HARTFORD, Conn. (CN) – Hedge fund manager Stephen Hicks used his two unregistered hedge fund advisory companies to defraud investors “in three different ways,” after taking millions of dollars from them, the SEC says. The agency sued Hicks, 52, of Ridgefield, Conn., and his companies, Southridge Capital Management and Southridge Advisors.
The three defendants defrauded customers “in three different ways,” the SEC says in its federal complaint.
“First, they raised millions of dollars from investors between 2004 and 2007 by promising that at least 75 percent of their money would be invested in unrestricted, free-trading shares. Defendants failed to keep that promise, and they placed the investor’s money in so many relatively illiquid securities that by year-end 2007, investors had submitted nearly $7 million in redemption requests which defendants were unable to satisfy.
“Second, defendants significantly overvalued the hedge funds’ largest single investment, allowing them to pay or accrue for themselves more than $1.8 million in undeserved management fees.
“Third, defendants caused two of the hedge funds to pay approximately $5 million of legal and administrative expenses incurred by three other hedge funds, and when the misappropriation came to light, they repaid the two funds with illiquid securities, not cash.”
The SEC seeks disgorgement, penalties and an injunction.
The Connecticut Banking Commissioner sued Hicks and Southridge Capital Management in a similar complaint, in Hartford Superior Court.