Portus updates

Date: Tuesday, January 31, 2006

The net is tightening around Boaz Manor, founder of defunct Canadian hedge fund Portus Asset Management, who fled to Israel last February and is being pursued by liquidators KPMG, who have now asked an Israeli judge to imprison Manor if he won't co-operate with them.

According to Israeli press reports, a Tel Aviv judge last week gave Manor three days to deliver more than 100 diamonds worth $11.6m, allegedly bought with Portus funds, to KPMG, or face arrest.

At another hearing last week, the judge rejected Manor's appeal against a magistrate's court ruling that ordered him to answer questions presented by KPMG. Boaz Manor's lawyer had claimed that he has severe psychiatric problems, and therefore cannot meet KPMG.

KPMG had obtained ex parte orders against Manor in November from Judge Judge H. Weinboum-Waletzky of the Tel Aviv Court of Peace and Judge Magen Altuvia of the District Court of Tel Aviv. KPMG also says that it had obtained a lien on up to $20.7 million over Manor’s property in Israel, representing $3.1 million that Manor allegedly transferred to his lawyer and $17.6 million missing from Portus's funds.

KPMG told an Ontario court in November that it will again ask a Hong Kong judge to order Manor's sister-in-law to answer questions about the missing diamonds. Yu Jieying picked up $8.8 million worth of diamonds, including a 22-carat gem, which Manor arranged to be purchased, said KPMG lawyer John Finnigan. She had ignored a previous order to submit to questioning on October 13th. "We're seeking remedies against her," Finnigan told Ontario Superior Court judge Colin Campbell. Ms Yu's sister reportedly confirmed to KPMG that she picked up several packages from a dealer in June and July, but that she did not know what was inside and passed them on to a further, unnamed individual.

Manor also faces charges brought in Canada by the Ontario Securities Commission, which his Ontario lawyer says he will fight. Lawyer Brian Greenspan said: "He intends, obviously, to defend and respond to the charges and it's always been his intention to appear as required in answer to any charges that are brought against him."

Portus was put into receivership in March and in June KPMG won an Ontario court order compelling Boaz Manor to account for all the money originating from the now-insolvent hedge fund. Manor could face up to 15 years in prison if convicted of the three counts of violating Ontario's securities act brought by the Securities Commission, and a fine of $1 million fine per count. However, Michael Watson, head of the OSC's enforcement branch, admitted that while it is possible to try Manor in abstentia, he can't be forced to return to face the charges in Ontario. "Most provincial statute offences would not be subject to extradition and, in fact, most provincial statute offences - even if the person were here - wouldn't be subject to arrest," Watson said.

The RCMP is also investigating the affair and may stand a better chance of attacking Manor under Federal laws - but they were very slow to begin investigations and there has been no news about their progress.

KPMG said in court reports that managers of defunct Canadian hedge fund Portus skimmed up to 13% of assets; KPMG wants to make Portus bankrupt in order to speed up distributions to the 26,000 cheated investors. The report says that to date, about $662.15 million (Canadian) and about $37.2 million (US) have been found and secured in 130 Portus bank and investment accounts in Canada, the Turks and Caicos and the Cayman Islands, out of more than $800m that was collected.

The majority of Portus assets remain tied up in notes issued by France's Société Générale which were purchased for $529m, and mature between 2008 and 2011.

Although most of the Portus assets have been identified and can be recovered, it is thought that it will take years for investors to get their money back.

Portus founder takes case to Israel's high court- January 18, 2006

By CAROLYNNE WHEELER - Globe & Mail

JERUSALEM -- Boaz Manor, the co-founder of collapsed hedge fund investment firm Portus Alternative Asset Management Inc., will take his case to Israel's Supreme Court tomorrow after the country's highest court agreed to hear an appeal from his lawyers.

A spokeswoman for the Israeli Courts Administration said yesterday that Justice Salim Jubran will hear the appeal of a decision made by Judge Shmuel Baruch in the Tel Aviv District Court.

Though that decision is subject to a publication ban in Israel, KPMG Inc.'s representatives in Canada have said that Mr. Manor is again facing a judge's order to deliver nearly $9-million (U.S.) in diamonds or face a week's imprisonment in an Israeli jail.

KPMG has traced the diamonds, which are alleged to have been purchased using Portus investors' money, to Hong Kong, where they were transferred from Mr. Manor's sister-in-law, who lives there, to an unnamed middleman.

Ontario judge appoints independent counsel to review KPMG's fees in Portus case- January 17, 2006

TORONTO (CP) - An Ontario Superior Court judge has appointed Toronto lawyer Jonathan Wigley the independent counsel to review KPMG Inc.'s professional fees amassed during the receivership of Portus Alternative Asset Management.

By Chris Clair, Senior Financial Correspondent - Wednesday, January 11, 2006 5:23:06 PM ET

TEL AVIV, Israel (HedgeWorld.com)—This time the judge really, really means it.

A judge in Israel on Monday [Jan. 9] gave Boaz Manor, the founder of the now defunct Canadian hedge fund Portus Alternative Asset Management, seven days either to produce US$10 million in diamonds he bought with money from the hedge fund, or pony up the cash.

According to a report in the Toronto Globe and Mail, if Mr. Manor fails to do either, he'll spend a week in jail. Followers of the Portus saga might recall that an Israeli judge issued a similar order in December, only then Mr. Manor had three days to comply Previous HedgeWorld Story.

Mr. Manor then filed an affidavit saying he didn't have the diamonds and offered to testify in court, which he did for more than two hours on Dec. 26. After the questioning, conducted during a hearing that was not open to the public, nothing happened. Mr. Manor returned to court on Monday, and the same judge issued the new order.

KPMG LLC, the court-appointed receiver for Portus, has alleged that Mr. Manor wired US$10 million in Portus funds to Hong Kong in the summer of 2005 to buy about 100 diamonds. His sister-in-law was supposed to pick them up. This transaction occurred after Mr. Manor had been ordered by Canadian courts not to have anything to do with Portus assets.

The receiver has hit numerous walls in its attempts to recover C$750 million (US$634 million) in assets belonging to roughly 26,000 investors, most of whom were Ontario residents. The biggest obstacle has been getting information from Mr. Manor. He left Canada for Israel early in 2004, shortly after regulators started looking into whether Portus had been selling shares to non-qualified investors and paying off investment advisers to refer clients to the fund Previous HedgeWorld Story.

Although KPMG officials had tried to question Mr. Manor in the past, he had refused to be interviewed, claiming through his attorneys that he was too ill. His psychiatrist recently claimed he could not sit for an interview with the receiver's representatives because of his mental condition, according to the Globe and Mail report. In a letter cited by the newspaper, the psychiatrist said Mr. Manor had an "emotional crisis" following Portus's collapse and suffered from suicidal thoughts, depression, dissociative states and incoherent thinking.

Since April, KPMG has been working to uncover the structures of the various Portus investments and to recover as many assets as possible. In September, KPMG recommended to a Canadian court that Portus be placed in bankruptcy and its recovered assets returned to investors on a pro rata basis Previous HedgeWorld Story.

In October, the Ontario Securities Commission formally charged Portus officials with misleading investors and misusing fund assets Previous HedgeWorld Story. The OSC said Portus and its various entities—including PAAM, Portus Asset Management Inc., and PAAM's British Virgin Islands company, which the OSC described as a "shell"—illegally distributed securities to non-qualified retail investors.

In November, attorneys for KPMG and Mr. Manor exchanged testy letters, in which KPMG suggested Portus's investors would have been better off putting their money into mattresses than with Portus; Mr. Manor's attorneys responded that their client had been cooperative and that KPMG was being unreasonable Previous HedgeWorld Story.

Justice Colin Campbell issued an order naming Wigley, a lawyer with Baker & McKenzie LLP, to head the review of KPMG's expenses and advise the court on their "fairness and reasonableness."

"This court orders that all documents and materials as may be reasonably requested by the independent counsel including, without limitation, time records, in order for the independent counsel to fulfil his duties hereunder be made available," Campbell wrote in the order issued Monday.

Portus, a collapsed hedge fund, is accused of violating securities laws in a case affecting 26,000 Canadian investors.

Regulators in Ontario and other provinces shut Portus down in early 2005 and KPMG, the court-appointed monitor, has been trying to track down about $800 million invested with the company.

KPMG has located cash worth about $175 million as well as notes with a purchase price of $529 million and a face maturity value of $611 million. No estimate of the realizable value of the notes is available.

Portus co-founder Boaz Manor, who moved to Israel when the firm was shut down, faces quasi-criminal charges in Ontario.

Firms given option to repay Portus fees- January 14, 2004

By JANET MCFARLAND - Globe & Mail

A coalition of Canadian regulators has offered 55 investment firms an option to repay fees they received from failed Portus Alternative Asset Management Inc. in exchange for dropping investigations against the firms and their financial advisers.

The firms are being asked to return about $12-million to clients they steered to Portus before the hedge fund operator was put into receivership last March.

The Ontario Securities Commission, the Mutual Fund Dealers Association of Canada and the Investment Dealers Association of Canada jointly announced the proposal yesterday, giving investment firms until Jan. 24 to decide whether to participate.

"It's fair that these referral fees be returned to the harmed investors," said Wendy Dey, spokeswoman for the Ontario Securities Commission. "It's an efficient, effective and expedient manner of getting money back into the pockets of the harmed investors."

Portus paid referral fees and trailer fees to investment advisers who steered about 25,000 clients into Portus products. The fees averaged about 4.2 per cent of the money invested by clients, Ms. Dey said.

In total, investment advisers received about $22-million of fees, but Manulife Financial Corp. -- whose clients accounted for more than 30 per cent of all assets at Portus -- has already pledged to return its $10-million of fees to clients.

Regulators have spent the past year investigating whether financial advisers broke industry rules by referring clients to Portus without adequately investigating the hedge fund or giving proper consideration to clients' investing needs.

The deal announced yesterday means individual brokers would escape punishment for their roles in steering clients to Portus. But Ms. Dey said an industry-wide deal is an efficient way to resolve the matter.

"There's no guarantee that lengthy enforcement proceedings would have helped investors more," Ms. Dey said.

Ms. Dey said yesterday's offer is just "one small step for investors" in the bigger saga.

Investors lost more than $800-million on Portus investments, and it could be months or years before the firm's receiver can begin repaying investors' losses.

Regulators said yesterday they've already received positive indications from 28 firms that are willing to support their deal. As well as repaying fees, dealers must also agree to implement any new policies that emerge from a study by regulators into referral fee arrangements.

Investment firms such as Berkshire Securities Inc. and Aegon Dealer Services Canada Inc. immediately announced they will accept the regulators' deal.

"We believe that it is the right thing to do," said Julie Clarke, senior counsel at Berkshire. "Berkshire does not wish to have benefited by the conduct of Portus."

While regulators said they would drop most of their investigations if firms back their deal, the MFDA said it will continue to investigate "other matters" relating to Portus, even at firms that accept the offer.

The MFDA would not disclose what other matters could still be the subject of an investigation.