U.S. District Judge Shira Scheindlin in Manhattan ruled that ex-FrontPoint Partners hedge fund manager, Joseph "Chip" Skowron, must repay Morgan Stanley, finding he was a "faithless servant."

Calling insider trading the "ultimate abuse of a portfolio manager's position," Scheindlin noted Skowron also lied to investigators and did not disclose his activities to Morgan Stanley.

"No reasonable jury could conclude that Skowron's insider trading and subsequent cover-up did not substantially violate the terms of his employment and permeate his service," Scheindlin wrote.

The judge ordered him to repay $31.1 million paid from 2007 to 2010, minus previously-ordered restitution from his criminal case. The ruling notes that a different judge earlier awarded Morgan Stanley 20 percent of Skowron's compensation, or $6.42 million.

Matt Burkhard, a spokesman for Morgan Stanley, said the bank was "extremely pleased" with the ruling.

"We expect all of our employees to act with honesty and integrity and follow both the letter and the spirit of the law and our own code of conduct," he said.

A lawyer for Skowron did not respond to requests for comment.

Skowron, 44, pleaded guilty in August 2011 to one count of conspiracy to commit securities fraud and obstruct justice, admitting to trading in the securities of Human Genome Sciences Inc in 2008 based on non-public information.

Prosecutors say the tips on the biotech company came from Yves Benhamou, a French doctor serving as an advisor on a clinical drug trial who likewise pleaded guilty to charges arising from the investigation.

Skowron, whose hedge fund FrontPoint was acquired by Morgan Stanley in 2006, was sentenced in November 2011 to five years in prison.

At his sentencing, U.S. District Judge Denise Cote ordered Skowron pay $5.96 million in restitution to five counterparties to his hedge fund on top of $5 million he agreed to forfeit and a $150,000 fine.

Morgan Stanley had also at the time sought restitution and made a request in for nearly $44.9 million. Cote instead awarded $6.42 million in previously-paid compensation and $3.8 million in legal fees in an order upheld this year on appeal.

Morgan Stanley subsequently sued Skowron in October 2012, seeking the rest of his pay on the basis of fraud and for acting as a faithless servant, among other claims. Scheindlin dismissed part of the lawsuit in July, but let the bank otherwise move forward with the case.

Scheindlin's ruling on Thursday came on a motion for partial summary judgment on the bank's faithless servant claim, seeking an order requiring Skowron to repay his compensation from April 2007 through November 2010.

The judge also said that because Skowron was not paid on a task-by-task basis, he had to give up every dollar he earned during the period in question.

A further hearing in the case is scheduled for January 9.

The case is Morgan Stanley v. Skowron, U.S. District Court, Southern District of New York, No. 12-8016.

(Editing by Matt Driskill)

By Nate Raymond