Portus heads took $3-million: receiver

Date: Wednesday, May 18, 2005
Author: PAUL WALDIE AND SINCLAIR STEWART- Globe & Mail

Former officials at Portus Alternative Asset Management Inc. fraudulently siphoned $3-million from the hedge fund company into a private bank account while it was under investigation by regulators, according to allegations in a receiver's report filed Tuesday in court.

The receiver, KPMG LLP, said Portus was already insolvent when the money was transferred on Feb. 1 and alleged that this amounted to a “fraudulent conveyance.” The funds were purportedly earmarked for a trust set up to cover legal expenses for executives and directors of the embattled fund company, alleged the report filed in the Ontario Superior Court.

KPMG said it has learned from a confidential source that company co-founder, Boaz Manor, was “attempting to misappropriate somewhere between $1.5-million and $2-million” from the trust. The receiver has located only $910,000 of the original $3-million and said that money will be frozen.

Mr. Manor left for Israel in March after an Ontario judge issued an order requiring him to co-operate with KPMG

The receiver said it offered to meet with Mr. Manor in Amsterdam or Israel this month.

Both requests were turned down by Mr. Manor's Israeli lawyers, who said he was too sick to be interviewed.

In a letter to Mr. Manor's lawyers last week, KPMG said many Portus stakeholders are “deeply suspicious” of him and that his conduct of “destroying corporate records” and leaving the country “will be seen by many as evidence of his consciousness of guilt.”

In a response, Mr. Manor's lawyers denied the allegations that he misappropriated any money. They also said Mr. Manor has already been subjected to a four-day interview with officials at the Ontario Securities Commission in which he fully described the company's investments. “We regret Mr. Manor's health problems but we can hardly find them ‘as evidence of his consciousness of guilt,'” the lawyers said in a letter to KPMG last week. They added that he would be willing to co-operate with the receiver when he feels better.

The letters were filed as part of the receiver's report.

Portus collapsed in March amid a flurry of investigations by regulators from across Canada, relating to the company's sales and compliance practices. The RCMP was also called in recently by KPMG to look into the situation.

Portus had about 26,000 clients and more than $800-million in investor assets, some of which flowed offshore. The receiver has found roughly $662-million worth of banknotes issued by Société Générale that were designed to protect investors' principal investment. But KPMG has still not been able to sort out exactly who is the beneficial owner of the notes because of their tangled ownership structure.

KPMG has spent weeks trying to figure out the hedge fund's investment strategy in order to recover these assets. The receiver insisted it needs Mr. Manor's co-operation.

KPMG has filed motions in court to place Portus into bankruptcy and Tuesday it moved to place a related business into bankruptcy as well. The receiver has said this could make it easier to recover assets for investors.

In the report filed Tuesday, the receiver noted that one of the trustees of the $3-million account for legal fees is Mr. Manor's long-time friend and business colleague, Joseph Carlen. Mr. Carlen took control of another related company called Portus Asset Management last December, just before the OSC launched its investigation.

KPMG has told the trustees to hand over all remaining funds in the account. The receiver said it has not received any reply.