Judgement Hammer

Court orders purported hedge fund manager and principal to pay over USD7.5m

Judge Richard Stearns of the US 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 USD2.7 million of investor money to Hicks’ personal bank accounts.

The Judgments jointly and severally order Hicks and Locust Offshore Management to pay disgorgement of USD2,481,004 and prejudgment interest of USD31,054.39. In addition, Hicks was ordered to pay a civil penalty in the amount of USD2,512,058.39, and Locust Offshore Management was ordered to pay a civil penalty in the amount of USD2,512,058.39.

On 26 October, 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 USD16 [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 USD1.7 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 USD2,481,004 and prejudgment interest of USD31,054.39. In addition, Hicks was ordered to pay a civil penalty in the amount of USD2,512,058.39, and Locust Offshore Management was ordered to pay a civil penalty in the amount of USD2,512,058.39. 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.

The Commission acknowledges the assistance of the US Attorney’s Office for the District of Massachusetts, the FBI, the Swiss Financial Market Supervisory Authority and the British Virgin Islands Financial Services Commission.

The Enforcement Division expects to institute administrative proceedings against Hicks and Locust Offshore Management based on the entry of injunctions against them to determine what sanctions may be appropriate and in the public interest.  Such sanctions could include bars from certain aspects of the securities industry.

 

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