Call for Portus claims

Date: Wednesday, August 10, 2005
Author: Wojtek Dabrowski- Financial Post

The receiver of Portus Alternative Asset Management Inc. is set to take a major step forward in determining how much investor cash is missing by asking clients to come forward with claims as to the amount of money they placed with the collapsed hedge fund firm.

A source close to the situation said by early September, KPMG Inc., Portus's court-appointed receiver, will be ready to ask about 26,000 Portus clients how much they invested.

The responses to the "call for claims" will be key to establishing the magnitude of any shortfall between how much money KPMG has located and secured and how much money Portus's creditors say they are owed.

That step has to take place to determine "how much money truly is missing," the source said yesterday.

In late April, KPMG said in a report to Ontario Superior Court that preliminary calculations show Toronto-based Portus has almost $1.1-billion in liabilities and $664-million in assets, leaving it with a total shortfall of about $436-million.

However, the process of establishing the true size of the deficit is complicated by a number of factors, including Portus's complex investment structure.

Also, adequate records of investors' accounts have not been kept in some cases. Other records were destroyed, KPMG has alleged.

In the case of international investors, estimated to have placed more than US$52-million with Portus, no detailed records exist, the source said.

The RCMP launched a criminal investigation of Portus last month, after KPMG brought criminal complaints to the Mounties starting in April. Portus co-founder Boaz Manor left Canada for Israel in the spring and KPMG has yet to interview him.

Portus had more than $730-million in assets under management and sold so-called "funds of hedge funds" when securities regulators effectively shut it down in February.

Although KPMG is working to get the call-for-claims process underway as soon as possible, establishing who is owed what doesn't mean they will receive their dues soon, the source said.

That is partly due to the fact a large portion of Portus assets is illiquid, deposited in purportedly principal-protected notes -- some of which mature in 2011.

If those notes were to be liquidated before that date, it would likely come at a cost to investors.

Not all investors will have to wait another six years, however. Manulife Financial Corp., whose Manulife Securities International Ltd. referred $240-million in client assets to Portus, has promised to guarantee 100% of those clients' principal.

A group of other investment dealers who referred clients to Portus has also agreed to create pools of cash to offset potential losses resulting from investments in the firm. About 21 dealers of a potential 50 have committed to the unprecedented industry initiative, spearheaded by Berkshire Group.

Mr. Manor has not been charged with any crime, has insisted client money is safe and has denied KPMG's allegations through his lawyer.