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Notwithstanding these concerns, in December 2002, CIHI created two new

subsidiaries, Hudson River Investments LLC (“Hudson”) and Rudy Capital USA LLC (“Rudy”).

There was no doubt about the reason for their creation. According to Rudy’s “Company Description,”

The purpose of the entity was to expand the existing mutual fund swap activity business conducted by the Equity Arbitrage desk in New York. [i.e. CIHI] Due to the size of the book in CIHI, it was deemed necessary to book the purchase of mutual funds to reduce CIHI’s perception to the street. There was concern that with the growth of this business, fund managers may exercise their right to turn us away because of the size of our positions as well as the number of transactions. Rudy Capital would help us to reduce perception to the street and potential fund manager resistance.


Nevertheless, one problem remained: CIHI had formed both Rudy and Hudson as

single member LLC’s, and therefore these entities retained the tax identification number of the single member, which in this instance was CIHI. Mutual funds could (and did) block excessive trading based on tax identification number, and more importantly, many mutual funds already knew CIHI’s tax identification number. Thus, CIHI obtained a new tax identification number for

both Rudy and Hudson. Despite the separate tax identification numbers, neither Rudy nor Hudson filed separate tax returns during this time. Rather, CIHI’s tax returns reported both entities’ tax information.


Thereafter, CIHI entered into one TRS with a market timing hedge fund, and then

did a back-to-back TRS with Rudy. This enabled the managed accounts to be in Rudy’s name. The hedge fund then used this leverage to market time mutual funds.

CIHI Created Hedge Funds Without the “Canadian Imperial” Name


In addition to its subsidiaries Rudy and Hudson, CIHI also created at least two

hedge funds, Emu Capital (“Emu”) and Miura Capital (“Miura”), as a way to avoid having the

“Canadian Imperial” name on the managed accounts. In the Emu deal, CIHI purchased shares of Emu Capital, set up specifically for the transaction. CIHI funded the purchase of the hedge fund with 80% of its own funds and 20% of its hedge fund customer’s funds. CIHI and its customer then entered into a purported TRS on the returns Emu generated. The customer chose Emu’s portfolio manager and bore the risk and benefits of the market timing strategy, while CIHI received a fixed funding fee. Then Emu, a wholly-owned subsidiary of CIHI, invested in mutual

funds pursuant to its portfolio manager’s market timing strategy. The mutual funds were purchased in the name of Emu rather than in the name of CIHI or CIBC.


CIHI structured the Miura deal similarly. Specifically, CIHI entered into a

purported TRS with a hedge fund customer on the total returns of market timing activity done by

Miura, a hedge fund CIHI owned, but whose trading and investment strategies the customer directed. As in the Emu deal, this allowed the customer to enjoy the risk and benefits of a


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