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Portus Progress

Date: Wednesday, February 22, 2006
Author: Hedgeworld.com

By Chris Clair, Senior Financial Correspondent: A series of disagreements about appropriate disclosure among the various entities working to untangle the collapse of the Portus Alternative Asset Management Inc. hedge fund has thus far held up progress, but several compromises may be in the works.

According to a report from KPMG Inc., the court-appointed receiver for Portus, after much back and forth, disclosure protocols have been worked out between Société Générale Canada, KPMG, Northwater Capital Management Inc., and Manulife Financial that allow for sharing information.

The crux of the problem has been SG Canada's reluctance to hand over data about the structure of its deals with Portus, data that each of the other entities wants for various reasons. SG Canada's reasoning is that some of the information is proprietary and confidential and that its business could be hurt if any of it got out. SG Canada's role in all this is that it issued C$530 million (US$462 million) in principal-protected notes that Portus offered to its investors. The returns for those notes are tied to the performance of hedge funds managed by SG Canada-related entities and by various third-party hedge fund managers.

KPMG wants Northwater to have access to all of the SG Canada-Portus information so that Northwater can conduct a cost-benefit analysis of hiring another investment manager to shepherd the SG Canada investments through to their maturities between 2008 and 2011.

Manulife is one of a number of investment advisers that referred clients to Portus. Manulife wants access to the SG Canada information so it can help KPMG piece together exactly where C$740 million in Portus assets are today. Manulife has already told clients it referred to Portus that it would refund their principal, and thus it is Manulife on the hook for the money its clients invested with Portus.

According to a report from KPMG to the court overseeing the Portus affair, SG Canada and Manulife have worked out terms for sharing information, overcoming an objection Manulife had to SG Canada's position that it would not release some information it deemed proprietary and confidential. SG Canada subsequently backed off that position and agreed to Manulife's terms.

A second adviser that referred clients to Portus, Berkshire Securities Inc., also wants information from SG Canada, but Berkshire has not yet agreed to terms.

Also, Northwater and SG Canada have arranged to share information. That agreement, called the "Northwater Agreement" by KPMG, essentially says SG Canada will give to Northwater whatever information it needs to conduct its analysis, but promises not to release it except to the receiver and that it will return the information and destroy any copies whenever SG Canada asks it to.

The Portus fund went belly-up last year after Canadian securities regulators began looking into whether Portus was inappropriately selling shares to non-qualified investors and paying off investment advisers to refer clients. Soon after, the firm fired all its employees and its co-founder, Boaz Manor, left Canada for Israel. He has been there since, refusing to meet with the receiver or turn over some US$10 million in diamonds that KMPG officials believe he bought with Portus funds after he had been ordered not to touch fund assets.

Most recently, at the end of January, the Israeli Supreme Court agreed to hear an appeal from Mr. Manor of ruling that ordered him to turn over the diamonds or serve jail time. A district court in Tel Aviv had ruled that Mr. Manor would have to spend seven days in jail if he failed to hand over the diamonds.

Also at the end of January, 57 investment and mutual fund advisers that collected referral fees from Portus agreed to return those fees to Portus investors. The deal means the firms will hand over a total of some C$12 million, all of which will go into a fund that will eventually be distributed to investors, subsequent to bankruptcy proceedings initiated by KPMG.

    -SocGen Still Embroiled in Portus Controversy-

The receiver for defunct Canadian hedge fund Portus is still attempting to sort out issues with French bank Société Générale, which issued principal protected notes supposedly linked to the Portus fund-of-funds.

Court-appointed receiver KPMG had previously sought approval of a draft confidentiality agreement with SocGen, but Manulife and Berkshire Securities objected. Both Manulife and Berkshire referred clients to Portus and they are asking to amend the agreement to protect their clients' interests.

SocGen has still not answered questions put to them by Manulife and Berkshire, contending the answers would be proprietary and commercially sensitive. SocGen has declined to answer other questions on the grounds that they are not relevant to the receivership.

In a report to an Ontario Superior Court, KPMG asked Justice Colin Campbell to decide whether or not SocGen can refuse to answer the questions.

Among the questions put forth by Manulife and Berkshire are queries about whether or not SocGen reviewed offering memoranda prepared by Portus, what information the bank obtained to satisfy money laundering and anti-terrorist laws and who acted as counsel for Portus and as the fund company's contact with SocGen.

About 26,000 investors placed a total of CAN$800 million ($690 million) with Portus, most through SocGen-backed notes. Portus co-founder Boaz Manor has since fled Canada and investors are unsure how much of their money they will get back.