Hedge Fund Manager in Clinical Trial Insider Trading Bust

April 13, 2011

A hedge-fund manager who allegedly received tips from a French physician concerning disappointing results of a clinical trial by Human Genome Sciences surrendered to the Federal Bureau of Investigation Wednesday.

A hedge-fund manager who allegedly received tips from a French physician concerning results of a clinical trial by Human Genome Sciences Inc. surrendered to the Federal Bureau of Investigation Wednesday, the Wall Street Journal reported.

Joseph F. "Chip" Skowron III had been on leave from FrontPoint Partners LLC, a Greenwich, Conn., hedge fund, since November, after the U.S. Securities and Exchange Commission alleged that Dr. Yves M. Benhamou provided inside information to the manager about disappointing clinical trial data on the hepatitis C drug Albuferon, including word that one of the study participants died, the Journal said. As a result of the information, Skowron allegedly sold about 6 million shares of the Rockville, Md., drug developer, avoiding $30 million in losses, prosecutors charge.

Criminal and civil charges have already been brought against the Paris-based doctor, a liver disease specialist who served as a paid consultant to the hedge-fund manager, the Journal said.

According to the federal legal filing, Skowron paid Benhamou approximately 5,000 euros in cash in 2007, saying the cash was a "present" for Benhamou. Later that year, Skowron booked and paid for a trip to New York for Benhamou and his wife at a cost of about $4,624.83, the filing said. And in 2008, Skowron gave the doctor another envelope containing approximately $10,000 in cash, according to the legal filing. Read the complete document here.

In 2007, Human Genome Sciences claimed that Albuferon could become the choice treatment for hepatitis, the Journal said. But after higher doses had a negative impact on some of the patients, the company said in January 2008, that it would cut the dosage in the clinical trial due to a safety issue. Immediately after, the Rockville, Md., biotech's share price plunged 44%.

This isn’t the first time regulators have cracked down on insider trading involving clinical trials. In a past report, the Journal covered the lengths to which some biotech stock analysts will go to obtain insider information, including signing up as patients in trials and even pretending to be physicians.

Human Genome Sciences (NASDAQ: HGSI) shares were trading at $29.64 Wednesday. Read more about the charges here.