Former Hedge Fund Manager Pleads Guilty to Securities Fraud Charges

Strategic Insights -

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (FBI), announced that Owen Li, the founder and portfolio manager of Canarsie Capital, LLC, a hedge fund that collapsed in January 2015, pleaded guilty to charges of securities fraud and making a false statement. Li's actions led to significant losses for investors in the fund, which had approximately 41 investors and $56.8 million in assets under management at the time of its collapse.

Key Takeaways:

  • Li founded Canarsie in January 2013 with approximately 10 investors and $16.55 million in assets under management, which grew to $47.75 million by the end of 2013.
  • Li earned over $2.2 million in 2013 and raised an additional $16.8 million in 2014.
  • Li reported fictitious trades to the prime broker, leading to the creation of false appearances of decreased leverage in the account and allowing Canarsie to avoid margin calls and utilize excessive leverage.
  • Li made misstatements to investors about the performance of the fund, including delaying the release of accurate monthly statements and lying to investors about the reasons for the delays.
  • Li misled the SEC examination staff during a phone interview in November 2014, concealing information about the fund's prime brokerage relationships and the extent of leverage in the fund.
  • Li caused catastrophic losses in the fund by trading the fund in violation of the investment mandates in the Offering Memorandum, leading to a net loss of approximately $39 million in January 2015.

Statistics:

  • Canarsie had approximately $16.55 million in assets under management at its founding in January 2013.
  • The fund grew to $47.75 million in assets under management by the end of 2013.
  • Li earned over $2.2 million in 2013.
  • The fund raised an additional $16.8 million in 2014.
  • Canarsie had approximately $56.8 million in assets under management at the time of its collapse in January 2015.
  • The fund had 41 investors at the time of its collapse.
  • Li caused a net loss of approximately $39 million in January 2015.

Sources:

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(Federal Bureau of Investigation)