The sudden death of a Toronto-based hedge fund manager has prompted an investigation into tens of millions of dollars in losses that the fund appears to have run up.

The Ontario Securities Commission issued a temporary order to freeze trades by Traynor Ridge Capital Inc. as the regulator probes its financial condition. A series of failed trades involving the hedge fund has saddled three brokerage firms with losses totaling $85 million to $95 million (US$61.3 million to $68.5 million), the regulator said in an Oct. 30 filing. 

The firms were left with losses after completing trades for Traynor Ridge earlier in the month. Christopher Callahan, its founder, sole shareholder and chief compliance officer, was reported dead to the securities commission by the firm’s lawyer on Oct. 28. 

A spokesperson for the Toronto Police Service said the death isn’t considered suspicious in nature and police are not investigating. 

Market maker Virtu Financial Inc. disclosed losses of more than $5 million, a number that it expects will rise, according to a court application it filed against the hedge fund on Monday. Virtu executed 26 buy orders for the fund that hadn’t been settled as of Oct. 23, court documents say.

Callahan on Oct. 24 agreed to settle the trades — in other words, to pay Virtu for the securities — but the firm “has not taken any steps to do so,” Virtu said in its filing. 

“Traynor Ridge was a client of Virtu. We are working with our client and regulators to help resolve the misconduct that took place at Traynor,” Andrew Smith, a spokesperson for the New York-based trading firm, said by email. “Our exposure was not material. We are keeping the principals at Traynor Ridge in our thoughts and prayers at this difficult time for them.”

WESTCOURT CLIENTS

Another firm that appears to have been stung is Toronto-based Westcourt Capital Corp., which puts together portfolios using third-party funds. 

Clients of Westcourt represent the majority of the assets in Traynor Ridge funds, according to David Kaufman, Westcourt’s chair and co-chief executive officer. He declined to comment on the hedge fund’s trading strategies or on investment recommendations it makes to clients. 

Traynor Ridge’s TR1 Fund had about $95 million in assets under management and had reported about a 3 per cent loss in the first nine months of the year, according to a fund summary dated Sept. 30, prepared by BMO Capital Markets and seen by Bloomberg. The fund peaked at about $125 million, according to people familiar with the matter.

“It appears to the Commission that Traynor is in serious financial difficulty,” the Ontario securities regulator said in its filing. “Further investigation of these events is required.”

‘MARKET NEUTRAL’

Callahan graduated with an economics degree in 2014 from Queen’s University, about a three-hour drive from Toronto, and quickly went into a career in finance, according to his LinkedIn profile. He worked as an investment banking analyst and equity sales associate at Echelon Wealth Partners before moving on in 2015 to HGC Investment Management Inc., a hedge fund whose president is former National Hockey League player Brett Lindros.  

“I liked Chris a lot. He was a good guy,” Lindros said. “It’s very sad news.” Callahan left HGC in 2019 to start his own firm, which he launched the next year. 

Traynor’s TR1 Fund uses what it called an event-driven, market-neutral strategy that aims to capitalize on market inefficiencies in publicly traded securities.

Traynor Ridge started off investing in special purpose acquisition companies, according to a person familiar with the fund’s activity. The hedge fund then began trading convertible securities, preferred shares and cannabis stocks, including Curaleaf Holdings Inc., Cresco Labs Inc. and Cannabist Company Holdings Inc. said the people, who asked not to be identified due to the sensitivity of the matter. 

Shares of Curaleaf tumbled 35 per cent in Toronto during the month of October while Cresco fell 34 per cent and Cannabist plunged 58 per cent.

Representatives for Traynor Ridge didn’t respond to requests for comment. CIBC World Markets Inc., one of its prime brokers, declined to comment.