The Securities & Exchange Commission charged a founder of New York hedge fund firm Vicis Capital that once managed as much as $5 billion, alleging the 44-year-old money manager breached his fiduciary duty by orchestrating conflicted transactions through the hedge fund that benefited him.
Shadron Stastney, the CEO of a publicly-traded company and a founder of Vicis Capital, which oversees $230 million, has agreed to pay more than $2.9 million to settle SEC charges that he authorized the Vicis hedge fund to purchase $7.5 million of illiquid securities that Stastney partly owned. According to the SEC, Stastney received $2 million of the proceeds, but never reported his stake in the assets being purchased by the hedge fund to Vicis’ chief financial officer, chief compliance officer or trustee. He is also barred from the investment adviser business for at least 18 months, but will be allowed to help wind down Vicis Capital and continue running publicly-traded OptimizeRx.
Stastney, who lives in Marlboro, N.J., helped found Vicis in 2004 as a volatility and convertible arbitrage hedge fund that partly specialized in making private transactions in thinly traded public equities, transactions known as PIPEs. The hedge fund firm grew its assets to a peak of $5 billion in 2008. But big losses and investor redemptions amid the financial crisis forced Stastney and his partners to in 2009 start winding down their funds.
“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,” Julie Riewe, co-chief of the SEC enforcement division’s asset management unit, said in a statement.
Stastney is currently the chief executive officer of OptmizeRx, a penny stock trading on the over the counter bulletin board that runs brand support programs with big pharmaceutical companies like Eli Lilly,
This is not the first time that Vicis executives have had run-ins with the law. Chris Phillips, a former managing director at Vicis, pleaded guilty in 2011 to conspiracy to commit wire fraud for being part of a medical receivables collection scam. Phillips was sentenced to two years of probation and fined $250,000.
