* Rabbi Balkany recorded talking about wrongful trading
* Balkany claimed he knew about FrontPoint's Skowron
* Skowron on leave from FrontPoint following insider case
* Balkany on trial for extorting money from SAC's Cohen
* Prosecutors say no evidence Cohen did anything wrong
NEW YORK, Nov 3 (Reuters) - The news that hedge fund FrontPoint Partners may have traded on inside information was made public on Tuesday, but the allegation quietly first appeared in the court record of an unrelated criminal case involving a Brooklyn, New York, rabbi charged with extortion.
Federal prosecutors in New York on Tuesday filed a criminal complaint accusing French doctor Yves Benhamou of giving inside information to a hedge fund that sources identified on Tuesday as FrontPoint. [ID:nN02222004]
The hedge fund late Tuesday issued a statement saying it is cooperating with authorities and has put one of its top healthcare managers, Chip Skowron, on leave. An attorney for Benhamou, the only person charged in the investigation, declined to comment.
Allegations of potential improper trading by Skowron and FrontPoint earlier surfaced in a separate criminal proceeding, in which Rabbi Milton Balkany is charged with trying to extort money from hedge fund billionaire Steve Cohen.
The rabbi made his claims about improper trading by Skowron and FrontPoint in telephone calls with a federal investigator who was looking into the allegation that Balkany was trying to extort money from Cohen, who prosecutors said did nothing wrong.
In transcripts of the phone calls, Balkany tells a federal investigator that he has heard FrontPoint's Skowron sometimes received advance tips on the federal approval process for new drugs.
"This Skowron not only did it for himself, he sold it to others," Balkany told a federal investigator, according to a transcript of one of the taped phone calls.
The conversations were recorded in January by a federal investigator. Last week federal prosecutors included transcripts of those phone calls in a filing submitted to the court. Balkany's trial began on Monday.
It's not clear how Balkany, who is not known to have any hedge fund affiliations, would have been in a position to know about Skowron. While Skowron is well known in the world of healthcare hedge fund investing, he is hardly a household name and not nearly as famous as Cohen.
Skowron, who lives in Cos Cobb, Connecticut, could not be reached for comment.
Bill Singer, a securities attorney, said this may be a case where Balkany tried to piece together information and rumors he had heard.
"The street is so filled with rumors that sometimes you become your own worst enemy by piecing together a bunch of information and then pretending you have inside information," said Singer, commenting on the the confluence of two separate criminal cases.
In February, federal prosecutors charged Balkany with trying to extort $4 million from Cohen, the founder of SAC Capital Management, a $12 billion hedge fund in Stamford, Connecticut.
Prosecutors contend Balkany told Cohen's lawyers that if the manager paid the money, he would work to keep a person who knew about insider trading at SAC Capital from talking.
Assistant U.S. attorney Jesse Furman told a jury during Monday's opening argument that Balkany's accusations of illegal insider trading by Cohen and his fund SAC Capital were nothing more than "lies, pure and simple." Furman added there is no evidence that Cohen or his hedge fund did anything wrong.
The very next day, prosecutors charged Benhamou with tipping off FrontPoint about problems with a clinical drug trial at biotechnology firm Human Genome Sciences HGSI.O. Investment bank Morgan Stanley (MS.N) is in the process of spinning off the hedge fund.
Neither FrontPoint nor Skowron is named in the complaints filed against Benhamou by prosecutors and the SEC, but people familiar with the investigation and the fund have confirmed the identities. Authorities have not charged the hedge fund or Skowron with any wrongdoing.
The timing of Balkany's trial on the extortion charge and the decision by federal prosecutors to charge Benhamou, who did consulting work for Human Genome and a number of hedge funds, appears to be pure coincidence. Balkany does not mention Benhamou in any of the phone conversations in any of the taped conversations submitted by prosecutors.
In one of the phone calls, Balkany said of Skowron's ability to get inside information on drug trials: "he's still actively doing this. I mean, he's been doing it, for many years."
A FrontPoint spokesman did not immediately know if Skowron had an attorney. The lawyer for the rabbi declined to comment.
As part of the extortion attempt, Balkany claimed that some of the inside tips Skowron received might have been shared with people associated with SAC Capital.
One of Cohen's lawyers contacted federal prosecutors late last year after getting a call from Balkany seeking money. Within days, federal authorities launched a sting that culminated in Balkany's arrest. (Reported by Matthew Goldstein)