Meeting undid the 'Chinese Warren Buffett'

When Toronto fund manager Weizhen Tang could not show investors how he achieved reported results, they went to regulators

For years, Weizhen Tang was considered an investment guru in much of the Chinese community in North America. He called himself a "Chinese Warren Buffett" telling investors and those who would listen that he could generate a 1-per-cent weekly return.

But Mr. Tang's reputation was dealt a stunning setback during the week of Jan. 26, 2009, according to documents filed in court this week where he's facing allegations of fraud.

That was when he held a public demonstration of his investment strategy in his Toronto office and couldn't match the reported results of his funds.

"Unfortunately the public demo failed," Mr. Tang wrote in an e-mail to investors a few days after the event. "I apologize. I don't want to find any excuses. I need more hard work."

He added that there wasn't enough cash to meet the redemption demands that had come in since the meeting and he told investors to wait six months.

Not a good enough an answer, Mr. Tang's investors struck back. In the weeks to follow, they organized themselves into a committee, filed a lawsuit, launched their own investigation and went to regulators in Canada and the United States, court filings show.

The Ontario Securities Commission shut down Mr. Tang's Canadian operation, Oversea Chinese Fund, on March 17 and started an investigation into allegations of fraud. This week the U.S. Securities and Exchange Commission filed fraud charges against Mr. Tang in Dallas, alleging his fund was a Ponzi scheme. The SEC also froze the assets in his U.S. fund, WinWin Capital Management.

Mr. Tang has acknowledged in e-mails to investors that he lost money investing, but he has insisted he didn't take any money for himself. His lawyer has said Mr. Tang is co-operating with regulators.

None of the allegations by investors have been proved in court as of yet, therefore, it should be borne in mind that all persons are innocent until proven guilty.

Documents filed in court detail Mr. Tang's rise to prominence and show his many attempts to encourage investors to stick with him despite the allegations.

Mr. Tang, 50, came to Canada from China in the early 1990s, according to his website. He earned a graduate degree in biotechnology from the University of Waterloo and worked at various research facilities before turning to investing in 1995.

At first he handled investments for friends and relatives, the website stated. In 2001, he created Oversea Chinese and expanded to the Dallas area in 2006 with the help of Jiehua Yu, a friend from the University of Waterloo, according to court filings. Ms. Yu had earned a graduate degree from Waterloo as well and worked with a Guelph, Ont.-based company before moving to the United States. According to court filings, she created WinWin Capital, co-owned by Mr. Tang.

By 2009, Oversea Chinese and WinWin had attracted more than 200 investors who invested roughly $75-million (U.S.) in total, according to court filings. The minimum investment was $150,000 (Canadian) in Oversea Chinese and $250,000 (U.S.) in WinWin. Mr. Tang did not charge a fee on the first 6 per cent of profit, but he took a 25-per-cent cut of any additional profit, according to court filings.

Mr. Tang concentrated on recent immigrants from China and he became a fixture in the community. He joined numerous organizations and donated money to various causes, including offering financial support for a group of pro-China demonstrators at a rally held in Ottawa last year.

According to e-mails filed in court, he had great hopes of "raising massive funds" by tapping into China's new entrepreneurial spirit. He planned to use his own investment skill and "widespread propaganda" to create a giant fund, according to one e-mail, which mentioned a figure of $700-million.

But after the failed demonstration at his office, many investors turned on him. On Feb. 27, about 200 confronted him in Toronto.

In an e-mail sent a few days later, Mr. Tang called the meeting "shocking, sad and painful" and outlined a plan to recoup the losses. He said in a later e-mail that he had received $1-million from a friend, turned it into $2-million in 12 days and used it to repay investors.

"Please believe my trading ability," he wrote. "Please give me time." He acknowledged later to one investor that he had lost $15-million in 2006 and 2007, according to court filings.

Just days before the OSC's move, WinWin sent investors an e-mail outlining a plan to stay in operation.

"It is inappropriate and unsafe to continue using the original Oversea Chinese Fund Trading account because the account can be frozen if government investigation is started," said the e-mail dated March 14, 2009. "A new business entity, trust account and a new trading account should be formed in order to carry out this pay-back plan properly."

Even after the OSC shut down Oversea Chinese, Mr. Tang continued to beg investors to stick with him. "Even if I have to go to jail," he wrote in one e-mail, "I still hope that I can go after I have repaid all of you."

Investors like Daniel Xu, a business professor at the University of Western Ontario, are hoping to get some of their money back. "I think I lost a lot of money," Mr. Xu said in a recent media interview. "It's terrible."

The OSC is asking investors with any information to call 416-593-8314.

OSC extends trading ban against Weizhen Tang

Bank accounts of `the Chinese Warren Buffett' frozen until September

A cease-trade order filed against a prominent Toronto businessman who bills himself as "the Chinese Warren Buffett" will stay in place until September.

The order, which also freezes bank accounts belonging to Weizhen Tang, his companies and his Oversea China Fund, was extended until Sept. 10 during a brief hearing at the Ontario Securities Commission yesterday.

The hearing comes one week after the OSC first raised allegations that Tang may have been operating a Ponzi scheme involving some $60 million (U.S.).

Tang did not attend yesterday's proceedings, which drew many reporters but just a handful of investors.

"It is by no means a simple investigation," OSC lawyer Hugh Craig told commissioner Lawrence Ritchie in asking for the extension on the original cease-trade order.

Tang's lawyer, Hugh Lissaman, said his client did not oppose the move. "My client has always indicated he is prepared to co-operate with the OSC," he said.

Asked about the Ponzi scheme allegations, Lissaman told reporters after the hearing, "All I can tell is, at this time, they are allegations put forward in a document filed with the court. There have been no formal charges laid against my client."

The Ontario Securities Commission issued the freeze orders against Tang and his companies, Weizhen Tang Corp., and Weizhen Tang and Associates Inc., last week.

The OSC believes there are at least 200 investors who put about $68 million in Tang's Oversea China Fund. To date, about $35 million has been paid out, according to documents the commission filed in provincial court last week.

Tang reportedly told investors that "new investor money is being paid out to old investors," and that "there was no money left at this time in Oversea," according to the documents.

He also told OSC investigators that the fund lost $15 million in 2007, but he did not disclose that loss to investors.

Tang promised investors a weekly return of 1 per cent.

Some investors remain loyal to the businessman. A letter opposing the cease-trade order, signed by more than 100 Toronto clients, was delivered to the OSC yesterday.

"As long as Tang's trading is under supervision and follows the law, he should not be banned from trading. This will cause further damage to the investors and defy public interests," says the letter, published in Chinese on a popular breaking-news website.

"The majority of the investors, being overseas Chinese and minorities in Canada, when dealing with non-violent dispute, should resolve the issues internally."

Other investors have approached Toronto police, though no charges have been laid.

A retired doctor from Chengdu, who gave his name as Mr. Niu, was among five Tang clients at yesterday's hearing. The Toronto man said he invested $100,000 with Tang in 2002 and hasn't withdrawn a penny since. "I have lost all my savings. I just feel so stupid. I can't blame anyone but myself. I just hope he could continue to work and get our money back," he said.

A Ponzi scheme involves paying "profits" to early investors by using money from new investors.

The OSC is asking investors with any information to call 416-593-8314.

Nortel files for Chapter 11 bankruptcy

Nortel Networks Corp. filed for Chapter 11 bankruptcy protection in the United States on Wednesday, one day before it was due to make a $107 million interest payment.

The Toronto-based company and several of its affiliates made the filing in federal bankruptcy court in Delaware.

The move came shortly after the trading of Nortel's shares were halted on the TSX.

According to The Globe and Mail, Nortel is also expected to file for bankruptcy protection in Toronto.

"Bankruptcy protection keeps the creditors at bay while you reorganize or sell parts of the business," BNN's Michael Kane reported Wednesday.

The company's board of directors reportedly met in Toronto Tuesday to discuss Nortel's future.

On Thursday, the telecom firm was due to repay a $107-million interest debt on bonds, which would have amounted to about 10 per cent of the company's North American cash reserves.

"They don't have $107 million dollars just to make an interest payment," Kane said.

Canada's most valuable company at one time, Nortel stocks traded as high as $124.50 a share during the tech boom in 2000, said Kane.

On Tuesday, the stock closed at 38.5 cents a share.

"People who are close to the situation are saying to us that although there is a great deal of equity in the company the possibility of it staying together as the Nortel Networks we knew is fairly slim," Kane said.

"We're likely going to see it sold off in bits and pieces."

After the telecom bubble burst, the company failed to re-establish itself and was plagued by accounting scandals and weakening demand.

"It has been a changing landscape that Nortel has been unable to adjust to," Kane said.