(Bloomberg News) From the age of six, Joseph F. “Chip” Skowron III aspired to be a doctor. At Yale, he earned both a medical degree and a doctorate in molecular and cellular biology, then qualified for Harvard’s elite, five-year residency program. Three years in, Skowron quit medicine for Wall Street. He and two partners started a group of health-care investment funds under the auspices of FrontPoint Partners LLC, a hot new property in the exploding world of hedge funds.

Skowron was soon making millions of dollars a year. He built a gabled, 10,000-square-foot home on three acres in the nation’s hedge-fund capital, Greenwich, Connecticut. He assembled a small fleet of pricey cars, including a 2006 Aston Martin Vanquish and a 2009 Alfa Romeo Spider 8C. He also spent vacation time engaged in Third World humanitarian causes.

Today, Skowron, 43, is serving a five-year term for insider trading at the federal prison at Minersville, Pennsylvania. At FrontPoint, Skowron lied to his bosses and law enforcement authorities, cost more than 35 people their jobs and stooped to slipping envelopes of cash to an accomplice. FrontPoint is gone. Morgan Stanley, which once owned FrontPoint, is seeking more than $65 million from Skowron, whose net worth a year ago was $22 million. Until he’s a free man, his wife of 16 years will have to care for their four children and Rocky, their golden retriever, on her own.

“I always detected that he was reaching for something to gratify him,” said his half-sister, Cindi Kinney, in an interview. “It was always something else, whether it was going to medical school or learning the financial industry. He was always setting goals and reaching them -- and never being satisfied.”

‘Not Aware’

Skowron himself told the judge who sentenced him in November 2011: “I was not aware of the changes that were happening in me that blurred the lines between right and wrong. They came very slowly, over many years.”

Health care has become America’s sweet spot for insider traders like Skowron. Among researchers, physicians, government officials and corporate executives, the lure of easy money in health-care insider trading has become epidemic. Since 2008, about 400 people were sued by regulators or charged with insider trading; of those, at least 94 passed or received tips involving pharmaceutical, biotechnology or other health-care stocks.

“There’s a highly regulated approval process for new drugs and devices, and that is tempting for people,” said Paul Fishman, the U.S. attorney in New Jersey. “The pace of innovations and acquisitions in health care is extraordinary. That also lends itself to these kinds of temptations.”

Fresh Charges

Last week, Fishman charged six people with insider trading of health-care stocks, including executives at Celgene Corp., Sanofi and Stryker Corp.

The next day, the U.S. Attorney Preet Bharara in New York announced what he called the biggest insider-trading case in history, a $276 million health-care haul that has much in common with the Skowron case: a prominent doctor, a hedge fund, a firm that matches experts and investors, and tips on the results of clinical drug trials.

Mathew Martoma is charged with getting illicit health-care tips to benefit Steven A. Cohen’s SAC Capital Advisors LP. Martoma, who appeared in federal court in New York yesterday, had studied medical ethics while a student at Harvard Law School.

As it happens, Skowron worked for SAC after leaving Harvard.

Chip Skowron is athletic with blue eyes, sandy hair and a cleft chin. He grew up in Cocoa, Florida, in a middle-class family of high achievers who embraced Christian values, according to court filings and interviews with people who know him. His father was an engineering supervisor at the Kennedy Space Center before running Long John Silver’s restaurant franchises.

His Mother

Skowron’s mother, with whom he was very close, was a schoolteacher who encouraged her son to be a radiologist. He graduated second in his class at Cocoa High School, where he excelled at soccer.

In September 1990, during his senior year at Vanderbilt University, Skowron learned he’d been accepted at Yale. The same day, his mother was killed in a car crash. She was 52. Cindi Kinney learned the news from Skowron, her half-brother.

“He was obviously devastated,” she said in an interview. “That was a real life-changing event. That was one of the most joyful days in his life, finding out he was going on full scholarship to Yale to pursue that medical dream and then finding out within an hour that his mother died.”

“It’s evident to me that he didn’t deal with it,” she added. “In our relationship, he was angry about that providential event.”

Skowron declined to be interviewed for this story.

His Wife

While at Yale, Skowron met and married Cheryl Birdsall, an advertising writer. She also declined to be interviewed. In a letter to the sentencing judge, she wrote of her husband, “I fell in love with him because he sees only the good in people. To know Chip is a fun and enriching gift.”

He planned to become an orthopedic surgeon, said his childhood friend Scott Bohannon, president of 4MeNU, a social engagement company in Washington, D.C. “He said, ’I don’t like people dying on me,’” Bohannon said in an interview. “‘I want to fix people. It’s very rewarding.’”

Dr. James Kasser, surgeon-in-chief at Boston Children’s Hospital, said Skowron was “not the best, not the worst” doctor while a Harvard resident at the hospital.

On Easter Sunday in 2001, with two years remaining in his Harvard residency, Skowron called his father to say he was leaving medicine. He was upset about not seeing his daughter wear her first Easter dress because he was working and worried that long hours might hurt his marriage, his father, Joseph Skowron II, said in an interview.

’Pressure’

“He said, ’No matter how many surgeries I do in a day, it seems like there’s pressure to do more,’” his father said.

Bloomberg News quoted Chip Skowron in 2003 as one of many doctors who had grown disillusioned with the profession and were seeking to exploit their expertise in the investment realm.

Bohannon said he was “startled” when his pal told him. Skowron, he said, is an extrovert who “tends to reflect a lot the environment he’s in. So, if Chip’s around really good people, he’s a really good person. There is danger for him in being around people who don’t see lines, which is part of what scared me about the change he made.”

Bohannon was less concerned about greed than Skowron’s competitive streak. “If T-shirts were the denominator of who is best,” Bohannon said, “Chip would want the best T-shirts.”

SAC Connection

Skowron worked as a stock analyst at SAC and Millennium Partners, staying less than a year at each. In 2003, Skowron joined FrontPoint, an unusual group of hedge funds founded three years before. FrontPoint, named for a mountain-climbing technique, built a stable of portfolio managers with expertise in assets ranging from utilities to Canadian debt.

The discrete teams made investments based solely on their peculiar knowledge “with little or no correlation with any major market” like, say, the S&P 500, according to a 2010 Harvard Business Review article.

Managers like Skowron were paid, in part, based on the performance of the entire firm as well as of the funds they handled. He and two partners oversaw several funds focused on health-care companies. Skowron believed his Ph.D.-level knowledge would give him an edge at determining which drugs and medical devices would succeed.

“He felt he could make a difference by identifying and sponsoring life-changing pharmaceutical products,” said Don Carlson, a friend for the past 10 years.

$5.5 Billion

FrontPoint thrived. By the time Morgan Stanley bought the firm for $404 million in December 2006, FrontPoint had 11 investment teams managing $5.5 billion in assets. Skowron earned $13.5 million in 2007 and $7 million in 2008, according to court documents. He paid $5 million in 2006 for a three-acre parcel across the street from the Greenwich Country Club. He built a house with seven bedrooms, 10 bathrooms and four fireplaces. He added a 2006 Ariel Atom II and a 2008 Porsche Cayenne to his car collection. In 2010, the Greenwich tax assessor’s office said the house had a market value of $8.3 million.

With the riches came sacrifices Skowron had said he wanted to avoid by leaving medicine. He was on the road a great deal courting clients “and working at all hours on business,” wrote his cousins Matthew and Michaela Evans to the sentencing judge.

His father said he worried that his son was becoming too materialistic, and told him so. “I could see him accumulating cars and a big house, belonging to the golf clubs,” the elder Skowron said. “I guess that comes with the job because he had to convince people to invest in the hedge funds.” His son told him he had things under control.

Hole In Heart

Cindi Kinney said she thought her half-brother was “trying to fill a hole in his heart that was left after our mother died. He was trying to fill it with professional advancement, possessions, power, and relationships.”

Skowron strived to keep up in Greenwich, Carlson said. “There is certainly a constant sense of being judged and of competition in Greenwich,” he said. “It is a very status- conscious environment.”

At the same time, Carlson’s friend was “always deeply reflective and thoughtful about his values. If it were a movie, he would be that character who’s conflicted all the way through.”

Skowron often gave up vacations to work with AmeriCares, a nonprofit organization that offers humanitarian aid in troubled areas. Over the years, Skowron volunteered his surgical skills in Kosovo, Cuba, India, Guatemala, and post-Katrina Louisiana. For a time, he carried in his briefcase a photo of a little boy whose infected leg he had saved.

Morgan Stanley

It isn’t clear that anything changed significantly for Skowron after Morgan Stanley bought FrontPoint at the end of 2006. Bohannon speculates that his friend’s need to succeed would have compelled Skowron to perform even better for the new owners. Within a few months, he had embarked on a business courtship of a French physician named Yves Benhamou.

In April 2007, Benhamou visited Skowron’s suite at the Hotel Arts Barcelona in Spain. Benhamou was an outside consultant to FrontPoint, a sideline that supplemented his income at a Paris hospital. FrontPoint had paid an expert networking firm to arrange periodic access to Benhamou, a highly respected expert on liver disease, especially hepatitis C. Investors hire the firms to get advice from experts like Benhamou on industries in which they specialize, such as pharmaceuticals. Some of those experts have become conduits for illegal inside information. More than a dozen people involved with the firms have been charged with insider trading during the government’s recent crackdown.

The Insider

Benhamou, now 52, had come from Paris to attend a medical convention. Skowron had come to give Benhamou what he called a “present” from FrontPoint, according to court filings. He handed the doctor an envelope. Inside was $5,000 in euros, then $6,713 in U.S. dollars. Benhamou accepted it. They went to dinner.

By that time, Skowron’s various health-care funds were accumulating a sizable stake in Human Genome Sciences Inc., the Rockville, Maryland, pharmaceutical firm that has since been acquired by GlaxoSmithKline Plc. FrontPoint eventually would own 6.2 million shares valued at $65 million, a bit more than $10 a share. Skowron and his fellow portfolio managers thought the company was worth as much as $17 a share because of the sales potential of Albuferon, a new hepatitis-C treatment undergoing human testing. One of the doctors overseeing the clinical trial was Benhamou.

Expenses Paid

Skowron and Benhamou talked on several occasions as FrontPoint kept building its stake. Skowron paid $5,152 for the French doctor and his wife to stay four nights at the Hotel Mandarin in Manhattan and expensed it to FrontPoint. When Benhamou went to Boston for another conference, Skowron treated him to a tour of Harvard Medical School and dinner at the Blue Ginger restaurant, which he also charged to FrontPoint.

The next day, Benhamou e-mailed Skowron, “I hope that I will have one day the opportunity to do the same for you, your wife, and all your family.” Skowron replied: “It’s just the beginning.”

That fall, Skowron and his wife hosted AmeriCares’s annual fundraiser in a hangar at Westchester County Airport north of New York City. Around that time, two patients in the Albuferon trial fell ill. One eventually died. If made public, the developments threatened to slam Human Genome’s stock price. Benhamou had sworn as part of his oversight duties to keep results secret. He told Skowron about the sick patients.

Skowron’s wooing of the doctor was beginning to pay off.

Quick Sale

Skowron immediately ordered the sale of some of FrontPoint’s stake. Nine days later, the men talked again as the Albuferon overseers considered altering trial dosages. Skowron sold more shares. Then he e-mailed Benhamou and asked him to keep their conversations “confidential.” By the end of 2007, FrontPoint had dumped almost three million Human Genome shares at an average price of $10.65 a share.

Skowron sat on the other 3.2 million shares. On the third weekend of January 2008, Benhamou and his fellow trial overseers decided to stop dispensing the Albuferon dosage that might have sickened the two patients. On Friday, Jan. 18, Benhamou spoke with Skowron on the phone, according to his Federal Bureau of Investigation arrest complaint and a Securities and Exchange Commission lawsuit.

Moments later, Skowron ordered the sale of FrontPoint’s entire Human Genome stake. By the end of the day, FrontPoint had sold almost 700,000 shares, according to the FBI and SEC.

Shares Falling

Human Genome prepared to issue a press release the Wednesday following the Martin Luther King Jr. holiday. Skowron e-mailed Benhamou on Tuesday morning: “are you around for a quick call today? Love to catch up.” Benhamou called him at 10:44 a.m. Eastern time. While they spoke, Skowron instant- messaged his trading desk, saying he thought Human Genome could fall to $7 a share, according to the FBI and SEC.

By the market close, FrontPoint had sold the last of its Human Genome shares to Deutsche Bank AG at no less than $9.63 a share. After Human Genome issued its Albuferon news the next morning, the stock plummeted by 44 percent, closing at $5.62 a share -- and FrontPoint started buying again. With Benhamou’s help, Skowron had saved FrontPoint and Morgan Stanley about $30 million.

It didn’t go unnoticed. T. Rowe Price, which bought 241,000 shares from Deutsche Bank and lost nearly $900,000, promptly contacted the SEC, which began to investigate.

$11 Million

Over the next two years, Skowron joined the board of AmeriCares and collected another $11 million in compensation at FrontPoint. He also lied to his bosses about his insider trades, according to court filings. He lied under oath to the SEC. And he got Benhamou to lie.

Both men repeatedly insisted they’d never discussed the Albuferon trial, only the “basket” of hepatitis drugs. In a hotel bar in Milan, Skowron gave Benhamou another envelope containing $10,000 and reminded the doctor to keep lying. When Benhamou no longer could afford his attorneys, Skowron offered to pick up the tab.

FBI agents arrested Benhamou while he was attending a medical conference in Boston in November 2010. Citing e-mails, phone records and other evidence, the government charged Benhamou with securities fraud and conspiracy. The complaint didn’t name Skowron; the media did. Morgan Stanley placed him on leave and then fired him. Investors yanked almost $3 billion out of FrontPoint, which ceased business this year.

It turned out that one victim of Skowron’s fraud was Galleon Group, the hedge fund run by imprisoned inside trader Raj Rajaratnam. Galleon claims in court documents that it lost $1.6 million on 500,000 shares sold by FrontPoint.

Raj As Victim

Benhamou supplied authorities with crucial information about the bribes and cover-up before pleading guilty. The doctor was sentenced to the 24 days he’d spent in jail. He returned to his wife and two daughters in France. He declined to be interviewed.

Skowron could have faced more than 20 years in prison on the most serious charge. He pleaded guilty to conspiracy to commit securities fraud and obstruct justice. His deal required a five-year prison sentence, the maximum by law. He agreed to forfeit $5 million and pay a $2.7 million SEC penalty. So many of his family and friends attended his sentencing on Nov. 18, 2011, before U.S. District Judge Denise Cote that some had to sit in the jury box.

“I had allowed myself to slip into a world of relativism, where the ends justify any means,” Skowron told the judge. “It’s very hard to imagine how I became that kind of person.”

Not Expected

One friend, Andreas Metzger, recalls many weeping as Skowron looked at his wife and said, “I am not what she expected when she married a young doctor 15 years ago.”

His lawyers portrayed him as a changed man who for the past many months had done volunteer medical work, made his children breakfast each day and joined a Christian men’s group, the New Canaan Society, that helped him understand his “profound lapse of judgment.”

Skowron spoke of being healed spiritually. U.S. prosecutors weren’t buying it. Citing Skowron’s two years of lying, they called him a “fundamentally deceptive and dishonest person” who’d been willing “to abandon everything he knew to be right” while corrupting another doctor.

The judge sentenced Skowron to five years, fined him $150,000, and ordered him to pay restitution of $5.96 million to victims including Deutsche Bank, Galleon and T. Rowe Price.

He entered prison in January. On March 20, Judge Cote ordered Skowron to pay restitution to Morgan Stanley for legal fees of $3.8 million and 20 percent of his compensation at FrontPoint, or $6.4 million. The judge refused to award Morgan Stanley $33 million the bank paid to settle with the SEC.

While he appeals the Morgan Stanley restitution order, Skowron has posted a $10.25 million bond. On Oct. 31, Morgan Stanley filed a separate civil lawsuit seeking the $33 million Judge Cote said it was not entitled to, as well as the entire $32 million it paid Skowron from 2007 to 2010.

‘Faithless Servant’

In its lawsuit, Morgan Stanley called Skowron a “faithless servant” who lied repeatedly to continue being paid by the bank and to avoid the blow to his reputation that a big loss on Human Genome would have caused. The bank’s attorney, Kevin Marino, declined to comment.

Skowron “took responsibility for his actions,” said a spokesman for him, Montieth Illingworth. “But he wasn’t prepared for Morgan Stanley to thumb its nose at that court’s ruling to try and claw back its $33 million in ill-gotten gains and grind down what remains of Dr. Skowron’s life. One of the world’s largest banks is allowing its judgment to be impaired by a desire for vengeance. This is wrong.”

One afternoon this November, five pumpkins sat on the cut- rock wall surrounding the Greenwich house where Skowron’s wife, Cheryl, lives with two sons and two daughters, ages six to 13. At times last year, she was barely speaking to her husband, Metzger said. She wrote to the sentencing judge that she had “no idea how realistic it is to think our marriage can survive this.”

An Adjustment

Skowron’s father sighed and paused when asked recently whether they’ll make it. “I think they’re going through the adjustment,” he said.

Joseph Skowron spent three hours visiting his son in prison on Nov. 12. Chip Skowron looked thinner and drawn in his green prison jumpsuit. He spends a lot of time praying and reading scripture, his father said. Chip Skowron has never discussed his crimes with his father. The elder Skowron said he thinks his son understands how badly he erred. Metzger said a number of New Canaan Society members visit Skowron in prison.

Skowron applied for a Connecticut license to practice medicine in 2010. He never completed the application, according to the state licensing body. It’s possible for a convicted felon to be licensed in the state, so he could reapply after he has served his prison term.