South Florida Arbitration & Litigation Lawyer Blog
Hedge Fund Fraud and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
March, 2012:
Securities and Exchange Commission v. Andrey C. Hicks and Locust Offshore Management, LLC, as Defendants, and Locust Offshore Fund, Ltd., as Relief Defendant (United States District Court for the District of Massachusetts, Civil Action No. 1:11-cv-11888-RGS)
Court Orders Purported Hedge Fund Manager and Principal to Pay Over $7.5 Million
The Securities and Exchange Commission recently announced that, on March 20, 2012, Judge Richard Stearns of the U.S. District Court for the District of Massachusetts entered final judgments by default against Locust Offshore Management, LLC, and its CEO, Andrey C. Hicks, defendants in a civil injunctive action filed by the Commission in October 2011. The Commission’s Complaint charged that Hicks, 28, of Boston, Massachusetts, and Locust Offshore Management engaged in a scheme to mislead prospective investors about their supposed quantitative hedge fund and divert over $2.7 million of investor money to Hicks’ personal bank accounts. The Judgments jointly and severally order Hicks and Locust Offshore Management to pay disgorgement of $2,481,004 and prejudgment interest of $31,054.39. In addition, Hicks was ordered to pay a civil penalty in the amount of $2,512,058.39, and Locust Offshore Management was ordered to pay a civil penalty in the amount of $2,512,058.39.
On October 26, 2011, the SEC filed its Complaint and obtained an emergency asset freeze against the defendants. The Complaint alleged that Hicks and Locust Offshore Management made numerous misrepresentations when soliciting individuals to invest in a purported hedge fund Hicks controlled called Locust Offshore Fund, Ltd. According to the Complaint, Hicks and his advisory firm falsely represented to potential investors that:
- Hicks obtained undergraduate and graduate degrees from Harvard University;
- Hicks worked for Barclays Capital, where he “grew his book nearly two-fold and expanded his group’s assets under management to roughly $16 [billion]”;
- Ernst & Young served as the fund’s auditor;
- Credit Suisse served as the fund’s prime broker and custodian; and
- the fund was a business company incorporated under the laws of the British Virgin Islands.
By making these representations and creating other indicia of legitimacy, the SEC alleged that Hicks obtained at least $1.7 million from 10 investors and misappropriated at least a portion of these funds for personal expenses.
The final judgments imposed permanent injunctions prohibiting Hicks and Locust Offshore Management from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Hicks and Locust Offshore Management were also ordered jointly and severally to pay disgorgement of $2,481,004 and prejudgment interest of $31,054.39. In addition, Hicks was ordered to pay a civil penalty in the amount of $2,512,058.39, and Locust Offshore Management was ordered to pay a civil penalty in the amount of $2,512,058.39. The final judgments also continued for one year the asset freeze previously ordered as to the defendants’ assets held by financial institutions. On March 16, 2012, the Court granted the SEC’s motion to dismiss without prejudice Locust Offshore Fund, Ltd. as a relief defendant in the case.