The Securities and Exchange Commission today charged a former hedge fund portfolio manager with insider trading in a bio-pharmaceutical company based on confidential information about negative results of the company’s clinical drug trial.
The SEC alleges that Dr. Joseph F. “Chip” Skowron, a former portfolio manager for six health care-related hedge funds affiliated with FrontPoint Partners LLC, sold hedge fund holdings of Human Genome Sciences Inc. (HGSI) based on a tip he received unlawfully from a medical researcher overseeing the drug trial. HGSI’s stock fell 44 percent after it publicly announced negative results from the trial of Albumin Interferon Alfa 2-a (Albuferon), and the hedge funds avoided at least $30 million in losses.
The SEC previously charged the medical researcher – Dr. Yves M. Benhamou – who illegally tipped Skowron with the non-public information and received envelopes of cash in return according to the SEC’s amended complaint filed today in federal court in Manhattan to additionally charge Skowron. The hedge funds, which have been charged as relief defendants in the SEC’s amended complaint, have agreed to pay back $33 million in ill-gotten gains.
In a parallel action today, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Skowron.
According to the SEC’s amended complaint, Benhamou served on the Steering Committee overseeing HGSI’s trial for Albuferon, a potential drug to treat Hepatitis C. While serving on the Steering Committee, Benhamou provided consulting services to Skowron through an expert networking firm. But over time, he and Skowron developed a friendship. By April 2007, many of their communications were independent of the expert networking firm. Benhamou tipped Skowron with material, non-public information about the trial as he learned of negative developments that occurred during Phase 3 of the trial.
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