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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23905 / August 11, 2017

SEC v. Southridge Capital Management LLC, et al., No. 10-cv-1685 (D. Conn. Filed Oct. 25, 2010)

Court Orders Hedge Fund Manager and Firms to Pay Nearly $13 Million in SEC Case

A federal court in Connecticut has ordered a hedge fund manager and his investment advisory businesses to pay nearly $13 million in a case where the Securities and Exchange Commission alleged he illegally diverted investor money for use by other hedge funds that were illiquid and in need of cash.

The court found Steven Hicks of Ridgefield, Connecticut, liable on the SEC's claim that he misappropriated investor funds. The SEC has been actively litigating the case since filing its complaint in 2010 against Hicks and his firms Southridge Capital Management LLC and Southridge Advisors LLC, arguing 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 court's order, entered August 2, enjoins the Southridge entities and Hicks from violating Section 206 of the Investment Advisers Act of 1940 and requires them to pay approximately $7.9 million in disgorgement and prejudgment interest. Hicks also must pay a $5 million penalty.

The ruling is a partial final judgment. The SEC's litigation continues with respect to allegations that Hicks and the Southridge entities also overvalued the largest position in the funds and made misrepresentations regarding the liquidity of funds they managed.

 

https://www.sec.gov/litigation/litreleases/2017/lr23905.htm


Modified: 08/11/2017