Court Orders Hedge Fund Manager and Firms to Pay Nearly $13 Million in SEC Case
The Securities and Exchange Commission obtained final judgments against a Ridgefield, Connecticut-based hedge fund manager and his investment advisory businesses.
The Securities and Exchange Commission obtained final judgments against a Ridgefield, Connecticut-based hedge fund manager and his investment advisory businesses.
The federal court in Connecticut ordered the defendants to pay nearly $13 million in disgorgement and penalties after determining that the defendants had illegally diverted investor money for use by other hedge funds that were illiquid and in need of cash.
The court found Steven Hicks liable on the SEC’s claim that he misappropriated investor funds. The SEC has been litigating the case since filing its complaint in 2010 against Hicks and his firms Southridge Capital Management LLC and Southridge Advisors LLC.
The SEC argued that investors were defrauded because they were not told about the transfers of hedge fund assets while they were taking place.
According to the SEC’s complaint, Hicks later sent a letter to investors admitting that certain legal and administrative expenses had been improperly allocated between funds, but rather than repaying the money, he transferred certain illiquid securities to the funds.
The final judgment enjoined the Southridge entities and Hicks from violating securities laws and ordered them to pay $7.9 million in disgorgement and prejudgment interest. Hicks also must pay a $5 million penalty.
The additional claims resolved by the final judgments involved accusations that Hicks fraudulently misstated the value of the fund’s largest investment to artificially inflate the management fees that were collected from investors.
This settlement also resolves allegations that Hicks fraudulently solicited investors by telling them that the majority of their investments would be placed in unrestricted, free-trading shares (shares that were available to be sold), cash, or near cash.
According to the complaint, Hicks instead invested large portions of the solicited money in relatively illiquid deals. The defendants consented to the entry of the final judgments, and neither admit nor deny the allegations in the SEC’s complaint.
