Morgan Stanley Seeks More Than $31 Million From Skowron

Morgan Stanley says Joseph “Chip” Skowron, the former hedge fund manager serving a five-year prison term for insider trading, should forfeit more than $31 million in compensation for failing to fulfill his duties.

Skowron managed Morgan Stanley’s FrontPoint Partners LLC until he was charged in 2011 with using inside information to avoid $30 million in losses. The bank sued Skowron after he pleaded guilty to conspiring to commit securities fraud and obstruct justice, and seeks to recover at least $33 million it paid U.S. regulators.

Morgan Stanley yesterday asked U.S. District Judge Shira Scheindlin in Manhattan to issue a partial summary judgment, or a ruling before trial. Morgan Stanley also seeks unspecified punitive damages for claims Skowron failed to faithfully discharge his responsibilities to his employer because of his insider trading.

“His faithlessness -- insider trading and protracted concealment of that crime, both in violation of his core duties he owed the firm -- permeated his employment,” Kevin Marino, a lawyer for the bank, said in yesterday’s court filing. “As a result, he must now repay all of the compensation he received during his faithless service.”

Morgan Stanley won’t be happy until Skowron is penniless and destitute, Joshua Epstein, a lawyer for Skowron, said in an e-mail.

‘New World’

“We’re in a new world now,” Epstein said. “Man admits to crime and pays the price by going to prison. Man pays millions in fines and restitution. Not enough. Morgan Stanley wants it all. Every cent he ever made.”

In July, Scheindlin ruled the New York-based bank could seek to prove its fraud claim, saying that Skowron covered up his crimes as the bank and U.S. government investigated.

The judge granted Skowron’s motion to dismiss Morgan Stanley’s breach of fiduciary duty claim related to the bank’s payment of $33 million in settlement with the U.S. Securities and Exchange Commission. Morgan Stanley had agreed to cover any liabilities incurred by FrontPoint for alleged violations of the law, according to the judge.

In August 2011, Skowron admitted to helping FrontPoint avoid more than $30 million in trading losses on Human Genome Sciences Inc., a Rockville, Maryland, pharmaceutical firm that was acquired by GlaxoSmithKline Plc.

Hepatitis Drug

Skowron admitted he got secret tips from a French physician, Yves Benhamou, who helped oversee a clinical trial of a Human Genome hepatitis drug, Albuferon. After Benhamou told Skowron about disappointing results in the drug trial, Skowron sold Human Genome shares in FrontPoint’s funds. Benhamou, who pleaded guilty to tipping Skowron, was sentenced to time served.

Skowron, a Yale University and Harvard University-trained doctor who quit medicine for Wall Street, is serving his term at McKean Federal Correction Institution in northwestern Pennsylvania, according to the Federal Bureau of Prisons website.

The Morgan Stanley case is Morgan Stanley v. Skowron, 12-cv-08016, U.S. District Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Skowron, 1:11-cr-00699, U.S. District Court, Southern District of New York (Manhattan). The appeal is U.S. v. Skowron, 12-1284, U.S. Court of Appeals for the Second Circuit (Manhattan).

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