Morgan Stanley knew as early as 2008 that the SEC had been in contact with its subsidiary, FrontPoint Partners, about an insider trading investigation, Reuters reports.
This is the latest instalment in the increasingly torrid case involving Dr. Yves Benhamou, who was charged with insider trading by the SEC for tipping off a portfolio manager about unsuccessful drug trials at a company for which he worked, HGSI, which makes the drug.
Sources told Reuters that FrontPoint is the hedge fund that is supposed to have benefited from the tips, and the firm did annouce that its health-care portfolio manager, Chip Skowron, has been suspended pending the outcome of the trial.
Reuters suggests that maybe the insider trading scandal is the real reason Morgan Stanley is spinning-off the hedge fund this year.
When the revelation came in August that FrontPoint would be spun off, it was assumed that it was simply early fallout from the Volcker Rule.
Obviously this connection at the moment is merely speculative, but it would also be naive to dismiss any link.
Also, the spin-off might not absolve Morgan Stanley of culpability if FrontPoint is in fact charged by the SEC, lawyers say.
[L]awyers said even though Morgan Stanley knew about the civil insider trading investigation for quite a while, it probably was under no obligation to publicly disclose that fact. “This may or may not be material to Morgan Stanley in relation to its revenue,” said Ron Geffner, partner at Sadis & Goldberg in New York.
Morgan Stanley said no executives outside of FrontPoint managers were the subjects of the SEC investigation.
Morgan Stanley also confirmed that it continues to move forward with the FrontPoint spin-off and should complete the deal in weeks.