By Chad Bray
An ex-hedge-fund manager must pay $ 10.2 million to Morgan Stanley Inc. after he admitted last year to insider trading at a hedge fund formerly owned by the Wall Street firm, a judge has ruled.
Joseph “Chip” Skowron III, a former manager at hedge fund FrontPoint Partners, admitted last year that he directed several FrontPoint healthcare funds to dump shares in biotechnology company Human Genome Sciences Inc. in 2008 based on inside information he obtained about clinical drug trials from a French doctor. The move allegedly allowed him to avoid about $ 30 million in trading losses, federal prosecutors said.
Late Tuesday, U.S. District Judge Denise Cote ordered Skowron to pay $ 3.8 million to reimburse Morgan Stanley’s legal fees and to repay 20% of his compensation between 2007 and 2010, or $ 6.4 million.
The investment bank had sought as much as $ 44.9 million in restitution from Skowron, including $ 33 million in disgorgement paid in an agreement with the Securities and Exchange Commission.
Skowron, 42 years old, pleaded guilty to a single count of conspiracy to commit securities fraud and to obstruct a SEC investigation last August. He is serving a five-year sentence in a Pennsylvania federal prison.
“While we are reviewing the court’s decision, and considering our options, Dr. Skowron has made it clear he will accept all responsibility for his actions under the law,” said Josh Epstein, Skowron’s lawyer. “However, we do not believe Morgan Stanley is even entitled to the amount of restitution it has secured with this decision.”
Morgan Stanley completed its spinoff of FrontPoint in March 2011.
“We are pleased with this decision,” said Matt Burkhard, a Morgan Stanley spokesman, adding that Morgan Stanley plans to seek the $ 33 million from Skowron in a separate civil action.
Epstein, of SorinRoyerCooper LLC, said Morgan Stanley’s attempt to claw back $ 33 million was “meritless.”
Correction: An earlier version of this post misspelled Epstein’s last name.