Trading Charges From Clinical Drug Trial

MANHATTAN (CN) - Federal prosecutors say a hedge fund manager traveled to three countries to give money and gifts to a doctor who knew a hepatitis-C drug's clinical trial raised serious safety concerns. The hedge fund allegedly avoided $30 million in losses, thanks to the inside information; the doctor pleaded guilty to securities fraud and obstructing justice.

Federal prosecutors sued Joseph "Chip" Skowron III, a 41-year-old former physician turned hedge fund manager at FrontPoint Partners, and French doctor Yves Benhamou in separate complaints.

Skowron allegedly avoided $30 million in losses for his hedge fund by learning early that one patient died in Human Genome Science's clinical trial of Albuferon, and that two patients suffered serious adverse effects days later.

Benhamou pleaded guilty on Monday to securities fraud, obstruction of justice and making false statements.

In 2007, the two men met at conference in Barcelona, where Skowron allegedly went to Benhamou's hotel suite to hand him an envelope with 5,000 euros in cash.

Later that year, Skowron booked and paid for Benhamou's Manhattan hotel room, which cost more than $4,600, prosecutors say.

Seven minutes after Benhamou called Skowron to tell him that a phase of the trail was being closed with poor results, Skowron sent an instant message to a trader saying, "[S]ell the hgsi... all of it," prosecutors said.

The stock plummeted by 44 percent days later, on Jan. 23, 2008.

After the SEC began investigating, Skowron met Benhamou in a hotel bar in Milan, told him to deny inside trading to investigators, and handed Benhamou $10,000, the prosecutors say.

At a press conference announcing the unsealing of the indictments, U.S. Attorney Preet Bharara said the case is not related to the trial of Galleon hedge fund co-founder Raj Rajaratnam, who is accused of making $63 million in the largest insider trading scheme in history.

"This has nothing to do with the Rajaratnam case," Bharara said. "We bring cases when we have sufficient evidence."

Assistant U.S. Attorney Reed Brodsky, a prosecutor in the Rajaratnam case, was one of the three attorneys that approved the complaint against Skowron.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit