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Alternative Market Briefing

SEC charges hedge fund manager Shadron Stastney for breaching fiduciary duty

Thursday, September 19, 2013

Komfie Manalo, Opalesque Asia:

The Securities and Exchange Commission filed charges against Shadron L. Stastney, one of the founders of New York hedge fund firm Vicis Capital that once managed as much as $5bn and accused him with breaching his fiduciary duty by engineering an undisclosed principal transaction in which he had a financial conflict of interest.

In a press statement, the SEC alleges that Stastney traded as a principal when he authorized the client hedge fund to pay approximately $7.5m to purchase a basket of illiquid securities from a personal friend and outside business partner hired by the firm as a managing director.

The 44-year-old trader reportedly required his friend to divest these personal securities holdings as he came on board at the firm because they overlapped with securities in which the hedge fund also was invested. Stastney failed to tell the hedge fund or any other partners and management at the firm that he had a financial stake in some of the same securities sold into the fund. Stastney personally benefited and received a portion of the proceeds from the sale, and therefore was trading as a principal in the transaction.

"Fund advisers cannot sit on both sides of a transaction as buyer and seller without the consent of the clients who rely on them for unbiased investment advice," said Julie M. Riewe, Co-Chief of th......................

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