Morgan Stanley's symbolic suit


You can't blame Morgan Stanley for being livid with Joseph "Chip" Skowron, the doctor who become a hedge funds stock picker.

His career at FrontPoint, a company acquired by Morgan Stanley in 2006, ended in ignominy. He pleaded guilty in August to trading based on material inside information and was sentenced to five years in prison and ordered to forfeit $5 million. As if that wasn't enough, Morgan Stanley sued him as well, asking for $33 million that the bank says it paid to the SEC to settle insider trading charges. In total, Morgan Stanley has sought $45 million from Skowron over his fraud, according to Reuters.

The bank claimed in court papers that, "Beyond the harm attendant to having one of its managing directors plead guilty to serious criminal conduct, the firm expended its own reputational capital by defending Skowron during the years it believed, based entirely on his misrepresentation, that he had not violated the law."

The bank suffered a setback in March when a judge ruled that the bank was not entitled to recoup the $33 million SEC payment. Instead, the judge ordered Skowron to pay $10.2 million in restitution to his former employer. The issue has not been resolved, and Morgan Stanley apparently is still pursuing a larger payment. But all in all, it has to know that Skowron cannot possibly afford such a payment (unless the bank knows something others don't).

The suit still services a symbolic purpose, a massive clawback attempt to let employees know that they will be pursued to the ends of hell if they cross the bank the way Skowron did.

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