SEC Charges French Doctor With Insider Trading That May Have Helped FrontPoint Avoid Losses

Yves Benhamou

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The SEC has charged a French doctor with insider trading that may have allowed FrontPoint’s healthcare-focused group to avoid up to $30 million in losses.Dr. Yves Benhamou is accused of tipping off a FrontPoint portfolio manager, Chip Skowron, when clinical drug trials for Albuferon, a potential hepatitis treatment, were foundering.

Benhamou apparently oversaw the steering committee for Human Genome Sciences (HGSI), which makes the drug.

The SEC complaint alleges that six healthcare focused hedge funds dumped 6 million shares of HGSI common stock on several key dates between November 2007 and January 23, 2008, just before before negative trial results were made public.

One of the hedge funds was FrontPoint, says Reuters.

And one of the funds went back and bought more shares at a reduced price after HGSI revealed the dangers that had been discovered in Albuferon’s trials, says the SEC filing.

The SEC complaint does not reveal that the hedge fund in question was FrontPoint.

Reuters reported the rumour earlier today.

According to Reuters, FrontPoint’s healthcare-focused group was established in 2003 when, “Chip Skowron, Jason Bonadio and Ajay Bhalla joined the firm from rival hedge fund firm SAC Capital Management.”

The SEC filing also reveals that Benhamou might have provided consulting services to the FrontPoint portfolio manager (as well as the crew of investment advisors and hedge funds with which the portfolio manager was affiliate). And he also might be friends with Skowron.

“Many of Benhamou’s consults with the portfolio manager were informal,” the complaint says.

According to the SEC,

Commencing in November 2007, and on multiple occasions prior to January 23, 2008, Benhamou learned material non-public information about the Albuferon trial that had negative implications for Albuferon’s future commercial potential. He communicated such information to the [FrontPoint] portfolio manager in violation of his duty to HGSI to keep the information confidential. The portfolio manager… immediately took action to sell the hedge funds’ holdings of HGSI common stock.

Benhamou, by the way, is 49 years old and a citizen and resident of France. He specialises in hepatitis and other liver diseases, and was involved with Albuferion’s clinical trials in two ways, according to the complaint.

1. He served on the Steering Committee that oversaw the trial

2. He was a “country lead investigator” for France and other parts of Europe.

The SEC says that,

By virtue of his role in the clinical trial, and in accordance with the terms of his contract with HGSI, Benhamou owed HGSI a duty to hold in strict confidence all information learned in connection with his participation in the clinical trial and to use such information only for the benefit of HGSI.

Read the SEC complaint here >

For details on FrontPoint’s admission, go to Reuters >