From c1bcac8a3079258a42bf4665ca350b3c5fb872c3 Mon Sep 17 00:00:00 2001
From: Mike Johnston <mike@nervesocket.com>
Date: Fri, 20 Mar 2026 14:37:17 -0400
Subject: [PATCH] fix: implement fund dissolution for insolvent funds after
 SELL_SHORT trades

---
 src/app/api/admin/funds/[fundId]/route.ts |  2 +-
 src/app/api/trade/route.ts                | 65 ++++++++++++++++++++++-
 2 files changed, 65 insertions(+), 2 deletions(-)

diff --git a/src/app/api/admin/funds/[fundId]/route.ts b/src/app/api/admin/funds/[fundId]/route.ts
index a5b6221..27046a6 100644
--- a/src/app/api/admin/funds/[fundId]/route.ts
+++ b/src/app/api/admin/funds/[fundId]/route.ts
@@ -112,7 +112,7 @@ export async function DELETE(
   const portfolioValue = fund.user.positions.reduce((sum, p) => {
     const val = p.positionType === 'LONG'
       ? p.shares * p.hashtag.currentPrice
-      : p.avgBuyPrice * p.shares - (p.hashtag.currentPrice - p.avgBuyPrice) * p.shares
+      : (2 * p.avgBuyPrice - p.hashtag.currentPrice) * p.shares
     return sum + val
   }, 0)
   const nav = calcFundNav(fund.user.balance + portfolioValue, fund.sharesOutstanding)
diff --git a/src/app/api/trade/route.ts b/src/app/api/trade/route.ts
index 7ef0cf9..338b0dc 100644
--- a/src/app/api/trade/route.ts
+++ b/src/app/api/trade/route.ts
@@ -2,7 +2,7 @@ import { NextRequest, NextResponse } from 'next/server'
 import { getServerSession } from 'next-auth'
 import { authOptions } from '@/lib/auth'
 import { prisma } from '@/lib/prisma'
-import { calcTrade } from '@/lib/pricing'
+import { calcTrade, calcFundNav } from '@/lib/pricing'
 import { formatCurrency } from '@/lib/utils'
 import { z } from 'zod'
 
@@ -169,5 +169,68 @@ export async function POST(req: NextRequest) {
     }
   }
 
+  // If this was a fund's SELL_SHORT and the fund is now insolvent, dissolve it
+  if (type === 'SELL_SHORT' && fundId) {
+    const updatedFundUser = await prisma.user.findUnique({
+      where: { id: user.id },
+      select: { balance: true, fund: { select: { id: true } } },
+    })
+    if (updatedFundUser && updatedFundUser.balance < 0 && updatedFundUser.fund) {
+      await dissolveFund(updatedFundUser.fund.id)
+      return NextResponse.json({ ok: true, dissolved: true })
+    }
+  }
+
   return NextResponse.json({ ok: true })
 }
+
+/**
+ * Dissolves an insolvent fund: pays investors at current mark-to-market NAV
+ * (floored to $0), then deletes the HedgeFund record and its shadow User.
+ * Called automatically when a SELL_SHORT trade pushes a fund balance negative.
+ */
+async function dissolveFund(fundId: string) {
+  const fund = await prisma.hedgeFund.findUnique({
+    where: { id: fundId },
+    select: {
+      id: true,
+      userId: true,
+      sharesOutstanding: true,
+      investments: { select: { userId: true, shares: true } },
+      user: {
+        select: {
+          balance: true,
+          positions: {
+            where: { shares: { gt: 0 } },
+            select: {
+              shares: true,
+              avgBuyPrice: true,
+              positionType: true,
+              hashtag: { select: { currentPrice: true } },
+            },
+          },
+        },
+      },
+    },
+  })
+  if (!fund) return
+
+  const portfolioValue = fund.user.positions.reduce((sum, p) => {
+    const val =
+      p.positionType === 'LONG'
+        ? p.shares * p.hashtag.currentPrice
+        : (2 * p.avgBuyPrice - p.hashtag.currentPrice) * p.shares
+    return sum + val
+  }, 0)
+  const nav = calcFundNav(fund.user.balance + portfolioValue, fund.sharesOutstanding)
+
+  for (const inv of fund.investments) {
+    const payout = Math.max(0, inv.shares * nav)
+    if (payout > 0) {
+      await prisma.user.update({ where: { id: inv.userId }, data: { balance: { increment: payout } } })
+    }
+  }
+
+  await prisma.hedgeFund.delete({ where: { id: fund.id } })
+  await prisma.user.delete({ where: { id: fund.userId } })
+}