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Portus numbers don't add up

Date: Wednesday, April 27, 2005
Author: MARHedge

Troubled Canadian hedge fund Portus Alternative Asset Management owes investors C$400 million (US$324 million) more than it has to pay out, according to the latest tally of the firm's assets and liabilities by the now-defunct firm's court-appointed receiver.

In a preliminary balance sheet filed alongside its latest report this week, receiver KPMG LLP said that Portus owes at least C$1.1 billion, but has assets of only C$664 million.

KPMG noted that Portus owes C$750 million to Canadian-based investors, C$83 million to offshore investors and C$12 million to secured and unsecured creditors. The company also has C$238 million in "unexplained offshore transfers," the receiver said.

However, in a footnote, KPMG officials said they believed additional assets have yet to be identified or secured, meaning the numbers could change for the better - or worse.

"The receiver is not yet certain of the total assets and liabilities of the Portus Group, due to factors including the complexity of the structure, domestic and offshore wire transfers and the deliberate destruction or removal of certain of the Portus Group's records," KPMG said in its report.

"Consequently, the receiver cannot yet determine the precise amount that will be available to satisfy the claims of investors."

Cash on hand

Portus was effectively shuttered by the Ontario Securities Commission in February and pushed into receivership in March amid allegations of unsavory sales and marketing practices, as well as questions about allocations of investors' assets and promises of principal-backed guarantees.

According to KPMG's latest report, Toronto-based Portus has C$27 million in domestic and offshore cash, with another C$106 million still in brokerage accounts. The bulk of assets are in Société Générale (Canada) bank notes of C$529 million.

Meanwhile, certain investors stung by Portus may get some relief. KPMG is expected to ask an Ontario Court for permission to distribute up to C$10 million to investors facing "financial hardship" - individuals who no longer receive distribution payments on their Portus investments.

"It would be just and appropriate for the court to authorize the receiver to take steps to address these hardship situations as soon as possible," the report said. "The provision of preliminary relief to those investors actually experiencing hardship would not unduly prejudice other investors."

KPMG will also ask a separate Ontario court for an order compelling Paul Ho, a former vice president of sales and service at Portus, to provide more information.

KPMG is interested in the international sales team that Ho was a part of and which purportedly lassoed investors from as far away as Bermuda, Hong Kong and Taiwan.

Not so compelling

However, when contacted by the receiver, "Ho advised that he had been instructed by management on February 17 not to provide any information with respect to Portus to anyone," KPMG's report said. "The receiver is of the view that Ho will not assist the receiver unless compelled to do so by the court."

KPMG also noted in its report that it continues to solicit information from Portus co-founder Boaz Manor, who left Canada for Israel last month just as KPMG officials received a March 29 go-ahead to conduct a notice of examination on him.

"It appears that the only person that the receiver has identified thus far with a full understanding of the international investment structure is Boaz Manor," said KPMG, noting that "Manor has refused thus far to make himself available for examination by the receiver."

According to KPMG, Manor contacted the receiver on April 19 and said he was in the process of hiring an Israeli lawyer and would advise the receiver this week on what his position would be concerning any examination.

Both Manor and co-founder Michael Mendelson have insisted from the start of the investigation that they did nothing untoward and that investors' assets are safe.

Meanwhile, the OSC is pondering enforcement action under securities legislation against Portus and a handful of its former executives, including Manor and Mendelson.