Insider Trading at its Finest: FrontPoint Manager Cautioned Regarding Trades

National securities law prohibits the use of material, non-public information when conducting trades of stocks and bonds. Put another way: feel free to use any tips or information you like in trading so long as the information is public. This relatively obvious and simple rule has recently landed a hedge-fund manager at FrontPoint Partners in hot water.

Joseph F. "Chip" Skowren is a doctor that the Firm hired in 2003 to manage investments in health-care stocks. FrontPoint recently put Mr. Skowron on leave pending the outcome of an insider trading investigation concerning a bio-technology stock. Although documents filed in United States District Court in Manhattan by the United States Attorney's Office and the Securities and Exchange Commission do not name Mr. Skowron or FrontPoint, the firm acknowledged that the hedge-funds in question are theirs. As Jenny Strasburg and Jean Eaglesham explain in the New York Times, "[t]he prosecutors documents allege that tips from Dr. Benhamou, a 50-year-old liver-disease specialist in Paris, in late 2007 and early 2008 enabled the hedge-fund firm to avoid $30 million of losses."

So far only Dr. Benhamou has been named in the indictment which alleges two counts of securities fraud. Neither FrontPoint nor Mr. Skowren have been indicted nor are any such indictments expected. Dr. Benhamou's charges do, once again, focus our attention on insider trading and government oversight.

Large firms which control billions of dollars worth of securities are not the only groups that come under the scrutiny of the federal government and independent regulatory bodies. Rather, individuals often become the focus of these investigations. When this occurs, these individuals certainly need quality representation by counsel experienced in fighting for their rights. Nishay K. Sanan is an attorney with more than 14 years experience in federal litigation, with a focus on securities fraud. For questions regarding representation in such matters our website in the banner at the top of the page.

Portions of this article are based on the New York Times' November 5, 2010 article "FrontPoint Cautioned Manager On Trades" by Jenny Strasburg and Jean Eaglesham.