Canadian Fund Manager Ran $60 Million Ponzi Scheme: OSC

Weizhen Tang, A Toronto fund manager oversaw a Ponzi scheme that defrauded investors in Canada, the U.S. and China of about $60 million, the Ontario Securities Commission alleged.

At first, the investment statements always came on time with the 1 per cent return as promised.
But early this year, when some of Weizhen Tang's investors had trouble getting their money back, they demanded an explanation, and Ontario regulators started investigating allegations of a Ponzi scheme.

Tang, who bills himself as "the Chinese Warren Buffett" and "the king of 1 per cent weekly returns," is a prominent figure in Toronto's mostly Mandarin-speaking mainland Chinese community. He is believed to have at least 200 clients in Canada. In late February, Tang sent a letter to his clients, apologizing for "the sin that I had committed" but insisted that he did not steal investors’ funds.

"I know that only with everyone's supervision and assistance, I can repay everyone in around a year. This will be the most sincere form of apology," Tang wrote. "Please give me time. ... I have greatly abused everyone's trust in me. Let me use my actions to prove myself, restore your wealth, and amend for my sins."

Five investors walked into Toronto Police's 52 Division to lodge a criminal complaint. They were told to return next week to speak with the fraud unit.

Their move comes just days after the Ontario Securities Commission froze accounts belonging to Tang, his companies, Weizhen Tang Corp. and Weizhen Tang and Associates Inc., and his investment fund, Oversea Chinese Fund Limited Partnership.

The freeze order, as well as a separate one that prevents any stock market trading, will be in place at least until April 1 while the commission continues its investigation.


Weizhen Tang, who ran Weizhen Tang Corp. and Oversea Chinese Fund Ltd. Partnership, told investors recently the company had no assets to pay requested redemptions, the OSC, Canada’s main stock-market regulator, said in papers filed in Ontario Superior Court on March 23. A judge yesterday extended a freeze on Oversea’s assets until April 30.

“Tang had been using new funds raised from investors to pay redemptions requested by previous investors,” the OSC said in the filing. That is the classic definition of a Ponzi scheme, named after Charles Ponzi, who was charged with fraud in 1920.

It’s the first allegation of a Ponzi scheme in Canada since a slump in North American stock markets began in June. In the same period, the U.S. Securities and Exchange Commission has filed more than a dozen lawsuits to freeze money raised in alleged Ponzi schemes, including a $65 billion scam run by New York financier Bernard Madoff.

On his Web site, Tang said he began Weizhen Tang Corp. in 2007 in Toronto and was registered “within the framework of the Ontario Securities Act.” Most of his clients are “senior and affluent overseas Chinese” in Canada, the U.S., China, Hong Kong, Taiwan and Malaysia, he said.

The fund invests in stocks, foreign exchanges, futures, options and mutual funds on Wall Street and stock markets in China and Hong Kong, Tang said. The minimum investment is $150,000, U.S. or Canadian.

$15 Million Losses

Reporters who went to offices of Weizhen Tang Corp., at the corner of York and Adelaide Sts., in downtown Toronto yesterday, were initially told that Tang would speak to them.

A spokesperson who identified himself as Dr. Guo later told reporters that Tang's lawyer had instructed him not to make any comment. "Mr. Tang is, of course, not a perfect businessman," Guo said. "The truth will come out."

"I can assure you that my client is co-operating fully with the regulator and that to date there have been no charges of fraud laid against my client," Tang's lawyer, Hugh Lissaman, wrote in an email to reporters.

At Tang's home, near Bayview Ave. and Steeles Ave., a woman who answered the door but did not identify herself said that Tang was not there. Asked for comment, she said, "It's too early to say anything."

News of the OSC's freeze order against Tang flooded Chinese-language news websites, blogs and chat rooms in North America, China and even Europe. Bloggers and columnists debated whether Tang was more like Nebraska-born investor guru Warren Buffett, who has an estimated net worth of $62 billion (U.S.), or more like Bernard Madoff, the disgraced New York businessman, recently convicted of running a $65 billion Ponzi scheme.

Kelvin Li, news director of the popular Toronto Chinese language website, newnews.ca, said Tang, 51, immigrated to Canada more than 20 years ago from China via the U.S. after postgraduate studies there.

"He is very high profile. You see him everywhere at Chinese community events," said Li. "He sponsored the largest Chinese New Year community galas. He donated money to help victims of the devastating snowstorms and Sichuan earthquakes in China last year. He was also very involved in organizing the mass protest in Ottawa against pro-Tibet demonstrations prior to the Beijing Olympics."

Li has interviewed many of Tang's investors. He said some of them are new immigrants with working-class backgrounds, who used their lines of credit and mortgage money to come up with the $150,000 minimum investment amount.

Tang also used the newnews.ca website as a forum to communicate with his investors and has published at least four public letters.

In one dated March 21, he claimed that he had mortgaged his North York home for further investment.

"Part of the profits I make, I can return the money to you. If the money keeps on rolling, it would be no problem for me to return the money to you. The key is to give me time, give me a last chance," he wrote. "Even if I have to be jailed, I hope I could at least return you the money first. That would be less pain for me."

Allegations that Tang may have been operating a Ponzi scheme — where earlier investors are paid returns using money from later investors, rather than any real profits — comes from documents filed by the OSC in court this week.

The regulator believes that about 200 investors have put approximately $68 million into the Oversea fund and $35 million has been paid out to date.

The commission began its investigation in February 2009, according to documents filed in the Ontario Superior Court of Justice on March 24. Tang told OSC investigators that he traded stocks, futures, stock options, and foreign currencies, for Oversea.

Investors signed an agreement that Tang would charge no fees for returns of six per cent or less; "However, for returns above six per cent, Tang would charge a 25 per cent 'incentive fee,'." the documents read.

According to one investor, "Tang advised him that new investor money is being paid out to old investors and admitted there was no money left at this time in Oversea," the filing says.

Tang also admitted to losing $15 million in 2007 but did not report this to Oversea's investors.
"Tang stated that investors in Oversea are owed about $30 million," according to the documents.

The commission asks the Ontario court to issue a cease-trade order in cases where investors may be at risk, said Kelley McKinnon, partner at Gowling Lafleur Henderson, former deputy director of enforcement and former chief litigation counsel at the OSC. "The commission orders a temporary cease-trade when they have some evidence of illegal activity and a risk of ongoing harm so they want to stop trading while they continue to investigate," she said.

The documents also show that Tang's wife, Hong Xiao is listed as an officer and director with Weizhen Tang and Associates.

Xiao received a 10-year suspension and was ordered to pay a $45,000 (Canadian) fine by another regulatory agency, the Investment Dealers Association, in July 2004 for two counts of conduct unbecoming or detrimental to the public interest. She was also ordered to repay another $5,000 in commissions.

Tang is registered as a limited market dealer. Neither company is registered as an investment counsellor or portfolio manager in Ontario.

His last letter to clients, dated March 25, begins "How difficult is it for a person who has sinned and lost all trust to stand up again? Because I cannot timely return your investments, I have caused you great pain."

It goes on to say: "I sincerely request that I be given another chance merely for the sake of recovering your hard-earned money and reviving the honour of overseas Chinese. A re-emerged Weizhen Tang will be in the best interest of all of you."

The letter ends with a promise: "Within two months, a new Tang Weizhen will emerge! You will certainly receive my first repayment! At that time, the whole society will witness the cheers or accusations!"

In extensive material on the company's website, Tang says that he uses his years of experience in the stock market and uses stock indices, foreign exchanges and futures for "reliable short-term speculation."

He boasted of an average annual return rate of more than 40 per cent for four years.
Tang also held "investment summits" — the last one was held at the Metro Toronto Convention Centre in January of last year — with economists from China and the United States who were invited to speak to prospective investors. Among the guests were officials from the Chinese consulate in Toronto.

One alleged victim, who came from the same Hunan province as Tang and invested $300,000 with him, was quoted in the Toronto Star stating that Tang's clients met regularly to discuss the matter in the last month but the majority of them have refused to come forward and believed that Tang could come up with the money.

"They were brainwashed," said the woman, who asked not be identified. She said she and 14 others were discouraged from coming forward to authorities while clients in the other camp are petitioning the OSC not to pursue charges against Tang, fearing the action would stop them from claiming any money back ever.

Another investor, who with his wife invested $500,000 last September, said Tang's initial clients from as early as 1999 were mostly people from his hometown through word of month, but in recent years the businessman has advertised heavily in the local Chinese media.

"We were drawn to him because of his promise of the weekly 1 per cent return," said the man, in his 40s, outside the police station. Like other alleged victims, he refused to give his name. "We trusted him."

The OSC said it has evidence that in 2007, Oversea lost about $15 million. Tang had told investors the fund made “significant profits,” the OSC said.

Hugh Lissaman, who is listed as Tang’s lawyer in the court documents, didn’t immediately respond to a request for comment by local media.

A phone number listed on Tang’s Web site was answered by a man who identified himself only as Dr. Gou and said he was Tang’s friend and consultant. Gou said Tang wasn’t available to comment and it was too early to discuss the OSC allegations.

While these ARE some very serious allegations, they are at this time just that, allegations.. It should be borne in mind by all that everyone is considered to be innocent until proven guilty in a court of law.

The case is Between Ontario Securities Commission and Oversea Chinese Fund Ltd. Partnership. Ontario Superior Court of Justice (Toronto).