Chip Skowron

Last updated

Chip Skowron
Born
Joseph F. Skowron III

1968or1969(age 54–55)
Cocoa, Florida
Alma mater
OccupationHedge fund portfolio manager
EmployerFrontPoint Partners LLC
Known for
  • Convicted for insider trading;
  • Required to pay back his employer $31 million—100% of the compensation he earned—because his insider trading resulted in him being a "faithless servant" under New York law.
Criminal charge(s)Conspiracy to engage in insider trading and obstruction of justice [1]
Criminal penaltyFive years in prison followed by three years of supervised release; $5 million to be paid to the government; $2.7 million SEC penalty; restitution to be paid to Morgan Stanley for legal fees ($3.8 million) and 20% of his compensation ($6.4 million). [1] [2] [3]
Criminal statusConvicted; released from prison after serving term
SpouseCheryl
Childrentwo daughters; two sons

Joseph F. "Chip" Skowron III (c. 1968) [2] is an American former hedge fund co-portfolio manager of FrontPoint Partners LLC's health care funds. He was convicted of insider trading, for which he served five years in prison. He was also required to repay his hedge fund employer $32 million it had paid him in compensation, because he had been a “faithless servant.”

Contents

Early and personal life

Skowron was born and grew up in Cocoa, Florida, and attended Cocoa High School. [2] He earned his undergraduate degree from Vanderbilt University in 1990. [2] [4]

He then attended and graduated from Yale University Medical School in 1998 with a medical degree, and from Yale Graduate School with a doctorate in cellular biology. [5] [6] [4] Skowron spent three years in an orthopedic residency at Beth Israel Deaconess Medical Center, one of Harvard Medical School's teaching hospitals, leaving in 2001 before finishing the residency. [6] [4] [7] He published a number of medical papers, including "Cloning and characterization of mouse brush border myosin-I in adult and embryonic intestine." [6] [5] He was a member of the board of directors of Americares, a non-profit disaster relief and global health organization. [8] [9]

Skowron resides in Greenwich, Connecticut. [10] [11] He has a wife, Cheryl, and two daughters and two sons. [2] [12]

Hedge fund career

After leaving his residency Skowron worked as a healthcare analyst at SAC Capital Management in Stamford, Connecticut, and then at Millennium Partners in New York, for less than one year at each. [4] [6] [2] [13] [14]

Skowron then became a hedge fund co-portfolio manager of Greenwich, Connecticut-based FrontPoint Partners LLC's health care funds. [15] [16] [4] He joined FrontPoint in 2003, co-founding its health care team and taking on the title of managing director at Morgan Stanley, its owner, which bought the firm for $400 million in 2006. [4] [5] [2] [17] He was paid in part based on the performance of the funds he managed, earning $13.5 million in 2007 and $7 million in 2008. [2]

Insider trading

In April 2011, he was arrested by the FBI. [10] Skowron was charged with securities fraud and conspiracy to obstruct justice by the U.S. Attorney for the Southern District of New York. [16] According to court filings he also lied to his employer about his insider trades, and lied under oath to the Securities and Exchange Commission. [2] He was released on a $6 million bond. [18]

According to the government, Skowron sold shares of Human Genome Sciences Inc. in 2007 and 2008 after being tipped off by a consultant to the company that the company was about to make a negative announcement regarding its clinical trial for the drug Albumin Interferon Alfa 2-a, a potential drug to treat hepatitis-C, before the announcement was made. [4] [16] [19] [20] As a result, FrontPoint's hedge funds were able to avoid $30 million in losses, according to the government. [16] [4] [21]

At first Skowron denied the charges against him, and his defense attorney said he would plead not guilty, saying "We look forward to responding to the allegations more fully in court at the appropriate time". [6] [9] [22] However, after the doctor charged with tipping him off pleaded guilty, he changed his position, and admitted his guilt. [6]

The U.S. Attorney charged the consultant with tipping Skowron material, non-public information concerning pharmaceutical company Human Genome Science's clinical trial. [16] [23] [24] The consultant agreed to plead guilty to a four-count criminal information, and agreed to cooperate with the government's investigation. [16]

In August 2011, Skowron pleaded guilty in federal court in Manhattan to conspiracy to engage in insider trading and obstruction of justice. [1] [25] Preet Bharara, U.S. Attorney for the Southern District of New York, 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. The integrity of our market is damaged by people who engage in insider trading...." [1] Skowron was sent to prison for five years. [2] [1] Skowron's wife asked the judge to be lenient with him, saying her husband didn't realize he was doing anything that could result in him going to prison. [26] Skowron also agreed to forfeit $5 million to the government and pay a $2.7 million SEC penalty. [1] [2] The judge, noting that Morgan Stanley's "expectation was that Skowron would abide by policies" that "prohibited insider trading," also ordered him to pay restitution to Morgan Stanley for legal fees ($3.8 million), and 20% of his compensation during the period of the conspiracy from 2007 to 2010 ($6.4 million). [2] [27] [28] [24] The awards were upheld on appeal. [27] [29]

Skowron, sentenced in November 2011 by Judge Denise Cote to, and served, five years in federal prison at medium-security Schuylkill Federal Prison Camp in Minersville, Pennsylvania. [24] [30] [3] [2] [31] [32] He was released in 2017, subject to three years of supervised release. [30] [33] [34] [3] [2] [31] He was prohibited from working in the securities industry. [32] Christopher Fountain, blogger of a popular Greenwich blog, wrote: “Greed will cause some people to do despicable things, and Skowron is an example of that.” [32]

Institutional investors immediately withdrew $3 billion from FrontPoint, which until that time had $7 billion in assets under management and earlier had $11 billion under management, causing it to shut down in May 2011, after Skowron's arrest. [3] [2] [31] [30]

Skowron later said: "Over 200 people lost their jobs because of me. My wife and my children endured extraordinary embarrassment, isolation, and absence because of my choices because of the empire I thought I needed to build." [3] His country club ejected him. [32]

FrontPoint, which was spun off from Morgan Stanley, stressed that the FrontPoint Healthcare Funds were not charged with any securities law violations, and that Skowron breached FrontPoint's compliance policies and Code of Conduct. [16] [35] [36] The FrontPoint Healthcare Funds were named solely as relief defendants, and agreed to make a disgorgement payment with prejudgment interest to the SEC for the alleged losses avoided, and paid the SEC $33 million in an enforcement action. [16] [37] [38]

Faithless servant lawsuit

Morgan Stanley filed a separate civil lawsuit in October 2012 seeking the $33 million it paid the SEC, as well as the entire $32 million it had paid Skowron in compensation from 2007 to 2010. [27] [39] In its lawsuit, Morgan Stanley called Skowron a “faithless servant” who lied repeatedly to continue being paid by Morgan Stanley and to avoid a blow to his reputation. [2] A. Jeff Ifrah, co-author of Federal Sentencing for Business Crimes, said: "The reputation of an employer like this one can get killed by the conduct of its employee," and seeking restitution "is certainly a good strategy" to recover a company's good reputation. [24]

In December 2013 Judge Shira Scheindlin of the U.S District Court of the Southern District of New York ruled on a motion for summary judgment that Skowron must forfeit $31 million—100% of the compensation he earned from the firm between 2007 and 2010—to his employer, Morgan Stanley. [27] [40] [41] [42] The judge applied the legal doctrine of "faithless servant" to require Skowron to return his ill-gotten gains from the use of inside information to his employer, because he had engaged in insider trading, in violation of the firm's code of ethics, and failed to report his insider trading to the company. [43] [40] [44] The judge said that insider trading was "the ultimate abuse of a portfolio manager's position." [27] She noted further: "In addition to exposing Morgan Stanley to government investigations to and direct financial losses, Skowron's behavior damaged the firm's reputation, a valuable corporate asset". [45]

Related Research Articles

<span class="mw-page-title-main">Insider trading</span> Public company stock or securities trading using nonpublic information

Insider trading is the trading of a public company's stock or other securities based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information is illegal. The rationale for this prohibition of insider trading differs between countries/regions. Some view it as unfair to other investors in the market who do not have access to the information, as the investor with inside information could potentially make larger profits than an investor could make. However, insider trading is also prohibited to prevent the director of a company from abusing a company's confidential information for the director's personal gain.

<span class="mw-page-title-main">Morgan Stanley</span> American financial services company

Morgan Stanley is an American multinational investment bank and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in 41 countries and more than 90,000 employees, the firm's clients include corporations, governments, institutions, and individuals. Morgan Stanley ranked No. 61 in the 2023 Fortune 500 list of the largest United States corporations by total revenue and in the same year ranked #30 in Forbes Global 2000.

A code of conduct is a set of rules outlining the norms, rules, and responsibilities or proper practices of an individual party or an organization.

<span class="mw-page-title-main">Steve Cohen (businessman)</span> American billionaire hedge-fund manager, sports team owner (born 1956)

Steven A. Cohen is an American hedge-fund manager and owner of the New York Mets of Major League Baseball since September 14, 2020, owning just over 97% of the team. He is the founder of hedge fund Point72 Asset Management and S.A.C. Capital Advisors, which closed after pleading guilty to insider trading and other financial crimes.

A portfolio manager (PM) is a professional responsible for making investment decisions and carrying out investment activities on behalf of vested individuals or institutions. Clients invest their money into the PM's investment policy for future growth, such as a retirement fund, endowment fund, or education fund. PMs work with a team of analysts and researchers and are responsible for establishing an investment strategy, selecting appropriate investments, and allocating each investment properly towards an investment fund or asset management vehicle.

<span class="mw-page-title-main">Raj Rajaratnam</span> American investments manager

Rajakumaran Rajaratnam is a Sri Lankan-American former hedge fund manager and founder of the Galleon Group, a New York-based hedge fund management firm. He is also the author of his memoir, Uneven Justice: The Plot to Sink Galleon.

<span class="mw-page-title-main">Galleon Group</span> American hedge fund caught insider trading (1997–2009)

The Galleon Group was one of the largest hedge fund management firms in the world, managing over $7 billion, before closing in October 2009. The firm was the center of a 2009 insider trading scandal which subsequently led to its fall.

Stephen Walsh is an American former money manager who pleaded guilty to securities fraud.

Du Jun is a Chinese businessman and financier with origins in Beijing. He was known for his role as former managing director of the Wall Street investment bank Morgan Stanley in Hong Kong.

International Investment Group (IIG) is an American financial institution that specializes in short-term trade finance and commercial finance with a focus on emerging markets. Through its affiliate IIG Capital it provides financing to small and medium-sized merchants, traders and processors with a need for supply chain financing.

The Raj Rajaratnam/Galleon Group, Anil Kumar, and Rajat Gupta inside trading cases are parallel and related civil and criminal actions by the U.S. Securities and Exchange Commission and the United States Department of Justice against three friends and business partners: Galleon Group hedge fund founder-owner Raj Rajaratnam and former McKinsey & Company senior executives Anil Kumar and Rajat Gupta. In these proceedings, the men were confronted with insider trading charges: Rajaratnam was convicted, Kumar pleaded guilty and testified as key witness in the criminal trials of Rajaratnam and Gupta, and Gupta was convicted in United States District Court for the Southern District of New York in Manhattan in June 2012.

Rajarengan "Rengan" Rajaratnam is a hedge fund manager. He is the founder of hedge fund Sedna Capital and the younger brother of convicted hedge fund founder Raj Rajaratnam. He was arrested for securities fraud in March 2013. His trial in New York City began in June, 2014 but he was found not guilty by the jury in July 2014.

Mathew Martoma is an American former hedge fund trader. As a portfolio manager at S.A.C. Capital Advisors, he was accused of generating possibly the largest single insider trading transaction profit in history at a value of $276 million. A jury convicted him, and in November 2014 he began serving a nine-year prison sentence. He was incarcerated at FCI Miami as inmate 01138-104, and released early on 19 July 2021.

<span class="mw-page-title-main">S.A.C. Capital Advisors</span> Group of hedge funds

SAC Capital Advisors was a group of hedge funds founded by Steven A. Cohen in 1992. The firm employed approximately 800 people in 2010 across its offices located in Stamford, Connecticut and New York City, and various offices. It reportedly lost many of its traders in the wake of various investigations by the Securities and Exchange Commission (SEC). In 2010, the SEC opened an insider trading investigation of SAC and in 2013 several former employees were indicted by the U.S. Department of Justice. In November 2013, the firm itself pleaded guilty to insider trading charges and paid $1.2 billion in penalties. The firm shrank after returning the vast majority of its outside investor capital. Point72 Asset Management was established as a separate family office in 2014. SAC ceased to exist as a separate entity in 2016. Point 72, essentially the continuation of SAC, manages 30 Billion as of 2023.

<span class="mw-page-title-main">Anthony Chiasson</span> American hedge fund manager

Anthony R. Chiasson is an American hedge fund manager and co-founder of Level Global Investors LP, a Greenwich, Connecticut-based hedge fund management firm. Level Global was launched in 2003 with about $500 million in assets under management, and grew to $4.2 billion in assets and 75 employees before closing in early 2011.

Brian Kim is an American former hedge fund manager. He founded the now-defunct Liquid Capital Management LLC, which focused on futures trading.

<span class="mw-page-title-main">FrontPoint Partners</span> Former American hedge fund

FrontPoint Partners was a hedge fund that became well known for its bet against subprime mortgages during the 2008 financial crisis under Steve Eisman. It was based in Greenwich, Connecticut, with other offices in New York and London.

A company code of conduct is a document written up voluntarily by a company in which it sets out a set of principles that it commits itself to follow, or requires its employees to follow. In some cases, codes of conduct reach suppliers, subcontractors, and third parties. It is a type of code of conduct.

The faithless servant doctrine is a doctrine under the laws of a number of states in the United States, and most notably New York State law, pursuant to which employees who act unfaithfully towards their employers must forfeit to their employers all compensation received during the period of disloyalty.

Visium Asset Management LP was an American multi-strategy hedge fund and private equity firm. It began as a healthcare-focused fund, founded in 2005 by Jacob Gottlieb. In 2016, three of the company's traders were indicted by United States federal authorities for securities fraud. One of the accused employees killed himself days after he was indicted. Visium subsequently liquidated several of its funds and wound down operations.

References

  1. 1 2 3 4 5 6 Spain, William (August 15, 2011). "Skowron pleads guilty in insider trading scam". MarketWatch.
  2. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 "Harvard doctor turned hedge fund felon lured by ambition, riches". nj.com. November 27, 2012.
  3. 1 2 3 4 5 Cantrell, Amanda (December 13, 2018). "Surviving Prison as a Wall Street Convict". Institutional Investor.
  4. 1 2 3 4 5 6 7 8 "Factbox - Facts about FrontPoint's Chip Skowron". Reuters. November 2, 2010.
  5. 1 2 3 Kaplan, Thomas (November 2, 2010). "Insider Case Draws In a Surgeon Turned Banker". The New York Times; DealBook.
  6. 1 2 3 4 5 6 Wachtell, Kaya (November 22, 2010). "Meet Chip Skowron: The Health-Care Fund Manager At The Center Of The FrontPoint Insider Trading Scandal". Business Insider.
  7. ↑ Eder, Steve (November 22, 2010). "Scandal Bruises a Star Investor". The Wall Street Journal.
  8. ↑ Neumeister, Larry (November 18, 2011). "Conn. doctor gets 5 years in insider trading case". San Diego Union-Tribune.
  9. 1 2 Neumeister, Larry (April 13, 2011). "Conn. doctor accused of hedge fund insider trading," Deseret News.
  10. 1 2 Hurtado, Patricia (April 14, 2011). "FrontPoint Partners' Skowron Charged With Fraud, Obstruction". Bloomberg.
  11. ↑ "Joseph "Chip" Skowron". newcanaansociety.org.
  12. ↑ "Greenwich MD gets 5 years in prison for insider trading". GreenwichTime. November 19, 2011.
  13. ↑ "Burdens of medical practice discourage doctors," The Baltimore Sun , July 27, 2003.
  14. ↑ "Greenwich doctor accused of hedge fund insider trading," NewsTimes, April 13, 2011.
  15. ↑ Tiku, Natasha (April 13, 2011). "Say Hello to Chip Skowron III, the Latest Hedge-Funder Charged With Insider Trading [Updated]". New York .
  16. 1 2 3 4 5 6 7 8 Taub, Stephen (April 13, 2011). "Ex-FrontPoint Manager Charged With Securities Fraud," Institutional Investor .
  17. ↑ "FrontPoint completes split from Morgan Stanley," Reuters, March 1, 2011.
  18. ↑ Shifrel, Scott (April 13, 2011). "Hedge-fund manager, major McCain donor bought confidential information, saved $30M: prosecutors". New York Daily News.
  19. ↑ Wachtell, Katya (June 21, 2011). "Ex-FrontPoint Manager Chip Skowron Is Still In Discussions With Prosecutors About His Charges," Business Insider.
  20. ↑ Bray, Chad (August 16, 2011). "Ex-FrontPoint manager pleads guilty," Financial Times.
  21. ↑ Eder, Steve (April 14, 2011). "Ex-Fund Manager Charged In Insider Trading Case". The Wall Street Journal.
  22. ↑ Witt, Emily (April 13, 2011). "Skowron Will Plead Not Guilty," The Observer.
  23. ↑ Hilzenrath, David S. (April 13, 2011). "Hedge Fund Manager Charged With Insider Trading in Human Genome Sciences Case," The Washington Post.
  24. 1 2 3 4 "Morgan Stanley seeks $10.2 million from convicted former trader," Archived June 27, 2019, at the Wayback Machine GreenwichTime, January 14, 2013.
  25. ↑ Bray, Chad (August 16, 2011). "Ex-Fund Manager Pleads Guilty to Using Inside Tips". The Wall Street Journal.
  26. ↑ Hurtado, Patricia (November 16, 2011). "Skowron wasn't aware he committed crimes, wife tells U.S. judge," The Houston Chronicle.
  27. 1 2 3 4 5 Raymond, Nate (December 20, 2013). "Convicted ex-FrontPoint manager ordered to repay Morgan Stanley". Reuters.
  28. ↑ Katz, Basil (November 9, 2012). "Morgan Stanley sues Ex-FrontPoint manager over insider charges," Chicago Tribune.
  29. ↑ Scanell, Kara (March 21, 2012) "Skowron ordered to pay Morgan Stanley $10m," Financial Times.
  30. 1 2 3 Pierson, Brendan (August 7, 2017). "Former FrontPoint manager, out of jail, wants to run prison ministry". Reuters.
  31. 1 2 3 Jaitly, Rajiv (2016). Practical Operational Due Diligence on Hedge Funds: Processes, Procedures, and Case Studies. John Wiley & Sons. ISBN   9781119018742 – via Google Books.
  32. 1 2 3 4 Pomorski, Chris (August 2019). "Hedge Fund Manager Chip Skowron on Life After Prison," Vanity Fair.
  33. ↑ Bray, Chad (November 19, 2011). "5-Year Sentence for Insider". The Wall Street Journal.
  34. ↑ Henning, Peter J. (January 22, 2013). "How Companies Can Sue Defendants in Insider Trading Cases". The New York Times; DealBook.
  35. ↑ Heinz, Barbara (August 15, 2011). "Greenwich Resident Pleads Guilty to Insider Trading," Greenwich, CT Patch.
  36. ↑ Bob Van Voris and David McLaughlin (August 15, 2011)."Skowron, ex-FrontPoint manager, pleads guilty in insider case," Times Union.
  37. ↑ Pitaro, Vincent (November 21, 2012). "Morgan Stanley Sues Former FrontPoint Partners Portfolio Manager Joseph F. “Chip” Skowron III for Losses Allegedly Caused by Skowron’s Insider Trading and Subsequent Cover-Up," Hedge Fund Law Report.
  38. ↑ Barr, Alistair (April 13, 2011). "Morgan Stanley paying for FrontPoint settlement," MarketWatch.
  39. ↑ Katz, Basil (November 9, 2012). "Morgan Stanley sues Ex-FrontPoint manager over insider charges", Fox Business.
  40. 1 2 "Morgan Stanley v. Skowron, 989 F. Supp. 2d 356 (S.D.N.Y. 2013)". casetext.com.
  41. ↑ "Morgan Stanley Official Was Faithless Servant Under New York Law; Must Repay $31 Million". Bloomberg. January 7, 2014.
  42. ↑ Rexrode, Christina (January 24, 2014). "Morgan Stanley to ex-manager: We'll drop the charges, but you owe us $24 million". MarketWatch.
  43. ↑ Henning, Peter J. (December 23, 2013). "The Huge Costs of Being a 'Faithless Servant'". The New York Times; DealBook.
  44. ↑ McQuade, Jim (February 6, 2014). "Payback Time: Using The Faithless Servant Doctrine To Combat Trade Secret Theft". JD Supra.
  45. ↑ Brackett, Ed (December 20, 2013). "Judge: Ex-Morgan exec owes company $31.1M". USA TODAY.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.