How Bay Street star Ben Cheng became an OSC target

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Ben Cheng was once among an elite group of Bay Street portfolio managers who could legitimately claim star status.

As a money manager who capitalized on the boom in income trusts – before Ottawa's infamous crackdown on them in 2006 – he had a hot track record and a strong personal brand. Mr. Cheng's name helped attract billions in assets from investors – with an ego to match, say some observers.

His career has now ground to a halt. This week, the Ontario Securities Commission (OSC) alleged that Mr. Cheng leaked confidential information about a blockbuster 2014 takeover deal by online gambling company Amaya Inc. The OSC also alleges that Mr. Cheng, who signed a non-disclosure agreement and learned about the deal weeks before it was announced, shared the details with a co-worker, then attempted to cover up his transgressions when confronted by the regulator. The OSC case includes three other individuals, including well-known executive Eric Tremblay, with whom Mr. Cheng helped build an asset-management company from scratch.

Mr. Cheng is disputing the allegations and will contest the matter in a series of hearings that are due to get under way next month. But well before any allegations of wrongdoing, his star had been waning. An ill-fated detour with an American hedge fund company, and later a failed attempt to build a firm around his vision, had already knocked the wind out of him.

The Globe and Mail attempted to reach Mr. Cheng via Shara Roy, a partner at Lenczner Slaght who represents him. Ms. Roy declined to comment.

Mr. Cheng largely built his reputation while serving as a portfolio manager at independent mutual fund company CI Investments Inc. in the late 1990s and early 2000s. He joined CI after it acquired fund company BPI Financial Corp. in 1999. Mr. Cheng was running a fixed-income and dividend fund at the time.

"He was a very high-profile, diligent and highly accomplished guy," Bill Holland, executive chairman of CI, said in an interview.

In the early 2000s, Mr. Cheng came into his own as an income trust guru. His funds leaned heavily on trusts, which were structured to pay out fat yields, yet were considered to have only a moderately high risk profile.

By the end of 2004, he was co-lead manager on five CI funds with assets under management of approximately $4.9-billion.

Mr. Holland said Mr. Cheng was a consistently strong performer at CI.

"I was in the industry and remember him well," said Dan Hallett, principal with investment counselling firm HighView Financial Group. "If you look at the star managers of that time, he qualified."

In 2005, Mr. Cheng left CI to take a position with U.S. hedge fund company Fortress Investment Group. "I was certainly disappointed to lose him when he left," Mr. Holland said.

But he didn't last long at Fortress – and neither did the Canadian income trust market. Trusts essentially blew up in late 2006 after then-finance minister Jim Flaherty announced that they would be taxed at a punitive rate. Previously, they had enjoyed a low-tax status, with their distributions instead being taxed in the hands of the unitholders. The surprise move, unveiled after the markets closed on Oct. 31, was later termed the "Halloween massacre."

In 2007, Mr. Cheng resurfaced as a fund manager, senior executive and major shareholder at newly created asset manager Aston Hill Financial Inc. While the company initially had a focus on resources, over the years much of the firm's assets were built around funds managed by Mr. Cheng. The hope was that Mr. Cheng's previous strong track record at CI would attract investors.

Initially it seemed to pay off, with funds managed by Mr. Cheng attracting some $3-billion. But the difficulty of starting a new venture and competing against established mutual fund giants – at a time when active managers were facing pressure from reams of new exchange-traded funds – meant the level of competition was infinitely tougher. Mr. Cheng marketed the funds heavily and made regular television appearances on Business News Network (BNN), but still Aston struggled.

"Aston Hill was never really seen as a firm that could offer good core products," Mr. Hallett said. "His level of success wasn't even close to what he experienced back at CI."

It appears the pressure was building for Mr. Cheng.

In its statement of allegations, the OSC alleges not only that Mr. Cheng leaked confidential, non-disclosed public information about Amaya's imminent $4.9-billion (U.S.) takeover of the company that ran the PokerStars gaming site. He gave that information to Aston Hill sales manager John David Rothstein and "instructed, encouraged and/or suggested" that Mr. Rothstein give the tip to others "who had lost money" on investments promoted by Aston Hill, the OSC alleges.

None of the allegations have been proved.

In 2015, Aston abruptly lost about one-third of its assets when it lost a sub-advisory mandate from the IA Clarington group of funds. The Globe and Mail reported that Aston tried to sell itself in the aftermath but ultimately was unable to find a buyer.

Last fall, Aston Hill announced it was merging with Front Street Capital, and the merged firm was eventually rebranded as LOGiQ Asset Management. At the time of the deal, Aston's assets had slipped to roughly $2.2-billion (Canadian) from a peak of $7.7-billion in 2014. At the time, Mr. Cheng went on an indefinite leave of absence from Aston Hill, from which he has not returned.

"Mr. Cheng has never been actively employed with LOGiQ," said a spokesperson on Thursday.