| In December 2001, Weizhen Tang, a Chinese Canadian
living in the Greater Toronto Area and a prominent figure in the Chinese
community in North America, created the Hedge Fund under the laws of the
province of Ontario. The Hedge Fund has been active since 2004 with Tang
as its the trading manager and WTA its the general partner.Offering
documents claimed that "[b]ased on past performance ... the system
the Trading Manager will utilize has produced an average return of 32%
per year for index and currencies."
According to http://www.tang.com
, during the four years since the Hedge Fund was established, it
achieved an "average annual
return rate [of] over 40%" by:
- integrating stock indexes, foreign
exchanges, and futures into reliable short-term speculations;
- seeking "consistent returns
with minimum risk: 1%
weekly profit;" and
- keeping "99% of the total
investment pool outside the market for safekeeping, while amplifying
the remaining 1%
with certain leverage.
Tang's purported investment strategy
is to invest 99 percent of the total investment pool in conservative,
out-of-the market investments like bonds and certificates of deposit and
1 percent of the investment pool in speculative short-term investments.
Since at least November 2007, Tang has
directly and indirectly solicited U.S. investors to invest in the Hedge
Fund. At least two U.S. investors have directly invested in Oversea
Chinese Fund through Tang's website solicitation. Tang has further
indirectly solicited U.S. investors by causing the creation of WinWin
Capital Limited Partners ("WinWin Partners") and by offering
and selling limited partnership interests in the entity. WinWin
Partners' sole business is investing partnership capital in the Hedge
Fund. The WinWin Partners' partnership agreement provides that
the general partner (created in 2006: JOR) does
not charge a fee on the first 6 percent of profit, but charges a 25
percent fee on any additional profit, mirroring the fee
arrangement described on the Hedge Fund's website.
On January 26 through January 30,
2009, Tang conducted a public, real-time demonstration of his trading
operations and strategy at his office in Toronto. Tang invited
prospective investors, existing investors, and the media to attend.
Individuals who could not attend the demo live in Toronto were able to
watch it online. After watching
Tang's public demonstration, many investors became very concerned about
their investments, because Tang was unable to duplicate the percentage
returns that the Hedge Fund
had purported to achieve - as reflected on the investors' account
statements on the Hedge Fund website.
On February 7, 2009, Tang sent an
e-mail to all Hedge Fund investors, acknowledging that the public
demonstration had failed. Although Tang claimed not to have lost money
during the demo, he conceded that the results were far from his stated
goal of one percent per week. As an apparent result of the
demonstration's failure, many investors lost confidence in his trading
abilities and closed their accounts or attempted to withdraw large
amounts of money from the Hedge Fund. Tang informed investors that the
Hedge Fund had insufficient assets from which to pay the withdrawal
requests. And, Tang vowed to
return all principal to investors within six months and noted that it
would not affect the Hedge Fund's normal operation.
On February 27,2009, approximately 200
Hedge Fund investors met with Tang in Toronto. Tang admitted to them
- the Hedge
Fund had no more money;
- deposits into the Hedge Fund by new
investors had been used to pay withdrawals and purported profits to
earlier investors, and
- the information posted on the Hedge
Fund website, showing the daily
value of each investor's account, was false.
admitted to fraudulently operating the Hedge Fund in two March 6, 2009,
telephone calls between Tang and investors. During these phone
calls, Tang admitted that:
- he and the Hedge Fund sustained trading
losses of$15 million in 2006 and 2007;
- he and the Hedge Fund posted
fake profits on the Hedge Fund's website in order to conceal
losses and to attract more investors and more money;
- because of the huge trading losses
in 2006 and 2007, he was not
able to follow his Trading Strategy and he conducted very little
trading in 2008;
- he used deposits from newer
investors (which included most of the Dallas-area investors) to pay
earlier investors (which included mostly Toronto-area investors)
when they sought to withdraw funds (principal and fake profits) from
- investor deposits were pooled
together and commingled in a Hedge Fund account at Bank of Montreal;
- he was unable to access his bank
statements online because a group of Toronto-area investors
convinced him to sign over authority in the accounts.
On March 8, 2009, Tang sent an e-mail
to Hedge Fund investors, acknowledging that the purported profits he and
the Hedge Fund listed in each investor's account statement on the Hedge
Fund's website were false. Tang also claimed that, during the last three
years, he and the Hedge Fund distributed over $30 million in principal
and $8 million of purported profits to investors. Further, Tang
implored investors to give him a year to repay each investor's
To persuade investors to afford him
some time to repay investor losses, Tang claimed
to have borrowed money from a friend, traded in her account, made $2
million in 12 days of trading,
and used $1 million to repay some investors.
On March 19,2009, Tang sent another
e-mail to Hedge Fund investors, revealing, among other things, that
[e]ven if I have to go to jail,
I still hope that I can go after I have repaid all of you. Now
finally I have a chance to trade again.
[u]nder the close monitoring of
the client committee, I will be able to give you convincing results
using my trading skill. By then, a lot of investors will be willing
to let me trade for them under such a transparent system. As a
result, this will be no problem to repay all of your money. Please
gave me some time and please give me this last chance.
Tang and Tang-related entities have opened
and attempted to open new brokerage accounts within the last several
weeks for the purpose of trading, and have recently lost more than
$500,000 in trading in
U.S. accounts. In response to his fraudulent conduct, the Ontario
Securities Commission ("OSC") instituted a Temporary Order
that ordered all trading by Tang, WTC, WTA, and the Hedge Fund to cease.
The Temporary Order is limited to Tang's Canadian entities and has no
apparent effect on U.S.. assets, entities or trading activities.
Whopping 32% Return
and a 40% annual return
---if you believe
it (and too many foolishly did)
How generous! No charge
on the first 6% profit, but we'll take 25% thereafter.
OOPS. UH OH. Ummmm
How could you not believe
No more as in really no
Wow, never saw that
Of course you trust me.
Give me a second chance. Then maybe a third?
Let me see if I can put a
Madoff-spin on this.