Manager 'truly sorry' for blowing up hedge fund

Wall Street New York Stock Exchange NYSE
Scott Mlyn | CNBC

A hedge fund manager told clients he is "truly sorry" for losing virtually all their money.

Owen Li, the founder of Canarsie Capital in New York, said Tuesday he had lost all but $200,000 of the firm's capital—down from the roughly $100 million it ran as of late March.

"I take responsibility for this terrible outcome," Li wrote in a letter to investors, which was obtained by CNBC.com.

"My only hope is that you understand that I acted in an attempt—however misguided—to generate higher returns for the fund and its investors. But even so, I acted overzealously, causing you devastating losses for which there is no excuse," he added.

Li is a former trader at Raj Rajaratnam's Galleon Group, which collapsed amid insider trading charges. Rajaratnam is now in prison for the illegal activity, but Li was never accused of wrongdoing.

Li's lieutenant at Canarsie is Ken deRegt, who joined in 2013 after retiring as the global head of fixed income sales and trading at Morgan Stanley. His son Eric deRegt also worked at Canarsie, according to filings with the Securities and Exchange Commissionas of March 2014.

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Li and the deRegts did not immediately respond to emails seeking comment. No one picked up a phone call at Canarsie's offices and no valid voicemail was available, according to an automatic telephone company recording.

Li said in the letter that he made a series of "aggressive transactions" over the last three weeks to make up for poor returns in December. He said he bet on stock price options, predicated on the broader market rising. But stock indexes fell, causing the huge losses along with several undisclosed direct investments, according to the note.

Li noted that he has retained counsel and is working with the fund's service providers to determine additional details on the loss for clients. SS&C Technologies is listed as Canarsie's administrator, according to the March SEC filing. SS&C did not immediately respond to a request for comment.

Canarsie's prime broker is listed as Morgan Stanley on the same filing, but two people familiar with the situation said that they are no longer a client. A spokesman for the bank declined to comment.

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