Fred Lum/The Globe and Mail
Two Toronto-based former hedge fund executives committed fraud in a related-party business deal involving the sale of a company they owned, the Ontario Securities Commission concluded in a ruling released Tuesday.
An OSC hearing panel said Miklos Nagy and Tony Sanfelice, former executives of defunct hedge fund company Quadrexx Asset Management Inc., inflated financial forecasts for their hedge fund information company, Canadian Hedge Watch Inc., to improve its valuation when it was sold for $2.5-million in 2009 to an investment fund they oversaw.
Mr. Nagy and Mr. Sanfelice, who owned more than 80 per cent of Canadian Hedge Watch, personally earned more than $1.2-million and $800,000 respectively from the sale. The buyer was Diversified Assets Limited Partnership (DALP), which sold limited partnership units to the public and was managed by Quadrexx.
The OSC said Mr. Nagy and Mr. Sanfelice engaged in conduct "they knew or reasonably ought to have known perpetrated a fraud" when they co-ordinated the sale of Canadian Hedge Watch to DALP at an inflated price.
"The conducts of the respondents was dishonest and deceitful," the OSC concluded, saying the sale of Canadian Hedge Watch enriched both men "at the expense of DALP and its investors."
The hearing panel also concluded the men improperly used funds raised from new Quadrexx investors to pay dividends to earlier investors in 2011 and 2012, and found they defrauded investors by using investors' funds to overpay Quadrexx for commissions and costs.
Janet McFarland