Sextant Capital cease-trade order extended

Date: Tuesday, June 16, 2009
Author: Shirley Won, Globe and Mail

The Ontario Securities Commission Tuesday has ordered Sextant Capital Management Inc. to continue to refrain from selling and trading in its former high-flying hedge fund until Sept. 17.

OSC staff asked for an extension of the cease-trade order that began in December because it needs more time for its investigation into the fund, which is invested mainly in firms with rights to Icelandic glaciers for the purpose of selling bottled water.

Staff allege that Toronto-based Sextant Capital Management and its founder, Otto Spork, were among parties who breached securities law by inflating returns of the Sextant Strategic Opportunities Hedge Fund through self-dealing, and by illegally earning management fees.

Sextant Capital Management said the fund had posted a 159-per-cent return for the first 11 months of 2008.

OSC staff allege the Sextant fund had invested in two private glacier firms – including Icelandic Glacier Product – in which Mr. Spork has a “significant interest,” but were not operating companies. The fund's inflated returns, on which fees were based, came from valuations that are not credible, staff say.

The extension is needed because Sextant Capital Management have failed to make certain records and documents available to staff, and Mr. Spork, a resident of Iceland, will not return to Canada to be interviewed, OSC lawyer Susan Kushneryk said. “We've had to go to other sources.”

Groia & Co. lawyer Kevin Richard, who represents Mr. Spork and daughter Natalie, who was president of Sextant Capital Management, argued the cease-trade order should end in late July or early August.

It's an “unfair situation” to keep delaying a hearing on the matter when the OSC made the allegations six months ago,” Mr. Richard said. “They should be able to prove them in short order.”

In December, Mr. Spork, a former dentist, vowed to fight the allegations. “We are going to fight them vigorously,” he said in an interview.

The Sextant fund has 246 investors in Canada, purportedly with $52.3-million in assets at the end of January.

Last month, Ontario Justice Geoffrey Morawetz reserved judgment on an OSC request for a court order to put Sextant Capital Management and related companies into receivership. There is ample evidence of “potential fraud, misappropriation of investors' money, misrepresentation, self-dealing and record manipulation,” OSC staff argued.