ATB Capital to lead liquidation of failed hedge fund

On Wednesday, Dec. 20, the Ontario Superior Court of Justice will be asked to approve the proposed appointment of ATB Capital Markets Inc. to help liquidate the portfolio of failed hedge fund firm Traynor Ridge Capital Inc.

The firm’s court-appointed receiver, Ernst & Young LLP (EY), filed its first report in the receivership proceedings. Those proceedings were launched on Nov. 3 after the Ontario Securities Commission (OSC) was informed that Traynor Ridge’s sole director and officer, Christopher Callahan, had died and that there was effectively no one in charge of the firm.

The OSC immediately cease-traded the funds and has extended that cease trade into February.

According to the receiver’s report, the firm’s primary offshore fund in the Cayman Islands had assets of $94.1 million. Its other offshore fund was almost entirely invested in that primary fund, and its Ontario-based funds were, in turn, solely invested in the offshore fund apart from some cash holdings.

So far, the receiver has uncovered about $2.6 million in cash among the various funds’ bank accounts.

In its report, EY’s preliminary analysis indicates that the firm’s funds saw large declines in the value of their holdings in October, although it has yet to estimate the size of the losses faced by the firm’s investors and other creditors.

According to the report, the initial analysis found that the publicly traded securities held by the funds saw their prices decline significantly after Sept. 29, and that there was significant trading activity in October that resulted in its selling securities “at values that were significantly less than those market values as at September 29, 2023.”

EY has not yet attempted to value the illiquid or private securities in the portfolio.

The receiver is now seeking to bring ATB Capital in to maximize the recovery from the funds’ portfolios.

The proposed appointment of ATB Capital follows a competitive selection process that generated 12 proposals from investment dealers, portfolio managers and others.

ATB Capital was selected as one of the lower-cost proposals and for its expertise in the types of securities held by the funds, including Canadian cannabis stocks, which represent “a substantial portion” of one of the main fund’s investment portfolio, the report noted.

Following the court’s approval of ATB’s appointment, efforts to liquidate the funds’ holdings will begin. While the more liquid, publicly traded securities will be sold relatively quickly, it is expected to take longer to cash out the more illiquid, private securities.

Alongside the uncertain value of the funds’ holdings, the report also noted that several brokers have indicated that they intend to “assert significant claims” against the firms and the funds for losses they suffered as a result of trades that weren’t settled by the firm’s funds.

Additionally, the receiver will also ask the court to allow the trustee of the funds in the Cayman Islands to approve a resolution to start the process of winding up the funds.