately harmed by Skowron's scheme in a variety of ways."

Skowron, who had previously been ordered to pay $38.2 million by the Securities and Exchange Commission, had argued that Morgan Stanley was not entitled to any compensation.

But Cote ruled that Morgan Stanley is entitled to the $3.8 million in legal fees it paid to cover the Skowron case and 20% of what it paid Skowron during the course of the scheme, 2007 through 2010. She rejected the bank's request for a further $33 million to cover its SEC settlement; Morgan Stanley said it would sue Skowron to recover that money.

"While we are reviewing the court's decision, and considering our options, Dr. Skowron has made it clear he will accept all responsibility for his actions under the law," Skowron's lawyer, Josh Epstein, said. "However, we do not believe that Morgan Stanley is even entitled to the amount of restitution it has secured with this decision."

Epstein added that Morgan Stanley's planned lawsuit is "meritless."

Skowron began serving a five-year sentence last month, around the same time that FrontPoint all-but-ceased to exist. He pleaded guilty in August to trading on confidential information he received from a French doctor, tips that helped FrontPoint avoid a $30 million loss.

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