Canarsie Capital Chief To Serve 5 Years In Jail

Owen Li, founder of New York hedge fund Canarsie Capital LLC, is expected to be sentenced on April 21.

Li lost almost all of the $57 million on the books of the hedge fund in less than three weeks. He was charged with fraud and pleaded guilty in a federal court.

Also see Canarsie Capital Under Investigation After Massive Losses

Hedge Fund Manager Goes On Crazy Trading Spree, Now “Sorry” For Losing All Customer Money

Canarsie Capital founder Li caused catastrophic collapse

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A federal judge is expected to sentence Li to 5 years in prison. It is thought that the Canarsie Capital founder will be ordered to pay $56.8 million in restitution to investors, as well as serving 3 years supervised release.

U.S. District Judge Robert Sweet is expected to sentence Li on April 21. Li’s lawyer Scott Resnik was not immediately available for comment.

Li worked as a trading assistant at a unit of Raj Rajaratnam’s Galleon Group before forming Canarsie Capital in 2012. The sentencing would mark an abrupt downfall for the young trader, who pleaded guilty in December at the age of 29.

His guilty plea was made on counts of securities fraud and making a false statement. According to prosecutors Canarsie Capital suffered massive losses in January 2015.

Federal judge praises remorse and cooperation

Li moved the vast majority of its portfolio into long, unhedged market index options, the price of which collapsed. Prior to the collapse Li had lied to investors about the performance of the fund, and lied to the U.S. Securities and Exchange Commission (SEC) about trades and the size of an investment in Facebook Inc.

The former Canarsie Capital chief has been banned from the security industry by the SEC. The regulatory body says that Li’s trades caused $56.5 million in losses from December 31 2014 to January 16 2015.

Li wrote to investors on January 20 2015, telling them of his “extreme sorrow” for the collapse.

According to Sweet federal guidelines suggest at least 6.5 years behind bars, however the judge felt that Li deserved less because he pleaded guilty quickly and cooperated with prosecutors.

The judge said “this sort of acceptance of responsibility is extraordinary,” and said that he hoped Li’s lack of criminal history and “manifest remorse” would enable him to find work again in the future.

Blue River Partners told ValueWalk

Before Dodd-Frank, every hedge fund or private equity fund with $25 million in assets had to register with the SEC, but post Dodd-Frank those same funds can get away with up to $150 million in assets before they need to register with the SEC.

The Canarsie Hedge Fund collapse is a recent example of how investors in the pre-Dodd-Frank would have been protected. That $60 million fund lost all of its money, emptying the pockets of investors in only three weeks.

Before Dodd-Frank, this fund would have been regulated, which might have exposed some of their problems.

Dodd-Frank – Unintended Consequences

Dodd-Frank was put in place to prevent fraud and mitigate “systemic risk” in the financial markets, but one of the biggest compliance firms in the US says it has actually increased the risk for financial fraud by allowing larger funds to go unregulated.

Blue River Partners is one of the country’s largest SEC & CFTC and state Regulatory Compliance firms with offices in New York, Dallas and Chicago. Their partners work closely with funds managing a few million dollars to a few billion dollars in assets, so they see everything.