Former Frontpoint Manager Used Inside Information To Save Firm From Losing $30 Million
Joseph “Chip” Skowron III, a former FrontPoint Partners’ Manager, has pled guilty to insider trading charges that saved his firm over $30 million in losses, according to the Wall Street Journal. The 42 year old hedge fund manager admitted in federal court on Monday 15, 2011 that he had obtained confidential information from a French doctor who was working on clinical trials. Thereafter, Skowron used this confidential information to make trades in several FrontPoint Partners’ health care funds in 2008. The French doctor who provided the secret information was Yves Benhamou, who worked as a consultant for an expert firm while acting on steering committees watching over the drug trials. He has pleaded guilty to conspiracy and other related charges and is assisting prosecutors in the case.
The federal court hearing in Manhattan followed Mr. Skowron’s testimony before the U.S. Securities and Exchange Commission (SEC) back in 2009, when he admittedly lied about whether or not he had obtained confidential non-public information from Dr. Benhamou. Skowron has said “I know my actions were wrong and I deeply regret my participation in these activities.”
The former hedge fund manager faces as much as five (5) years in prison for his participation in the insider trading. A graduate of Yale University’s medical school, he has agreed as part of the deal to relinquish $5 million.
The actual trading by “Chip” Skowron kept FrontPoint Partners from losing over $30 million. Based upon the confidential information from Dr. Benhamou advising that there had been some problems with the drug trials of a particular biotechnology company’s hepatitis-C drug, Skowron pulled the trigger and sold millions on millions of the company’s shares. The biotechnology company’s shares plummeted after the public was advised of the drug trial results and FrontPoint avoided losses of around $33 million. FrontPoint has agreed to pay regulators for the $33 million in losses that the firm avoided as a result of the illegal sales.
U.S. Attorney Preet Bharara stated that “Chip Skowron is the latest example of a portfolio manager willing to pay for proprietary, non-public information that gave him an illegal trading edge over the average investor.” “He seized upon the opportunity presented by his advance knowledge to avoid $30 million in losses on the basis of information concerning just one stock.” Skowron has admitted that he “willfully violated FrontPoint’s principles, compliance policies and code of conduct”, according to a release from Front Point.