Types Of SEC Cases:  Theft Of Customer Assets

SEC Grants Whistleblower Award In Theft Of Customer Assets, False Public Statements, and HYIP Case

The SEC charged a Boston-based hedge fund manager and his companies with the theft of customer assets, among other things.

In its court Complaint, the SEC alleged that Andrey Hicks (“Hicks”) lied about his securities industry and money management experience to pilfer millions of dollars from investors.  In addition to Hicks, the SEC also charged Locust Offshore Management, LLC (“LOM”) in its Complaint.  Locust Offshore Management, LLC was controlled by Hicks.

The SEC alleged that, in carrying out their theft of customer assets scheme, the defendants made materially false public statements and created a fictitious, high yield investment program fund (“HYIP”) to mislead investors.

theft of customer assets

The SEC’s court Complaint

False Public Statements Facilitated The Theft Of Customer Assets

Hicks claimed to be a hedge fund manager seeking investments into a BVI-incorporated pooled investment fund, Locust Offshore Fund, LTD. (“LOF”) managed by LOM.  The defendants supposedly deceived investors into believing that LOF was a legitimate, existing fund that had achieved extraordinary returns.  The SEC claimed, however, that LOF was a fictitious entity that never existed.

As explained by the SEC, Hicks’ and LOM’s theft of customer assets scheme raised millions of dollars from investors through fraudulent statements, and false public offering documents and marketing materials.  In addition to knowingly lying to investors, Hicks apparently made false public statements through the distribution of a fraudulent offering memorandum and a fabricated website for LOM.

According to the SEC’s court Complaint, some of the false representations made to investors by Hicks and LOM included that Hicks held undergraduate and graduate degrees from Harvard University; Hicks had previously been a successful, multibillion dollar asset manager for Barclays Capital; Credit Suisse was LOF’s prime broker and custodian; and that Ernst & Young was the auditor of LOF.  The SEC asserted that all of these claims were false.

theft customer assets

The SEC’s press release

Disgorgement And Penalties

The U.S. District Court for the District of Massachusetts entered final orders and judgments by default against Hicks and LOM.  The Judgements included the following monetary penalties ordered against the defendants:

  • $2,481,004 disgorgement (Hicks and LOM jointly and severally)
  • $31,054.39 prejudgment interest (Hicks and LOM jointly and severally)
  • $2,512,058.39 civil penalty (Hicks)
  • $2,512,058.39 civil penalty (LOM)

A related criminal prosecution was also brought by the U.S. Department of Justice.

SEC Whistleblower Award Granted

Following the entry of the Court’s Judgments and Orders, the SEC’s Office of the Whistleblower posted a Notice of Covered Action (“NoCA”).  After reviewing applicants’ award claims, the SEC’s Claims Review Staff (“CRS”) recommended granting SEC whistleblower awards to three whistleblowers.  The Commission approved the CRS’s recommendation and granted awards to the three whistleblowers.

SEC whistleblower awards

Order Granting the SEC Whistleblower Awards for the SEC’s case

In its Order, the Commission determined that three claimants had each met the SEC whistleblower award eligibility factors because they had voluntarily provided original information to the SEC that led to the successful enforcement of the Locust Offshore case.  The award was divided equally among the three claimants.

Subsequently, the Commission also granted the SEC whistleblowers an award for the related criminal action.

SEC whistleblower award

Order Granting the SEC Whistleblower Awards for the Related Action

Whistleblowers Can Report Theft Of Customer Assets And Other Violations To The SEC

This is a good example of one of the types of SEC whistleblower cases that could give rise to SEC whistleblower rewards if reported to the Commission through the SEC whistleblower program.

Additional Information

For more information about theft of customer assets, High Yield Investment Programs, and false public statement frauds, click on the links below:

  • The SEC’s Complaint in SEC v. Hicks, et al.  (External link to the SEC’s website.)
  • The SEC’s Press Release announcing the Court’s Judgment and Order.  (External link to the SEC’s website.)
  • The Commission’s Order granting the SEC Whistleblower Awards for the SEC’s case.  (External link to the SEC’s website.)
  • The Commission’s Order granting the SEC Whistleblower Awards for the related criminal action.  (External link to the SEC’s website.)