A convicted fund manager was ordered by a federal judge to pay his former employer, Morgan Stanley, $10.2 million.  The manager, Joseph Skowron, a onetime star hedge fund manager, currently is serving jail time for insider trading. In a ruling issued late Tuesday, Federal Judge Denise Cote in Manhattan said that Skowron, who had managed the Morgan Stanley-owned FrontPoint Partners, owed the full $3.8 million in legal fees the bank incurred as a result of his crimes.  The judge also ordered Skowron to return $6.4 million to Morgan Stanley, representing one-fifth of his $32 million in compensation during the 4 years he perpetrated his scheme. MS's Restitution Claim. As part of the government’s criminal case, Morgan Stanley filed a restitution claim, as a victim of his fraud, asking to recover about $45 million from Skowron.  Judge Cote rejected the argument made by Skowron’s lawyers that Morgan Stanley did not deserve any restitution because the bank was not a victim of the crime, in part because the insider trading offense was not a fraud against the bank.  The judge added:

"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 denied Morgan Stanley recovery of $33 million from Skowron that the firm paid to the SEC to settle claims against FrontPoint connected to Skowron’s scheme.  The $33 million represented losses FrontPoint avoided as a result of the insider trading - money neither the hedge fund nor Morgan Stanley was entitled to by law. The judge also noted that when Morgan Stanley spun out the now-defunct FrontPoint in 2011, it agreed to indemnify the fund for any disgorgement penalty resulting from the government’s investigation.  According to the lawyer handling the restitution claim, Morgan Stanley is planning to seek the $33 million from Skowron in a separate civil action. Joseph Skowron's Legacy. A Yale-educated doctor, Skowron was one of numerous physicians who left the medical profession during the market boom to achieve Wall Street riches, by becoming a highly regarded hedge fund manager at FrontPoint Partners, which was acquired by Morgan Stanley in 2006. In 2011, however, federal prosecutors charged Skowron with bribing a French doctor to leak him confidential results about clinical drug trials - a charge to which Skowron pleaded guilty in August;  Skowron also admitted lying to federal regulators in an attempt to cover up his crimes. Joseph "Chip" Skowron is serving a 5-year prison sentence at a federal penitentiary in Minersville, PA.  He also was ordered to forfeit $5 million. Click to access referenced story:  [Dealbook, 3/21/12].