Disgraced hedge fund manager Otto Spork is appealing a sentencing order by the Ontario Securities Commission to pay a $1-million fine plus millions more back to investors.
Ontario Divisional Court will hear the appeal by the dentist-turned fund manager, who the OSC found had falsely reported huge returns during the 2008 financial crisis when he invested in two start-up Icelandic companies that intended to sell bottled glacier water.
The provincial regulator last month fined not only Mr. Spork, but also two other employees of his Toronto-based firm, Sextant Capital Management Ltd. His daughter Natalie, an officer and director of Sextant, and brother-in-law Dino Ekonomidis, who was vice-president of corporate development, were ordered to pay fines and disgorge monies for breaching securities laws.
Defence lawyer Jay Naster would not comment on Thursday, but his notice of appeal describes the sanctions against the trio as “harsh and excessive.”
The commission last year ruled that Mr. Spork, who did not attend any hearings, committed “non-criminal fraud” by boosting returns in his Canadian hedge fund to collect substantially higher fees.
In late 2008, he claimed his fund gained 730 per cent in the two and half years since inception.
As part of his sentence, Mr. Spork was ordered to repay $6.4-million in fees to investors in his now-defunct Sextant Strategic Opportunities Fund. He charged his Canadian fund that much in performance and management fees from July, 2007, to December, 2008.
In last year’s ruling, the OSC said that Mr. Spork committed fraud by selling his Canadian fund and two offshore offerings with high values not supported by independent third-party valuations, and “misappropriated money” from these investments by taking $4-million in so-called loans for his personal benefit.
Most of the funds were invested in Icelandic Glacier Products SA, a company controlled by Mr. Spork that had no revenues.
In the notice of appeal, Mr. Naster said the commission “misapprehended” the evidence by concluding that the offering document for the Canadian fund required a “formal independent valuation in order to determine the net asset value of the fund(s).”
The commission also erred in concluding that taking advances (a loan) against future performance fees constituted a “fraudulent act,” he suggested.