Portus Updates

Date: Wednesday, October 5, 2005

UPDATE 1

TORONTO, Oct 5 (Reuters) - Canada's most powerful securities regulator said on Wednesday it is launching proceedings against Portus Alternative Asset Management Inc., alleging the hedge fund misled investors and engaged in illegal distribution of securities over a period of two years.

Portus was put into receivership in March amid regulatory investigations into its sales practices, freezing its assets and leaving thousands of investors in the lurch.

The Ontario Securities Commission said it will hold a hearing on Nov. 14 to consider the charges against Portus and key players Boaz Manor, Michael Mendelson, Michael Labanowich and John Ogg.

The OSC said it is also filing charges with the Ontario Court of Justice against Manor, the hedge fund's co-founder, alleging he destroyed material documents and submitted misleading information to the OSC in an attempt to impede the commission's investigation of the matter.

UPDATE 2

By: Jeannine Klein Menzies, The Royal Gazette

Forty-five Bermuda-based investors pumped almost $1.5 million dollars into a collapsed Canadian hedge fund that is now under investigation in Canada.
Until regulators shut it down in February, Portus Alternative Asset Management was one of the fastest-growing hedge funds in Canada, raising in excess of $800 million through its various products from almost 26,000 customer accounts.
While the total book value from the 45 Bermuda investors is nowhere near the $725 million invested by 24,519 Canadians, Bermuda’s book value leads foreign investments in Portus Alternative Asset Management, according to court documents.
Portus was forced into receivership last March by the Ontario Securities Commission and has been the subject of an RCMP criminal investigation since July.
The court appointed receiver KPMG is attempting to untangle the transactions in the now-insolvent hedge fund.
In a report issued last week, KPMG said Portus managers skimmed roughly $90 million in undisclosed fees and never followed the stated investment strategy of buying Canadian securities. Last week, one official said the money flows had little resemblance to the investment plan set out by the company and were more of a “classic Ponzi scheme”.
KPMG alleged in its most recent report that no shares were ever bought and the money sent to brokerages including the Cayman arm of Bermuda-based Lines Overseas Management were “commingled at various times with monies” from other Portus series. The scheme involved more than 130 Portus bank and investment accounts located in Canada, the Cayman Islands and the Turks and Caicos.
The funds which flowed through the LOM Cayman accounts have now been accounted for, LOM said in a statement last week.
To hasten the recovery of investor funds, KPMG intends to ask the court to declare Portus bankrupt.
KPMG said bankruptcy could make it easier to liquidate investments and distribute all recovered assets to shareholders. KPMG said it would be next to impossible to track individual investor accounts because Portus co-mingled client funds from every product.

UPDATE 3

Oct. 5 (Bloomberg) -- Boaz Manor, co-founder of a C$750 million ($633 million) Canadian hedge fund that collapsed in February, was accused by the Ontario Securities Commission of destroying documents and lying to stock-market regulators.

The OSC also charged Manor with trading securities without being properly registered and without having filed a prospectus.

Manor, who fled to Israel in February after the OSC began an investigation of Portus, can be prosecuted in the Ontario court without being in attendance, OSC's Director of Enforcement Michael Watson said in a telephone interview. He faces a maximum jail sentence of five years less a day for each of the three charges and fines up to C$15 million.

If convicted ``that jail sentence would remain in place until Mr. Manor stepped a foot back in Canada, either voluntarily or not voluntarily,'' Watson said.

The Ontario Securities Commission also filed a civil complaint against Portus Alternative Asset Management; Manor; Portus co-founder Michael Mendelson; and compliance officers Michael Labanowich and John Ogg for failing to properly collect client information, keep records and price fund units.

Portus also took about $95.4 million, or 13.3 percent of the principal invested by clients before money was put into funds, and used it to pay for ongoing operations and management fees, the OSC said.

Not Sustainable

Such use of investor funds ``means that the operation was not sustainable without the infusion of new funds from the investors,'' the OSC said in a report.

KPMG LLP, an accounting firm appointed by an Ontario court to trace money invested in Portus, has recovered all but $17.6 million of investors' money that was moved to banks in the Caribbean.

Manor has refused to speak with KPMG's investigators. His Isareli lawyer, Yehuda Weinstein, has said in letters to KPMG that Manor is too sick to be interviewed. He could not be reached for comment today.

Manor did manage to shuffle money around banks in the Caribbean, Europe and Asia even after the Ontario court ordered the assets frozen.

Manor converted $11 million into precious metals and gems that are difficult to trace, the OSC said. At least $6.4 million of that money was transferred on June 24 from a safe-deposit box at Credit Suisse Group bank in Zurich to MID (HK), a Hong Kong company, specializing in gems, KPMG's lawyer John Finnigan told a Sept. 9 court hearing in Toronto. That transfer occurred a day after an Ontario judge ordered Manor to return $3.1 million that was moved from the Caribbean to Europe.

The civil case is Ontario Securities Commission v. Portus Alternative Asset Management, 05-CL-5792, Ontario Superior Court (Toronto).

To contact the reporter on this story:
Joe Schneider in Toronto at  jschneider5@bloomberg.net

Update 4

A Hong Kong court has ordered that the sister-in-law of Boaz Manor, the co-founder of Toronto-based Portus Alternative Asset Management Inc., submit to an interview with the failed hedge fund firm's receiver.