Chip Skowron was arrested and surrendered to the FBI today on charges that he committed securities fraud.
The United States District Court’s complaint against Skowron contains grim details about how he and Dr. Yves Benhamou exchanged information.
In short, Dr. Benhamou was involved in the clinical trial of a new dosage of a hepatitis treatment called Albuferon. When Benhamou found out that two participants in the trial developed interstitial lung disease, killing one and hospitalizing the other, he (allegedly) told Skowron.
Minutes after a call with Benhamou, Skowron called to tell a (FrontPoint) trader, “load up to sell 1/2 the HGSI in the funds; no rush, work with volume.”
Then, Skowron emailed Benhamou: “Let’s keep this very confidential. Thanks shaun [sic] for calling. I will get back to you.”
The FBI alleges that Skowron then had the following IM conversation with either Dr. Jason Bonadio, Ajay Bhalla, and Kevin Caliendo, managing directors with Morgan Stanley who might also be implicated. It’s not known which of the three the conversation was with, but Skowron instructed him to sell HGSI, the maker of Albuferon.
Later, Benhamou allegedly told Skowron that HGSI would be discontinuing the part of the trial that included the deadly dosage. Seven minutes after their alleged conversation, Skowron IMed a trader: “sell the hgsi, all of it.”
The manager had some difficulty selling the shares. So Skowron allegedly got nervous that FrontPoint would take a loss and urged another trader to sell the HGSI shares “more aggressively.”
It worked. FrontPoint ultimately took on a hedge (allegedly based on the insider information). And in the end, the six FrontPoint hedge funds saved $30 million in losses.
In order to compensate Dr. Benhamou for his tips, Skowron did a couple things. The first was to simply be friendly. When the Dr. contacted Skowron about his daughter’s coming to New York City, Skowron told him that he would make arrangements for a car service to pick her up at the airport. He told Benhamou, “Don’t hesitate to let me know if you need anything else.”
The second thing he did was pay off Benhamou in cash. Skowron met Benhamou in Barcelona to give him 5,000 Euros in cash. Later, he paid for Benhamou’s hotel stay in New York City (it cost $4,624.83). And in April 2008, Skowron visited Milan where he gave Benhamou $10,000 in cash.