On August 11, 2017, a federal court in Connecticut ordered a hedge fund manager and his investment advisory business to pay roughly $13 million in connection with a Securities and Exchange Commission case. The SEC accused Steven Hicks of Ridgefield, Connecticut of diverting investor money to other hedge funds that were in need of money.
The court found that Hicks had misappropriated investor funds. The SEC has continually litigated the case since filling an initial report in 2010. The complaint was filed against Hicks and his firms, Southridge Advisors and Southridge Capital Management.
The SEC alleged that investors were defrauded, since they were not told that the assets would be transferred between the two hedge funds. Hick later sent a notification to investors making them aware that certain legal and administrative expenses had been improperly transferred between funds. Instead of repaying the money, Hicks allegedly transferred illiquid securities to the funds.
The court’s order was entered on August the 2nd. It prohibits Hicks and Southridge entities from violating Section 206 of the Investment Advisers Acts of 1940 and also requires them to pay around $7.9 million in disgorgement and prejudgment interest. Simultaneously, Hicks has been order to pay a $5 million penalty.
This is only a partial final judgment. The SEC will continue litigation in regards to allegations that Hicks and his firms overvalued the largest position in the funds and also made misrepresentations regarding the liquidity of those funds.