Legal
SEC

Vicis Capital Partner Charged with Self-dealing in Client Trades

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The SEC has charged  Shadron Stastney, a partner at hedge fund manager Vicis Capital, with breach of fiduciary duty by engineering the purchase of a basket of securities by a fund he managed and in which he maintained a financial interest. The SEC accused Stastney of trading as a principal when he agreed to pay a friend $7.5 million for a portfolio of illiquid securities that the friend was required to divest in order to join Vicis as a managing director. Stastney failed to disclose to the hedge fund’s limited partners that the portfolio included securities in which he held a personal interest and that he received more than $2 million of the proceeds from the sale. “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 the SEC Enforcement Division’s Asset Management Unit.  “Stastney failed to live up to his fiduciary duty when he unilaterally set the terms of the transaction and authorized it without disclosing that he would personally profit from it.”

Under a settlement reached with the agency, Stastney will be barred from association with regulated investment professionals for 18 months, and will wind down the Vicis Capital Master Fund he manages. He will also pay $2.9 million in disgorgement and penalties.

Legal
Wildwood Casino

Plainfield Discounted Debt Sale Challenged by American Gaming Group Investors

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Investors in a Colorado casino are claiming they were cheated out of their equity control in a scheme involving Innovation Capital and the asset managers brought in to lend the company money during its start-up phase. The deal involved a $51 million senior secured credit facility funded by Guggenheim Partners and millions of subordinated debt funded by now defunct Plainfield Asset Management to build a gambling complex in Cripple Creek, Colo., called Wildwood Casino. A group of majority equity investors led by John Schaffer filed an arbitration claim against the casino manager, Joe Canfora of Merit Management, for contract violations after he bought the casino’s subordinated debt from Plainfield Asset Management (PFAM) at a deep discount without notifying other investors of the investment opportunity. Part of the PFAM loan structure involved warrants for class A shares that Canfora now owns. When executed the warrants give Canfora majority ownership over the initial investors.

Legal
Rich Anslow

Anslow & Jaclin Calls It Quits

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Anslow & Jaclin, the New Jersey law firm that was once one of the most active firms providing securities counsel to Chinese companies seeking to go public in the U.S. via reverse mergers, is dissolving after 20 years, according to partners Richard Anslow and Gregg Jaclin. The partners made announcement in private meetings with colleagues and clients attending the Rodman & Renshaw Global Investment Conference in New York from October 8-10. Each stressed the dissolution of the partnership was amicable and that both attorneys would remain active in securities practice for small cap companies. Anslow will be joining the New York-based firm Ellenoff, Grossman & Schole, while Jaclin is joining Lawrenceville, N.J.-based Szaferman, Lakind, Blumstein & Blader, effective October 1. In an interview, Rich Anslow said the decision to dissolve his partnership with Jaclin was a difficult one, but was necessitated by the precipitous decline in the Chinese reverse merger market.

Legal

FINRA Alleges Fraud, Stock Manipulation by PIPE Broker Carris

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A New York City based broker-dealer active in equity private placements with emerging growth companies has been accused of fraud on grand scale by its regulator FINRA. John Carris Investments, founded by George Carris in 2009, is facing multiple allegations centering on stock manipulation, fraudulent self-offerings of securities, use of firm funds to pay personal expenses, falsifying tax documents and not paying staff payroll taxes withdrawn from employee’s paychecks.  The regulator wants George Carris, along with other principals of the firm, Andrey Tkatchenko and Jason Barter sanctioned for securities fraud. In the FINRA complaint the regulator alleges Carris manipulated the price of shares of then-OTC Pink-quoted FibroCell Sciences (FCSC):

“This scheme was motivated by the Manipulation Respondents' interest in increasing the volume and price of sales of Fibrocell shares, including in ongoing Private Placements of Public Equity ("PIPEs") for which John Carris Investments acted as a placement agent. From these placements, the Manipulation Respondents earned commissions ranging from 7-10% and Fibrocell warrants- from which respondents could profit by cashless exercise. By engaging in prearranged trading during the Manipulation Period, between May 1, 2010 and September 30, 2010, the Respondents created volume and also gave the appearance of greater liquidity, manipulated the price by which the shares were bought and sold, and prevented large sales of blocks of shares from being sold into the market (which would depress the stock price).