Thanks to this doc -
http://edgar.brand.edgar-online.com/efxapi/EFX_dll/EDGARpro.dll?FetchFilingHtmlSection1?SectionID=11002037-338125-342780&SessionID=ut-Le6MVEdm8zl7 - we learn who Peter Klamk's busines partner is, namely Stephen M. Hicks ...
https://www.law360.com/securities/articles/204092/sec-conn-ag-sue-southridge-manager-for-fraudSEC, Conn. AG Sue Southridge Manager For Fraud
By Dietrich Knauth
Law360, New York (October 26, 2010, 6:16 PM EDT) -- The U.S. Securities and Exchange Commission and the Connecticut attorney general have filed separate lawsuits against hedge fund manager Stephen M. Hicks, accusing him of fraudulently inflating the value of investments and lying to investors about what he'd do with their money.
Hicks, who is the principal of funds Southridge Capital Management LLC and Southridge Advisors LLC, allegedly collected $1.8 million in management fees for a sham $30 million investment in Fonix Corp., according to the SEC complaint filed Monday in the U.S. District Court for the District of Connecticut. The hedge funds are named as co-defendants in the suit.
The SEC further claims that Hicks poached $5 million from new investors to pay off debts accumulated by his older, failing hedge funds and fraudulently promised the new investors that their money would be invested in unrestricted, free-trading securities.
The Connecticut suit, filed Monday in the Superior Court of Connecticut, made similar claims and estimated that Hicks had collected $26 million in fees stemming from the investment of 72 percent of the funds' money in three companies, including Fonix, that were nearly worthless to investors.
Attorney General Richard Blumenthal said in a statement Monday that Hicks had benefited from "lucrative lies" and said his office would pursue restitution and civil penalties.
"This kind of financial fraud harms investors, but also the entire economy," Blumenthal said.
The SEC is specifically pursuing the $1.8 million in fees that Hicks collected after orchestrating the sale of nearly bankrupt LecStar Telecom Inc., in which his funds were heavily invested, to Fonix.
Between 2002 and 2004, Hicks engaged in a series of sales that transferred LecStar between funds he owned, inflating the sale price each time. In a little more than a year, Hicks inflated company's price from an assessed value of $10,000 in November of 2002 to a sale price of $30 million without adding any actual value, according to the SEC.
In February 2004, Hicks sold LecStar to Fonix, another troubled company that his Southridge funds had invested millions in, the SEC said. In lieu of cash, the Southridge funds accepted $20 million in Fonix stock and a $10 million promissory note secured by LecStar stock and assets, all of which proved to be worth much less than their stated value.
Investors gained no benefit from the deal as the value of the two companies spiraled down, the SEC said. LecStar filed for bankruptcy in 2006, and Fonix's stock continued to fall, dropping far below 1 cent per share.
Hicks, however, profited handsomely, the SEC said. Based on the false $30 million price of the investment, his hedge funds charged investors a 1 percent management fee per year — more than $1.8 million to date, according to the SEC.
Besides the overvaluing of LecStar and Fonix, the SEC also accused Hicks of lying to investors as he transitioned from three older funds struggling with liquidity to new funds started in 2003. The old funds — Sovereign Partners LP, Dominion Capital Fund Ltd. and Dominion Investment Fund LLC — had largely ceased to attract new investors by 2004, the SEC said.
In 2003, Hicks started two new funds, Southridge Partners LP and Southshore Capital Fund Ltd., and between 2003 and 2008 he raised nearly $80 million for the new funds while telling investors that he “had learned his lesson” from previous failures and would invest at least 75 percent of the money in unrestricted, free-trading securities.
But by 2006, as much as half of investors' money was held in restricted securities, the SEC said. By the end of 2007 investors in the new funds had submitted nearly $7 million in redemption requests that the defendants couldn't satisfy, according to the SEC.
In addition, Hicks improperly used $5 million from the new funds to pay for legal and administrative fees incurred by the old funds. Instead of repaying with cash, he repaid the new funds with overvalued, illiquid securities from the old funds, according to the complaint.
The SEC is seeking disgorgement of Hicks' ill-gotten gains, civil penalties and an injunction against further violations of securities law.
Sovereign and Southridge are U.S.-based, while Southshore Capital and the old Dominion funds are offshore funds primarily for non-U.S. investors, the SEC said.
Counsel information for the defense was not available Tuesday.
The case is Securities and Exchange Commission v. Southridge Capital Management LLC et al., case number 3:10-cv-01685, in the U.S. District Court for the District of Connecticut.
Then again, Nick Blomgren was the only saint in Ted Binion's drug circles, and remains a saint to this very day.