KPMG seeks Portus founder

Date: Thursday, April 7, 2005
Author: By SINCLAIR STEWART and PAUL WALDIE and ANDY HOFFMAN - The Globe and Mail

A co-founder of Portus Alternative Asset Management Inc. left the country for Israel just days before a court-appointed receiver planned to interview him as part of its probe into the collapsed hedge fund firm.
KPMG LLP, the receiver, said in a report filed in court Wednesday that it planned to serve Boaz Manor with a notice of examination, but learned Tuesday that he “renewed his residency” in Israel.
Bob Rusko, a KPMG partner leading the receivership, said he is still hopeful that he will be able to conduct the interview, and that KPMG is reviewing its options with its lawyers. It's not clear when Mr. Manor plans to return to Canada, or whether he knew of KPMG's plans to interview him next week.
The report also said investors may only recover 62 per cent of the estimated $750-million they invested in Portus funds. KPMG said the company appears to have nearly $1.1-billion in total liabilities, including $238-million worth of unexplained offshore wire transfers, but only $662.4-million in assets.
The accounting firm is asking an Ontario court for permission to issue a bankruptcy order against Portus that could make it easier for investors to recover their money. KPMG said it still hasn't figured out the precise amount of total assets and liabilities at Portus because of the complexity of the hedge fund structure, the offshore wire transfers and the “deliberate destruction or removal” of thousands of company records. Mr. Rusko said the matter could be forwarded to police if KPMG believes it has found evidence of criminal actions. “As our assessment of these companies continues, when and if we see anything then we'll be reporting that to the RCMP.”
Shayne Kukulowicz, a lawyer for Portus investors, said the departure of Mr. Manor should sound alarm bells for investors and regulators. Mr. Manor co-founded Portus with Michael Mendelson three years ago, and quickly turned it into one of the country's fastest growing hedge funds with 26,000 clients. Mr. Manor's father, Daniel Manor, immigrated to Canada from Israel in 1988.
“We're extremely concerned that an architect of this structure, and someone that would be able to presumably explain where the money went and how it was spent and where all the money is, has left the jurisdiction,” said Mr. Kukulowicz. “You leave the jurisdiction with this kind of fire behind you and it should cause investors a lot of concern.” Adding to the mystery surrounding Portus is a $3-million transfer on Feb. 1 from a company account at Royal Bank of Canada to an account held by senior Portus officials at Bank of Nova Scotia.
The transfer, which KPMG described as a “potentially voidable” transaction, came after securities regulators from across Canada began investigating the company's sales and compliance practices. Portus was effectively shut down a few weeks later and regulators asked the court to appoint a receiver.
Messrs. Manor and Mendelson have insisted that all the investments are safe. Neither could be reached for comment Wednesday. The accounting firm has identified $133-million in cash spread across 110 Canadian and offshore accounts held by Portus, as well as $529-million worth of bank notes used to back investors' principal.
However, it is still unclear who the beneficial owners of these accounts are, and the bank notes — some of which don't mature for six years — are viewed as highly illiquid. These assets are still far less than the $750-million that investors pumped into Portus products, in part because the company was using some of this money to pay its operating costs and cover lucrative fees, KPMG said.
The accounting firm cannot explain the $238-million worth of money that was wired to accounts in the Cayman Islands. Based on these figures, KPMG has forecast that the potential recovery for investors is 62 per cent, although the firm acknowledged the figures could change as it continues its investigation. KPMG has also asked a court to establish a hardship committee for investors that depend on regular payments from the hedge fund for their living expenses.
About 267 investors were scheduled to receive $107,000 in pre-authorized payments from Portus between Feb 18 and March 3.
--Andy Hoffman is a reporter with Report on Business Television