NEW YORK – Morgan Stanley is suing a former employee who was convicted of insider trading in order to recover $33 million it said it paid U.S. regulators to settle civil claims relating to the crimes, court papers showed.
In a complaint filed in Manhattan federal court on October 31, Morgan Stanley sued ex-FrontPoint Partners hedge fund manager Joseph "Chip" Skowron over the funds the bank paid to the U.S. Securities and Exchange Commission. The lawsuit also called for unspecified compensatory and punitive damages.
Doctor-turned-stock picker Skowron pleaded guilty in August to trading stock of Human Genome Sciences Inc in 2008 based on non-public information he admitted to having received from a consultant for the biotech company, who also pleaded guilty to insider trading charges.
Skowron was sentenced to five years in prison and ordered to forfeit $5 million.
"Beyond the harm attendant to having one of its managing directors plead guilty to serious criminal conduct, the firm expended its own reputational capital by defending Skowron during the years it believed, based entirely on his misrepresentation, that he had not violated the law," the complaint said.
Morgan Stanley - which acquired FrontPoint in 2006 - had sought nearly $45 million from Skowron over his fraud, but a U.S. judge in March said the bank was not entitled to recoup the $33 million SEC payment.
Manhattan federal court judge Denise Cote instead ordered Skowron to pay $10.2 million in restitution to his former employer. Skowron has appealed that order.
Lawyers for Morgan Stanley and for Skowron did not immediately return calls seeking comment.
The case is Morgan Stanley v. Joseph "Chip" Skowron, U.S. District Court for the Southern District of New York, No. 12-cv-8016.
(Reporting By Basil Katz; Editing by Michael Perry)