Originally posted at the hedge fund operational due diligence blog www.Corgentum.com/blog an overview of hedge fund fraud Andrey Hicks

1. The Preposterous Fraud of Andrey C. Hicks and
Locust Offshore Management
A man claiming to run a high profile hedge fund recently pleaded guilty to stealing approximately $2.3
million from investors. The plea came at the end of 2012 and slipped off many people’s radar, however,
the preposterousness of the case is worth revisiting.
In October 2012, the SEC charged Andrey C. Hicks and his firm Locust Offshore Management with
employing a fraudulent scheme to dupe investors into investing in a purported British Virgin Islands fund
called the Locust Offshore Fund, Ltd. The problem, the SEC alleged, was that there was never any such
fund. Furthermore, the SEC complaint alleged that, “Hicks has transferred substantially all of the
investors’ funds to bank accounts in his personal name and, on information and belief, for his personal
use.”
Mr. Hicks claims about his firm were so outlandish that it was reported he stated to prospective investors
to have grown “assets under management from $100M USD to nearly $1B USD in six (6) months through
capital raising and high returns.”
To provide some additional perspective on the outlandishness of this case, here is partial description of
what Mr. Hicks claimed his firm was doing:
Locust Offshore Management, L.L.C. develops and executes sophisticated quantitative strategies across
asset classes to produce absolute, risk-adjusted returns with high alpha. The firm’s quantitative
strategies are based on mathematical models developed by the fund’s manager, Andrey C. Hicks, during
his tenure at Harvard University and are executed by computer software. Human involvement in the
strategy life cycle is limited to model and code development and refactoring. The firm is primarily
engaged in the U.S. equity markets and adheres to a market-neutral, risk-averse trading philosophy.
Mr. Hicks also ran a Twitter account in which he would tweet such comments as:
“A tidbit for tech investors: racetrack memory. Cloud services and storage escalation compound data
density bottleneck in plater-driven HDDs“
“Long opportunities for companies with secured Afghan contracts in mining / commodities“
“Ah, the sweet smell of earnings season. Very happy that I’m not an analyst“
Some of the more interesting things alleged by the SEC include that Mr. Hicks:
 Lied about his education – he claimed to have obtained undergraduate in biochemistry (for with a
4.0 grade point average) as well as a graduate degree from Harvard. Mr. Hicks wasn’t satisfied
claiming just any graduate degree such as an MBA. Instead, he claimed to have obtained a PhD
in Applied Math in just two years. According to the SEC, Mr. Hicks was indeed enrolled at Harvard
as an undergraduate but was forced by the university to withdraw on two separate occasions and
he never graduated.

2.  Lied about his employment background – he claimed to have not only worked at Barclay’s Capital
(which was a lie) but that, “he grew his book nearly two-fold and expanded his group’s assets
under management to roughly $16 [billion]” (which was also a lie)
 Lied about the fund’s auditor – he claimed Ernst & Young served as the fund’s auditor, they
didn’t (besides there was never any fund to audit)
 Lied about the fund’s prime broker and custodian – he claimed that the fund had a relationship
with Credit Suisse – it didn’t
 Opened business a checking and savings accounts for the firm and funds with the intent to
defraud investors
 Created and maintained a website for the non-existent firm and fund
 Created fake offering documents for the fund
 Created fake business cards, stationery and email signature blocks describing Mr. Hicks as a
Locust’s principal and the fund’s director.
Unfortunately for Mr. Hicks, the SEC allegations were true. Despite all these red flags, Mr. Hicks did
attract investors in the fund including celebrity basketball player Kris Humphries.
He was eventually arrested while attempting to flee in Switzerland. He has since pled guilty to five counts
of wire fraud and is scheduled to be sentenced on March 6, 2013. He faces up to five years in prison.
Originally posted on the Corgentum Consulting blog at www.Corgentum.com/blog
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