Portus staffers in dark - Receiver's finding: KPMG unable to interview hedge fund leaders

Date: Monday, March 14, 2005
Author: Wojtek Dabrowski - Financial Post

Most former employees of Portus Alternative Asset Management Inc. appear to have had only "limited or restricted knowledge" of its business structure, says a report by the hedge fund firm's court-appointed receiver.
Portus founders Boaz Manor and Michael Mendelson -- among the few who understood the business -- have not responded to telephone messages or correspondence from KPMG Inc., the receiver says in its first report filed in Ontario Superior Court. KPMG also says it has been unable to contact Ali Hamid, who it believes was responsible for overseeing custody accounts and wire transfers at Portus.
Thus far, KPMG "has had no success in opening any line of communication with any of these individuals, putting the receiver at a serious disadvantage in its attempts to develop a clear picture of the business structure and operations of [Portus]," it writes.
Portus and two of its related firms were placed in receivership under KPMG by the Ontario Securities Commission earlier this month, about two weeks after Toronto-based Portus sacked all but a handful of its 60 employees. The OSC and seven other securities regulators in Canada have been investigating the firm since late January.
Regulators effectively froze Portus' assets and barred it from taking on new business. Portus marketed so-called funds of hedge funds to investors. Regulators estimate it had 26,000 clients, mostly in Ontario, and about $730-million in assets under management. Since its appointment as receiver, KPMG has moved to take control of Portus' assets and records. Among the powers granted to KPMG by the court is the ability to conduct appropriate investigations to get a grasp of how Portus operated and to understand its current financial position.
However, that effort has been hindered by the limited knowledge of Portus' former staff, KPMG writes in its report, dated March 9. The receiver states it has communicated with about seven former Portus employees. While those employees have been co-operative, KPMG says, it's apparent most of them "had limited or restricted knowledge of [Portus'] business structure and affairs."
"Consequently, the information provided by such former employees has been of limited use to the receiver thus far," KPMG continues. KPMG has also met with representatives of Royal Bank of Canada and Societe Generale Canada to help it get a picture of Portus' financial standing. Royal Bank provided banking services to Portus and is believed to hold some of the money placed with Portus by its clients.
Societe Generale is believed to have issued principal-protected term notes in which Portus invested a part of its clients' assets. Both RBC and Societe Generale have co-operated with KPMG, the firm states in its report.
However, it has only completed a "preliminary" review of Portus' business affairs and therefore cannot yet report to the court on Portus' financial condition. On Wednesday, the court also appointed Douglas Knowles, a lawyer with Fraser Milner Casgrain LLP to represent the interests of Portus investors in its receivership.