FrontPoint Partners

Last updated
FrontPoint Partners
Company type Hedge fund
Industry Financial services
FoundedNovember 2000
Defunct2011 (2011)
Headquarters
Greenwich, Connecticut
,
United States
Key people
 Steve Eisman (fund manager); Chip Skowron (portfolio manager)
Products Hedge fund
AUM $7 billion (November 2010)
Parent Morgan Stanley

FrontPoint Partners was a hedge fund that became well known for its bet against subprime mortgages during the 2008 financial crisis under Steve Eisman. [1] [2] It was based in Greenwich, Connecticut, with other offices in New York and London. [2] [3]

FrontPoint was a registered investment adviser in the United States and was wholly owned subsidiary of investment bank Morgan Stanley. After Eisman left the firm, there was an investigation around insider trading. In August 2011, Frontpoint portfolio manager Chip Skowron pleaded guilty to insider trading and obstruction of justice. The remaining fund saw a significant decline in assets under management. It shut down most of its investments in 2011. [4]

Morgan Stanley filed a civil lawsuit against Skowron in 2012, calling Skowron a “faithless servant”. In 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.

History

Frontpoint was founded in November 2000 by three principals, including two Tiger cubs. [3] Morgan Stanley purchased an equity position in the company in 2006, when Frontpoint had $5.5 billion in assets under management. [5] [3] Frontpoint became an indirect wholly owned subsidiary of Morgan Stanley. [2]

Steve Eisman served as a fund manager for FrontPoint Partners from 2004 until 2011. [6] [7] In October 2010, it was announced that Morgan Stanley, while maintaining a minority position, had handed control back to the managers of the firm. [3] In November 2010, the firm was managing $7 billion. [4]

In April 2011, the Securities and Exchange Commission filed a complaint against Frontpoint portfolio manager Chip Skowron for trading on inside information and named six Frontpoint funds as relief defendants. [8] [9] [3] In April 2011, Frontpoint agreed to pay the SEC more than $30 million in settlement of charges against Frontpoint. [3] In August 2011, Skowron pleaded guilty in federal court in Manhattan to conspiracy to engage in insider trading and obstruction of justice. [10] Skowron was sent to prison for five years. [11]

Morgan Stanley filed a separate civil lawsuit against Skowron 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. [12] 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. [13] 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. [14] 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. [15] [16] [17] [18] 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. [19]

In May 2011, Frontpoint announced that it would shut down most of its funds by the end of the month. [4]

Related Research Articles

A hedge fund is a pooled investment fund that holds liquid assets and that makes use of complex trading and risk management techniques to improve investment performance and insulate returns from market risk. Among these portfolio techniques are short selling and the use of leverage and derivative instruments. In the United States, financial regulations require that hedge funds be marketed only to institutional investors and high-net-worth individuals.

<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 are illegal. This is because it is seen as unfair to other investors who do not have access to the information, as the investor with insider information could potentially make larger profits than a typical investor could make. The rules governing insider trading are complex and vary significantly from country to country. The extent of enforcement also varies from one country to another. The definition of insider in one jurisdiction can be broad and may cover not only insiders themselves but also any persons related to them, such as brokers, associates, and even family members. A person who becomes aware of non-public information and trades on that basis may be guilty of a crime.

<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 75,000 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">Shira Scheindlin</span> American judge

Shira Ann Scheindlin is an American attorney and jurist who served as a United States district judge of the United States District Court for the Southern District of New York. She is currently of counsel at Boies Schiller Flexner LLP.

<span class="mw-page-title-main">Clawback</span> Mandatory return of money or benefits

The term clawback or claw back refers to any money or benefits that have been given out, but are required to be returned due to special circumstances or events, such as the monies having been received as the result of a financial crime, or where there is a clawback provision in the executive compensation contract.

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 his memoir, Uneven Justice: The Plot to Sink Galleon.

<span class="mw-page-title-main">Galleon Group</span>

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.

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.

Anil Kumar is an Indian-American former senior partner and director at management consulting firm McKinsey & Company, where he co-founded McKinsey's offices in Silicon Valley and India and created its Internet practice among others. Kumar is additionally the co-founder of the Indian School of Business with Rajat Gupta and the creator of two different kinds of outsourcing. He graduated from IIT Bombay in India, Imperial College in the UK, and The Wharton School in the US.

Steven Eisman is an American businessman and investor known for having shorted collateralized debt obligations (CDOs), thereby profiting from the collapse of the US housing bubble in 2007–2008.

Atwood Peter Collins, known as Porter Collins, is an American rower. He finished 5th in the men's eight at the 1996 Summer Olympics and the 2000 Summer Olympics. He is also a three time world Champion in 1995, 1998 and 1999.

The Raj Rajaratnam/Galleon Group, Anil Kumar, and Rajat Gupta insider 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.

<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.

PDT Partners is a hedge fund company, led by quantitative trader Peter Muller, that was founded in 1993 as part of Morgan Stanley's trading division and spun off as an independent business in 2012. It has offices in New York City 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.

Joseph F. "Chip" Skowron III 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.”

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.

References

  1. ↑ "Most of the 'big shorts,' who thrived during the financial crisis, have faltered since 2008". CNBC. September 17, 2018.
  2. 1 2 3 Joseph F. "Chip" Skowron III, et al.: Securities and Exchange Commission Litigation Complaint. ISBN   9781457812750 . Retrieved 2019-11-19.
  3. 1 2 3 4 5 6 Rajiv Jaitly (2016-03-21). Practical Operational Due Diligence on Hedge Funds: Processes, Procedures, and Case Studies. ISBN   9781119018759 . Retrieved 2019-11-19.
  4. 1 2 3 Lattman, Peter (2011-05-19). "FrontPoint to Shut Most Funds After Insider Charges - The New York Times". Dealbook.nytimes.com. Retrieved 2019-11-19.
  5. ↑ "Morgan Stanley to Acquire FrontPoint Partners". Morgan Stanley. 2006-10-31. Retrieved 2019-11-19.
  6. ↑ "The Shocking Admission of This Shuttered Hedge Fund Manager", US News & World Report.
  7. ↑ Courtney Comstock (2011-01-20). "The Latest News About FrontPoint Partners Is Devastating For The Hedge Fund". Business Insider. Retrieved 2019-11-19.
  8. ↑ Max Abelson (2010-11-26). "Steve Eisman's $7 B. Hedge Fund FrontPoint On Death's Door". Observer. Retrieved 2019-11-19.
  9. ↑ "FrontPoint Partners embroiled in insider trading case". Fortune. Retrieved 2019-11-19.
  10. ↑ Bray, Chad (16 August 2011). "Ex-Fund Manager Pleads Guilty to Using Inside Tips". The Wall Street Journal.
  11. ↑ Spain, William (15 August 2011). "Skowron pleads guilty in insider trading scam". MarketWatch.
  12. ↑ Katz, Basil (9 November 2012). "Morgan Stanley sues Ex-FrontPoint manager over insider charges", Fox Business.
  13. ↑ "Harvard doctor turned hedge fund felon lured by ambition, riches". nj.com. 27 November 2012.
  14. ↑ "Morgan Stanley seeks $10.2 million from convicted former trader," GreenwichTime, 14 January 2013.
  15. ↑ Raymond, Nate (20 December 2013). "Convicted ex-FrontPoint manager ordered to repay Morgan Stanley". Reuters.
  16. ↑ "Morgan Stanley v. Skowron, 989 F. Supp. 2d 356 (S.D.N.Y. 2013)". casetext.com.
  17. ↑ "Morgan Stanley Official Was Faithless Servant Under New York Law; Must Repay $31 Million". Bloomberg. 7 January 2014.
  18. ↑ Rexrode, Christina (24 January 2014). "Morgan Stanley to ex-manager: We'll drop the charges, but you owe us $24 million". MarketWatch.
  19. ↑ Henning, Peter J. (23 December 2013). "The Huge Costs of Being a 'Faithless Servant'". The New York Times; DealBook.
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.