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A $60 million hedge fund led by a high-profile Wall Street executive lost all but $200,000 of its assets in about three weeks, a stunningly quick fall for the well-heeled investors in the fund. The collapse of Canarsie Capital LLC caught the attention of Wall Street because it was run by the longtime former head of risk management at Morgan Stanley — Kenneth deRegt —along with Owen Li, a 28-year old former Galleon Fund Management trader. Among the fund’s wealthy investors, according to a person familiar with the matter, was Richard Axilrod, a top lieutenant to Louis Bacon of Moore Capital Management. Messrs. Li and DeRegt didn’t return requests for comment and telephone calls to the firm weren’t picked up. Mr. Axilrod declined to comment. In a letter to investors sent Thursday morning, the fund said that Mr. Li was stepping down and that Mr. deRegt would take over the fund’s unwinding, according to a person familiar with the matter. The details behind the fund’s fall aren’t clear. In a letter to his investors earlier this week, Mr. Li—who named the fund after the Brooklyn, N.Y., neighborhood where he grew up—said he was writing to express his “sorrow and deep regret for engaging in a series of transactions over the last several weeks that have resulted in the loss of all but two hundred thousand dollars.” According to a March 2014 regulatory filing, the fund had a “gross asset value” of $98 million, which included leverage, or borrowed money, according to a person familiar with the matter. The fund managed $60 million, not including borrowing, at the start of this year, the person said. In March, Morgan Stanley, Carnarsie’s sole prime broker, executing and financing the fund’s trades, told the fund it was uncomfortable with its risk practices, people close to the situation say. Canarsie at the time hired an independent consultant to look into Morgan Stanley’s concerns, one person familiar with the firm said. About a month later, Morgan Stanley told Carnarsie it would need to move its assets to another clearing firm because of remaining questions about the fund’s risk profile, the people said. Several months ago, Goldman Sachs Group Inc. began clearing for Canarsie, some of the people said. Mr. Li launched Canarsie in January 2013 and focused on investing in technology, energy, financial and consumer growth stocks, people close to the situation say. In 2013, he ended the year up 50%, one investor said, partly stemming from heavy leverage, or borrowing, by the fund and big investments in social media, including FacebookInc. and Twitter Inc. In 2014, Mr. Li invested in some less-successful IPO stocks, includingFireEye Inc. and Splunk Inc., both of which foundered last year. In his letter to investors, dated Jan. 20, Mr. Li said the fund’s losses happened after “I engaged in a series of aggressive transactions over the last three weeks that—generally speaking—involved options with strike prices pegged to the broader market increasing in value, but also involved some direct positions.” In his letter, Mr. Li didn’t elaborate on the soured trades. He wrote later on in the letter, “I acted overzealously.”