Canarsie Capital's Li Spared Jail Time for $57M Fraud

Jun 13 2016 | 11:08pm ET

A federal judged spared former Canarsie Capital founder Owen Li jail time on Tuesday for his role in the collapse of the $57 million hedge fund in January 2015.

U.S. District Court judge Robert Sweet sentenced Li to probation, a surprisingly light penalty that drew an audible reaction from the courtroom’s attendees. Li had faced up to five years in prison, three years of supervised release and full restitution of funds lost, indicated by Sweet himself in a March opinion.

Instead, Sweet cited Li’s quick acceptance of responsibility and his complete cooperation with prosecutors despite knowing charges against him were likely. Li pled guilty in December 2015 to securities fraud and false statement charges, and has been barred from the securities industry by the SEC.

"You have done all a human being could do to go take responsibility and to clean up the tragedy," Sweet reportedly told Li during the hearing, according to a Reuters article. 

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. 

Although the prosecution felt that a stint in prison was justified to deter others from similar behavior, even they noted Li's "exceptional" cooperation and support even from a lawyer for some victims.

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