U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22158 / November 17, 2011
Securities and Exchange Commission v. Joseph F. “Chip” Skowron III, et al., 10-CV-8266-DAB (S.D.N.Y.) (filed Nov. 2, 2010, amended Apr. 13, 2011)
COURT ENTERS FINAL JUDGMENT AGAINST FORMER HEDGE FUND PORTFOLIO MANAGER, MEDICAL RESEARCHER AND RELIEF DEFENDANT HEDGE FUNDS IN SETTLEMENT OF SEC INSIDER TRADING CHARGES
The Securities and Exchange Commission announced today that on November 16, 2011, 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.
The final judgments permanently enjoin Skowron and Benhamou from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. Skowron was ordered to disgorge $29,017,156 (a joint and several obligation with the relief defendants), plus $1,360,000 (for which he is individually obligated), plus prejudgment interest of $5,142,782, and to pay a civil penalty in the amount of $2,720,000. Benhamou was ordered to disgorge $52,138, plus prejudgment interest of $8,237. The six hedge funds, which were named solely as relief defendants, were ordered to disgorge $29,017,156, plus prejudgment interest of $4,003,669; the final judgment against Skowron provides that his disgorgement and prejudgment interest (but not penalty) obligation shall be credited dollar for dollar by amounts the relief defendants are ordered to disgorge and/or by amounts that Skowron is ordered to forfeit in the related criminal action.
Both Skowron and Benhamou pled guilty in parallel criminal cases before the United States District Court for the Southern District of New York, titled United States v. Joseph F. Skowron III, 11-CR-00699-DLC (S.D.N.Y.) and United States v. Yves M. Benhamou, 11-CR-336-GBD (S.D.N.Y.).