More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
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.