Insider trading continues to be a key focus of enforcement authorities who obtained another guilty plea from a hedge fund portfolio manger tied to an expert network. The latest plea was by Joseph Skowron, formerly a portfolio manager at FrontPoint Partners, once one of the most successful hedge funds on Wall Street. Mr. Skowron pleaded guilty to a one count information charging conspiracy to insider trade and to obstruct justice. Sentencing is scheduled for November 18, 2011. U.S. v. Skowron, No. 1:11-cr-00699 (S.D.N.Y.).
According to the court papers, Mr. Skowron obtained inside information from Dr. Yves Benhamou, a French physician who served as a consultant to Human Genome Sciences, Inc. during clinical trials for Albuferon. The drug offered a possible new treatment for hepatitis C. The doctor also worked as a consultant for an expert networking firm. That firm put the doctor in contact with portfolio managers such as Mr. Skowron for a fee.
Beginning in April 2007 Dr. Benhamou and Mr. Skowron developed a personal relationship independent of the one they had through the expert networking firm. On different occasions Mr. Skowron gave the doctor cash or paid for expenses he incurred. He also offered to hire Dr. Benhamou as a consultant or permanent advisor the a new hedge fund.
In early 2008, while the clinical trials for Albuferon were in progress, Dr. Benhamou furnished Mr. Skowron inside information about the trials. Specifically, in January he learned from an independent safety committee at Human Genome Sciences that a portion of the trials would be discontinued following serious adverse side effects suffered by two patients. A press release was scheduled to be issued for January 22, 2008. Prior to that date Dr. Benhamou informed Mr. Skowron about the decision of the committee and the upcoming press release. Mr. Skowron directed that the entire position of the fund in Human Genome Sciences be sold. By selling over six million shares the fund avoided losses totaling about $30 million.
Subsequently, during the SEC investigation into the trading, Mr. Skowron induced Dr. Benhamou to lie to the Commission and deny that the two men had discussed the serious adverse side effects prior to the press release. Dr. Benhamou has been named as a defendant in criminal and civil cases. U.S. v. Benhamou, 1:11-cr-00336 (S.D.N.Y.); SEC v. Benhamou, Civil Action No. 10-CV-8266 (S.D.N.Y. filed Nov. 2, 2010). In the criminal case Dr. Benhamou pleaded guilty to a four count information. He is scheduled to be sentenced on October 20, 2011. The SEC case is pending.
Program: Current Trends in FCPA Enforcement, August 17, 2011, Live in Palo Alto, CA, and webcast nationally. The program link is here.