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Conn. doctor accused of hedge fund insider trading

NEW YORK — An Ivy League-trained physician who became a health care hedge fund portfolio manager surrendered Wednesday to face charges he evaded $30 million in losses for his funds by paying a prominent French doctor for secrets on the progress of a liver disease drug.

Joseph "Chip" Skowron III, of Greenwich, Conn., was charged with conspiracy to commit securities fraud, securities fraud and conspiracy to obstruct justice in a criminal complaint unsealed Wednesday in U.S. District Court in Manhattan. He formerly worked at FrontPoint Partners LLC, where he oversaw six health care-related hedge funds. He was freed on $6 million bail, roughly the value of the Greenwich, Conn., residence that he provided as collateral.

U.S. Attorney Preet Bharara called the case "yet another example of blatant cheating of both the market and the ordinary investor."

The prosecutor noted at a news conference that Skowron was the 47th person arrested in the last 18 months on insider trading charges.

"I wish I could say that we were almost finished investigating and prosecuting pervasive insider trading. But sadly, we are not," he said.

The probe, which began when the Securities and Exchange Commission spotted trading irregularities in the stock of a liver disease drug maker, was a continuation of the FBI's "Perfect Hedge" probe, FBI Assistant Director Janice K. Fedarcyk said. She said it began three years ago "as a long-term full-court press to root out insider trading in the hedge fund business."

Skowron's arrest came two days after the French doctor, Yves Benhamou, pleaded guilty to conspiracy to commit securities fraud, two counts of securities fraud, conspiracy to obstruct justice and making false statements. Initially charged in November, he entered into a cooperation agreement with prosecutors.

Skowron will plead not guilty if an indictment is returned, defense attorney James Benjamin said in a statement.

"We look forward to responding to the allegations more fully in court at the appropriate time," he said.

Authorities said the charges stemmed from Skowron's relationship with Benhamou, who was widely known in Europe and the United States as an expert in the treatment of hepatitis C.

The FBI said Benhamou worked as a consultant to Human Genome Science Inc., a biopharmaceutical company, on clinical drug trials evaluating the safety of the drug Albuferon for the treatment of chronic hepatitis C. Albuferon is the commercial name for a drug the company developed and planned to market with Novartis AG, a Switzerland-based pharmaceutical company.

Fedarcyk said face-to-face meetings between Skowron and Benhamou between April 2006 and April 2008 occurred in cities that read "like the itinerary of the fictional spy Jason Bourne: Vienna, Boston, Barcelona, Manhattan and Milan."

Benhamou met Skowron in April 2006 at a Vienna, Austria, conference staged by the European Association for the Study of the Liver.

They met again at the group's annual conference in Barcelona, Spain, and yet again at the annual conference of the American Association for the Study of Liver Diseases in Boston.

She said that between April 2006 and April 2007, Skowron gave Benhamou and envelope with 5,000 Euros in his Barcelona hotel suite, paid the $4,600 hotel bill when Benhamou and his wife visited Manhattan, offered Benhamou future employment with a biotechnology hedge fund he planned to start and gave Benhamou free investment advice.

Authorities said the payoff came when Benhamou began tipping Skowron in December 2007 about serious adverse effects that occurred with two patients involved in the Albuferon clinical trial. One of the patients later died.

The FBI said Skowron was tipped again a month later that part of the clinical trial was going to be discontinued. According to court papers, Skowron was able to sell all his hedge fund's shares before the stock of Human Genome Science dropped 44 percent following the public announcement.

Authorities said Skowron met Benhamou in a Boston hotel after a lunch meeting and offered him a bag containing two stacks of U.S. currency as payment for the confidential information, but Benhamou did not accept the money.

The FBI said Skowron gave Benhamou $10,000 in cash in April 2008 in a hotel bar in Milan, Italy, and told him to continue to tell securities regulators who were investigating suspicious trades that the two had only discussed publicly available information.

David M. Zornow, a lawyer for Benhamou, said in a statement Wednesday that his client "has acknowledged his serious mistakes in judgment and intends to live up to his obligations under his cooperation agreement."

He added: "Dr. Benhamou's conduct in this instance must fairly be considered in the overall context of his extraordinary contributions to his patients and to medical science."

The SEC said in civil charges brought against Skowron that six hedge funds that benefited from illegal secrets had already agreed to settle with the SEC and pay $29 million plus $4 million in interest without admitting or denying the allegations.

Skowron studied at Vanderbilt University before he obtained his medical degree in 1998 from Yale University. He also earned a doctorate in cell biology from Yale before beginning his residency at Harvard University.

He was on the board of directors of the disaster relief agency AmeriCares Foundation, where his volunteer work took him to Kosovo, Cuba, India and Baton Rouge, La., after Hurricane Katrina.