An article in the Oct. 9 Business & Finance Section, on the decision by the 7th U.S. Circuit Court of Appeals in a Securities and Exchange Commission case against Washington mutual fund manager Charles Steadman, incorrectly described two issues. Steadman placed the bank accounts of the mutual funds in banks that gave him personal loans, the court found. But the ruling said the SEC did not prove the banks were given the business specifically because they loaned money to Steadman. An SEC allegation that Steadman arranged for the mutual funds to pay fees to a foreign company that he controlled was dismissed before the case reached the appeals court.

Washington investment adviser Charles W. Steadman, who has been fighting for years to keep from being kicked out of the securities business, has won a partial victory from the U.S. Circuit Court of Appeals in New Orleans.

The court said the Secutiries and Exchange Commission acted too harshly in 1977 when it permanently banned Steadman from the securities business, and it ordered the SEC to reconsider its punishment.

The court didn't dismiss any of the SEC'S charges against Steadman, but it said the agency hadn't justified its decision to punish him with the most severe penalty possible -- kicking him out of the business.

"When the commission imposes the most drastic sanctions at its disposal, it has a duty to articulate carefully the grounds for its decision, including an explanation of why lesser sanctions will not suffice," the opinion said.

The indifferences between Steadman and the SEC date back to the late 1960s, when Steadman allegedly failed to disclose several financial transactions he was involved in to shareholders of mutual funds that he managed.

The SEC charged that Steadman deposited the mutual funds' money in non-interest-bearing checking account's at several Washington and New York banks than obtained loans for himself or his other companies from the same banks.

Government regulators charged that these and other "insider" transactions involving Steadman, his companies and the mutual funds he managed were improperly kept secret from shareholders.

Steadman has continued to manager the mutual funds while appealing the SEC charges.

Steadman's companies include Steadman American Industrial Fund, Steadman Associated Fund, Steadman Fiduciary Investment Fund, Steadman Investment Service Corp. and Steadman Securities Corp. Most of the firms have offices at 1730 K St. NW.

Steadman couldn't be reached for comment yesterday byt a representative of his firm provided a copy of the court ruling. SEC attorneys involved in the case also weren't available because yesterday was Columbus Day, a holiday for federal employes.

The court ruling came after years of legal battles including hearings before an administrative law judge, an appeal to the Securities and Exchange Commission and, finally, after the SEC acted, an appeal to the courts.

The SEC investigators contended that Steadman created several potential conflicts of interest between his role as manager of the mutual funds -- in which he was supposed to act in the interest of shareholders and his role as an independent businessman.

Steadman pulled the checking account of one mutual fund out of Riggs National Bank after the bank refused to give him a personal loan, the SEC charged. The fund's business was transferred to Chase Manhattan Bank in New York, which loaned money to Steadman.

Neither the stockholders nor directors of the mutual fund were told that Steadman's personal dealings with the two banks were the reason for the transfer. Shareholders were kept in the dark about several other transactions that should have been made public, the SEC claimed.

The SEC also charged that a company controlled by Steadman collected fees from the mutual funds for which it did little or no work, and that a foreigh company was used to channel other payments to Steadman.

Describing Steadman's dealings as "corrupting" the SEC said in 1977, "So egregiously faithless a fiduciary as Steadman cannot be permitted to meddle further with other people's money."

Steadman, now 64, is an attorney who in 1964 took over a small mutual fund that had been managed by his late brother. Borrowing extensively from banks, Steadman bought several other mutual funds, building a financial empire that at one time was worth more than $250 million.