A group of health-care-related hedge funds affiliated with FrontPoint Partners LLC agreed to pay $33 million to settle Securities and Exchange Commission charges that their former portfolio manager improperly traded on inside information involving confidential clinical drug trial results, the SEC said.
The manager, Dr. Joseph F. “Chip” Skowron, faces federal criminal charges as well as SEC civil charges in connection with his trade involving Human Genome Sciences Inc. (HGSI). The SEC said HGSI stock plummeted 44 percent after it announced in January 2008 that its treatment for Hepatitis C performed poorly in late-stage trials.
Skowron was tipped to the development several weeks earlier by a medical researcher who served on the steering committee overseeing the drug trial; Skowron sold the funds' stake in the company, avoiding at least $30 million in losses, regulators said. The researcher, Dr. Yves M. Benhamou, also was charged by the SEC. Benhamou previously provided consulting services to Skowron, and the two had become friends. At Skowron's request,
Benhamou agreed to lie about his communications with the portfolio manager following the stock trade; he later accepted $10,000 in cash from Skowron at a medical conference in Milan, Italy in April 2008, the SEC said.
Three top executives at bankrupt broker/dealer GunnAllen Financial Inc. last month settled SEC charges that they failed to protect confidential customer information when the firm was winding down a year ago. Regulators said former President Frederick O. Kraus allowed former National Sales Manager David C. Levine to download customer names, addresses and asset values from more than 16,000 accounts to a portable thumb drive that Levine took with him to a new employer.
Former Chief Compliance Officer Mark A. Ellis also was charged with failing to ensure that GunnAllen's policies were designed to safeguard confidential customer information. The SEC said it was the first time that it had assessed financial penalties against individuals charged solely with violations of Regulation S-P, the agency rule that mandates financial firms protect confidential client data. Regulators said several serious security breaches took place at GunnAllen from July 2005 to February 2009; they included an incident in which an employee who was fired had used stolen passwords to access its email system, and another incident in which three laptop computers belonging to GunnAllen's registered reps were stolen.
Kraus and Levine were ordered to pay $20,000 each in penalties, and Ellis was ordered to pay $15,000. In settling, the three neither admitted nor denied the SEC's findings in the case.