The boss of a mid-size US-based hedge fund of funds, called Common Sense Investment Management, has been caught up in a police sting on a prostitution ring.

James Bisenius, the CEO and CIO of the US$2.9 billion Oregon-based manager was arrested along with eight other men on charges of patronizing prostitutes, as part of a local police operation.

According to Wall Street’s ‘Fierce Finance’ newsletter, the firm decided that for now, the best course of action would be to let him work out his issues on his own, in a marked difference with similar scandals involving politicians.

“Going forward, the firm’s partners have decided that Jim will remain in his role as chief executive officer and chief investment officer and he will deal with this recent event as the personal matter that it is,” the company said in a statement. It also said that Bisenius’s “recent personal transgressions bear no reflection on this outstanding team of professionals or the quality of portfolio management”.

However, at a time when funds of hedge funds are struggling, this sort of publicity is hardly welcome, the newsletter observes. If the fund is struggling from a performance perspective, this sort of personal blight might be enough to tip a limited partner toward redemption. On the other hand, if the performance has been solid, people will be in a more forgiving mood.

The Oklahoma Municipal Employees Retirement fund, which is one of its larger clients, “is aware of the situation.” But it says its decision to redeem US$30 million was made earlier and is “unrelated to the arrest,” according to ‘CNBC’ online.

In this case, there may be a price to pay on the domestic front, which could affect business. Janet Bisenius, the wife of James, has majority control of Common Sense.