Article: SEC Announces Judgment Against Stephen Hicks, Southridge Capital Management, Southridge Advisors

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SEC Announces Judgment Against Stephen Hicks, Southridge Capital Management, Southridge Advisors

Fitapelli and Kurta, 15 March 2018

A Securities and Exchange Commission release published on February 15, 2018 states that the SEC has obtained “final judgments” against a Stephen Hicks, a hedge fund manager based in Ridgefield, Connecticut, as well as his investment advisory firms. According to the release, a Connecticut federal court ordered the defendants “to pay nearly $13 million in disgorgement and penalties” following the court’s prior determination that they had engaged in the unlawful diversion of investor funds “for use by other hedge funds that were illiquid and in need of cash.” Continue reading “Article: SEC Announces Judgment Against Stephen Hicks, Southridge Capital Management, Southridge Advisors”

Article: Ridgefield hedge fund manager, firms to pay nearly $13 million in SEC case

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Ridgefield hedge fund manager, firms to pay nearly $13 million in SEC case

Kevin Zimmerman , 22 August 2017

U.S. District Judge for the District of Connecticut Robert N. Chatigny has ordered hedge fund manager Stephen Hicks of Ridgefield and his investment advisory businesses to pay nearly $13 million in a case where the Securities and Exchange Commission alleged he illegally diverted investor money for use by other hedge funds that were illiquid and in need of cash.

The SEC has been actively litigating the case since filing its complaint in 2010 against Hicks and his firms Southridge Capital Management LLC and Southridge Advisors LLC, maintaining that investors were defrauded because they were not told about the transfers of hedge fund assets while they were taking place. Continue reading “Article: Ridgefield hedge fund manager, firms to pay nearly $13 million in SEC case”

Article: Court Orders Hedge Fund Advisers to Pay $12.9 Million in SEC Fraud Case

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Court Orders Hedge Fund Advisers to Pay $12.9 Million in SEC Fraud Case

Elizabeth Dalziel, 22 August 2017

On August 2, 2017, a federal court in Connecticut ordered Steven Hicks (“Hicks”), a hedge fund manager, and his hedge fund advisory firms to pay almost $13 million. This payment includes disgorgement and a penalty. In 2010, the Securities and Exchange Commission (“SEC”) filed a complaint against Hicks and his two hedge fund advisers, Southridge Capital Management LLC (“Southridge Capital”) and Southridge Advisors, LLC (“Southridge Advisors”).

The complaint alleged that Hicks, Southridge Capital, and Southridge Advisors committed fraud by placing investor money in illiquid securities when investors were told that “at least 75% of their money would be invested in unrestricted, free-trading shares.” Continue reading “Article: Court Orders Hedge Fund Advisers to Pay $12.9 Million in SEC Fraud Case”

Article: ‘Spoofing’: The SEC Calls It Manipulation, But Will Court Agree?

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‘Spoofing’: The SEC Calls It Manipulation, But Will Court Agree?

Michael A. Asaro,  17 July 2017

In recent years, the U.S. Securities and Exchange Commission (SEC), Commodity Futures Trading Commission, and the Department of Justice have pursued an increasing number of cases involving a relatively new form of alleged market manipulation known as “spoofing.” See, e.g., U.S. v. Coscia, No. 14-cr-00551 (N.D. Ill.); In re Panther Energy Trading, CFTC Docket No. 13-26 (2013); CFTC v. Nav Sarao Futures, No. 15-cv-03398 (N.D. Ill.); In re Hold Brothers On-Line Investment Services, Exchange Act Release No. 67924 (SEC Sept. 25, 2012); SEC v. Lek Secs., No. 17-cv-1789 (S.D.N.Y.). Continue reading “Article: ‘Spoofing’: The SEC Calls It Manipulation, But Will Court Agree?”

Article: Southridge Hedgie Hicks Shrugs Off Regulators Investor Fraud Suits

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Southridge Hedgie Hicks Shrugs Off Regulators Investor Fraud Suits

Teri Buhl, 26 October 2010

Stephen Hicks and his Ridgefield, CT hedge fund, Southridge Capital, were sued yesterday for multiple securities violations by the SEC and the Connecticut Banking Commissioner in Connecticut state and federal courts. Howard Pitkin, head of the CT Department of Banking, has been after Hicks for investor fraud and abuse in its broker dealer business since 2007.

Hicks is fight back- after being ordered to comply with a subpoena from the Banking Commission, Southridge then appealed to the Connecticut Supreme Court but Pitken eventually won the right to review the funds internal records. Pitkin had originally filed a cease and desist order against the broker dealer side of the hedge funds business. Now he wants to shut the whole Southridge opperation down. Continue reading “Article: Southridge Hedgie Hicks Shrugs Off Regulators Investor Fraud Suits”

Article: Connecticut, SEC Sue Southridge Capital for Fraud

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Connecticut, SEC Sue Southridge Capital for Fraud

Karen Freifeld and Joshua Gallu, 26 October 2010

Southridge Capital Management LLC was sued by Connecticut over $26 million in fees charged investors based on what state Attorney General Richard Blumenthal called false statements about the value of assets.

The investment firm, based in Ridgefield, Connecticut, also was sued today by the U.S. Securities and Exchange Commission and accused of defrauding investors in hedge funds.

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Article: SEC Charges Conn. Hedge Manager With Fraud

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SEC Charges Conn. Hedge Manager With Fraud

Matt Ackermann, 25 October 2010

The Securities and Exchange Commission and the Connecticut banking commission have sued a Connecticut hedge fund manager with fraud.

The SEC and Connecticut Banking Commissioner Howard Pitkin charged Southridge Capital Management LLC and its chief executive officer, Stephen M. Hicks, with defrauding investors in million of undeserved fees.

According to a filing in federal court in Connecticut Monday, the SEC alleged that Hicks overvalued the largest position held by funds managed by Southridge and Southridge Advisors LLC. The SEC also said he made material misrepresentations to investors and misused their money to pay legal and administrative expenses of other funds managed by Hicks and Southridge. Continue reading “Article: SEC Charges Conn. Hedge Manager With Fraud”

Article: UPDATE 1-SEC, Connecticut charge fund manager with fraud

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UPDATE 1-SEC, Connecticut charge fund manager with fraud

Jonathan Stempel, 25 October 2010

NEW YORK, Oct 25 (Reuters) – A Connecticut hedge fund firm was sued on Monday by U.S. and state regulators for allegedly inflating the value of its holdings, allowing it to fraudulently collect millions of dollars of undeserved fees.

Southridge Capital Management LLC and its Chief Executive Stephen Hicks, 52, were sued by the U.S. Securities and Exchange Commission and Connecticut Banking Commissioner Howard Pitkin over their management and financial reporting of several funds.

The SEC said Hicks falsely valued Southridge’s largest holding, speech recognition company Fonix Corp, at $30 million or more based almost entirely on a 2004 transaction in which Fonix bought two companies from an entity he controlled.

It also said Hicks raised $78.9 million over the 2004 to 2007 period after falsely promising investors that more than 75 percent of assets would be put in liquid investments or cash.

Connecticut alleged the overvaluing of fund assets allowed Ridgefield-based Southridge to fraudulently collect more than $26 million in fees from 2004 to 2007. Continue reading “Article: UPDATE 1-SEC, Connecticut charge fund manager with fraud”

Article: Southridge Capital Management Founder Charged With Fraud Though He May Not Know It Yet

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Southridge Capital Management Founder Charged With Fraud Though He May Not Know It Yet

BESS LEVIN, 10 October 2010

This afternoon, Connecticut regulators accused investment adviser Southridge Capital and its chief executive Stephen Hicks of “preparing false financial statements” that “inflated the assets of five funds from 2004 through 2007 so that they could charge higher fees,” in an alleged scam that netted them an ill-gotten $26 million.

Additionally, many investors have apparently put in redemption requests as far back as 2001, though none of them have seen a dime. Attorney General said the firm told “lucrative lies” which hurt not only its clients “but also the entire economy.” How is Hicks taking the news? Is he ashamed and/or embarrassed? Is he defiantly calling the charges bogus, telling family and friends he’ll fight them? Is he proud of what he’s done and the alliterative prose he inspired in Blumenthal? Or does have no idea he’s been accused of anything, having only seen a bunch of missed calls on his phone?

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Article: SEC Brings Fraud Charges Against Another Hedge Fund

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SEC Brings Fraud Charges Against Another Hedge Fund

Stephen Taub, 25 October 2010

Another day, another hedge fund accused of wrong-doing by regulators.

The Securities and Exchange Commission Monday charged hedge fund manager Stephen M. Hicks and his investment advisory businesses with defrauding investors in funds managed by Southridge Capital Management LLC and Southridge Advisors LLC by overvaluing the largest position held by the funds. The SEC also alleges that Ridgefield, Ct.-based Hicks “made material misrepresentations” and misused investor money to pay legal and administrative expenses of other funds managed by Hicks and Southridge. Continue reading “Article: SEC Brings Fraud Charges Against Another Hedge Fund”

Article: Manhattan District Court Writes Final Chapter in Litigation Between Internet Law Library and Hedge Fund Adviser Southridge Capital Management; Orders Tech Firm to Pay Adviser Almost $1.2 Million in Attorney’s Fees on Top of Damages

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Manhattan District Court Writes Final Chapter in Litigation Between Internet Law Library and Hedge Fund Adviser Southridge Capital Management; Orders Tech Firm to Pay Adviser Almost $1.2 Million in Attorney’s Fees on Top of Damages

Alisa Greenstein, Hedge Fund Law Report, 27 August 2010

On August 9, 2010, the United States District Court for the Southern District of New York (Southern District) effectively ended the decade-long litigation between Internet Law Library, Inc. (INL), its executives and several of its shareholders, and Southridge Capital Management, LLC (Southridge), its principals and affiliates, including hedge fund Cootes Drive, LLC, and its broker, Thomson Kernaghan & Co., Ltd. (TK & Co.). The litigation arose out of a “floorless” or “toxic” convertible securities purchase agreement between INL and Cootes Drive.

The agreement allowed Cootes Drive to demand conversion of its INL preferred stock into common stock based on a floating conversion ratio tied to the common stock’s market price, and obligated Cootes Drive to float a $25 million line of equity, so long as INL common stock remained priced above a certain level. This arrangement arguably provided Cootes Drive and its affiliates with an incentive to aggressively short-sell INL common stock, because the further they decreased its price, the more common stock Cootes Drive could obtain on conversion (which it could use to cover its short positions and profit from the difference), and because that decrease would eliminate its obligation to provide a line of equity. The agreement proved disastrous for INL, just as it has for many other companies with similar financing arrangements. Continue reading “Article: Manhattan District Court Writes Final Chapter in Litigation Between Internet Law Library and Hedge Fund Adviser Southridge Capital Management; Orders Tech Firm to Pay Adviser Almost $1.2 Million in Attorney’s Fees on Top of Damages”

Article: SEC And Manhattan DA Investigate Southridge Capital

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SEC And Manhattan DA Investigate Southridge Capital

Nathan Vardi, 07 October 2009

Southridge Capital Management, a Ridgefield, Conn., hedge fund firm run by Stephen Hicks that primarily employs an investment strategy known as PIPEs, is under investigation by the Securities and Exchange Commission and Manhattan District Attorney Robert Morgenthau.

The SEC has opened an investigation into Southridge, according to two subpoenas the SEC sent in late July to companies that had received financing from the firm’s hedge funds.

In the five-page subpoenas, Vyta Corp. and Hyperdynamics Corp., two micro-cap companies that have been fighting Southridge for years in court, were asked by the SEC to produce documents reflecting all transfers of cash between them and the Southridge hedge funds over a four-year period. The companies were also told to provide documents relating to securities they issued to Southridge and communications between the companies and Southridge. Continue reading “Article: SEC And Manhattan DA Investigate Southridge Capital”

Article: In Pursuit of the Naked Short by Alexis Stokes

Article - Academic

In Pursuit of the Naked Short

Alexis Stokes, Texas State University

Journal of Law and Business 5/1 (Spring 2009)

This article explores the origins of naked short-selling litigation; considers
the failures of significant naked short-selling lawsuits in federal court;
surveys the obstacles erected collectively by constitutional standing requirements, the Federal Rules of Civil Procedure, the Private Securities Litigation Reform Act, brokerage firms, death spiral financiers, and the Depository Trust and Clearing Corporation; examines the efficacy of Regulation SHO, SEC rule 10b-21, and new FINRA rules; discusses recent state legislation and state court litigation; and identifies non-litigation options to curb naked short-selling. Ultimately, this article seeks to answer the question: If manipulative naked short-selling is more than a mythological scapegoat for
small cap failure, what remedies are, or should be, available?

PDF (62 Pages): Article In Pursuit of the Naked Short

Article: Nanopierce Technologies, Inc. v. Southridge Capital Management

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Nanopierce Technologies, Inc. v. Southridge Capital Management

Find a Case, 29 January 2008

Before the Court are three motions for summary judgment pursuant to Rule 56(c) of the Federal Rules of Civil Procedure. The three motions are addressed in the following order: first, the motion for summary judgment filed by Harvest Court (a co-defendant and subsidiary of Southridge); second, the motion for summary judgment filed by Counterclaim-Plaintiffs Kampmann and Metzinger (Nanopierce executives); and third, the motion for summary judgment filed by H. Glenn Bagwell, Jr. For the reasons stated below, Harvest Court’s motion for summary judgment is granted, Kampman and Metzinger’s motions for summary judgment are denied with respect to Counts 1, 7, 8, and 13, and granted with respect to Count 9. Bagwell’s motion for summary judgment is denied.

I. Background*fn1
In a September 26, 2000, meeting at defendant Southridge’s office, Nanopierce President Paul Metzinger negotiated an agreement with two Southridge employees, Defendants Singer and Pickett.*fn2 The negotiated agreement between Southridge and Nanopierce called for $7.5 million in initial financing in exchange for approximately 4.5 million shares of Nanopierce stock. The agreement also contained a provision providing “reset rights,” which entitled the Southridge to additional shares of common stock in the event the stock price declines. The reset clause included three reset dates (at 65, 130, and 195 days after the closing) at which additional shares would be issued if the stock was trading below the initial purchase price. Finally, the agreement also provided for an additional $7.5 million in financing at a future date, on the condition that Nanopierce’s stock met certain price and volume thresholds. Continue reading “Article: Nanopierce Technologies, Inc. v. Southridge Capital Management”

Article: COURTS WIELD HARSH PENALTIES FOR ABUSING THE DISCOVERY PROCESS

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COURTS WIELD HARSH PENALTIES FOR ABUSING THE DISCOVERY PROCESS

Evelyn Alfonso , 30 January 2004

A federal district court last summer issued the ultimate sanction of dismissal due to plaintiffs= abuse of the discovery process and persistent refusal to abide by the court=s discovery orders. Internet Law Library, Inc. v. Southridge Capital Management, 2003 WL 21537782 (S.D.N.Y. July 8, 2003). ITIS, Inc., formerly known as Internet Law Library, Inc., and its CEO, along with several of its shareholders, brought an action against defendant investors alleging their involvement in a scheme to defraud plaintiffs and to manipulate downward the price of ITIS stock in
violation of federal and state laws. Internet Law Library, Inc. v. Southridge Capital Management, 223 F. Supp. 2d 474, 477-78 (S.D.N.Y. 2002).

Judge Robert L. Carter of the United States District Court for the Southern District of New York dismissed the suit with prejudice as to all defendants due to plaintiffs= repeated attempts to expand and misconstrue the court=s orders on the ground that Federal Rule of Civil Procedure 37(b)(2)(C) authorizes dismissal of a plaintiff=s complaint along with other sanctions if a party Afails to obey an order to provide or permit discovery.@ Internet Law Library, 2003 WL 21537782 at *3. While dismissal is indeed the harshest sanction available to a court, it is appropriate where a party who has disobeyed an order has done so willfully, in bad faith, or is in some way at fault. Id. The court held that plaintiffs= failure to respect the court and its orders justifies dismissal of the complaint as both a remedy and a deterrent to future misconduct. Id. at *4. Continue reading “Article: COURTS WIELD HARSH PENALTIES FOR ABUSING THE DISCOVERY PROCESS”