The Preposterous Fraud of Andrey C. Hicks and Locust Offshore Management
The Preposterous Fraud of Andrey C. Hicks andLocust Offshore ManagementA man claiming to run a high profile hedge fund recently pleaded guilty to stealing approximately $2.3million 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 withemploying a fraudulent scheme to dupe investors into investing in a purported British Virgin Islands fundcalled the Locust Offshore Fund, Ltd. The problem, the SEC alleged, was that there was never any suchfund. Furthermore, the SEC complaint alleged that, “Hicks has transferred substantially all of theinvestors’ funds to bank accounts in his personal name and, on information and belief, for his personaluse.”Mr. Hicks claims about his firm were so outlandish that it was reported he stated to prospective investorsto have grown “assets under management from $100M USD to nearly $1B USD in six (6) months throughcapital raising and high returns.”To provide some additional perspective on the outlandishness of this case, here is partial description ofwhat Mr. Hicks claimed his firm was doing:Locust Offshore Management, L.L.C. develops and executes sophisticated quantitative strategies acrossasset classes to produce absolute, risk-adjusted returns with high alpha. The firm’s quantitativestrategies are based on mathematical models developed by the fund’s manager, Andrey C. Hicks, duringhis tenure at Harvard University and are executed by computer software. Human involvement in thestrategy life cycle is limited to model and code development and refactoring. The firm is primarilyengaged 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 datadensity 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.