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Financial Advisor Conflict of Interest

Failed to Disclose to Clients His Own Stake in Securities

Pays $2.9 Million in Alleged Securities Sale Conflict-of-Interest

wsj.com 9/18/13, Tess Stynes

A partner at a New York-based hedge fund adviser agreed to pay more than $2.9 million to settle charges that he breached his fiduciary responsibilities by authorizing the purchase of $7.7 million of illiquid securities from a personal friend and outside business partner hired by the firm, according to the Securities and Exchange Commission.

The SEC alleged Shadron L. Stastney, a partner at Vicis Capital LLC, traded as a principal when he authorized the client hedge fund--Vicis Capital Master Fund--to purchase the securities that he had required his friend to divest himself of when he joined the firm because they overlapped with the firm's investments.

However, the SEC alleged he failed to tell the client hedge fund or other partners and management that he had a financial stake in some of the same securities sold to the fund. The SEC further alleged Mr. Stastney personally benefited and received more than $2 million in proceeds from the sale.

In a principal transaction, an adviser acting for its own account buys a security from a client account or sells a security to a client account. Such transactions can pose potential conflicts between the interests of the adviser and the client, and therefore advisers are required to make written disclosures regarding any such financial interest or conflicted role when advising a client on the other side of the trade. They also must obtain the client's consent.

The settlement amount includes disgorgement of $2 million, prejudgment interest of $501,400 and a penalty of $375,000. Mr. Stastney also is barred from association with any investment company, investment adviser, broker, dealer, municipal securities dealer, or transfer agent for at least 18 months.

Mr. Stastney consented to the agreement without admitting or denying any of the findings. His contact information wasn't immediately available.

-- Stastney accused of breaching fiduciary duties

-- SEC alleged hedge-fund adviser failed to properly disclose conflicted role, personal stake in $7.7 million transaction

-- Settlement includes $2 million in disgorgement, $375,000 penalty

By Tess Stynes

A partner at a New York-based hedge-fund adviser agreed to pay more than $2.9 million to settle charges that he breached his fiduciary responsibilities by authorizing the purchase of $7.7 million of illiquid securities from a personal friend and outside business partner hired by the firm, according to the Securities and Exchange Commission.

The SEC alleged that New Jersey resident Shadron L. Stastney, a partner at Vicis Capital LLC, traded as a principal when he authorized the client hedge fund--Vicis Capital Master Fund--to purchase the securities he had required his friend to divest when he joined the firm because they overlapped with the firm's investments.

However, the SEC alleged he failed to tell the client hedge fund or other partners and management that he had a financial stake in some of the same securities sold to the fund. The SEC further alleged Mr. Stastney personally benefited and received more than $2 million in proceeds from the sale.

In a statement his attorney, Steven R. Glaser of Skadden, Arps, Slate, Meagher & Flom, said: "Mr. Stastney is pleased to have this matter resolved, and looks forward to continuing to wind down the fund in a way that maximizes investor returns."

In a principal transaction, an adviser acting for its own account buys a security from a client account or sells a security to a client account. Such transactions can pose potential conflicts between the interests of the adviser and the client, and therefore advisers are required to make written disclosures regarding any such financial interest or conflicted role when advising a client on the other side of the trade. They also must obtain the client's consent.

The settlement amount includes disgorgement of $2 million, prejudgment interest of $501,400 and a penalty of $375,000. Mr. Stastney also is barred from association with any investment company, investment adviser, broker, dealer, municipal-securities dealer, or transfer agent for at least 18 months.

Mr. Stastney consented to the agreement without admitting or denying any of the findings.

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