May 21, 2011 · 9:19 am

Chip Skowron III brings down $7 billion hedge fund

Pretty impressive for a simple schnook from Dubling Road. One $30 million insider trade (okay, delivering bags of cash around the world didn’t help) and presto! His firm’s out of business, his co-workers are unemployed and no one, especially ol’ Chip, will live happily ever after.

45 Comments

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45 responses to “Chip Skowron III brings down $7 billion hedge fund”

  1. Anonymous
    May 21, 2011 at 10:11 am

    Maybe the only one left smiling in this deal gone bad is Morgan Stanley – FP bought back majority ownership just last month after the MS purchase of FP in 2006. But doesn’t that money, if tainted, put MS in a position to return said proceeds?

  2. Inagua
    May 21, 2011 at 10:40 am

    Chris – Do I sense some indignation about bags of cash for inside information? I thought you considered laws against insider trading silly? Or is it just paying for inside information that bothers you, as oppossed to trading on it?

    • christopherfountain
      May 21, 2011 at 4:06 pm

      Inagua, while I do think that insider trading is a made-up, pointless crime, it’s illegal all the same. The good doctor clearly knew that what he was doing was illegal – hence the bags of cash – and he recklessly endangered his entire firm just so he could line his pockets. Not nice.

  3. Bob A.
    May 21, 2011 at 12:28 pm

    I know a guy there who says the last few months have been horrible. Very few trades, nothing going on, general depression. He had given his notice and was leaving the end of the month anyway. And to think some senior managers bought a majority stake a few months ago…they are the real losers.
    Maybe Chip can throw a closing down party??

  4. The "I Had No Idea" Wives Club
    May 21, 2011 at 4:22 pm

    Looks like Mrs. Skowron III is soon to be an inductee, next to pretty and powerful other new members – Maria Shriver and Anne Sinclair. Hard to understand how all these smart women end up with men who rob and philander. If I were standing next to any one of them, I’d flick their foreheads or give them a Three Stooges Woo Woo Nyuk Nyuk.

  5. Walt
    May 21, 2011 at 4:55 pm

    Dude –
    Not nice? NOT NICE!!! Where do you live? Frigging La La Land? You want nice? Buy a damned puppy. Or play hide the salami with Bar what’s her name. That is nice. This is business, and business is war. YES THAT’S RIGHT. It is.
    Water boarding is illegal, right? So we shouldn’t use enhanced torture techniques, and instead feed these camel jockey’s malomar’s and tea, and ask them to PLEASE tell us where Bin Laden is. Correct? Great way to lose a war and have innocent people die, you loser.
    Do you describe a listing as convenient to transportation when it is built on top of the Metro North train tracks? Do you tell people the noise from I-95 is really the sound of a babbling brook? This is Greenwich it’s different? Prices never go down!! Is that NICE?? You and your fellow “professional” real estate agents would cut a buyers throat for a quarter. And you know it. Is that nice? You hypocrite.
    Anyhows, almost 6:00. I figure I better go dump before the Rapture starts. Did you spend all your money today? Blow it all on a pack of gum? If you make it to the other side, I will save you a place inline. Dress up like Saint Peter so I know it’s you.
    Your Pal,
    Walt

  6. LLS2
    May 21, 2011 at 5:48 pm

    hard to feel sorry for these guys and anyone else in finance for that matter.

    they all know the risk and reward before entering that line of work (even poor dick fuld).

    they and their oh so important wives will be ok just like back in 2008.

  8. Inagua
    May 21, 2011 at 9:39 pm

    LLS2 – I am curious about your reference to “even poor Dick Fuld.” Fuld took over $500 million out of Lehman. He never ate the dog food he feed his customers and he virtually never held on to any Lehman stock after he exercised his options. In what sense is he “poor?”

  9. anon
    May 21, 2011 at 10:08 pm

    isn’t the only real senior managers bought back frontpoint from morgan stanely was to cover their tracks, because if they knew he was insider trading they could not possibly buy it back, but since they did buy it back, they look innocent?

  10. anon
    May 21, 2011 at 10:10 pm

    actually tehcnically, isn’t it chip skowron the second right?

  11. Greenwich Gal
    May 21, 2011 at 10:28 pm

    LLS2 – Please. Hard to feel sorry for anyone in finance?
    Sometimes I think I am married to one of the few honest financiers left in America….but I know there are more.
    These guys – the honest good ones – are the bedrock of the business. They are the ones that fund the new companies and the dreams of entrepreneurs and bring new products and servies and in general, make may things better, cheaper and more streamlined for people around the world. Think you can build a better mousetrap? – Well you better find someone to finance your idea. Odds are you won’t be able to do it by yourself.
    This is part of economic freedom – and I guess I am getting a little sick of people crapping on the bankers and money men.

  12. Inagua
    May 22, 2011 at 7:21 am

    GG – You are absolutely correct about the central role the financial services industry plays in the economy. But it only takes a few bad actors like Walt lying about due diligence; or Razmatazz cheating with inside information; or Dick Fuld quite openly and legally screwing both his customers and his investors to poison the public mind against all who work in the field.

  13. Bob A.
    May 22, 2011 at 8:40 am

    Anon, Frontpoint was not a typical hedge fund. It was a group of different funds where managers were given tremendous autonomy. Thus, our friend Chip could do what he wanted. A typical hedge funds is one fund, and is transparent with the SEC. From what I understand, Frontpoint has a couple of funds where there is $ locked in for a long period of time. These managers thought they could make a go of it with these couple of funds, Steve Eisman and his reputation, etc. That is why they bought back most of the company from Morgan Stanley. But these funds (and all markets) are based on one thing: confidence. No confidence, huge market redemptions =goodbye Frontpoint. And Chip will go from his big house on Doubling to the REAL big house.

  14. Anon
    May 22, 2011 at 10:08 am

    Who here thinks Chip Skowron is REALLY going to do jail time?

    • christopherfountain
      May 22, 2011 at 2:26 pm

      i think he will, Anon, simply because of his poor timing. During Watergate, lawyers who would have received a wrist slip before (and after) went to prison. later, it was corporate executives who fudged the books. Today, it’s bank fraud and inside traders. I always cautioned my clients not to commit the crime de jure but Chip wasn’t a client.

      Just as an example, Jimmy Lecata, he of the Meeting House Road disaster, pled guilty to a $6 million bank fraud just months before the mortgage fraud hit the news. Jimmy got a day in jail; six months later, he’d have been looking at five years.

  15. Daniel
    May 22, 2011 at 11:46 am

    What risk,GG? With all the counter party positions, there really is no risk. Not to mention the proximity to the market.

  16. Earth Ocean Sky Redux
    May 22, 2011 at 1:16 pm

    GG: You are one of the lucky ones, no doubt, having such an honest and ethical husband but I wonder how many of the wives of the others, the ones who got caught, would have said the same before their men got hauled off in fisticuffs? I fear many wives are, even in this age of enlightenment, clueless to what their husbands do. Some clueless not because they are dumb, but clueless because they like the lifestyle they have been afforded by the money and live in a bubble of denial. I am NOT, in any way shape or form, including you in this group. I’m just saying, there are many wives who don’t want to know if their husband is legit or not.

    A woman I know as an acquaintance wrote a book called Summer Kitchen, based on the true story when her Bedford husband got hauled off to jail for a ponzi scheme and she got left with a big fat nothing. She even spoke on Oprah about how she, a Yale educated journalist, refused to acknowledge that the money was coming in so fast, and going out equally fast, because she didn’t want the “fun” to end.
    I’d love to know your thoughts.

  17. LLS2
    May 22, 2011 at 3:46 pm

    GG: still hard to feel sorry. Live by the sword…. well you know the saying.

    if i had children, i would tell them to go into finance because that’s the only profession where one can make any kind of decent money these days. forget science, medicine or law. And forget all the bullshit about following your dreams or doing work to help others, because in the end we’re all serfs/peasants/ indebted servants to the 01%.

    should i be grateful for bankers because they allow me to go into debt to live in america ?

  18. Greenwich Gal
    May 22, 2011 at 6:14 pm

    So here is the deal:
    To Daniel: There is always risk. Risk in any and everything – but especially finance. Risk of being wrong. Risk of bad judgement. Risk of not knowing – the market in unknowable – it IS predictacble, but not entirely. So there is the risk of blowing your wad or your client’s wad and being out of business. If you win, you are rewarded handsomely and if you lose, you blow up. Of course there are less risky financial ventures of course, but that is another story.
    The cheating – which of course, is in every industry, comes from those who try to avoid risk. Which is exactly what ol’ Chip and all the others were trying to do. The more information he could glean the less inherent risk he would expose his investments to…
    The problem with this industry is where do you draw the line between doing your homework/ good old fashioned investigation and illegal market knowledge. It is a fine line. And it is often hard to prove.
    So – there. As a young banker’s wife many years ago, I once jokily suggested putting a few stock buys in on a company that my husband was doing some M&A work for..boy, did I get sent to the woodshed. I learned about my husband’s true character that day.
    I have seen quite a few ups and downs of careers. Here is something I have learned…
    There are tons of smoke and mirrors in this town – people who are “faking it til they make it…” Some of these people think that if they have money, they will have admiration, love, envy, celebrity, etc. I mean everybody wants that, right? And the wives who bury their heads in the sand – they want the same thing. But some are seduced by the trophies of success and not by the actual work of it – they want the destination but not the journey – so they cheat.
    There are cheaters everywhere! Not just in finance… -Do you know how Navy Seals can spot a fake? – If a guy brags about being a SEAL – they know he is a cheater. Because being a SEAL is so profound and meaningful, you can’t even begin to share it.
    Some of the wealthiest – and smartest -people we know, some of them billionaires, still take out their own garbage. You would not know them on the street- and they don’t want you to because they believe in “keeping it real…” What they have is integrity – and that – is Priceless…

  19. Earth Ocean Sky Redux
    May 23, 2011 at 6:52 am

    GG: I have to laugh just a little bit. Our circle of good friends includes more than a handful of Billionaires With Integrity, most of whom would take out their own trash if they could remember which of their houses they were in that day! They ‘keep it real’ by giving gobs of money away anonymously, then they step aboard their NetJet charter to Anguilla. That’s what’s priceless!

  20. Inagua
    May 23, 2011 at 7:54 am

    LLS2 – You say that “finance [is] the only profession where one can make any kind of decent money these days. forget science, medicine or law.” The Bureau of Labor Statistis disagrees with you.

    http://www.businessinsider.com/the-15-best-paid-jobs-in-america-2011-5

  21. Inagua
    May 23, 2011 at 7:55 am

    GG – Very well put.

  22. gg: the risk was socialized
    May 23, 2011 at 8:06 am

    were you asleep during the bailout?????

    wake up

    then they converted to bank status went to the window borrowed at zero bought treasuries and paid themselves SIZE with even more taxpayer dollars…

  23. austin
    May 23, 2011 at 9:44 am

    score one for eos with her levity – gg is a smart cookie but seems to take this subject too seriously. Hey eos, do your billionaire friends give you a lift on their planes?

  24. Earth Ocean Sky Redux
    May 23, 2011 at 11:03 am

    Austin: a true friend of a billionaire never flies and tells!

  25. Greenwich Gal
    May 23, 2011 at 12:50 pm

    Dude at 8:06 am- Tell that to Lehman!
    And Yeah – the bailout was socialized but it was all, for the most part, PAID BACK!
    And – should those huge institutions have paid for their mistakes, you bet, but it would have taken everyone down with them. So it goes…
    But there are many who work in that biz that won’t be bailed out. Ever.
    So good for you, EOS – you swing with the high flying crowd. As they say, if you can’t be rich, at least have rich friends…

  26. Earth Ocean Sky Redux
    May 23, 2011 at 1:32 pm

    GG: I don’t believe I ever said I’m poor, so not so fast putting me in the “leech” category ‘swinging with the high-flying crowd’. After all, I could be one of those “you would not know them on the street” billionaires! I do take out my own trash!!

  27. just_looking
    May 23, 2011 at 1:38 pm

    @Gr Gal, Better check your numbers. How much out on AIG? And How much federal debt was created by QE1 & QE2? Because that is really back door bailout. Add that up and divide by the number of taxpayers. Next divide that number by the average income and see the burden that has been created.

    I suggest that you keep that ‘paid back’ nonsense to yourself and your crowd, as recipients are the only ones that don’t do the complete math.

  28. Cos Cobber
    May 23, 2011 at 2:00 pm

    just_looking, dont forget QE1 and QE2 has helped not only the banks, but all homeowners looking to refi, builders/real estate developers and owners, and all corporations who have benefited from a lower cost of debt financing. To single out banks and financial institutions as the sole beneficiaries is not fair. QE1 and 2 has helped a wide group.

  29. digler
    May 23, 2011 at 2:34 pm

    cos cobber, you do know that taxpayers are going to be “on the hook” for qe1 and qu2……………………………………..for generations! the fun part has not even started.

  30. just_looking
    May 23, 2011 at 3:27 pm

    @Cos Cob = low financing is not a benefit in my book. When financing is artificially low, risk is not properly compensated for, leading to tainted risk/return calculations and poor choices.

    I do not agree that others benefited for QE as you suggest. And I consider it fair to state that the main beneficiaries to the QE’s ARE financial service employees, since they will receive much much more benefit than anyone else in any other group.

  31. Cos Cobber
    May 23, 2011 at 3:56 pm

    just_looking, I guess we’ll have to agree to disagree.

    Oh, and I forgot the #1 beneficiary of QE1 and 2; the US Government aiding federal and state lending with low interest rates. Now, who has a bigger stake in keeping rates low, the banks or US government with its trillion dollar sea of debt? I’d call it a tie myself.

  32. Cos Cobber
    May 23, 2011 at 3:57 pm

    of course digler, i dont dispute that, i’m just disputing the notion that qe1 and 2 is all about the banks, its not.

  33. LLS2
    May 23, 2011 at 4:33 pm

    Inagua: Please, with that propaganda piece. add the amount of student loans and TIME it takes to reach a position like surgeon and one isn’t really making that much.

    that being said, i don’t believe those stats. 200k / year jobs are nice, but there aren’t THAT many in healthcare.

    the only people of my generation (early 30s) that are doing OK are people that went into finance. can anyone claim this as being false ?

  34. Inagua
    May 24, 2011 at 6:31 am

    LLS2: “i don’t believe those stats”

    When you can’t believe your government on a basic factual matter, then you are to some degree detached from reality.

    Your anger at your lack of success is understandable. I suspect many people your age are similarily disaffected. Mr. Rodgers told you that you were special. You all made the team. You all got to play. You all got good grades. You all learned how to recycle. You never went in the Army. You never knew the agony of despair. Well, real life can be very difficult, and many people your age are still emotional adolescents, in part because they have been denied the opportunity to face real adversity. We are in Year Four of what I expect to be a 20-year economic pause, and I hope you can find a place in this lousy economy. Your generation is going to have a lower standard of living than you were brought up into. Sorry. Your government failed you.

  35. Just_looking
    May 24, 2011 at 6:36 am

    @ cobbler, yes, I do not think we will agree on this, although I will say you are correct that others benefited. However my point is that the cost outweighs the benefit. No real way to prove this as “time will tell”.

    As far as the gov benefiting… They would not have as much debt if they had not just created it, so it seems to be self feeding, until…

  36. cos cobber
    May 24, 2011 at 7:49 am

    Inaqua, you nailed it on all your points in that last post.

    Just looking, in time I think our focus becomes US government debt, unfunded ss obligations, healthcare and fiat currency stability. And so, the back door bank bailout becomes increasingly a small and accepted footnote under the weight of our social security ponzi pyramid. In time academics will publish papers proving the back door bank bailout wasn’t expensive and with broad benefit. A bigger fear maybe that we are unable to stop using the cookie jar.

  37. LLS2
    May 24, 2011 at 9:48 am

    i agree on all your points inagua, and one last point:

    your generation failed us.

  38. LLS2
    May 24, 2011 at 10:33 am

    oh and inagua: i don’t think the piece is a fair representation of ‘highest paying jobs’.

    HFs and I banking are the only ways to make any kind of decent bank these days w/out incurring 200+ K in debt and or investing 10 years of schooling just to get your foot in the door.

    and besides being a doctor isn’t what it used to be.

    that article is a total propaganda piece and i dare anyone to deny that.

  39. Greenwich Gal
    May 24, 2011 at 8:36 pm

    I have just checked this post in the last few days. Very interesting conversation indeed. None of it inconsenquestial. Everybody has made valid points .
    LLS2 – You seem to be very bitter. Tell us about yourself. What do you do?
    Are you truly this angry or is this an anonymous pose for a blog?

  40. digler
    May 24, 2011 at 9:14 pm

    “the only people of my generation (early 30s) that are doing OK are people that went into finance.” that is so so sad. half the world lives on less thana dollar a day. Even in a recession, Americans live pretty well. Money won’t necessarily make you happy. Ahnold, DSK, Jon Edwards, etc. are proof that rich guys don’t necessarily nail the hottest chicks. Life is short. Stop whining and try to enjoy it!

  41. Lls2
    May 25, 2011 at 7:11 am

    Thanks for the comments , but I am going to remain anonymous and refrain from having some dr phil or Oprah style confession here on the CF blog.

    Maybe I am bitter. So ?

  42. James Lillis
    May 31, 2011 at 3:00 pm

    Take your pick….
    Judge not lest you be judged.
    Let you who is without sin cast the first stone.
    Have mercy, what a man sows he shall also reap.
    love your neighbor as you love yourself.
    Love covers a multitude of sins