Sun, Feb 25, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

U.S. regulators charge Southridge Capital for alleged fraud

Tuesday, October 26, 2010
Opalesque Industry Update – Connecticut-based fund management and investment advisory firm Southridge Capital Management LLC was charged Monday by the U.S. Securities and Exchange Commission with defrauding investors of millions of dollars, a href=http://www.sec.gov/litigation/litreleases/2010/lr21709.htm target=_blank>accordingto the regulator’s web site.

Included in the charge sheet were hedge fund manager Stephen M. Hicks, 52 of Richfield, Connecticut and his investment advisory firm Southridge Advisors LLC. According to the SEC, Hicks defrauded investors through material misrepresentations and misappropriating money to pay off legal and administrative expenses of other funds managed by Hicks and Southridge, reported The Wall Street Journal.

Specifically, Hicks and his companies are being accused of misrepresenting the true value of a telecommunications company he bought and sold to speech recognition firm Fonix Corp. for roughly $30m in 2004, as well as the value of securities involved in the transaction.

Since 2003, Hicks is alleged to have defrauded his investors from the funds he solicited, the charge sheet said.

The Connecticut complaint said, “Through false financial statements and other violations of the funds’ private placement memoranda, SCM charged excessive fees to the funds’ investors, based on misleading and fraudulent valuations of the assets SCM managed on behalf of the funds and their investors.”

According to Connecticut Attorney General Richard Blumenthal, Southridge overvalued the assets of the funds it managed through falsified financial statements to collect higher fees.

Blumenthal filed the lawsuit against Hicks and his companies on behalf of Connecticut Banking Commissioner Howard F. Pitkin.

From 2004 to 2007, the hedge fund manager was able to raise nearly $80m thru false promises to investors that more than 75% of assets would be allocated to liquid investments or cash, the charges states. >p> For his transactions, Hicks collected more than $26m in “fraudulent” fees from 2004 to 2007.

Blumenthal was quoted by Reuters as saying, "This investment firm told lucrative lies. This kind of financial fraud harms investors, but also the entire economy.”

“Investors have a right to complete and accurate disclosure about the valuation, liquidity and use of their assets," added David Berger, director of the SEC regional office in Boston in a statement.

Founded in 1996 to specialize in private investments in public equity (PIPE) and micro-cap users, Southridge oversaw between $100m and $12m of assets from 2004 to 2007. But the fund fell to $70m as of February 2009, the SEC said in its lawsuit.

The lawsuit added that several investors requested redemptions as early as 2001 but all of these requests were turned down by Hicks.

In the complaint, the SEC wants, the court to issue a permanent injunction to prevent Hicks, his companies and his agents, employees and attorneys from directly or indirectly continue in operating the firms.

In October 2009, the SEC and Manhattan District Attorney Robert Morgenthau began their investigation into Southridge, particularly its investment strategy known as private investments in public equity (PIPEs).
- Precy Dumlao
-PD

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
How is it possible for Richard Blumenthal to use the SEC as his own personal police force? The crazy part as the charges look like they're not even gonna stick!! What are you really looking for Blumenthal... votes?
http://www.prnewswire.com/news-releases/southridge-refutes-sec-and-state-of-connecticut-allegations-106130958.html edward gutsmer |   December 08, 2010 06:08:06 AM
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: Global Sigma captures February's long-vol trade[more]

    Bailey McCann, Opalesque New York for New Managers: Florida-based Global Sigma rode February's volatility to new highs. The firm's AGSF strategy is up +2.8 percent through February 16 and +4.2 percent YTD a

  2. Art & Motion launches collectible car alternative investment vehicle[more]

    Komfie Manalo, Opalesque Asia: Luxembourg-based Art & Motion has launched a new investment vehicle dedicated to vintage cars and exceptional high-quality vehicles as this collectible market has grown exponentially the turn of the centu

  3. Investing - Hedge funds turn short on tech just as stock rally takes off, After biggest short, speculators slash bearish US bond bets as supply deluge looms[more]

    Hedge funds turn short on tech just as stock rally takes off From Newsmax.com: A key group of investors has just missed out on the biggest tech-stock rally since 2014. Hedge funds and other large speculators turned net short on Nasdaq 100 Index futures for the first time in 21 months, ac

  4. Low volatility funds fail to protect investors[more]

    From FT.com: A number of exchange traded funds (ETFs) designed to protect investors from sharp stock market gyrations lost more money than mainstream US stocks during a sell-off this month, underperforming in precisely the conditions in which they were meant to thrive. Low volatility ETFs, lau

  5. Legal - Hedge funds fight to save M&A arbitrage strategy, Fannie Mae and Freddie Mac ruling blow to hedge funds[more]

    Hedge funds fight to save M&A arbitrage strategy From FT.com: Hedge funds which use the US courts to wring higher prices for merger and acquisition deals are fighting to save the lucrative investment strategy, after a Delaware court ruling that threatens to shut it down. Verition Partner