The Securities and Exchange Commission today barred a hedge fund adviser from the securities industry for making a series of false statements to investors and ultimately causing a fund’s collapse.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Owen Li, whose firm is Canarsie Capital LLC.
“When investment advisers agree to manage client assets, they assume the duty of utmost good faith,” said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Li disregarded his fiduciary duty and secretly subjected investors and the fund to massive risk and an eventual collapse.”
According to the SEC’s order instituting a settled administrative proceeding against Li and Canarsie Capital:
- Li was portfolio manager of a hedge fund called Canarsie Capital Fund Master LP.
- During a three-year period, Li made false statements to investors and prospective investors about his personal investment in the fund, and did not inform them that he had depleted his personal assets through risky trading in his personal brokerage accounts.
- Li made false and misleading statements and omissions about the fund’s performance, and provided false explanations for delays in the fund’s monthly performance reporting.
- Li reported fictitious trades and made other false statements and omissions to the fund’s prime brokers to avoid margin calls and obtain more margin for the fund than the prime brokers would otherwise have extended.
- In January 2015, Li liquidated all of the long positions in the long/short equity portfolio and invested virtually the entire portfolio in long, short-dated market index options.
- The fund lost approximately $56.5 million (nearly all of its assets) from Dec. 31, 2014, to Jan. 16, 2015.
Li and Canarsie Capital consented to the entry of the order finding that they violated the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. Monetary sanctions are expected to be ordered in the parallel criminal proceeding against Li. Canarsie Capital is censured, and Li is barred from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or NRSRO.
The SEC’s investigation was conducted by Gwen Licardo, Howard Fischer and Rajendra Pisupati of the New York Regional Office and the Asset Management Unit. The case was supervised by Valerie Szczepanik. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.