Morgan Stanley Sues FrontPoint Insider Trader

Nov 12 2012 | 2:28pm ET

Morgan Stanley has sued the former FrontPoint Partners hedge fund manager whose links to—and eventual conviction for—an insider-trading scam it says cost it tens of millions of dollars.

In a lawsuit filed last week in Manhattan federal court, the bank accused Joseph Skowron of defrauding it. Skowron, who ran FrontPoint's healthcare hedge funds, pleaded guilty last year to trading on confidential information about a drug trial, allowing his funds to avoid a $30 million loss. He was sentenced to five years in prison for the scheme, which contributed to the demise of FrontPoint last year.

Skowron was ordered in March to pay $10.2 million to Morgan Stanley, which owned FrontPoint, but the bank says that's just a drop in the bucket. It was forced to pay much of the $38.2 million in penalties imposed on Skowron a year ago following a $33 million accord with the Securities and Exchange Commission.

Morgan Stanley now wants that money from Skowron, as well as the more than $32 million it paid the hedge fund manager during his insider-trading days. "The firm paid him tens of millions of dollars in compensation while he was lying to it," Morgan Stanley's lawsuit alleges.

The bank also wants punitive and compensatory damages against Skowron.

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