TORONTO (HedgeWorld.com)–After years of settling what can be settled, the Ontario Securities Commission has narrowed down the questions arising from the demise of Phoenix Fixed Income Arbitrage LP.
As a result, a contested hearing involving the alleged loose cannon trader Stephen Duthie and a hedge fund that expired in dramatic fashion in January 2000 may begin later this month.
The OSC approved the settlement of the matter as against Mr. Duthie’s supervisor, Ronald Mock, April 9.
The parties agreed to the basic facts. Phoenix Fixed Income Arbitrage operated under the managerial umbrella of the Phoenix Research and Trading Corp. Mr. Mock was responsible for all of the fixed-income business of Phoenix Research, including that relating to the fund. Between late 1998 and early January 2000, Phoenix Fixed Income Arbitrage held long positions in various U.S. benchmark treasuries, including 6% U.S. Treasury notes due Aug. 15, 2009. The trading in those positions was directional, unhedged and violated the fund’s investment parameters in concentration, size, length of time held, and value at risk; the long bond positions were never marked to market.
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Mr. Mock neither checked the inputted prices, nor verified that they were being independently checked. The inaccurate pricing resulted in an overvaluation of PFIA’s U.S. portfolio by more that US$80 million as of Dec. 31, 1999. In January 2000, as a result of an overdraft at the Bank of New York, Phoenix Research liquidated all of PFIA’s assets at a loss in excess of US$125 million.
Mr. Mock maintains that he believed that the impugned treasuries were not outright bond purchases, but reverse repos. This belief was contrary to Phoenix Research’s books and records. In short, Mr. Mock failed to supervise in any meaningful way a trader with just more than one year of fixed-income arbitrage experience and his failure was material to the collapse of PFIA.
Last summer, the OSC settled similar failure-to-supervise charges against the former chairman of Phoenix Research, Mark Kassirer, and against its former director of operations and finance, (John) Blair Taylor, Previous HedgeWorld Story.