SocGen faces $1.3bn class action suit

Date: Friday, March 9, 2007
Author: Shanny Basar, Financial News

A Canadian insurer is launching a C$1.6bn ($1.3bn) proposed class action against Société Générale in connection with the French bank’s relationship with a collapsed hedge fund.

Manulife Securities International is suing the French bank over its alleged role in relation to Portus Alternative Asset Management. The hedge fund has been the subject of receivership and bankruptcy proceedings in the Ontario Superior Court since February 2005.

Approximately 26,000 Canadian investors invested C$800m which the Ontario Securities Commission alleged was improperly diverted to pay fees, fund ongoing administrative costs and redemptions. KPMG, the trustee in bankruptcy, anticipates that investors will not receive full recovery of their investments.

Manulife said: “In commencing and prosecuting this action, we are continuing to fulfill its commitment to pursue aggressively all available avenues to maximize recovery for the benefit of all Portus investors.”

In mid-2005 Manulife repaid all of its own clients who were referred to Portus.

J-P Bisnaire, general counsel of Manulife Financial, said: “To the extent that there is an ultimate net realization by Manulife greater than the principal amount invested by its clients, Manulife will credit its clients with this excess.”

The French bank issued notes that Portus was supposed to use to back hedge fund investments.

In a statement Société Générale flatly denied the allegations. It said: “Société Générale said that the allegations are without merit and it will vigorously defend itself against these unfounded claims. Société Générale acted properly and has fulfilled all of its obligations in the Portus affair.”

The bank said the principal-protected deposit notes, which Société Générale sold to the Portus trusts, are safe and secure, and at maturity these notes will have a minimum value of C$611m.

Société Générale said it stands behind its products and guarantees payment of the principal amount of these deposit notes, which remain fully intact and are in the hands of KPMG.