Canarsie Capital Founder Pleads Guilty To Fraud, Lost $57M In Two Weeks
Owen Li, founder of Canarsie Capital, managed to lose $57 million in only two weeks, leaving his investors with only $200,000 and a letter of apology. Li is now also a convicted felon after admitting that he lied to investors and regulators about his hedge fund’s performance. He managed to do all of this before he turned thirty.
Li surrendered to U.S. authorities Wednesday and pleaded guilty to a single count of securities fraud and making a false statement, according to Manhattan U.S. Attorney Preet Bharara. Li faces up to twenty years imprisonment.
The hedge fund crumbled earlier this year after the firm lost $57 million, nearly all of the money held by its 41 investors from December 31, 2014 to January 16, 2015.
According to the prosecution, Li lost roughly $18 million at the beginning of January when he started selling off long equity positions in the fund and eliminated all of its short positions. The resulting unhedged, long portfolio lost all its value about two weeks later when index options prices moved against Canarsie’s positions.
Li was banned from the securities industry Wednesday in a settlement of claims against him by the SEC. According to the agency, after graduating from college in 2008 Li worked as a trading assistant for Galleon Management LP, an arm of the hedge-fund company run by Raj Rajaratnam, who was convicted of insider trading and sentenced to eleven years in prison.
In a January 20 letter to the fund’s investors, Li expressed his “extreme sorrow” for losing all but $200,000 of the fund’s capital.
“In an attempt to recover losses that the fund suffered in December, I engaged in a series of aggressive transactions over the last three weeks that — generally speaking — involved options with strike prices pegged to the broader market increasing in value,” Li said in the letter.
“Unfortunately, these positions rapidly declined in value over the past two weeks as the market struggled—and I was unable to mitigate the fund’s losses.”
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