[ by Melanie Gretchen ]

Morgan Stanley plans to hold insider traders personally responsible, transferring blame and extracting millions of dollars from any convicted trader.  This is the brave new world the New York-based firm is pursuing, as it seeks to recover $10.2 million from Joseph F. "Chip" Skowron III.

Skowron, 43, was a hedge fund manager at Morgan Stanley’s FrontPoint Partners LLC, until he was charged in April 2011 with using inside information to avoid $30 million in losses, for which he is serving the first of 5 years in prison.  On 8/5/11, he pled guilty to conspiracy to commit securities fraud and obstruct justice.

For his crimes, U.S. District Judge Denise Cote ordered that Skowron not only forfeit $5 million, but pay restitution of $5.9 million to 5 investors that bought FrontPoint’s HGSI stock in block trades just before the inside information -- HGSI announced the clinical-trial results in January 2008.  Adding insult to injury, the judge on 3/20/13 ordered that he pay restitution of $3.8 million to a sixth victim, Morgan Stanley, for the bank’s legal fees and $6.4 million to cover one-fifth of his compensation from 2007 to 2010.  Today, he is appealing the judge's order before the U.S. Court of Appeals in Manhattan. 

"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." -- Judge Cote, in an opinion.

The case: U.S. v. Skowron, 12-1284, U.S. Court of Appeals for the Second Circuit (Manhattan). Morgan Stanley’s suit is Morgan Stanley v. Skowron, 12-cv-8016, U.S. District Court, Southern District of New York (Manhattan).

For further details, go to [Bloomberg, 1/14/13].