FORMER HEDGE FUND PORTFOLIO MANAGER JOSEPH “CHIP” SKOWRON PLEADS GUILTY IN MANHATTAN FEDERAL COURT TO INSIDER TRADING SCHEME INVOLVING CLINICAL DRUG TRIAL

United States Attorney
Southern District of New York
U.S. ATTORNEY’S OFFICE
AUGUST 15, 2011 ELLEN DAVIS, CARLY SULLIVAN,

Inside Tips Allowed Fund to Avoid $30 Million in Losses
PREET BHARARA, the United States Attorney for the
Southern District of New York, announced that JOSEPH F. SKOWRON
III, a/k/a “Chip Skowron,” a former portfolio manager of the
health care unit of a hedge fund group (the “Hedge Fund”), pled
guilty today to conspiracy to engage in insider trading and
obstruction of justice. SKOWRON used material, non-public
information (“Inside Information”) that he received from YVES
BENHAMOU, a doctor who served as an advisor on a clinical drug
trial, to avoid approximately $30 million in trading losses.
SKOWRON obstructed justice by urging BENHAMOU to lie to the U.S.
Securities and Exchange Commission (“SEC”) during an
investigation into his trading. SKOWRON pled guilty in Manhattan
federal court before U.S. District Judge DENISE L. COTE.
Manhattan U.S. Attorney PREET BHARARA said: “Chip
Skowron is the latest example of a portfolio manager willing to
pay for proprietary, non-public information that gave him an
illegal trading edge over the average investor. He seized upon
the opportunity presented by his advance knowledge to avoid $30
million in losses on the basis of information concerning just one
stock. The integrity of our market is damaged by people who,
like Chip Skowron, engage in insider trading, and they will
continue to be prosecuted by this office.”
According to the Information, a Complaint previously
filed in this case, other court filings, and statements made
during today’s guilty plea proceeding:
During the period of the insider trading scheme,
SKOWRON was responsible for the Hedge Fund’s investment decisions
in public companies, including the biopharmaceutical company
Human Genome Sciences, Inc. (“HGSI”), that were involved in the
development of drugs to treat hepatitis C. BENHAMOU was a
medical doctor with an expertise in hepatitis treatment who
served on an HGSI steering committee that oversaw a clinical
trial of a drug called Albuferon. At the same time, BENHAMOU
also worked as a consultant for an expert networking firm that,
for a fee, put him in contact with portfolio managers and other
investors at hedge funds, including SKOWRON, who purchased and
sold securities in the healthcare sector.
Beginning in April 2007, SKOWRON developed a personal
and financial relationship with BENHAMOU independent of the
expert networking firm. For example, SKOWRON gave BENHAMOU 5,000
euros in cash during a meeting in Barcelona, Spain. He also paid
some of BENHAMOU’s expenses, including $4,624.83 in September
2007 for a New York City hotel room for him and his wife.
SKOWRON also offered to hire BENHAMOU as a consultant or
permanent advisor to a new hedge fund. SKOWRON gave these
benefits to BENHAMOU to encourage him to provide Inside
Information about the Albuferon clinical drug trial. BENHAMOU
understood that SKOWRON would buy or sell HGSI stock on the basis
of the Inside Information.
For example, on January 18, 2008, after learning from
BENHAMOU that HGSI’s independent safety committee had recommended
to discontinue a portion of the clinical trial following serious
adverse side effects suffered by two patients, SKOWRON directed a
trader at the Hedge Fund to “sell the hgsi,” “all of it.” On
January 22, 2008, the day before HGSI announced it would
discontinue a portion of the trial, BENHAMOU disclosed this
information, as well as the potential of a press release from
HGSI, to SKOWRON. While on the phone with BENHAMOU, SKOWRON sent
an instant message to a trader at the Hedge Fund, urging him to
sell the remaining HGSI shares more quickly. As a result of
those communications, SKOWRON caused the Hedge Fund to sell more
than 6 million shares of HGSI, thereby avoiding approximately $30
million in losses.
In addition, SKOWRON and BENHAMOU undertook efforts to
conceal the insider trading scheme from regulatory authorities.
Specifically, beginning in February 2008 after the SEC began
investigating the Hedge Fund’s trading in HGSI stock, SKOWRON
induced BENHAMOU to lie to the SEC by falsely denying that they
had discussed the serious adverse events before they were made
public.
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* * *
SKOWRON, 42, of Greenwich, Connecticut, pled guilty to
one count of conspiracy to commit securities fraud and obstruct
justice. He faces a maximum penalty of five years in prison and
a maximum fine of $250,000 or double the gain or loss arising
from his conduct. In addition, he agreed to forfeit $5,000,000
to the United States. He is scheduled to be sentenced by Judge
COTE on November 18, 2011, at 10:00 a.m.
BENHAMOU previously pled guilty in April 2011 to
charges of conspiracy to commit securities fraud, securities
fraud, conspiracy to obstruct justice, and making false
statements to the FBI related to the scheme. He is scheduled to
be sentenced by U.S. District Judge GEORGE B. DANIELS on October
20, 2011, at 10:00 a.m.
Mr. BHARARA praised the investigative work of the
Federal Bureau of Investigation. He also thanked the SEC for its
assistance.
This case was brought in coordination with President
BARACK OBAMA’s Financial Fraud Enforcement Task Force, on which
Mr. BHARARA serves as a Co-Chair of the Securities and
Commodities Fraud Working Group. President OBAMA established the
interagency Financial Fraud Enforcement Task Force to wage an
aggressive, coordinated, and proactive effort to investigate and
prosecute financial crimes. The task force includes
representatives from a broad range of federal agencies,
regulatory authorities, inspectors general, and state and local
law enforcement who, working together, bring to bear a powerful
array of criminal and civil enforcement resources. The task force
is working to improve efforts across the federal executive
branch, and with state and local partners, to investigate and
prosecute significant financial crimes, ensure just and effective
punishment for those who perpetrate financial crimes, combat
discrimination in the lending and financial markets, and recover
proceeds for victims of financial crimes.
This case is being handled by the Office’s Securities
and Commodities Fraud Task Force. Assistant U.S. Attorneys PABLO
QUIÑONES, REED M. BRODSKY, and DAVID B. MASSEY are in charge of
the prosecution.
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