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Norshield receiver finds little money

Date: Friday, November 18, 2005
Author: Scot Blythe- Advisor.ca

Retail investors in the failed Norshield Group of companies, which include Norshield Asset Management and Olympus United Funds, may only get back $8.5 million of the $132 million they placed in Norshield funds, according to the second report of receiver RSM Richter.

The receiver stresses that this is only a preliminary finding. In addition, RSM Richter is relying on audited financial statements of September 30 2003. It says it has not been able to determine transactions that took place after that, up to June 29, 2005, when the Norshield companies were placed in receivership.

RSM Richter says that there may be other potential recoveries for Olympus Univest investors, since those funds were invested in Mosaic Composite Ltd. But, it warns that "because the funds originating from the retail investors were consolidated with other investor assets at the Olympus Univest level, any such potential recoveries would be substantially diluted. Furthermore, the assets of Mosaic and other entities in which it made investments may be subject to numerous, substantial and competing claims having priority."

So far, RSM Richter has not been able to get Norshield's president, John Xanthoudakis to agree to an examination under oath, so it is seeking a court order. It has, however, had informal discussions with Xanthoudakis. The receiver has taken possession of Norshield properities in Montreal and Toronto and auctioned their contents for $75,000. However, it also says that records stored in Norshield's office appear to be incomplete, and some computers may be missing.

Apparently, of the $132 million in Univest funds, $40 to $100 million were assets "in kind." But neither Xanthoudakis nor former Olympus Univest director Dale Smith could "provide any further details as to the identities of those investors, the nature of such assets, the value or method of valuation thereof, nor how much of such investors shares were subsequently redeemed." And, though Olympus money was invested in Mosaic, neither Xanthoudakis nor Smith could identify the beneficial owner of Mosaic.

According to discussions with Xanthoudakis and Smith, as well as Olympus's financial records, Olympus investors bought preference shares, of which there were seven classes. Those shares were invested in Mosaic, which was supposed to deliver 100% of the underlying net asset value to investors. Mosaic held two sets of assets, hedged and non-hedged. The hedged assets were for the benefit of Olympus shareholders; the non-hedged assets were for Mosaic's account. The hedged assets included money run by Norshield directly as well as a call option sold by RBC. The non-hedged assets were supposed be collateral for the option, since Mosaic only put up 15% to 25% of the cost of the option.

So far, the receiver has recovered $4 million from Norshield, its subsidiary Olympus Bank and from Olympus funds. There is also $2.4 million in the Norshield managed funds, and a $2 million property in Barbados. RSM Richter has also found evidence of investments in a variety of companies, including BCS Global Networks, Oceanwide.com Inc., a Canadian software developer, Microslate, a mobile data equipment manufacturer and AMT International Mining, a delisted copper mining company among others, but has not been able to determined the nature of the investors nor the source of the money for these investments. Beyond that, institutional investors and direct investors are owed $350 million.

Whatever other assets can be recovered have to come from Mosaic Composite. However, Mosaic assigned its interest in the RBC call option to a Cayman-Island entity, MS-II in exchange for class A and B shares. The class A shares were sold to Merrill Lynch for $36 million. At the same time, RBC has liquidated the option, returning a $44 million premium. Rights to the premium are being contested in court.

If Mosaic still owns the class B shares, there may be a residual premium of $8.4 million from the sale of the option. In addition, Mosaic's non hedged assets had a book value of $368 million in 2003. For some of the non-hedged assets, the receiver says it lacks the information to provide a liquidation value. However, it estimates that $181 million of the assets have a liquidation value of between $10 million and $18 million. Mosaic may also have a $6.6 million investment in a publicly traded Bahamian real estate company.

Filed by Scot Blythe, Advisor.ca, scot.blythe@advisor.rogers.com.