SocGen Agrees to Settle Manulife Suit by Buying Fund Notes

Date: Thursday, November 27, 2008
Author: Joe Schneider, Bloomberg

Societe Generale SA, France’s second-biggest lender, agreed to settle a lawsuit by Manulife Financial Corp. by buying C$611 million ($495 million) of notes held by the trustee of a bankrupt hedge fund.

Manulife, based in Toronto, sued Societe Generale in July 2006, seeking C$1.6 billion in damages stemming from the 2005 collapse of Portus Alternative Asset Management Inc. The fund’s bankruptcy followed a probe by the Ontario Securities Commission.

Manulife claimed Paris-based Societe Generale didn’t properly investigate an investment plan proposed by Portus co- founders Michael Mendelson and Boaz Manor. Societe Generale issued notes that Portus was supposed to use to back hedge-fund investments, according to court papers. Portus, which had attracted about 26,000 investors who deposited almost C$800 million, was placed into bankruptcy in March 2006.

An investigation of Mendelson and Manor by Societe Generale “would have identified the potential for investor loss” and the bank “should not have proceeded to issue deposit instruments,” Manulife said in its statement of claim.

Mendelson pleaded guilty to one count of fraud and was sentenced to two years in prison for misusing investors’ money. He admitted to taking part in the misappropriation of C$106 million.

Manor, who has been charged with fraud, money laundering, obstruction of justice and possession of property obtained by crime, is scheduled to have a preliminary hearing next year, at which time a judge will determine whether prosecutors have enough evidence to warrant a trial.

Allegations Denied

Under the settlement, Societe Generale continues to deny all of the allegations in the lawsuit, Manulife said yesterday in a statement. Christina Carvalho, a Societe Generale spokeswoman, was traveling and didn’t respond to an e-mailed request for comment.

Manulife, which referred clients to Portus, paid them in full for their investments in 2005. The Canadian insurer is now Portus’s biggest creditor, holding notes worth about C$240 million.

The settlement must be approved by an Ontario judge. A hearing in Ontario Superior Court is scheduled for Dec. 18, Manulife said.

The case is Between Manulife Securities International Ltd. and Societe Generale, Ontario Superior Court of Justice (Toronto), 45065/06.

To contact the reporter on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net