Portus co-founders charged with fraud, money laundering

Date: Wednesday, September 26, 2007
Author: Janet McFarland & Tavia Grant, Globe and Mail

The two co-founders of collapsed hedge fund Portus Alternative Asset Management Inc. are facing criminal charges following a two-year RCMP investigation.

Boaz Manor, 33, who lives in Israel, and Michael Mendelson, 41, of Toronto, face a total of 12 charges of fraud, money laundering and possession of property obtained by crime, the RCMP said Wednesday. Mr. Manor has also been charged with an additional count of fraud over $5,000, two further counts of money laundering and one count of obstructing justice.

Brian Verheul, the officer in charge of the RCMP's Greater Toronto Area Commercial Crime Section, said police have been holding talks with Mr. Manor's lawyers and expect he will voluntarily return to Canada to face the charges.

“There is really great co-operation with counsel, and I expect that he will, in fact, make an appearance in Canada,” Insp. Verheul said in an interview. “We have a good relationship and those negotiations are ongoing, but that would be my expectation, that he will return.”

Mr. Manor's lawyer could not immediately be reached for comment.

Mr. Manor moved to Israel in early 2005, shortly after Portus collapsed. Between 2003 and 2005, the company collected about $750-million from 26,000 investors, most of whom were Canadian.

It also managed money for about 700 foreign investors, most of whom lived in Canada, Hong Kong, Taiwan and Bermuda, who had about $52.8-million (U.S.) invested in Portus funds.

The company was shut down by regulators after they found that it had not, as promised, put the money into Canadian securities. The RCMP allege the funds from Canadian investors were fraudulently used to operate the business of Portus “in contrast to its disclosure and without investors' knowledge.”

For example, the RCMP said some of the funds were used to pay management fees, performance fees, referral fees, trailer fees and salaries.

“They were operating the business with those [investors'] funds as opposed to investing them as was intended and as was disclosed to the investors,” Insp. Verheul said.

Police also allege that Mr. Manor defrauded a group of foreign investors by not investing the U.S. dollar funds they provided.

The investigation was jointly managed by the RCMP's commercial crime division in Toronto and the Ontario Provincial Police Anti-Rackets Section. It was not conducted by the Integrated Market Enforcement Team (IMET), which is the RCMP's high-profile securities crime division. IMET has faced criticism for its failure to lay charges in any major cases despite having spent $100-million since its inception in 2003.

Insp. Verheul said IMET did not have the capacity to take on the investigation when the case emerged in 2005 because it was already managing other major cases.

The 27-month investigation spanned the globe, with the RCMP working with international authorities in Switzerland, Austria, the Bailiwick of Jersey, Hong Kong, Turks & Caicos, England, Israel, the United States, Bermuda, Italy, Panama and Cyprus during the investigation.

“Any fraud related to investments and the investment industry has a broad impact,” said Superintendent Dave Truax, director of the OPP Anti-Rackets Section.

“It has a detrimental effect on economic integrity and shakes investor confidence, with frauds causing jobs to be lost and businesses to be shut down. Sometimes, it even wipes out entire life savings.”

Insp. Verheul said that although the investigation took over two years, it moved relatively quickly considering the complicated international jurisdictions and the large number of investors.

“We've really tried to refine our processes and leverage on relationships that we have to move these things forward as expeditiously as we can and really stay focused,” he said.

He added investors can expect more successful white collar crime cases going forward.

“Absolutely, I think we have a tremendous responsibility. We want people to have confidence in the capital markets, we want people to have confidence when they invest their money. So this is a very important piece, and I think we need to be able to do it well and in a timely fashion.”

There was a brief court hearing for Mr. Mendelson on Wednesday and he was ordered to reappear on Oct. 10. An arrest warrant has been issued for Mr. Manor.