Wed, Sep 17, 2014
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. Investing - Big hedge funds show interest in Alibaba, Maglan joins other hedge funds in rush to Argentinian assets[more]

    Big hedge funds show interest in Alibaba From Hereisthecity.com: …Three other major hedge fund investors who have shown interest in the IPO are Dan Loeb of Third Point, David Tepper of Appaloosa Management and Dan Benton of Andor Capital Management. All three were among the roughly 800 p

  2. Investors looking at other sources for hedge fund-like returns[more]

    Komfie Manalo, Opalesque Asia: Investors who are always on the lookout for higher gains are looking at alternative sources of income, particularly exchange-traded fund industry that generates hedge fund-like returns, according to

  3. Investors move capital out of Scotland ahead of referendum[more]

    Benedicte Gravrand, Opalesque Geneva: Ahead of Scotland’s independence referendum on September 18, asset managers, investors and pension savers are moving billions of pounds out of the country,

  4. Indices - Greenwich Global Hedge Fund Index up 1.57% in August (+4.22% YTD), Eurekahedge Hedge Fund Index rebounds in August gaining 1.36% (4.22%), Lyxor Hedge Fund Index was up 0.9% in August (YTD +1.7%)[more]

    Greenwich Global Hedge Fund Index up 1.57% in August (+4.22% YTD) The Greenwich Global Hedge Fund Index ended the month of August up +1.57%. Equity markets were up in August with the MSCI World Index up +2.00%. This was primarily driven by the performance of the S&P 500 which was up +4.

  5. Alpha Strategic buys stake in Premium Point Investments[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Alpha Strategic plc, a affiliate of