Canadian Failure-to-Supervise Case is Settled

TORONTO (HedgeWorld.com)--The Ontario Securities Commission approved a settlement June 17 of its staff's failure-to-supervise allegations against hedge fund manager Mark Kassirer, formerly chairman of Phoenix Research and Trading Corp., a company incorporated in that province.

Phoenix Research managed several hedge funds, including Phoenix Fixed Income Arbitrage LP. The fund collapsed in the early days of 2000 because one of its fixed-income traders had accumulated a US$3.3 billion unhedged long position in U.S. 6% treasury notes due Aug.15, 2009. The staff of the OSC charged that Mr. Kassirer was at fault through his failure to supervise that trader, Stephen Duthie. Previous HedgeWorld Story "Staff alleged that Kassirer failed to monitor adequately, and provide appropriate general oversight of, the business of Phoenix Canada including that related to the UST Notes," said the OSC statement June 17.

Mr. Duthie had never himself been registered with the OSC in any capacity. In the fall of 1998, Phoenix Research made him responsible for the fixed-income fund's U.S. dollar portfolio. He accumulated the unhedged position described above, financed by repo agreements with the Bank of New York. This was "contrary to the investment guidelines and restrictions of PFIA," in the words of a statement of facts contained within the settlement agreement. Mr. Duthie was only authorized to engage in a low-risk, matched book trading strategy of repos and open reverse repos in U.S. Treasury benchmark issues. He misrepresented his purchases to management as open reverse repos.

On Jan. 4, 2000 the Bank of New York informed Phoenix Research that it was in a significant overdraft, in excess of US$50 million, due to Mr. Duthie's trades. As a result, Phoenix Research was forced to liquidate all of PFIA's positions, sustaining a loss of US$120 million.

The staff of the OSC alleged several particular respects in which supervision of Mr. Duthie was negligent. For example, throughout the relevant period, Phoenix Research prepared a daily value-at-risk report. The information needed to prepare the VAR report was pulled from the information inputted to its computer trading system (Alydia), then the figures were adjusted manually as a result of Mr. Duthie's representations about the purported open reverse repos and the length of time such repos would be held.

Mr. Kassirer was represented in the negotiations leading to this settlement by Chris Paliare, of the Toronto law firm Paliare, Roland, Rosenberg, Rothstein LLP. Mr. Paliere could not be reached for comment. Mr. Duthie is not represented by counsel.

Mr. Kassirer is now the sole registered officer of Kassirer Asset Management Corp., a registered investment counsel and portfolio manager. In the settlement, Kassirer agreed to submit to an independent review of its current controls and procedures and to rectify any identified deficiencies. Mr. Kassirer paid $10,000 in costs to the OSC.

Mr. Kassirer must also pass the [artners, directors and officers examination as a term and condition of his continued registration.

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