More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
On Friday, Dr. Joseph "Chip" Skowron, former FrontPoint Partners hedge fund manager, got the bad news: he was sentenced to five years in prison for his part in an insider trading scheme in U.S. District Court in New York. He also was fined and ordered to pay restitution.
Reuters reported that in August Skowron had pleaded guilty to the charge of trading in 2008 on nonpublic information. He had admitted receiving information from a French doctor, Yves Benhamou, regarding the biotech company Human Genome Sciences Inc., for which Benhamou served as a consultant and whom Skowron had bribed for confidential results about clinical drug trials. In April Benhamou pleaded guilty to providing the information.
Manhattan federal court Judge Denise Cote had sharp words for the Yale-educated physician, according to a New York Times report. She was quoted saying, “Your criminal activities caused investors to lose money, undermined the integrity of the U.S. securities laws and caused many people to lose jobs.”
In imposing the sentence, the maximum allowable under the agreement reached between U.S. prosecutors and Skowron ’s attorney Jim Benjamin, she told Skowron, "You engaged in a pattern of deceit. You bribed and corrupted another physician." In addition to the five-year sentence, Cote ordered Skowron to forfeit $5 million, and added that he would have to pay millions more in restitution; the amount will be decided by June of 2013.
Skowron had managed several health-care funds previously. In addition to the insider trading charge, he also admitted giving false testimony under oath to the SEC. After the news of the insider trading charges hit, investor withdrawals from the hedge funds run by FrontPoint, which was formerly acquired and then spun off by Morgan Stanley, forced closure of the fund earlier in the year, as previously reported by AdvisorOne.com.
More repercussions will follow, with outstanding claims against the doctor still pending. Ironically, one is from Galleon Group, whose manager Raj Rajaratnam was also convicted for insider trading and who was hit with the longest sentence for such an offense in U.S. history.