The Securities and Exchange Commission announced that the Honorable Deborah A. Batts of the United States District Court for the Southern District of New York entered final judgments against Dr. Joseph F. Skowron III and Dr. Yves M. Benhamou in the SEC’s insider trading case, SEC v. Joseph F. “Chip” Skowron III, et al., Civil Action No. 10-CV-8266-DAB (S.D.N.Y.). The SEC charged Benhamou, a French doctor and medical researcher, with unlawfully tipping material, non-public information to Skowron, a former hedge fund portfolio manager, who was charged with using the inside information to trade ahead of a January 23, 2008 negative announcement, helping the hedge funds he managed avoid losses of approximately $30 million.
At the time of the alleged conduct, Skowron managed six health care-related hedge funds affiliated with FrontPoint Partners LLC. The SEC alleged that Skowron sold hedge fund holdings of Human Genome Sciences Inc. (HGSI) based on tips he received unlawfully from Benhamou, who served on the Steering Committee overseeing HGSI’s clinical trial for Albuferon, a potential drug to treat Hepatitis C. Benhamou tipped Skowron with material, non-public information about the trial as he learned of negative developments that occurred in December 2007 and January 2008. In response, Skowron ordered the sale of the entire position in HGSI stock — approximately six million shares held by the six funds. HGSI announced changes to the trial resulting from the negative developments on January 23, 2008, which led to a 44 percent drop in share price by the end of the day. The hedge funds avoided losses of approximately $30 million by selling their positions in advance of the news. The SEC alleged that, at various points in the relationship, including after the illegal HGSI trades were completed, Skowron gave Benhamou envelopes of cash both in appreciation of his work and to induce Benhamou to lie about their communications.