Otto Spork and Sextant firms committed non-criminal fraud, OSC panel finds

Morningstar Canada–Hedge-fund manager Otto Spork and two Toronto investment firms under his direction committed non- criminal fraud, according to the findings of an Ontario Securities Commission (OSC) panel released today. A sanctions and costs hearing will be held, the OSC said. The date has not been set.

The OSC panel concluded that Spork, Sextant Capital Management Inc. and Sextant Capital GP Inc. — during a period from July 2007 to December 2008 — sold investment funds with falsely inflated values, took millions of dollars in fees based on these falsely inflated values, and directly misappropriated money from investment funds.

The allegations concern three funds offered under the Sextant brand name and managed in Toronto. They are Sextant Strategic Opportunities Hedge Fund LP in Ontario, and two funds domiciled in the Cayman Islands: Sextant Strategic Hybrid Hedge Resource Fund Offshore Ltd. and Sextant Strategic Global Water Fund Offshore Ltd.

OSC staff found that Spork and firms under his direction sold units of the investment fund Iceland Glacier Products (IGP) at falsely inflated values. As a result of the wrongfully inflated price of IGP, Sextant Strategic Opportunities Hedge paid performance and management fees totalling $6.9 million. According to the OSC panel, these payments were unreasonable and constitute acts of fraud under the Ontario Securities Act.

The panel also found that, at Spork’s direction, Sextant Capital Management took advance payments of more than $4 million, and that these advances were prohibited loans taken by Spork for his benefit and to the detriment of investors.