SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16547 / May 10, 2000
SECURITIES AND EXCHANGE COMMISSION v. MICHAEL T. HIGGINS, ET AL. United States District Court for the Northern District of California, No. 00-1657-MEJ.
The Securities and Exchange Commission ("SEC") and the U.S. Attorney's Office for the Northern District of California today announced the filing of separate civil and criminal actions against Michael T. Higgins, a hedge fund manager based in San Francisco, California. The actions allege that from December 1998 through March 2000, Higgins raised over $7.6 million by lying about the performance record of Ballybunion Capital Partners, L.P. (the "Fund"), a hedge fund he ran. Higgins told investors that the Fund had impressive gains when in fact it had suffered severe losses. By March 2000, the Fund's assets had dwindled to approximately $750,000, barely one-tenth the amount Higgins continued to tell investors they had. Higgins also distributed false information to a website that posted the information on the Internet.
Named as defendants in the SEC's action are: Higgins; his wholly owned investment advisory firm, Ballybunion Capital Associates, LLC ("Ballybunion Capital"); and the Fund. Higgins is the sole defendant in the criminal action. Higgins, 36, resides in San Anselmo, California, while Ballybunion Capital and the Fund are located in San Francisco, California.
According to today's filings, Higgins first solicited investors by grossly overstating the Fund's 1998 performance record. For example, Higgins told investors that the Fund had gross returns of nearly 54% and net returns of nearly 40% for 1998. In fact, the Fund had a net loss that year and by late 1998 had less than $11,000 under management. Based on these and other misrepresentations, in early 1999 Higgins raised approximately $6 million (out of an eventual total of $7.6 million raised) from investors.
By May 1999, the Fund had suffered trading losses of approximately $2.4 million, or 40% of the $6 million Higgins had raised to that point, according to the complaints. To conceal the losses and solicit additional investors, Higgins continued to distribute performance summaries that falsified the Fund's performance, and he forged "reports" of the Funds' clearing broker and auditors.
The complaints further allege that Higgins gave false performance figures for the Fund to a third-party company that included them on its website, which posts information and performance results for various hedge funds on the Internet.
In its civil complaint filed in the United States District Court for the Northern District of California, the SEC charges the defendants with securities fraud based on their false representations and omissions regarding the Fund's performance. The SEC's complaint seeks to freeze the assets of the Fund and Ballybunion Capital, the investment advisory firm Higgins controlled; appoint a receiver for the Fund; and compel Ballybunion Capital and Higgins to disgorge any illegal profits plus prejudgment interest and pay civil monetary penalties. The complaint also seeks injunctions against each of the defendants prohibiting them from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and (2) of the Investment Advisers Act of 1940.
The criminal complaint charges Higgins with one count of securities fraud and one count of wire fraud, each relating to the false representations that he made to investors. Higgins may also be fined on each count, and required to pay restitution to the defrauded investors.http://www.sec.gov/litigation/litreleases/lr16547.htm