Norshield money trail takes new twists

Date: Thursday, June 30, 2005
Author: PAUL WALDIE- Globeandmail.com

By PAUL WALDIE

Thursday, June 30, 2005 Updated at 9:59 PM EDT

Globe and Mail Update

Regulators probing hedge fund company Norshield Financial Group believe $130-million of client money was sent to an offshore business that cannot be tracked down, court documents show.

It is not clear who owns the business or whether the money can be recovered, the documents say.

Norshield, one of Canada's oldest and largest hedge fund companies, was put into receivership on Wednesday at the request of the Ontario Securities Commission. Norshield has been in turmoil since May 2, when it suspended redemptions after clients withdrew $375-million over the previous nine months. The company blamed bad publicity from a prolonged lawsuit against Norshield and its founder, John Xanthoudakis, for the redemptions.

The OSC and Quebec securities regulators moved in and ordered the company to appoint RSM Richter Inc. as a monitor. On Wednesday, the OSC won a court order appointing Richter as receiver

In documents filed in court, the OSC said the receivership is necessary in part because Mr. Xanthoudakis and other Norshield officials have not co-operated with Richter and failed to turn over dozens of key documents. “In addition, Richter notes that it has been hampered in its efforts due to the incomplete and unreliable books and records of the Norshield companies,” Richard Radu, an OSC investigator, said in an affidavit.

The documents also allege Norshield invested client money through a complex series of offshore entities that regulators are still trying to unravel.

Norshield used to cater exclusively to institutional clients, but in 2001 it created a series of funds under the Olympus name to attract retail investors. According to the OSC, 2,000 individuals sank a total of $160-million in the Olympus funds.

Client money was first sent to accounts at Olympus Bank and Trust, a Barbados company that is connected to Norshield, the OSC alleged. From there, some of the money was invested by a variety of hedge fund managers not connected to Norshield.

But 90 per cent of the funds went to Olympus Univest Ltd., a Bahamas company that appears to be connected to Mr. Xanthoudakis, the documents allege. That company allegedly sent it on to another business called Mosiac Composite Ltd.

Univest has filed for liquidation in the Bahamas, but so far Richter has not been able to obtain information about its holdings, the documents say.

Richter hasn't been able to determine the ownership of Mosaic Composite, its business activities or its connection to Norshield, Mr. Radu said.

A report by Richter filed in court also shows that Norshield has guaranteed a $40-million debt incurred by a subsidiary, Norshield Capital Management. “Management has not provided any documentation in respect of this potential obligation,” Richter said in the report.

The court filings also provide new details about a proposed purchase of Norshield by Calgary businessman Ted Cantlon. The documents show that under the deal, Mr. Cantlon will pay just $1 for the company. However, he must arrange up to $1-million in financing for future operations.

Thursday, Mr. Cantlon said he was not sure whether the deal will go ahead given the receivership. “I don't know at this point,” he said. He declined further comment, saying he had to meet with his partners.