(Bloomberg News) Galleon Group LLC, the defunct hedge fund at the center of the biggest insider trading scheme in U.S. history, is seeking restitution as a victim of the crimes committed by Joseph F. "Chip" Skowron, the ex-FrontPoint Partners LLC fund manager to be sentenced today.

Galleon says it lost more than $1.5 million and Deutsche Bank AG, Germany's biggest lender, claims losses of $2.4 million as a direct result of Skowron's inside trades on Human Genome Sciences Inc. in January 2008. Skowron, 42, a Yale University- educated physician from Greenwich, Connecticut, pleaded guilty in August to conspiring to commit securities fraud and obstruction of a federal investigation. He is scheduled to be sentenced by U.S. District Judge Denise Cote in Manhattan.

"The funds and/or accounts that Galleon managed may be entitled to restitution in connection with losses they sustained in their trading of HGSI," George Lau, the former Galleon chief financial officer, said in a Nov. 2 letter to Manhattan U.S. Attorney Preet Bharara.

Skowron admitted that he got a tip from a former adviser for HGSI that trials of a hepatitis C drug were being ended, which prosecutors say allowed FrontPoint to sell its stock in the company before the information became public and avoid $30 million in losses.

Galleon and Deutsche Bank said they bought blocks of HGSI stock the day before the Rockville, Maryland-based drugmaker's shares plunged 44 percent on its announcement that trials of its Albuferon treatment were being halted because of safety concerns.

Raj Rajaratnam

Bharara's office in May won the conviction of Galleon co- founder Raj Rajaratnam on 14 insider-trading charges and he was sentenced last month to 11 years in prison. A nationwide crackdown on insider trading at hedge funds by Bharara and the Federal Bureau of Investigation in New York has resulted in more than 20 people being charged since November.

While U.S. probation officials estimated that Skowron could face 87 to 108 months in prison based on sentencing guidelines, prosecutors have agreed to a five-year term.

A pre-sentencing report issued by probation officials said Skowron doesn't dispute that Galleon and Deutsche Bank are victims of his crimes. The report said Skowron is seeking Cote's permission for an 18-month extension on when he must begin paying restitution.

Skowron's lawyer, James Benjamin III, declined to comment on the government's sentencing memorandum, which includes the victim restitution requests.

Morgan Stanley

Morgan Stanley, which acquired FrontPoint in 2006 and spun it off in February, submitted the largest restitution request, saying it should be paid $37.4 million after sustaining "very substantial damages" as a result of Skowron's criminal conduct. This includes at least $32 million New York-based Morgan Stanley paid to Skowron in compensation during a four-year period it said he was committing his crimes.

The sixth-biggest U.S. bank reached a settlement with the SEC for more than $33 million, was required to indemnify FrontPoint for the accord and has spent more than $4.4 million in legal fees related to Skowron's conduct, Arthur Lev, the bank's managing director said in an Oct. 21 letter to prosecutors.

Morgan Stanley said it had to take a $116 million write- down of its FrontPoint investment after Skowron's conduct became public, Lev said. The criminal case led to the closure of the bank's $1.5 billion health-care funds, resulting in the loss of 15 jobs, he said.

Skowron's illegal tips came from Yves Benhamou, an expert in hepatitis drugs who acted as a paid consultant to hedge funds while also advising HGSI and serving on its steering committee for trials of Albuferon, the U.S. said. Prosecutors said Skowron gave Benhamou more than $14,600 in cash and paid for hotel rooms and expenses.

Guilty Plea

Benhamou, who pleaded guilty in April, is scheduled to be sentenced in December.

Skowron admitted in his guilty plea that he lied to the U.S. Securities and Exchange Commission during a probe of suspicious trading in 2008. Prosecutors said he also "encouraged" Benhamou to conceal their crimes.

As a result of tips from Benhamou, FrontPoint sold about 2.9 million, or about 47 percent, of its HGSI shares in December 2007 and sold 600,000 shares on Jan. 22, 2008, the day before the company issued its news release about the drug trials and the stock price plummeted.

Lau, who is now chief operating officer of Spottail Capital Advisors LLC, said in his victim letter to prosecutors that Galleon HealthCare Fund and a second fund, called Permal, bought 500,000 shares of HGSI on Jan. 22, 2008, and lost about $1.56 million after the disclosure that the drug trials were halted.

$5 Million Forfeiture

A unit of Deutsche Bank bought a "large block" of HGSI shares from FrontPoint on Jan. 22, 2008, and then suffered $2.4 million in losses, according to the bank's letter to prosecutors.

Skowron already has consented to forfeit $5 million to the U.S. His additional commitment to a $2.7 million SEC penalty will have "devastating and financial consequences" for him, Benjamin said in court papers.

Assistant U.S. attorneys Pablo Quinones and Reed Brodsky, who prosecuted the case, disputed Skowron's claims of financial hardship.

The U.S. said Skowron earned more than $32 million while at FrontPoint, which had $7.5 billion under management at the start of November 2010, before he was criminally charged.

The prosecutors said in court papers that Skowron's estimated net worth will be about $20 million, even after he pays a $5 million forfeiture. The U.S. said that court officials estimate his home is worth about $7 million and that he also owns expensive cars including a 2006 Aston Martin Vanquish and 2009 Alfa Romeo 8C Spider.

The case is U.S. v. Skowron, 11-cr-699, U.S. District Court, Southern District of New York (Manhattan).