SEC Bars Hedge Fund Manager for Misleading Investors

The U.S. Securities and Exchange Commission (SEC) barred a hedge fund adviser, Owen Li, from the securities industry for making a series of false statements to investors and ultimately precipitating a fund’s collapse.

Li was portfolio manager of a hedge fund called Canarsie Capital Fund Master, and during a three-year period, he made false statements to investors and prospective investors about his personal investment in the fund. Also Li did not inform them that he had depleted his personal assets through risky trading in his personal brokerage accounts.

Apart from this, he 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.
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Overall the fund lost roughly $56.5 million — practically all of its assets — from Dec. 31, 2014, to Jan. 16, 2015.

Julie M. Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit, commented:

When investment advisers agree to manage client assets, they assume the duty of utmost good faith. Li disregarded his fiduciary duty and secretly subjected investors and the fund to massive risk and an eventual collapse.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Li.