Connecticut Hedge Fund Manager: I’m Innocent
If the Securities and Exchange Commission thought that Stephen M. Hicks, CEO of Southridge Capital Management of Ridgefield, CT, was going down quietly, they better think again. Hicks, despite accusations of state and federal fraud violations, loudly denied the “baseless” allegations and swore to fight them to the bitter end.
This may be cold comfort to his investors, some of whom have been trying to redeem their investments since 2001. Mr. Hicks is accused of stymieing cash-out requests, overvaluing fund assets, and misusing investor funds.
Southridge and Hicks also were sued Monday by the Connecticut Attorney General and Department of Banking on related charges.
“The SEC and Connecticut Attorney General’s Office have focused on a handful of positions in the structured finance segment of Southridge’s business, ignoring over 250 Southridge fund investments, totaling in excess of $1 billion invested in the companies that it has financed,” Southridge attorney Robert Wolf said today, in a statement.
Wolf added: “Both complaints ignore the fact that Stephen Hicks and his family were large investors in the funds and, if allegations in the complaints were to be believed, they would have been among the so-called scheme’s most significant victims.”
The U.S. Securities and Exchange Commission said Monday it is seeking repayment of profits, interest and financial penalties.
“Investors have a right to complete and accurate disclosure about the valuation, liquidity and use of their assets,” said David Bergers, director of the SEC’s regional office in Boston. “We will continue to hold accountable hedge fund managers and other industry participants when they fail to meet their fiduciary obligations.”
Wolf said both the SEC and the banking department failed to account for the impact of “the global credit crisis on the performance and liquidity profile of the funds.”
“Like many peer hedge funds, Southridge experienced losses and significantly reduced liquidity,” Wolf said. “Rather than acknowledging the realities of the credit crisis, the SEC and the State of Connecticut appear to engaging in an effort to find blame where none exists.”
The Connecticut Attorney General’s office and the state Department of Banking filed a lawsuit accusing the firm of collecting more than $26 million in illegal fees on five funds Southridge helped manage. The lawsuit seeks civil penalties and an order banning Hicks from participating in any investment-related activities for 10 years and other penalties.
Both the SEC, which credited the state Banking Department, and the state agency, which began its investigation in 2007, focused on misuse of investor funds, including using them to pay administrative and legal fees on unrelated funds.
Southridge acted as a general partner to five funds, providing investment advice and strategy to the funds. The lawsuit said Southridge overvalued the assets of the funds — through false financial statements — so it could illegally charge greater fees to investors, the Connecticut lawsuit alleges.
“The investment firm told lucarative lies,” Connecticut Attorney General Richard Blumenthal said. “This kind of financial fraud harms investors but also the entire economy.”
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