Agencies' concerns surprise Norshield

Date: Wednesday, May 25, 2005
Author: KEITH DAMSELL- Globe & Mail

Regulatory concerns regarding the whereabouts of clients' money took Norshield Asset Management Ltd. by "complete surprise," the firm said yesterday, and have failed to derail a Calgary businessman's plans to buy the troubled hedge fund company.

"We have been pro-active and are committed to continue to work co-operatively with the regulators," the management of Montreal-based Norshield said in a statement.

On Friday, securities regulators in Ontario and Quebec clamped down on Norshield, claiming the company has failed to explain what it has done with an estimated $375-million in client investments.

"We simply did not get satisfactory answers as to how the business was being operated, what the process is for dealing with the money, where it goes and most concerning of all, where it is," Michael Watson, head of enforcement at the Ontario Securities Commission, Said last week.

The OSC, along with Autorité des marchés financiers or AMF -- Quebec's regulatory watchdog -- issued orders barring the company from conducting business. In addition, Norshield is facing a deadline today to appoint an external monitor to oversee operations.

The provincial regulators, along with the Mutual Fund Dealers Association of Canada, began a compliance review following Norshield's May 2 decision to suspend redemptions on its pool of hedge funds.

Norshield faced an exodus of investors that the company is attributing to bad press generated by its legal dispute with Montreal-based animator Cinar Corp. Norshield insists the money is safe and has warned it may take several weeks to unwind its complicated portfolio of investments.

The regulatory squabble has not dampened the enthusiasm of Ted Cantlon. He stepped forward earlier this month with a surprising plan to buy the shrinking hedge fund company. Aragon Investments Corp., a shell company created by Mr. Cantlon, will acquire Norshield's investment management business for an undisclosed sum. The deal is expected to close at the end of June.

"We are staying the course. We still see this as a very viable transaction," Mr. Cantlon said in an interview. "I know Norshield is protecting their clients' funds as best as they possibly can and as professionally as they can."

Regulatory scrutiny may, in fact, speed up the deal, Mr. Cantlon said.

"I think it will come to a happy conclusion quicker once the OSC and the AMF understand exactly what's going on. Then, we will all know. In fact, they are helping our due diligence process," he said