Receiver says there’s little cash at Traynor Ridge

The receiver for failed hedge fund Traynor Ridge Capital Inc. has found only $3-million of cash as it attempts to wind down the company.

It is only a fraction of the $94-million of assets that Traynor held in its investment funds as of Sept. 30, just before a month of frenetic trading by the funds’ founder, prior to the collapse of the Toronto-based company.

To try to recover more money, Ernst & Young LLP, which was appointed in October as the receiver for Traynor Ridge, has chosen ATB Capital Markets Inc. to value and sell the remaining assets, much of which are stocks in private companies and illiquid assets.

In its first report since being appointed by the court, EY recommended giving ATB Capital the mandate to sell the remaining assets, but said the appointment still requires court approval. ATB was selected from 12 applicants because, among other things, it has significant experience as an equity trader of Canadian cannabis securities, which “comprise a substantial portion” of Traynor’s investment portfolio.

ATB was also amongst the least expensive of the 12 proposals received, EY said.

The Ontario Securities Commission issued a cease trade order (CTO) on Traynor Ridge Capital’s registration as a portfolio manager and investment fund manager on Oct. 30. The CTO followed the sudden death of Traynor’s sole director, officer and shareholder, Chris Callahan, which was reported to the OSC by his former lawyer. The founder’s death left Traynor without an ultimate designated person and chief compliance officer, and without a director or officer in charge of the firm.

Receiver names two more creditors owed funds by investment firm Traynor Ridge

At the same time, the regulator also placed a halt on trading in any securities by the firm and in the securities of its fund family known as TR1 Funds.

The OSC said it was investigating the financial condition of the firm and the events surrounding a series of failed trades that have “potential losses” between $85-million to $95-million, according to the securities commission.

Shortly after, it was revealed that three investment dealers – Echelon Wealth Partners Inc., JonesTrading Canada and Virtu Financial Inc. – executed trades for Traynor Ridge, then could not collect payment for the securities.

EY has so far recovered about $3-million in cash balances from the Traynor fund accounts, including money collected from the brokers. The receiver says it believes the three brokers intend to assert significant claims against Traynor Ridge.

Given that many of the securities held in the Traynor funds are illiquid or not publicly traded, EY said it has not attempted to provide an overall valuation of the portfolio.

“At this stage, the receiver is unable to estimate the recovery to creditors of Traynor Ridge of the funds or the investors in the funds,” EY said in the report.

Traynor Ridge funds are intricately connected. The TR1 and TR1-I funds take money from the purchase of their units and buy redeemable participating shares of a Cayman Islands-based TR1 International Fund. That fund, in turn, invests in a class of redeemable participating shares of another Cayman-based vehicle, the TR1 Master Fund.

In its report, EY notes that it “appears there was substantial trading activities” in the securities of the TR1 Master fund prior to Sept. 29, as well as “significant transactional activity” in the month of October. During this time, securities were sold at values “significantly less” than market values, the receiver said.

The TR1 funds – which include the TR1-I fund for ultra-high net-worth investors with a minimum of $5-million – have a total of about 310 investors.

Mr. Callahan founded Traynor Ridge in 2020. He previously worked as an associate portfolio manager at HGC Investment Management Inc. and as an analyst at Echelon, the broker that filed the lien against Traynor Ridge. He graduated from Queen’s University in 2014.

In November, the OSC said it met with the two other directors of the Cayman funds and their lawyers. They told the commission that Mr. Callahan, who had been a director of the Cayman funds, made all investment decisions for the funds and interacted with the prime brokers who were used for trading.

If approved, ATB will receive a commission of $350,000 to assist the receiver in valuing the securities, as well as developing the process for the sale of the securities.