SEC GETS ASSETS FROZEN AT QUANTITATIVE HEDGE FUND

The following is an excerpt from the SEC website: “Washington, D.C., Oct. 26, 2011 — The Securities and Exchange Commission today obtained an asset freeze against a Boston-area money manager and his investment advisory firm charged with misleading investors in a supposed quantitative hedge fund and diverting portions of investor money into his personal bank account. The SEC alleges that Andrey C. Hicks and Locust Offshore Management LLC made false representations to create an aura of legitimacy when soliciting individuals to invest in a purported billion dollar hedge fund that Hicks controlled called Locust Offshore Fund Ltd. Hicks raised at least $1.7 million from several investors for the hedge fund. Among the false claims made to investors were that Hicks obtained undergraduate and graduate degrees at Harvard University, and that he previously worked for Barclays Capital, and that the hedge fund held more than $1.2 billion in assets. “Hicks lied to investors about virtually every aspect of his fictitious hedge fund. This brazen web of lies to investors constituted an outright fraud,” said David P. Bergers, Director of the SEC’s Boston Regional Office. “Hicks and Locust Offshore Management created this intricate scheme in order to gain credibility with investors,” said Robert Kaplan, Co-Chief of the Asset Management Unit in the SEC’s Division of Enforcement. “Even hedge fund managers who claim affiliations with well-known institutions should be thoroughly researched before making an investment.” At the SEC’s request, Judge Richard Stearns of the U.S. District Court in Massachusetts issued a temporary restraining order that freezes the assets of Hicks, his firm, and the hedge fund. According to the SEC’s complaint, Hicks and his firm falsely claimed that the firm’s quantitative strategies were based on mathematical models that Hicks developed while at Harvard, where he purportedly received his undergraduate degree in 2005 and a graduate degree in 2007. Unbeknownst to investors, Hicks only attended Harvard’s undergraduate college for three semesters and never graduated after twice being required to withdraw for failing to perform academically. Hicks only took one mathematics course during his time at Harvard, receiving a D- for a grade. The SEC alleges that Hicks and his firm misrepresented in offering materials to potential investors that while purportedly at Barclays Capital, Hicks “grew his book nearly two-fold and expanded his group’s assets under management to roughly $16 [billion].” According to a search of records at Barclays Capital, the firm has no record of employing Hicks. According to the SEC’s complaint, Hicks and his firm also falsely claimed that 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. The SEC’s complaint charges Hicks and Locust Offshore Management with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint also names the Locust Offshore Fund as a relief defendant, alleging that it received investor funds to which it had no right. The SEC’s expedited investigation was conducted by Boston Regional Office staff including Michele T. Perillo and Kevin M. Kelcourse of the Asset Management Unit and Amy S. Gwiazda. Richard M. Harper II will lead the SEC’s litigation. The SEC acknowledges the assistance of the Swiss Financial Market Supervisory Authority and the British Virgin Islands Financial Services Commission. The SEC’s investigation is continuing.”