Canadian hedge fund star in showdown with regulators

In September, at the inaugural Canadian Hedge Fund Awards ceremony in Toronto, Sextant Capital Management Inc. was honoured for a performance that defied expectations in the battered-down hedge fund industry hit by a global financial meltdown.

This week, the fund and its "driving force," Otto Spork, appear headed for a showdown with regulators that accuse the money manager of inflating returns in the high-flying Sextant Strategic Opportunities Hedge Fund through self-dealing and investments in glacier companies that have generated no revenue and have no immediate prospects to do so.

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But a statement of allegations laid out by the OSC on Wednesday says the Sextant fund's returns were artificially boosted by the investment of 92% of its assets in two private Luxembourg companies whose share prices purportedly rose substantially despite the fact that the companies generate no revenue.

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The regulator alleges that the bulk of the assets of the Sextant Fund have been invested "illegally" in breach of rules against self-dealing. The OSC also says "substantial" fees have been paid based on the illegal investments.