Canarsie Capital's Li Facing 5-Year Prison Sentence For Fraud

Mar 24 2016 | 9:44pm ET

Canarsie Capital founder Owen Li is expected to face up to five years in prison and be ordered to pay $56.8 million back to investors when a federal judge in New York sentences him in April for fraud.

U.S. District Court judge Robert Sweet wrote in a sentencing opinion that Li is also expected to serve three years of supervised release. The SEC has also barred him from the industry.

Li, who was formerly a trading assistant at a unit of Raj Rajaratnam’s Galleon Group, founded Carnarsie Capital in 2012. He lost approximately $57 million in trades in the first two weeks of January 2015 after essentially going all-in on long, unhedged equity index options just ahead of a severe downdraft in equity prices, according to court documents. At one point, Cararsie’s capital was down to a mere $212,000. 

Following the collapse, Li allegedly hid the disastrous trading results from his investors, overstated the fund’s performance and mislead the SEC about his portfolio’s leverage and position concentrations. He pled guilty to securities fraud and false statements in December 2015, according to Reuters. 

The judge will formally sentence Li at an April 21 hearing, and can change his mind about the punishments. Li had faced up to 6 1/2 years in prison, but deserves less because he had quickly accepted responsibility for the wipeout and cooperated with prosecutors despite knowing criminal charges were probable, Sweet wrote in his opinion. 

The case is U.S. v. Li, U.S. District Court, Southern District of New York, No. 15-cr-00870.

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