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'''Joseph F. "Chip" Skowron III''' (born c. 1968) is an American former hedge fund portfolio manager | '''Joseph F. "Chip" Skowron III''' (born c. 1968) is an American former hedge fund portfolio manager. He became one of the most prominent figures in the federal government's largest insider trading crackdown. | ||
Skowron served as co-portfolio manager of FrontPoint Partners LLC's healthcare funds | Before his 2011 conviction for insider trading and obstruction of justice, Skowron served as co-portfolio manager of FrontPoint Partners LLC's healthcare funds. The case triggered FrontPoint's collapse and forced him to forfeit over $31 million to Morgan Stanley, his former employer, under the "faithless servant" legal doctrine.<ref name="wikipedia">Wikipedia. "Chip Skowron." https://en.wikipedia.org/wiki/Chip_Skowron</ref> | ||
== Background and Education == | == Background and Education == | ||
Skowron | Skowron grew up in Cocoa, Florida. He attended Cocoa High School, then went on to earn his undergraduate degree from Vanderbilt University in 1990. He completed a medical degree (M.D.) from Yale University in 1994 and earned a doctorate (Ph.D.) from Harvard University as well.<ref name="greenwichtime">Greenwich Time. "Greenwich MD gets 5 years in prison for insider trading." November 19, 2011. https://www.greenwichtime.com/news/article/greenwich-md-gets-5-years-in-prison-for-insider-2276299.php</ref> | ||
After finishing his medical training, he didn't stay long in any one place. He worked briefly as a healthcare analyst at SAC Capital Management in Stamford, Connecticut, then moved to Millennium Partners in New York, spending less than a year at each firm before joining FrontPoint Partners.<ref name="wikipedia"/> | |||
== Career at FrontPoint Partners == | == Career at FrontPoint Partners == | ||
In 2003, Skowron joined FrontPoint Partners LLC, a hedge fund | In 2003, Skowron joined FrontPoint Partners LLC, a Greenwich-based hedge fund where he co-founded its healthcare investment team. He climbed to co-portfolio manager of the firm's healthcare funds and held the title of managing director when Morgan Stanley bought FrontPoint for $400 million in 2006.<ref name="wikipedia"/> His pay was directly tied to how well the funds performed, earning him $13.5 million in 2007 and $7 million in 2008.<ref name="wikipedia"/> | ||
== Insider Trading Scheme == | == Insider Trading Scheme == | ||
In February 2008, the Securities and Exchange Commission began investigating FrontPoint Partners' trading activity in Human Genome Sciences Inc. (HGSI) stock. This came shortly after HGSI announced negative results from a Phase III clinical trial of its hepatitis C drug Albuferon, which sent the stock down approximately 14 percent.<ref name="sec">SEC. "Joseph F. 'Chip' Skowron III, et al." https://www.sec.gov/enforcement-litigation/litigation-releases/lr-21928</ref> | |||
=== The Benhamou Connection === | === The Benhamou Connection === | ||
Skowron developed a relationship with Dr. Yves M. Benhamou, a French physician and hepatitis C expert who | Skowron developed a relationship with Dr. Yves M. Benhamou, a French physician and hepatitis C expert who sat on the Steering Committee overseeing HGSI's Albuferon clinical trial. What started as a legitimate consultant relationship through an expert networking firm turned into something improper: an exchange of confidential, non-public information.<ref name="sec"/> From November 2007 through January 2008, Benhamou fed Skowron inside information about negative developments in the Albuferon trial.<ref name="sec"/> | ||
Court documents show that Skowron paid Benhamou in cash for the tips. At a medical conference in Barcelona, Spain, in April 2007, he handed Benhamou an envelope containing 5,000 Euros. After the illegal trades wrapped up in February 2008, Skowron met Benhamou in Boston and tried to give him a bag filled with additional cash.<ref name="sec"/> | |||
=== Trading Activity === | === Trading Activity === | ||
Armed with Benhamou's insider information, Skowron ordered the sale of the FrontPoint healthcare funds' entire HGSI position. That's approximately six million shares. He did this during the six-week period before the company's public announcement. On January 22, 2008, the funds sold two million shares in a block trade just before the market closed. The next day, HGSI's share price crashed 44 percent after the negative trial results went public.<ref name="sec"/> These trades helped FrontPoint avoid at least $30 million in losses.<ref name="sec"/> | |||
== Investigation and Obstruction == | == Investigation and Obstruction == | ||
When Skowron | When Skowron found out about the SEC inquiry in February 2008, he contacted Benhamou right away and ordered him to cook up a false story denying they'd ever discussed the trial results. He also instructed Benhamou to destroy related records. Skowron submitted false testimony to the SEC himself, claiming his trades were based solely on publicly available information and his own independent analysis.<ref name="wikipedia"/> | ||
Benhamou was arrested on November 2, 2010, in Boston. After his arrest, | Benhamou was arrested on November 2, 2010, in Boston. After his arrest, he cooperated with authorities and pleaded guilty to conspiracy and securities fraud charges in April 2011. The evidence mattered enormously: his recorded admissions and proof of cash payments from Skowron became critical to building the case against Skowron.<ref name="wikipedia"/> | ||
== Federal Indictment and Prosecution == | == Federal Indictment and Prosecution == | ||
The FBI arrested Skowron on April 13, 2011. The U.S. Attorney for the Southern District of New York charged him with securities fraud and conspiracy to obstruct justice.<ref name="wikipedia"/> Initially, he denied everything. His defense attorney announced he'd plead not guilty. But once Benhamou pleaded guilty and agreed to work with the government, Skowron changed his mind.<ref name="wikipedia"/> | |||
In August 2011, | In August 2011, he pleaded guilty in federal court in Manhattan to conspiracy to commit insider trading and obstruction of justice.<ref name="wikipedia"/> | ||
== Sentencing == | == Sentencing == | ||
On November 18, 2011, U.S. District Judge Denise Cote | On November 18, 2011, U.S. District Judge Denise Cote handed down a five-year federal prison sentence, followed by three years of supervised release.<ref name="greenwichtime"/> The judge ordered him to pay Morgan Stanley $10.2 million in restitution. That amount broke down to $3.8 million in legal fees and $6.4 million representing 20 percent of his compensation during the conspiracy period from 2007 to 2010. An appeals court upheld these awards.<ref name="wikipedia"/> | ||
U.S. Attorney Preet Bharara | U.S. Attorney Preet Bharara summed it up: "Chip Skowron's medical training and expertise, along with his knowledge of the health care industry, undoubtedly gave him a legitimate trading edge. But that wasn't enough. He still took a corrupt path to protect his hedge fund and himself from sustaining a multimillion-dollar loss, and then corruptly tried to obstruct the government's investigation."<ref name="greenwichtime"/> | ||
== Faithless Servant Litigation == | == Faithless Servant Litigation == | ||
Morgan Stanley filed a civil lawsuit against Skowron in October 2012. They wanted to recover the $33 million they'd paid to the SEC in settlement, plus the $32 million they'd paid Skowron in compensation from 2007 to 2010.<ref name="wikipedia"/> The lawsuit invoked New York's "faithless servant" doctrine. Under this legal principle, employers can claim back an employee's entire compensation for the period of disloyalty when the breach of fiduciary duty constitutes a material violation of the duty of loyalty.<ref name="ibtimes">"'Faithless' Ex-Morgan Stanley Fund Manager Ordered to Repay $31m to Former Employer." IBTimes UK. December 20, 2013. https://www.ibtimes.co.uk/faithless-ex-morgan-stanley-fund-manager-ordered-repay-31m-former-employer-1429819</ref> | |||
In December 2013, U.S. District Judge Shira Scheindlin | In December 2013, U.S. District Judge Shira Scheindlin issued a summary judgment ruling that Skowron must forfeit $31.1 million, which was 100 percent of the compensation he earned from Morgan Stanley between 2007 and 2010. Judge Scheindlin stated: "No reasonable jury could conclude that Skowron's insider trading and subsequent cover-up did not substantially violate the terms of his employment and permeate his service."<ref name="ibtimes"/> She called Skowron's conduct "the ultimate abuse of a portfolio manager's position."<ref name="ibtimes"/> | ||
== Prison Experience == | == Prison Experience == | ||
Skowron served his | Skowron served his time at the minimum-security Federal Prison Camp adjacent to FCI Schuylkill in Minersville, Pennsylvania. He was released in 2017 and remains subject to three years of supervised release. He's also barred from working in the securities industry.<ref name="wikipedia"/> | ||
== Aftermath and Impact == | == Aftermath and Impact == | ||
The arrest and guilty plea devastated FrontPoint Partners. Institutional investors immediately pulled $3 billion from the firm, which at that time managed $7 billion in assets and had previously had as much as $11 billion under management. These withdrawals forced FrontPoint to shut down most of its funds in May 2011.<ref name="wikipedia"/> | |||
Skowron later reflected on | Skowron later reflected on what he'd done: "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."<ref name="wikipedia"/> His country club expelled him following the conviction.<ref name="wikipedia"/> | ||
FrontPoint stressed that | FrontPoint stressed that its Healthcare Funds weren't charged with any securities law violations. Skowron had breached the firm's compliance policies and Code of Conduct. The funds were named as relief defendants and agreed to make a disgorgement payment with prejudgment interest to the SEC for the losses avoided, totaling $33 million.<ref name="wikipedia"/> | ||
== Terminology == | == Terminology == | ||
| Line 74: | Line 76: | ||
* '''Insider Trading''': The illegal practice of trading securities based on material, non-public information in violation of a duty of trust or confidence. | * '''Insider Trading''': The illegal practice of trading securities based on material, non-public information in violation of a duty of trust or confidence. | ||
* '''Expert Networking Firm''': Companies that connect investors with industry experts for legitimate research purposes | * '''Expert Networking Firm''': Companies that connect investors with industry experts for legitimate research purposes. These relationships became a focus of federal insider trading investigations. | ||
* '''Faithless Servant Doctrine''': A legal principle under New York law that allows employers to recover all compensation paid to an employee who breached their fiduciary duty during the period of disloyalty. | * '''Faithless Servant Doctrine''': A legal principle under New York law that allows employers to recover all compensation paid to an employee who breached their fiduciary duty during the period of disloyalty. | ||
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{{FAQ|question=What was Chip Skowron convicted of?|answer=Chip Skowron was convicted of conspiracy to commit securities fraud, securities fraud, and obstruction of justice for insider trading at FrontPoint Partners hedge fund.}} | {{FAQ|question=What was Chip Skowron convicted of?|answer=Chip Skowron was convicted of conspiracy to commit securities fraud, securities fraud, and obstruction of justice for insider trading at FrontPoint Partners hedge fund.}} | ||
{{FAQ|question=How long was Chip Skowron's prison sentence?|answer=Skowron was sentenced to 5 years in federal prison on November 18, 2011, plus 3 years of supervised release. He was released in 2017.}} | {{FAQ|question=How long was Chip Skowron's prison sentence?|answer=Skowron was sentenced to 5 years in federal prison on November 18, 2011, plus 3 years of supervised release. He was released in 2017.}} | ||
{{FAQ|question=How much did Chip Skowron have to forfeit?|answer=Skowron was ordered to pay $10.2 million in restitution and later forced to forfeit $31.1 million under the faithless servant | {{FAQ|question=How much did Chip Skowron have to forfeit?|answer=Skowron was ordered to pay $10.2 million in restitution and later forced to forfeit $31.1 million under the faithless servant doctrine, which was 100% of his compensation from 2007-2010.}} | ||
{{FAQ|question=What happened to FrontPoint Partners?|answer=FrontPoint Partners collapsed after Skowron's case. Investors withdrew $3 billion, forcing the firm to shut down most funds and over 200 people lost their jobs.}} | {{FAQ|question=What happened to FrontPoint Partners?|answer=FrontPoint Partners collapsed after Skowron's case. Investors withdrew $3 billion, forcing the firm to shut down most funds and over 200 people lost their jobs.}} | ||
{{FAQ|question=Where did Chip Skowron serve his sentence?|answer=Skowron served his sentence at the minimum-security Federal Prison Camp adjacent to FCI Schuylkill in Minersville, Pennsylvania.}} | {{FAQ|question=Where did Chip Skowron serve his sentence?|answer=Skowron served his sentence at the minimum-security Federal Prison Camp adjacent to FCI Schuylkill in Minersville, Pennsylvania.}} | ||
Latest revision as of 17:13, 23 April 2026
| Joseph F. "Chip" Skowron III | |
|---|---|
| Born: | c. 1968 Cocoa, Florida |
| Charges: | Conspiracy to commit securities fraud, Securities fraud, Obstruction of justice |
| Sentence: | 5 years federal prison, 3 years supervised release |
| Facility: | FCI Schuylkill (Minersville, Pennsylvania) |
| Status: | Released (2017) |
Joseph F. "Chip" Skowron III (born c. 1968) is an American former hedge fund portfolio manager. He became one of the most prominent figures in the federal government's largest insider trading crackdown.
Before his 2011 conviction for insider trading and obstruction of justice, Skowron served as co-portfolio manager of FrontPoint Partners LLC's healthcare funds. The case triggered FrontPoint's collapse and forced him to forfeit over $31 million to Morgan Stanley, his former employer, under the "faithless servant" legal doctrine.[1]
Background and Education
Skowron grew up in Cocoa, Florida. He attended Cocoa High School, then went on to earn his undergraduate degree from Vanderbilt University in 1990. He completed a medical degree (M.D.) from Yale University in 1994 and earned a doctorate (Ph.D.) from Harvard University as well.[2]
After finishing his medical training, he didn't stay long in any one place. He worked briefly as a healthcare analyst at SAC Capital Management in Stamford, Connecticut, then moved to Millennium Partners in New York, spending less than a year at each firm before joining FrontPoint Partners.[1]
Career at FrontPoint Partners
In 2003, Skowron joined FrontPoint Partners LLC, a Greenwich-based hedge fund where he co-founded its healthcare investment team. He climbed to co-portfolio manager of the firm's healthcare funds and held the title of managing director when Morgan Stanley bought FrontPoint for $400 million in 2006.[1] His pay was directly tied to how well the funds performed, earning him $13.5 million in 2007 and $7 million in 2008.[1]
Insider Trading Scheme
In February 2008, the Securities and Exchange Commission began investigating FrontPoint Partners' trading activity in Human Genome Sciences Inc. (HGSI) stock. This came shortly after HGSI announced negative results from a Phase III clinical trial of its hepatitis C drug Albuferon, which sent the stock down approximately 14 percent.[3]
The Benhamou Connection
Skowron developed a relationship with Dr. Yves M. Benhamou, a French physician and hepatitis C expert who sat on the Steering Committee overseeing HGSI's Albuferon clinical trial. What started as a legitimate consultant relationship through an expert networking firm turned into something improper: an exchange of confidential, non-public information.[3] From November 2007 through January 2008, Benhamou fed Skowron inside information about negative developments in the Albuferon trial.[3]
Court documents show that Skowron paid Benhamou in cash for the tips. At a medical conference in Barcelona, Spain, in April 2007, he handed Benhamou an envelope containing 5,000 Euros. After the illegal trades wrapped up in February 2008, Skowron met Benhamou in Boston and tried to give him a bag filled with additional cash.[3]
Trading Activity
Armed with Benhamou's insider information, Skowron ordered the sale of the FrontPoint healthcare funds' entire HGSI position. That's approximately six million shares. He did this during the six-week period before the company's public announcement. On January 22, 2008, the funds sold two million shares in a block trade just before the market closed. The next day, HGSI's share price crashed 44 percent after the negative trial results went public.[3] These trades helped FrontPoint avoid at least $30 million in losses.[3]
Investigation and Obstruction
When Skowron found out about the SEC inquiry in February 2008, he contacted Benhamou right away and ordered him to cook up a false story denying they'd ever discussed the trial results. He also instructed Benhamou to destroy related records. Skowron submitted false testimony to the SEC himself, claiming his trades were based solely on publicly available information and his own independent analysis.[1]
Benhamou was arrested on November 2, 2010, in Boston. After his arrest, he cooperated with authorities and pleaded guilty to conspiracy and securities fraud charges in April 2011. The evidence mattered enormously: his recorded admissions and proof of cash payments from Skowron became critical to building the case against Skowron.[1]
Federal Indictment and Prosecution
The FBI arrested Skowron on April 13, 2011. The U.S. Attorney for the Southern District of New York charged him with securities fraud and conspiracy to obstruct justice.[1] Initially, he denied everything. His defense attorney announced he'd plead not guilty. But once Benhamou pleaded guilty and agreed to work with the government, Skowron changed his mind.[1]
In August 2011, he pleaded guilty in federal court in Manhattan to conspiracy to commit insider trading and obstruction of justice.[1]
Sentencing
On November 18, 2011, U.S. District Judge Denise Cote handed down a five-year federal prison sentence, followed by three years of supervised release.[2] The judge ordered him to pay Morgan Stanley $10.2 million in restitution. That amount broke down to $3.8 million in legal fees and $6.4 million representing 20 percent of his compensation during the conspiracy period from 2007 to 2010. An appeals court upheld these awards.[1]
U.S. Attorney Preet Bharara summed it up: "Chip Skowron's medical training and expertise, along with his knowledge of the health care industry, undoubtedly gave him a legitimate trading edge. But that wasn't enough. He still took a corrupt path to protect his hedge fund and himself from sustaining a multimillion-dollar loss, and then corruptly tried to obstruct the government's investigation."[2]
Faithless Servant Litigation
Morgan Stanley filed a civil lawsuit against Skowron in October 2012. They wanted to recover the $33 million they'd paid to the SEC in settlement, plus the $32 million they'd paid Skowron in compensation from 2007 to 2010.[1] The lawsuit invoked New York's "faithless servant" doctrine. Under this legal principle, employers can claim back an employee's entire compensation for the period of disloyalty when the breach of fiduciary duty constitutes a material violation of the duty of loyalty.[4]
In December 2013, U.S. District Judge Shira Scheindlin issued a summary judgment ruling that Skowron must forfeit $31.1 million, which was 100 percent of the compensation he earned from Morgan Stanley between 2007 and 2010. Judge Scheindlin stated: "No reasonable jury could conclude that Skowron's insider trading and subsequent cover-up did not substantially violate the terms of his employment and permeate his service."[4] She called Skowron's conduct "the ultimate abuse of a portfolio manager's position."[4]
Prison Experience
Skowron served his time at the minimum-security Federal Prison Camp adjacent to FCI Schuylkill in Minersville, Pennsylvania. He was released in 2017 and remains subject to three years of supervised release. He's also barred from working in the securities industry.[1]
Aftermath and Impact
The arrest and guilty plea devastated FrontPoint Partners. Institutional investors immediately pulled $3 billion from the firm, which at that time managed $7 billion in assets and had previously had as much as $11 billion under management. These withdrawals forced FrontPoint to shut down most of its funds in May 2011.[1]
Skowron later reflected on what he'd done: "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."[1] His country club expelled him following the conviction.[1]
FrontPoint stressed that its Healthcare Funds weren't charged with any securities law violations. Skowron had breached the firm's compliance policies and Code of Conduct. The funds were named as relief defendants and agreed to make a disgorgement payment with prejudgment interest to the SEC for the losses avoided, totaling $33 million.[1]
Terminology
- Insider Trading: The illegal practice of trading securities based on material, non-public information in violation of a duty of trust or confidence.
- Expert Networking Firm: Companies that connect investors with industry experts for legitimate research purposes. These relationships became a focus of federal insider trading investigations.
- Faithless Servant Doctrine: A legal principle under New York law that allows employers to recover all compensation paid to an employee who breached their fiduciary duty during the period of disloyalty.
- Operation Perfect Hedge: The federal government's unprecedented crackdown on insider trading in the hedge fund industry that resulted in over 80 convictions.
Frequently Asked Questions
Q: What was Chip Skowron convicted of?
Chip Skowron was convicted of conspiracy to commit securities fraud, securities fraud, and obstruction of justice for insider trading at FrontPoint Partners hedge fund.
Q: How long was Chip Skowron's prison sentence?
Skowron was sentenced to 5 years in federal prison on November 18, 2011, plus 3 years of supervised release. He was released in 2017.
Q: How much did Chip Skowron have to forfeit?
Skowron was ordered to pay $10.2 million in restitution and later forced to forfeit $31.1 million under the faithless servant doctrine, which was 100% of his compensation from 2007-2010.
Q: What happened to FrontPoint Partners?
FrontPoint Partners collapsed after Skowron's case. Investors withdrew $3 billion, forcing the firm to shut down most funds and over 200 people lost their jobs.
Q: Where did Chip Skowron serve his sentence?
Skowron served his sentence at the minimum-security Federal Prison Camp adjacent to FCI Schuylkill in Minersville, Pennsylvania.
References
- ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Wikipedia. "Chip Skowron." https://en.wikipedia.org/wiki/Chip_Skowron
- ↑ 2.0 2.1 2.2 Greenwich Time. "Greenwich MD gets 5 years in prison for insider trading." November 19, 2011. https://www.greenwichtime.com/news/article/greenwich-md-gets-5-years-in-prison-for-insider-2276299.php
- ↑ 3.0 3.1 3.2 3.3 3.4 3.5 SEC. "Joseph F. 'Chip' Skowron III, et al." https://www.sec.gov/enforcement-litigation/litigation-releases/lr-21928
- ↑ 4.0 4.1 4.2 "'Faithless' Ex-Morgan Stanley Fund Manager Ordered to Repay $31m to Former Employer." IBTimes UK. December 20, 2013. https://www.ibtimes.co.uk/faithless-ex-morgan-stanley-fund-manager-ordered-repay-31m-former-employer-1429819