The connections between Vicis Capital LLC and Midtown Partners & Co. — two firms featured in an earlier Sharesleuth investigation – go well beyond the list of small public companies they provided with more than $150 million in financing.
Sharesleuth has learned that key executives at both the New York hedge fund and the Tampa, Fla.-based investment bank have past ties to a man named Bryan J. Zwan, who once appeared on the Forbes 400 list of richest Americans.
Zwan is the founder and chairman of Digital Lightwave Inc., which settled fraud charges with the Securities and Exchange Commission in 2000. He also is a prominent member and financial backer of the Church of Scientology.
Documents show that:
– Vicis’ three founders – John D. Succo, Shad L. Stastney and Sky M. Lucas – were partners with Zwan in a predecessor fund, Victus Capital LLC, from 2001 until 2005.
– Midtown Partners’ chief executive, its research director and two senior vice presidents previously worked for H.C. Wainwright & Co., a New York investment bank that Zwan controls.
– Christopher D. Phillips, who headed Midtown Partners’ parent company from 2004 to 2008, also worked for Zwan. He had been a director of Zwan’s family foundation, and was chief financial officer of several other Zwan-controlled entities, including two that bankrolled Digital Lightwave.
Phillips jumped to Vicis in February 2008, as managing director. He said in a legal affidavit last year that he oversaw its operations. Vicis listed $2 billion in assets under management in its latest quarterly filing with the SEC, down from $2.6 billion just three months earlier and $5 billion at the start of 2009.
The PIPEs Report, a trade publication, reported last month that Vicis was winding down its funds after being inundated with redemption requests from investors. It also said that Phillips had left Vicis.
Vicis now is down to between $1 billion and $1.5 billion in assets, according to sources in the hedge fund industry.
Midtown Partners and H.C. Wainwright both have been among the most active U.S. firms in raising money for companies through so-called PIPE (Private Investment in Public Equity) deals.
Midtown Partners tied for sixth in the number of transactions completed last year, with 15 deals worth $70 million. It tied for fourth in 2008 and tied for fifth in 2007. H.C. Wainwright ranked fourth in total transactions in 2005 and third in 2004.
Some of those transactions generated short-term gains that may have boosted Vicis’ reported returns and increased profit payouts to the fund’s managers. The deals also produced millions in placement fees, stock and warrants for Midtown Partners. The shares of most of those companies have declined markedly, however, leaving Vicis and its investors with little to show for the money. Even the holdings that still show gains are illiquid, and any profits may exist only on paper.
Phillips resigned from the board of directors of three of Vicis’ portfolio companies in January.