Bloomberg News

Ex-FrontPoint Manager Skowron in Talks With U.S. on Fraud Case

June 22, 2011

June 22 (Bloomberg) -- Chip Skowron, the ex-FrontPoint Partners LLC hedge-fund manager charged as part of a nationwide insider trading crackdown, is in talks with federal prosecutors that may involve plea negotiations, according to court filings.

Skowron was charged in April by the office of U.S. Attorney Preet Bharara in Manhattan with conspiracy, securities fraud and obstruction. He was also sued by the Securities and Exchange Commission.

Prosecutors claimed he obtained nonpublic information from Dr. Yves Benhamou, an expert in hepatitis drugs and a former adviser for Human Genome Sciences Inc. The tips concerned hepatitis C drug trials and enabled Greenwich, Connecticut-based FrontPoint to avoid more than $30 million in losses, the government said. Benhamou has since pleaded guilty.

“Counsel for the defendant and I have had ongoing discussions regarding a possible disposition of this case,” Assistant Manhattan U.S. Attorney Pablo Quinones wrote in court papers filed June 13 in Skowron’s case. “We plan to continue our discussions.”

More than a dozen people have been charged by Bharara’s office since November in cases tied to so-called expert networking firms. The consulting firms match hedge funds with industry experts who provide market advice. At least nine people have pleaded guilty or been convicted by a jury.

Winifred Jiau, a former consultant with expert networking firm Primary Global Research LLC, was convicted of securities fraud and conspiracy June 20 in Manhattan federal court.

Nationwide Probe

The broader U.S. probe of insider trading has implicated hedge funds, banks and insiders at technology companies. Bharara said that, since he took office, his prosecutors have charged 49 people with insider trading and 44 have been convicted.

U.S. Magistrate Judge Debra Freeman in New York signed an order June 13 granting prosecutors a one-month extension to obtain an indictment against Skowron. Since May, the government has twice obtained similar extensions in the case, according to court records. James Benjamin Jr., Skowron’s lawyer, didn’t return a call or e-mail seeking comment.

“This request can mean a whole range of things,” said Stephen Miller, a former federal prosecutor in New York and Philadelphia who isn’t involved in the case. “It can mean they’re talking about the actual plea discussions, how much jail time is the government going to seek all the way to a prosecutor badgering a defense lawyer about ‘When are you going to get your client in to plead guilty?’” said Miller, now a partner at Cozen O’Conner.

Seeking to Delay

The defendant may also be seeking a delay “to buy more time to do more of an investigation or raise motions with the court,” Miller added.

Skowron isn’t the only insider-trading defendant charged by Bharara’s office who was granted an extension by a magistrate.

In May, Manosha Karunatilaka, a former account manager at Taiwan Semiconductor Manufacturing Co. who was charged in December, pleaded guilty to sharing nonpublic information about the firm with Primary Global clients.

Karunatilaka was granted at least three extensions by U.S. magistrates in Manhattan, according to court filings. He waived indictment and pleaded guilty on May 11 to one count of conspiracy to commit wire and securities fraud.

Walter Shimoon, a consultant for Primary Global charged in December with insider trading, obtained at least five adjournments in his case, court records show. The most recent granted prosecutors a delay until July 6.

Shimoon’s lawyer, Henry Mazurek, declined to comment.

Four Extensions

In the case of Benhamou, prosecutors were granted four extensions until he pleaded guilty in April to four counts including conspiracy, securities fraud and making false statements to the FBI.

Benhamou, of Neuilly-sur-Seine, France, was charged last year with insider-trading for allegedly tipping off a hedge fund about the results of trials for the drug Albuferon.

The U.S. identified Skowron, of Greenwich, and FrontPoint as the recipients of those tips on April 13. Skowron was accused of providing benefits to Benhamou, including paying him more than $14,600 in cash as well as providing gratuities such as hotel rooms, the U.S. said.

“When Dr. Skowron needed information, Dr. Benhamou was always on call, helping Skowron and his hedge fund illegally benefit to the tune of $30 million,” Bharara said at a news conference in April announcing the case against the fund manager.

FrontPoint oversaw $7 billion at the start of November before Skowron, a co-portfolio manager of its health-care funds, was tied to claims by prosecutors that the firm got advance notice on drug-trial results.

FrontPoint’s assets slipped to $4.5 billion by January and the firm closed its health-care funds. Benhamou’s lawyer, David Zornow, and Steve Bruce, a spokesman for FrontPoint, declined to comment. Carly Sullivan, a spokeswoman for Bharara, declined to comment.

The case is U.S. v. Skowron, 11-MAG-00997, U.S. District Court, Southern District of New York (Manhattan).

--Editors: David E. Rovella, Michael Hytha

To contact the reporter on this story: Patricia Hurtado in Manhattan federal court at pathurtado@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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