* 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
By Matthew Goldstein
NEW YORK, Nov 3 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
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
"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
"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
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,
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
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)