Asset Freeze against a Purported Quantitative Hedge Fund and Manager Obtained by SEC
Yoomi Lee | Bloomberg Law
The Securities and Exchange Commission (SEC) obtained an asset freeze against Andrey C. Hicks and his purported quantitative hedge fund, Locust Offshore Management, LLC (LOM and together, Defendants) in connection with the fraudulent offer and sale of shares in a sham British Virgin Islands (BVI) incorporated pooled investment fund, Locust Offshore Fund, Ltd (Locust Fund). LOM is purported to be the sole manager of the Locust Fund. The SEC charges Defendants 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 SEC seeks permanent injunctions against Defendants, disgorgement, and payment of civil monetary penalties. Additionally, the SEC seeks disgorgement from the Locust Fund, which is named as a relief defendant.
False and Misleading Statements
The SEC alleges that Defendants engaged in a fraudulent scheme by creating the false and deceptive appearance that the Locust Fund was a legitimately operating BVI incorporated pooled investment fund, when it never actually existed. To create the false impression that the Locust Fund was legitimate, Defendants allegedly created a website and professional materials, including stationary, business cards, and email signature blocks. LOM’s website displayed investment information such as the current balance of the Locust Fund, total subscriptions, and year to date returns. Defendants also opened business checking and savings accounts in LOM’s name to further create the appearance of legitimacy. As the result of their scheme, Defendants purportedly defrauded investors and misappropriated approximately $1.8 million.
Defendants also allegedly created a Confidential Information Memorandum (CIM) for the offer and sale of shares in the Locust Fund. The SEC charges that Defendants made numerous materially false and misleading statements regarding (1) the existence of the Locust Fund as a BVI incorporated company; (2) the existence of a purported professional auditor, prime broker, and custodian for the Locust Fund; and (3) Hicks’ education and professional background. For example, there is no record of any business company named “Locust Offshore Fund” according to a records search by the British Virgin Islands Financial Services Commission. Moreover, although the CIM claimed that Ernst and Young LLP and Credit Suisse Group served as the Locust Fund’s auditor and prime broker, respectively, no such records exist. The CIM also stated that Hicks was employed at Barclays Capital where he traded securities across several different asset classes and doubled his group’s assets under management to roughly $16 billion in a little over a year. Barclays, however, does not have a record of Hicks’ ever being employed there according to the SEC. Finally, the SEC alleges that Hicks was forced to withdraw from Harvard University for failing to perform academically, despite his claims that he is a Harvard graduate and that LOM’s quantitative strategies are based on the mathematical models developed by him during his tenure at the university. Accordingly, the SEC charges that Defendants knowingly or recklessly misled investors.
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