OSC halts Toronto hedge fund’s trades, launches probe after losses and manager’s death

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The sudden death of a Toronto-based hedge fund manager has prompted an investigation by Ontario’s securities regulator into tens of millions of dollars in losses that the fund appears to have run up.

The Ontario Securities Commission (OSC) issued a temporary order to halt trading as it investigates the financial condition of Traynor Ridge Capital Inc. and a series of failed trades that saddled three brokerage firms with losses, the regulator said in an Oct. 30 filing. The firms were left with losses ranging from $85 million to $95 million after completing trades for Traynor during the week of Oct. 23.

Christopher Callahan, the fund’s chief compliance officer and its ultimate designated person, was reported dead Oct. 28, the OSC said.

Traynor’s website describes Callahan as the firm’s founder and lead portfolio manager. His LinkedIn profile says he had worked there for nearly four years following stints at other firms since he graduated from Queen’s University in 2014.

“It appears to the commission that Traynor is in serious financial difficulty,” the regulator said in its filing. “Further investigation of these events is required.”

CIBC World Markets Inc., Traynor’s prime broker, terminated its prime brokerage service agreement with the fund because it became unresponsive, OSC said in the filing. Representatives for Traynor and CIBC didn’t immediately respond to requests for comment.

The TR1 Fund, one of three investment vehicles operated by Traynor, uses what it called an event-driven, market neutral strategy that aims to capitalize on market inefficiencies in publicly traded securities.

Callahan had been at Traynor since January 2020 after working for another Toronto-based firm — HGC Investment Management Inc. — for less than four years, according to his LinkedIn profile.

HGC president Brett Lindros said he had not seen much of Callahan in recent years and knew little about the investment strategy he used at Traynor. He said Callahan spent much of his time at HGC working as an analyst.

“I liked Chris a lot. He was a good guy,” Lindros said. “It’s very sad news.”

Traynor Ridge started off investing in special purpose acquisition companies, according to a person familiar with the fund’s activity. The hedge fund then began trading convertible securities, preferred shares and U.S. cannabis stocks, including Curaleaf Holdings Inc. and Cresco Labs Inc., said the person, who asked not to be identified due to the sensitivity of the matter.

Traynor’s assets under management peaked at more than $100 million, said the person.

Most of Traynor Ridge’s money came from clients of Toronto-based Westcourt Capital Corp., according to David Kaufman, Westcourt’s chair and co-chief executive. “We have no comment on Traynor Ridge’s trading and investment strategies,” Kaufman said in an email. Westcourt puts together portfolios using third-party funds and has advised on the deployment of more than $5 billion since 2009, according to its website.

Officials with the Toronto police did not immediately respond to inquiries about Callahan’s death.

This article was originally sourced from www.FinancialPost.com