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Canadians also hit by US$50B collapse

Date: Tuesday, December 16, 2008
Author: Barry Critchley, Financial Post

Canadian investors haven't been unscathed by the US$50-billion collapse of the Bernard Madoff hedge-fund empire, potentially the world's largest fraud case. But it's not yet clear the extent of the damage they have suffered.

Some investors were connected to Mr. Madoff through Tremont Capital Management, a U. S.-based firm that describes itself as "an industry standard bearer in funds of hedge fund investment management." In turn, Mr. Madoff was one of the managers used by Tremont, whose Web site said, "We are dedicated to providing our clients with quality risk-adjusted returns on a consistent basis over the long term."

It's understood at least two brokerage firms, HSBC Securities and TD Securities, gave their clients access to the Tremont platform. If clients of brokers at those firms wished to have exposure to hedge funds, the broker could put them into funds managed by Tremont. In turn, some of the money would make its way to Mr. Madoff. Of late, TD Securities has been active in removing Tremont from its platform.

Calls to both HSBC Securities and TD Securities seeking a comment weren't returned.

Mr. Madoff, owner of Bernard L. Madoff Investment Securities LLC, was arrested and charged late last week with an alleged Ponzi scheme that is said to have hid losses by paying certain investors with funds deposited by other investors.

Clients of another brokerage firm are also affected. In the case of RBC Dominion Securities, it's understood the firm's "ultra high net worth clients" have less than $50-million invested with Madoff. RBC said yesterday "that it did not act in an advisory capacity for the purchases made by a select group of individuals." The spokesman said the clients purchased "baskets of hedge funds. Accordingly, they received their advice in relation to Madoff elsewhere." In addition, clients of Mackenzie Financial will be affected. Tremont is one of the managers of the Mackenzie Alternative Strategies Fund. Monteith Illingworth, a Tremont company spokesman, said, "There was exposure in that fund."

Mr. Illingworth couldn't provide an estimate of how much of the Mackenzie fund was invested with Madoff. Calls to Mackenzie seeking a comment weren't returned.

On its Web site, Mackenzie said the fund has $37.18-million in assets. The fund comes with a 2.50% management fee.

Mr. Illingworth said that "Tremont was victimized by not just a person but also a scheme and a complex process designed to deceive individuals and organizations, managers and analysts -- including some of the largest, sophisticated financial institutions in the world."

The link to Tremont comes a short time after the firm shuttered its Canadian office, a decision that saw the departure of Brian Kremer, its vice-president and national sales manager. Tremont has had a local operation since 1999.