Doctor Charged With Tipping Hedge Fund Gets Bail

November 17, 2010, 1:32 PM EST
By Don Jeffrey and Patricia Hurtado

(Updates with comment from prosecutor in fifth paragraph.)

Nov. 17 (Bloomberg) -- A Human Genome Sciences Inc. consultant accused of tipping off hedge fund FrontPoint Partners LLC about the results of trials involving the hepatitis-C drug Albuferon was granted $3 million bail by a judge in New York.

Dr. Yves Benhamou, 50, of France, was charged Nov. 2 by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara with insider-trading and conspiracy.

U.S. Magistrate Judge Frank Maas set bail at $3 million, secured by $1 million in cash or property in the U.S. He said Benhamou will be subjected to “home incarceration” in the New York area and monitored electronically.

“All conditions must be met before his release,” Maas said.

“We’re gratified that the court set conditions of bail that we hope will permit Dr. Benhamou to resume his communications with his patients,” said David Zornow, Benhamou’s lawyer, after the bail hearing ended.

Assistant U.S. Attorney Pablo Quinones opposed home incarceration, telling the magistrate “he has the means to flee. He has a country that is a safe haven.” France does not extradite its citizens to other countries.

Suspect Cried

Benhamou, of Neuilly-sur-Seine, France, lowered his head and cried after the bail was set. He waved to his brother and sister as he was led out of the courtroom. His siblings declined to comment.

Zornow told the magistrate Benhamou would probably rent an apartment in the New York area. He could confer with his patients in France by e-mail and telephone.

“It would be truly tragic to have this man sitting in a prison when he could be communicating with, helping his patients,” Zornow told the magistrate.

Maas said he had considered bail of as much as $5 million.

Benhamou, whose expertise is hepatitis and liver diseases, was arrested in Boston while attending a conference after a two- count criminal complaint was filed against him in federal court in Manhattan. He waived his rights to a hearing in Boston and agreed to have a detention hearing in New York.

Benhamou was charged with one count of conspiracy to commit securities fraud and one count of securities fraud. He faces as long as 20 years in prison if convicted.

Cooperation

The hedge fund, FrontPoint, which is being spun off from Morgan Stanley, said on Nov. 2 it is “cooperating fully” with federal authorities. Dr. Chip Skowron, a co-portfolio manager of the Greenwich, Connecticut-based firm’s health-care funds, was placed on leave pending the outcome of the probe, the firm said.

FrontPoint held 3.3 million shares of Human Genome at the end of the fourth quarter of 2007, valued at $34.3 million, according to data compiled by Bloomberg News. It held none at the end of the following quarter. Human Genome fell 44 percent on Jan. 23, 2008, after saying it would change the dosing of its experimental hepatitis-C drug Albuferon in patient tests.

Before joining FrontPoint, Skowron was an analyst at hedge funds Millennium Partners LLC in New York and SAC Capital Advisors LLC in Stamford, Connecticut, according to FrontPoint’s marketing documents.

Benhamou acted as a paid consultant to at least six hedge funds while working as an adviser to Human Genome, a developer of gene-based drugs, and serving on its steering committee for Albuferon trials, prosecutors and the U.S. Securities and Exchange Commission alleged in a parallel lawsuit.

Human Genome said after his arrest that Benhamou is no longer a consultant and the company had cooperated with the SEC.

Benhamou repeatedly shared nonpublic information he gleaned from working for Rockville, Maryland-based Human Genome with his co-conspirator at the fund, helping it avoid $30 million in losses, prosecutors alleged in court papers.

The case is U.S. v. Benhamou, 10-MAG-2424, U.S. District Court, Southern District of New York (Manhattan). The SEC case is SEC v. Benhamou, 10-CV-8266, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Fred Strasser, Charles Carter

To contact the reporters on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net; To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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Also See: Hepatologist Arrested for Insider Trading