Tag Archives: hedge fund marketing materials

SEC Action Against Hedge Fund Manager for Marketing Misrepresentations

SEC v. Andrey C. Hicks and Locust Offshore Management, LLC

Marketing, of course, is an issue close to the heart of every hedge fund manager. You spend so much time and effort making your pitchbook and other materials exactly right in terms of strategy, investment process and all the details that help you make the most of your investor meetings. It needs to look great; it needs to tell your story, and as the SEC recently reminded us, it needs to be the truth, the whole truth, and nothing but the truth.

Overview of Case

On October 26, 2011, the SEC filed an action in the US District Court for the District of Massachusetts against Andrey C. Hicks (“Hicks”) and Locust Offshore Management, LLC (“LOM”). Hicks and LOM purported to manage a British Virgin Islands-based investment vehicle named Locust Offshore Fund, Ltd. (the “Fund” and collectively with Hicks and LOM, “Locust”), which employed a strategy based on a quantitative model developed by Hicks. The SEC alleged that the Fund was in fact part of a fraudulent scheme that ultimately funneled incoming subscriptions into Hicks’ personal accounts.

According to the complaint (see SEC v. Hicks & Locust),  the scheme depended on a number of misrepresentations found in LOM’s website, the Fund’s offering memorandum, Hicks’ email correspondence, Hicks’ verbal statements to at least one investor, post-subscription correspondence with investors.

The SEC asserted causes of action under Section 17(a) of the Securities Act (fraudulent interstate transactions), Section 10(b) of the Exchange Act and related rules (prohibiting the use of manipulative and deceptive devices); Section 206(4) of the Advisers Act (prohibiting act, practice or course of business that is fraudulent, deceptive or manipulative), and for equitable relief.

The District Court issued a temporary restraining order and asset freeze against Locust.

Takeaways for Managers

The alleged misrepresentations included the following:

  • Statements that the Fund was formed and registered as a professional fund in the British Virgin Islands, when in fact no such entity had existed or been registered there;
  • Flowing from the above, any statement identifying Hicks as the portfolio manager, director, or other principal of the Fund or LOM, as well as any statement that LOM was the manager of the Fund;
  • Identifying Ernst & Young as the auditor of the Fund, and Credit Suisse as the Fund’s prime broker, when in fact neither company had ever been retained to provide services to the Fund;
  • Statements that the 27 year old Hicks held an undergraduate degree and doctorate degree in applied mathematics from Harvard, when in fact he had only attended three semesters as an undergraduate, and was forced to withdraw due to repeated failure to meet academic standards. Hicks received a D minus in the only math course he took;
  • Statements that Hicks managed a book of futures, options and foreign exchange investments at Barclays, and grew his book nearly two-fold during his brief tenure, when in fact he had never been employed at Barclays; and
  • Assurances to at least one investor that his subscription monies had been received and were “entered into live trading,” and similar statements.

The first investor in the Fund, referred to as Investor A, met Hicks on an airplane and the two fell into conversation. The above statements, found in the offering documents, on the website and in other materials, were reinforced during their conversation. Hicks talked about his education and professional experience, showed Investor A LOM’s website on his Blackberry, and the two parted, exchanging their business cards. The chance meeting and follow-up emails were evidently persuasive; Investor A wired his subscription monies about a month later.

This action highlights several points for managers:

  • Do not lie in your marketing materials; in biographies especially, take care to avoid statements that exaggerate education, qualifications, experience and expertise;
  • Carefully check all facts, even basic data such as service provider information and fund formation details in all areas where they appear (not merely obvious places like your fund offering documents, but any presentations, pitchbooks, websites or other materials);
  • Maintain files of backup materials to document every factual statement made in your offering documents, marketing materials and on your website;
  • The anti-fraud provisions of the securities laws have a long reach and managers should be careful about all communications, not just in their marketing materials. Evaluate letterhead, business cards, email signatures and speak with all employees, but especially those involved in marketing, regarding appropriate parameters for meetings (planned or chance) with potential investors.


Although Hicks is an extreme example, all managers should ensure that their funds’ offering documents marketing materials, stationery, written correspondence, and verbal statements are accurate, including with respect to service provider information, fund formation details, and biographies. To the extent that managers provide such information on their websites, all of these details should be confirmed as accurate on the website itself, and in any linked or uploaded materials.

We recommend that your attorney, in-house counsel or compliance consultant review all marketing materials prior to distributing them, and retaining these materials and backup information in your files.

For more information please see the complaint above of the SEC litigation release.


Cole-Frieman & Mallon is a boutique hedge fund law firm which provides fund formation, business and compliance services to fund managers.  Bart Mallon can be reached directly at 415-868-5345.

Hedge Fund Marketing Materials Designer

I would like to take this opportunity to thank Ovis Creative for the wonderful job that they have done on the design of my business cards.  Lauren Colonna, the firm’s Principal/Creative Director, has created marketing materials (including pitchbooks and tearsheets) for some of the largest and most successful hedge funds and alternative assets managers in the industry.  Not only does she approach her projects from a design perspective, but she also is able to provide her clients with more strategic type business advice on their materials as well.

I would recommend Ovis Creative to any hedge fund group who is looking for sharp, professional hedge fund marketing materials.


Other related Hedge Fund Law Blog articles:

Hedge Fund Tearsheets

Marketing Your Fund with a One-Pager

In addition to hedge fund pitchbooks, managers will market their hedge funds through one page tearsheets.  Hedge fund tearsheets are basically a snapshot of a hedge fund’s performance over time, as of a certain date.   There are a growing number of companies out there which will produce tearsheets for managers, but many managers will be able to produce their own tearsheets internally.  This article will discuss the common items found in most hedge fund tearsheets and will also provide an example of a tearsheet.

Overview of Tearsheets

Like the pitchbook, the tearsheet contains much of the manager’s contact information, as well as information on the terms of the fund and the fund’s performance.  Below are some features which are common to most tearsheets:

Management Company Information – the management company will usually be named on the tearsheet.  Usually the address as well the contact information for the firm will also be included.

Fund Information – the name of the fund is typically displayed near the top of the tearsheet.  Other fund information usually includes: assets under management (AUM), leverage (not strictly necessary), fees (management and performance), and investment objective/strategy discussion.

Logo – many hedge fund management companies, and sometime the fund itself, will have a logo.  In such event the logo is usually incorporated into the tearsheet.

Performance Results – there are a number of charts and graphs which show the fund’s investment returns over a certain period of time.  A fund’s metrics are also discussed (alpha, beta, standard deviation, correlation, sharpe ratio, drawdown information, % of up/ down months, etc.).   It is common for these returns to be compared to a comparable index and/or to the S&P 500.  Performance results are usually shown in a graph figure.  Monthly performance figures, growth charts, statistical analysis, risk-return scattergram, and other visual representations of the performance data may also be utilized.

Written Summary/ Discussion (optional) – sometimes managers will choose to provide a written discussion of the fund’s performance results for the period.  This can be incorporated into the tearsheet or can be provided to investors as a separate document.  Some managers choose to have more frequent tearsheets (e.g. monthly) and less frequently written discussions (e.g. quarterly or yearly).

Legal Disclaimer – a legal disclaimer should be included with all tearsheets.  The tearsheets should also be reviewed by an attorney for legal compliance.  While many tearsheets do not have the legal disclaimer, we do not recommend this practice as a tearsheet is a manager communication which will need to include the appropriate performance disclosures (see Hedge Fund Performance Reporting).

Optional – naming of the individual fund managers and providing biographical information such managers; including famous quotes, news articles, or quotes from news articles, etc.

Sample Hedge Fund Tearsheet

Our firm has prepared a sample hedge fund tearsheet (forthcoming).  [HFLB note: please see the Fairfield Greenwich tearsheets which are great examples of hedge fund tearsheets – please note that these tearsheets have a very long legal disclaimer.]

Preparing Tearsheets

There are a number of firms which provide tearsheet preparation services.  In addition to providing analysis, statistical calculations and graph preparation, these firms help to make the tearsheets aesthetically pleasing.  Normally these arrangements are done on a flat fee basis.

Our firm can help you with the preparation of the tearsheets or can provide advice on the look and feel of a tearsheet which you have prepared.  Please contact us if you have any questions on this or other hedge fund start up issues.  Related articles include: