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SEC Announces Judgment Against Stephen Hicks, Southridge Capital Management, Southridge Advisors

Stephen HicksA Securities and Exchange Commission release published on February 15, 2018 states that the SEC has obtained “final judgments” against a Stephen Hicks, a hedge fund manager based in Ridgefield, Connecticut, as well as his investment advisory firms. According to the release, a Connecticut federal court ordered the defendants “to pay nearly $13 million in disgorgement and penalties” following the court’s prior determination that they had engaged in the unlawful diversion of investor funds “for use by other hedge funds that were illiquid and in need of cash.”

The release states that the court had previously found Mr. Hicks and his businesses, Southridge Capital Management and Southridge Advisors, “liable on the SEC’s claim” that they participated in the misappropriation of investor funds. Investors were allegedly “defrauded” when they were not told about the transfers of assets during the time the transfers took place, according to the SEC, which states also that Mr. Hicks “sent a letter to investors admitting that legal and administrative expenses had been improperly allocated between funds,” and that instead of repaying the funds, he transferred illiquid securities to them. The judgments issued against him and his businesses enjoin them from further violations and require the payment of a previously ordered $7,864,064 in disgorgement and prejudgment interest. Mr. Hicks has also been ordered to pay a penalty of $5 million.

The SEC’s announcement adds that the judgments resolved claims that Mr. Hicks made fraudulent misstatements regarding the fund’s largest investment, so as to “artificially inflate the management fees” collected by the defendants. This settlement, according to the SEC, additionally resolves allegations that he “fraudulently solicited investors by telling them that the majority of their investments would be placed in unrestricted, free-trading shares (meaning shares that were available to be sold), cash, or near cash.” Rather, according to the SEC’s complaint, he invested substantial amounts of the solicited funds in deals that were “relatively illiquid.” The defendants consented to the entry of these judgments without admitting or denying the SEC’s allegations.

According to his FINRA BrokerCheck report, Stephen Hicks was also named in a 2015 cease-and-desist order by the Connecticut Banking Commissioner alleging that he and another respondent transacted business as unregistered agents in violation of state law. He was ordered to pay penalties exceeding $9,000 and agreed to cease and desist from regulatory violations without admitting or denying the Commissioner’s allegations.