Judge has ordered Joseph F. Skowron, a onetime star hedge fund manager now serving jail time for insider trading, to pay $10.2 million to his former employer, Morgan Stanley.
In a ruling late Tuesday, Judge Denise L. Cote of Federal District Court in Manhattan ruled that Mr. Skowron, who was a portfolio manager at FrontPoint Partners, which is owned by Morgan Stanley, owed the bank $3.8 million in legal fees as a result of Mr. Skowron’s crimes.
The judge also ordered Mr. Skowron to return $6.4 million to Morgan Stanley, representing one-fifth of his approximately $32 million in pay during the four years he perpetrated his scheme.
Those amounts are a fraction of the $45 million that Morgan Stanley had requested in a victim’s compensation claim that the bank had made as part of the government’s criminal case.
Mr. Skowron’s lawyers argued that Morgan Stanley did not deserve any restitution because the bank was not a victim of the crime, in part because the insider trading offense was not a fraud against the bank. Judge Cote rejected that argument.
“His crimes deprived Morgan Stanley of the honest services of its employee, diverted valuable corporate time and energy in the defense of Skowron and FrontPoint, and injured Morgan Stanley’s reputation,” she wrote.
In a statement, Josh Epstein, a lawyer for Mr. Skowron, disputed Judge Cote’s ruling.
Mr. Epstein said that the defense was reviewing the court’s decision and considering its options, but that Mr. Skowron “has made it clear he will accept all responsibility for his actions under the law.”
“However, we do not believe that Morgan Stanley is even entitled to the amount of restitution it has secured with this decision,” Mr. Epstein said.
Mr. Skowron, a Yale-educated doctor, was one of numerous physicians who left the medical profession during the market boom to pursue Wall Street riches. He became a highly regarded hedge fund manager at FrontPoint Partners, which was acquired by Morgan Stanley in 2006.
But last year, federal prosecutors charged Mr. Skowron with bribing a French doctor to leak him confidential results about clinical drug trials. Mr. Skowron pleaded guilty in August and also admitted lying to federal regulators in an attempt to cover up his crimes.
Mr. Skowron, known as Chip, was sentenced to five years in prison and ordered to forfeit $5 million. He is serving his prison term at a federal penitentiary in Minersville, Pa.
Judge Cote did not require Mr. Skowron to repay Morgan Stanley the $33 million that the bank had paid the Securities and Exchange Commission to settle claims against FrontPoint stemming from Mr. Skowron’s scheme. The $33 million represented losses FrontPoint avoided as a result of the insider trading — money that neither the hedge fund nor Morgan Stanley was entitled to by law, the judge said.
The ruling also noted that when Morgan Stanley spun out the now-defunct FrontPoint in 2011, it agreed to indemnify the fund for any disgorgement penalty resulting from the government’s investigation.
Kevin H. Marino, the lawyer representing Morgan Stanley in its restitution claim, said in an interview on Tuesday that he was pleased with the court’s ruling. He added that the bank planned to seek the $33 million from Mr. Skowron in a separate civil action.
Mr. Epstein, in his statement, criticized the bank for pursuing a $33 million claim that Judge Cote had already rejected.
“It is startling that Morgan Stanley would ignore the court’s clear decision to make a grab for money to which it has no legal right,” Mr. Epstein said.
Read More: http://dealbook.nytimes.com/2012/03/21/convicted-frontpoint-manager-to-pay-10-2-million-to-morgan-stanley/