Regulator Extends Ban On Sextant Sales

Dec 17 2008 | 1:49am ET

Sextant Capital Management has been barred from selling its hedge fund for another three months, with Canadian regulators saying they needed more time to investigate the firm.

The Ontario Securities Commission extended its temporary order—originally set to expire on Dec. 23—until March 17. The OSC has charged Sextant founder Otto Spork, his daughter Natalie, Sextant’s president, and Robert Levack, the firm’s chief compliance officer, with illegal self-dealing and inflating the value of the firm’s Strategic Opportunities Hedge Fund.

Toronto-based Sextant did not contest the commission staff’s request for an extension. Otto Spork has vowed to “vigorously” defend himself against the allegations, although the firm’s lawyer said that Sextant would seek to resolve the matter before the cease-trade order expires. If that fails, Kevin Richard said, the firm would contest the charges.

At a hearing yesterday, an OSC lawyer said the regulator became aware of the alleged malfeasance during a routine review of Sextant.

“Staff became aware of a number of concerns,” including apparently “significant breaches” of rules about self-dealing. Susan Kushneryk said.

According to the OSC, Sextant inflated the value of Strategic Opportunities and two offshore hedge funds by investing in a pair of private companies with rights to develop Icelandic glaciers. The regulator says that 95% of the hedge fund’s assets are invested in the companies, which are themselves almost totally owned by Spork and the Sextant funds.

“Despite having earned no revenue and having no immediate prospect of doing so, IGP's shares have purportedly increased in value from an initial average cost of €0.226 to €2.45, or approximately 984% since initial investment by the Sextant Fund,” the OSC said in a statement. “There are no third party valuation reports that support the monthly, material upward revisions in value of IGP, and therefore there is inadequate support for the claimed rate of return of the Sextant Fund.”

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