An Ontario court has approved the distribution of assets recovered from the receivership of defunct hedge fund manager Traynor Ridge Capital Inc, while dismissing a multimillion-dollar damages claim brought by an energy company, according to a report by Investment Executive.
In a recent ruling, the Ontario Superior Court of Justice endorsed key aspects of a motion brought by receiver Ernst & Young Inc (EY), including the recognition of claims filed by several brokerage firms and the rejection of a CAD25m claim submitted by Trillion Energy International alleging it was harmed by the hedge fund’s trading activity.
Traynor Ridge was cease-traded by the Ontario Securities Commission in October 2023 following the death of its founder and sole officer, Chris Callahan. With no management in place to oversee operations, the firm subsequently entered receivership.
Among the claims considered by the court were those filed by brokers including Jones Trading Canada, National Bank Financial, Ventum Financial and Virtu Canada. The brokers incurred significant losses after unsettled trades remained outstanding when the funds were cease-traded and they were forced to liquidate positions.
The court found that the brokers were entitled to recover those losses, noting that they possessed contractual indemnification rights against Traynor Ridge and the related funds.
At the same time, the court upheld EY’s decision to disallow Trillion Energy’s claim. The company had argued that trading activity by the Traynor funds resulted in approximately CAD6m of shareholder dilution and undermined a planned public offering that it said would have raised a further CAD19m.
The receiver concluded that the funds owed no duty of care to the issuer and that the claim lacked a valid legal basis. The court agreed, emphasising that shareholders generally retain broad discretion over how and when they trade securities and are not required to act in the interests of the companies whose shares they own.
In its reasoning, the court said the legal framework does not support the creation of a new category of liability that would impose obligations on shareholders toward issuers based on trading decisions.
The judge also dismissed allegations that the funds engaged in market manipulation aimed at depressing Trillion’s share price, finding no evidentiary basis for such claims.
In addition, the court rejected the argument that the funds’ alleged failure to comply with insider reporting requirements created a private right of action for the issuer. While any disclosure violations may fall within the scope of securities regulation, the court noted that enforcement of those obligations rests with regulators and does not automatically give rise to civil claims by issuers.
The ruling authorises the receiver to proceed with distributions to recognised creditors. Eligible claimants include the brokerage firms, while Trillion Energy and certain fund investors who had submitted redemption requests before the cease-trade order—but whose redemptions had not been completed before the receivership—will not participate in the distribution.
According to EY’s latest report, approximately CAD27.2m in cash and securities is expected to be available for distribution. Total claims filed against the estate amount to roughly CAD114.1m, with broker-related claims representing the largest portion of that figure.
