Criminal Charges Filed Against Fund Manager Over Insider Trading

Jack Humphrey, Regulatory journalist
April 14, 2011 /

After filing initial charges against a medical researcher involved in insider trading within a pharmaceutical company, the Securities and Exchange Commission compounded the charges taking into task the fund manager who traded based on illegal tips.

The lawsuit is the second so far this month in SEC’s enforcement actions against a pharmaceutical company, the first being filed against the medical device and pharmaceutical company Johnson and Johnson (J&J) which settled last week charges of bribery with public doctors in European countries and of paying kickbacks to Iraq to illegally obtain contracts.

According to the amended suit, Joseph Skowron, a former fund manager for six health care-related hedge funds connected with FrontPoint Partners LLC, traded the hedge fund holdings of Human Genome Sciences Inc. (HGSI) using the inside information tipped to him by medical researcher Yves Benhamou who monitored the drug trial. In return, Benhamou received kickbacks from Skowron according to the previous suit.

The SEC claimed that Benhamou received “an envelope containing 5,000 Euros” from Skowron during a medical conference in Spain. The kickbacks were professed to be payments for the “consulting services” that the medical researcher did for the fund manager.

Then Benhamou received another bag containing at least $10,000 cash during a medical conference in Italy in 2008 for his tips on the drug trial and for his silence on the insider trading.

Benhamou was formerly affiliated with the Steering Committee overseeing HGSI’s clinical trial of Albuferon, a potential treatment for Hepatitis C. Accordingly, Benhamou had knowledge about two serious adverse events, which included one death that occurred during the third phase of the trial.

Subsequently, the pharmaceutical company reduced the dosage for patients in that part of the trial and announced the changes to the public.

But before the announcement was made, Benhamou allegedly tipped the non-public information about the negative developments to the fund manager who then purchased the entire position of HGSI stock held by six health care-related hedge funds in which he was a co-manager with 6 million shares.

The SEC claimed the insider trading took place six weeks before the public announcement was made by the pharmaceutical company. Before the share price of HGSI dipped 44 percent by the end of January 23, 2008, Skowron caused the sale of two million shares in a block trade, thereby preventing the hedge funds to lose at least $30 million.

The hedge funds were named relief defendants, agreeing to pay the disgorgement of $29,017,156 with prejudgment interest of $4,003,669.

Similarly, the fund manager and medical researcher settled the charges by conceding to a permanent injunction, disgorgement of illegal profits plus prejudgment interest and financial penalties.

 

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