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Nov. 15 (Bloomberg) -- Ex-FrontPoint Partners LLC hedge fund manager Joseph F. “Chip” Skowron’s wife asked a judge to sentence him leniently for insider trading, saying he didn’t realize he’d done anything wrong that could send him to prison.
Skowron, a physician from Greenwich, Connecticut, pleaded guilty in August to conspiring to commit securities fraud and obstructing a Securities and Exchange Commission investigation probe for trading on inside information about Human Genome Science Inc. and then lying to investigators. He’s scheduled to be sentenced November 18.
The U.S. said Skowron obtained nonpublic information about hepatitis C drug trials from Dr. Yves Benhamou, an expert in hepatitis drugs and a former adviser for HGSI Human Genome Sciences. The tips enabled FrontPoint to avoid more than $30 million in losses, prosecutors said. Benhamou has also pleaded guilty.
“I’m trying to understand how he could risk so much,” wrote Cheryl Skowron in an Oct. 1 letter to U.S. District Judge Denise Cote, who is presiding over the case. “He says he had no idea prison was a possibility otherwise he never would’ve done it. I believe him and yet here we are.”
“I need to tell you how wonderful my husband is, except I’m struggling with my disappointment in him over this circumstance,” she wrote. “Take it from me, aside from this one time mistake, Chip’s character is rock solid.”
In court papers filed yesterday, assistant U.S. attorneys Pablo Quinones and Reed Brodsky dispute claims that Skowron didn’t realize his actions were criminal.
Prosecutors said that Skowron, who has medical degree from Yale School of Medicine and was a portfolio manager at a multibillion-dollar fund, corrupted Benhamou for illegal tips, then lied to the SEC about his actions and later persuaded Benhamou to also lie to regulators.
The hedge fund had $7.5 billion under management at the start of November 2010, before the charges were brought by the U.S.
A pre-sentencing report issued by U.S. Probation officials estimated that Skowron could face 87 to 108 months in prison, prosecutors said. Both sides have agreed to a five-year term.
“Skowron outwardly appeared to be a ‘good person’ dedicated to serving others,” Quinones and Brodsky said. “Skowron’s outward appearance stands in contrast to the corrupt character that conspired to commit securities fraud and to obstruct justice to conceal his fraud.”
Galleon a Victim
He earned more than $32 million while at FrontPoint, prosecutors said, adding that one of the five victims defrauded by his crimes was Galleon Group LLC, the hedge fund co-founded by Raj Rajaratnam.
Rajaratnam was sentenced to 11 years in prison, the longest in U.S. history for insider trading, after being convicted in May on 14 criminal charges.
Galleon claims to have sustained $1.56 million in losses while Deutsche Bank AG lost $2.4 million, prosecutors said in court papers, noting that the victims are entitled to restitution.
The U.S. yesterday also disputed Skowron’s claims of financial hardship, noting that his estimated net worth is about $20 million even after paying a $5 million forfeiture. The U.S. says that court officials estimate his home is worth about $7 million and that he also owns expensive cars including a 2006 Aston Martin Vanquish and 2009 Alfa Romeo 8C Spider.
James Bejamin Jr., Skowron’s lawyer, declined to comment on the government’s sentencing memo.
Cheryl Skowron’s letter was one of 37 submitted to the judge seeking mercy and leniency for Skowron, prosecutors said.
Since last November, federal prosecutors in the office of Manhattan U.S. Attorney Preet Bharara have charged more than 20 people, including Skowron, in a series of securities fraud cases involving insider-trading and hedge funds.
Benhamou acted as a paid consultant to hedge funds while also working as an adviser to HGSI and serving on its steering committee for trials of Albuferon, a hepatitis treatment, the U.S. said. Prosecutors said Skowron gave Benhamou more than $14,600 in cash and paid for hotel rooms and expenses.
The case is U.S. v. Skowron, 11-cr-699, U.S. District Court, Southern District of New York (Manhattan).
--With assistance from Bob Van Voris and Saijel Kishan in New York. Editors: Peter Blumberg
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