Southridge's Hicks Denies Fraud Allegations

Oct 27 2010 | 10:05am ET

Stephen Hicks, the Connecticut hedge fund manager charged with overvaluing his fund's assets, has denied the allegations leveled by the Securities and Exchange Commission and Connecticut authorities.

"Both complaints ignore the fact that Stephen Hicks and his family were large investors in the funds and, if allegations in the complaints were to be believed, they would have been among the so-called scheme's most significant victims," Robert Wolf, a lawyer for Hicks' Southridge Capital Management, said.

Hicks has told staffers at the Ridgefield, Conn.-based hedge fund that "the charges won't stick," Fobes reports.

The SEC and Connecticut allege that Southridge cooked up a bogus value for its largest holding, Fonix Corp., based almost entirely on the speech recognition company's 2004 acquisition of two companies controlled by Hicks. Southridge and Hicks also lied to investors about the firm's strategy, according to the suit, allegedly claiming to have more than three-quarters of the $78.9 million they raised from 2004 through 2007 in liquid assets or cash. But when most of the hedge funds' investors filed redemption requests, they allegedly found them ignored.

All told, according to the Connecticut lawsuit, Hicks and Southridge collected $26 million in fraudulent fees over the 2004 to 2007 period.

"Like many peer hedge funds, Southridge experienced losses and significantly reduced liquidity," Wolf said. "Rather than acknowledging the realities of the credit crisis, the SEC and the State of Connecticut appear to be engaging in an effort to find blame where none exists."

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