Today's Outrage: Hippocratic Oath Doesn't Protect Investors

NEW YORK (TheStreet) -- The Hippocratic Oath doesn't say anything about doctors and insider trading, or best practices for doctors when advising hedge funds, but it may have to add a clause after the insider trading case launched this week against a French doctor and involving a drug trial from Human Genome Sciences(HGSI).

It would seem a logical enough argument that a doctor who serves on a drug trial review team for a biotech company wouldn't go blabbing about results to hedge funds heavily invested in the biotech company's stock. Except of course, when the doctor is also working as an adviser to the hedge funds.

Questionable relationships are the name of the game in the drug industry. That's nothing new, and the Human Genome Sciences case is just the latest example. Companies whisk doctors off to fabulous ski weekends, where they aren't just plied with food and drink, but with marketing materials that somehow always manage to figure in their patients' subsequent pharmacy bills. And that's just the local doctor with a run of the mill practice. Medical academies and journals, likewise, didn't have to change editorial standards in recent years because research doctors could always be trusted to provide the truth of study results, or drug company relationships. Suffice to say, Marcus Welby M.D. is not the doctor of today.

Which brings us to the case of French doctor Yves Benhamou, arrested in Boston this week on charges that he tipped off a hedge fund manager -- Morgan Stanley-owned FrontPoint Partners -- about problems in a clinical trial for Human Genome Sciences hepatitis C drug, Albuferon. Dr. Benhamou was a member of the steering committee overseeing the Albuferon trial while also serving as a department chief and professor at the Hôpitaux de Paris-Pitié-Salpétrière in Paris. In addition, Dr. Benhamou was a consultant to various hedge funds.

While FrontPoint Partners wasn't named in the case, the hedge fund announced this week that it put one of its managers, Dr. Chip Skowron, on leave pending the outcome of the case.

Federal prosecutors and the Securities and Exchange Commission claim that the hedge fund manager dumped Human Genome shares on Jan. 22, 2008, right before the company's announcement about problems with the Albuferon trial. And get this: while everyone knows that the French are renowned for their literary flair, that doesn't explain how Dr. Benhamou could assist Human Genome Sciences in drafting its PR strategy to coincide with the negative news announcement, and all along be blabbing to a hedge fund about what was going to be in the news announcement.

Human Genome Sciences shares dropped 44% the next day, and the hedge funds of FrontPoint Partners avoided losses of $30 million. There was an investment bank on the other end of at least a part of the Human Genome insider trading which is apparently none too happy today, and may have sang like a duped investor canary to the feds and SEC.

Dr. Benhamou was arrested in Boston on Monday while attending a conference -- probably a conference with cocktail receptions paid for by drug companies.