Joseph F. “Chip” Skowron, FrontPoint Partners portfolio manager, was charged with conspiracy and securities fraud as part of a U.S. crackdown on so-called expert networks.
Mr. Skowron surrendered on Wednesday to FBI agents at their New York office, said James Margolin, an FBI spokesman. He also was charged with insider trading by the SEC, according to a news release from the commission.
Information Mr. Skowron obtained from an insider about hepatitis C drug trials enabled him to avoid more than $30 million in losses in the six now-closed FrontPoint Healthcare Funds he once managed, prosecutors said.
He was named in a three-count felony complaint unsealed Wednesday in U.S. District Court in New York, charged with conspiracy to commit securities fraud, securities fraud and conspiracy to obstruct justice.
A lawyer for Mr. Skowron couldn't be immediately identified.
Mr. Skowron is linked to a case brought in November by U.S. Attorney Preet Bharara and the SEC against Yves Benhamou, an expert in hepatitis drugs and a former adviser for Human Genome Sciences Inc., prosecutors said.
Mr. Benhamou acted as a paid consultant to hedge funds while working as an adviser to HGSI and serving on its steering committee for Albuferon trials, according to federal allegations. The U.S. case alleged that Mr. Benhamou shared inside information with an unidentified co-conspirator at a hedge fund. The government on Wednesday identified Mr. Skowron and FrontPoint as the recipients of Mr. Benhamou's tips, court papers said.
Mr. Benhamou pleaded guilty on Monday before U.S. District Court Judge George Daniels in New York to conspiracy, securities fraud, conspiracy to obstruct justice and making false statements to the FBI, said Ellen Davis, a spokeswoman for Mr. Bharara's office. He has agreed to cooperate with prosecutors, according to a plea agreement unsealed Wednesday. No sentencing date has been set. Securities fraud carries a term of as long as 20 years in prison.
Among other allegations by federal authorities, Mr. Skowron paid Mr. Benhamou more than $14,600 in cash as well as other gratuities such as hotel rooms and expenses.
As part of an amended complaint filed by the SEC on Wednesday in U.S. District Court in New York, FrontPoint agreed to pay more than $33 million in disgorgement and interest, without admitting or denying wrongdoing, the SEC said in its news release.
The FrontPoint Partners-SEC settlement was confirmed in a Wednesday client letter that was obtained by P&I Daily.
“The announced agreement with the SEC amounts to a resolution of this matter. Our decision to settle this matter eliminates any future distractions from our focus on investing. It is also very important to note that the alleged conduct of the former portfolio manager is completely contrary to FrontPoint's principles and represents a clear violation of FrontPoint's policy against insider trading,” FrontPoint co-CEOs Daniel Waters and Michael Kelly, who also is CIO, wrote in the client letter.
The FrontPoint letter stressed that the settlement was funded with money set aside before the firm's separation from former parent company Morgan Stanley.
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