Former fund manager gets five years for 'blurred' thinking

Joseph F. “Chip” Skowron, the ex- FrontPoint Partners LLC fund manager, was sentenced for insider-trading crimes to five years in prison, which he called an opportunity for “healing and rehabilitation.” Skowron, 42, a Yale University-educated physician from Greenwich, Connecticut, pleaded guilty in August to conspiring to commit securities fraud and obstruction of a federal probe. Skowron admitted that he got a tip from a former adviser for Human Genome Sciences Inc. that trials of a hepatitis C drug were being ended, which prosecutors say allowed FrontPoint to sell its stock in the company before the information became public and avoid $30 million in losses. Among the victims was Galleon Group LLC, the defunct hedge fund at the center of the biggest insider-trading scheme in U.S. history, which won court approval today for restitution. Before he was sentenced today in federal court in Manhattan, Skowron spoke about how he came to commit his crimes, calling himself a “disaster” as he addressed U.S. District Judge Denise Cote as well as 18 men who sat in the courtroom gallery, many of them members of the New Canaan Society, a Christian men's support group. ‘Blurred' “I was not aware of the changes that were happening in me that blurred the lines between right and wrong,” he said. “I allowed myself to slip into the world of relativism where the ends justify the means.” Skowron said that since his crimes came to light last year, “I have had the opportunity to redo my life and I've taken the opportunity to turn my life over to Christ. I'm terribly sorry for the mistakes I've made. I'm looking forward to healing and rehabilitation.” Cote noted that prosecutors and defense lawyers had agreed on a five-year maximum prison term. Some of Skowron's supporters, including his wife, had asked for leniency from the court. “I think this term is an appropriate punishment for what Dr. Skowron did,” she said, adding that he engaged in a pattern of deceit and illegality that spanned months. “You bribed and corrupted another physician, you orchestrated a campaign that included deceiving Morgan Stanley and obstructing an SEC investigation and another investigation, you committed perjury before the SEC.” Morgan Stanley, the sixth-biggest U.S. bank, acquired FrontPoint in 2006 and spun it off in February. January Surrender Cote directed Skowron to surrender to U.S. Bureau of Prisons officials by Jan. 6 and granted a request by his lawyer, James Benjamin, that he be assigned to a facility “as close to Pennsylvania as possible.” The judge noted that the bureau makes final decisions on assignments. Skowron has agreed to forfeit $5 million and to pay a civil penalty of $2.7 million to the U.S. Securities and Exchange Commission. In addition, the SEC said in a statement yesterday that Skowron was ordered to pay disgorgement and other sanctions totaling $35.5 million. Cote estimated Skowron's personal net worth at $22.2 million dollars. The judge ruled today that five investors who purchased HGSI stock in block trades, including Galleon and Deutsche Bank AG, Germany's biggest lender, were victims of Skowron's crimes. Galleon said it lost more than $1.5 million and Deutsche Bank claims losses of $2.4 million as a direct result of Skowron's inside trades of HGSI stock in January 2008. The judge said she will determine at a later date how much restitution Skowron must pay, noting that it may be in the millions of dollars. Skowron's illegal tips came from Yves Benhamou, an expert in hepatitis drugs who acted as a paid consultant to hedge funds while also advising HGSI and serving on its steering committee for trials of Albuferon, the U.S. said. Prosecutors said Skowron gave Benhamou more than $14,600 in cash and paid for hotel rooms and expenses and that he “encouraged” Benhamou to lie to federal regulators during their investigation. Benhamou, who pleaded guilty in April, is scheduled to be sentenced in December. --Bloomberg News--