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Diamonds? What Diamonds? And Other Portus News

Date: Monday, March 20, 2006
Author: Chris Clair, Senior Financial Correspondent Hedgeworld.com

By Chris Clair, Senior Financial Correspondent
Monday, March 20, 2006 4:32:33 PM ET

TORONTO (HedgeWorld.com)—If you've ever watched a cat try to clean the tip of its own tail, then you can understand the past four months of the investigation into the defunct Canadian hedge fund Portus Alternative Asset Management Inc.

A huge amount of energy has been expended in an attempt to grasp something that absolutely won't cooperate and that, in reality, represents only about 1% of the overall surface that needs to be tended.

In this case the court-appointed receiver for Portus assets, KPMG in Toronto, has been battling in both Canada and Israel to get Portus co-founder Boaz Manor to reveal the whereabouts of roughly US$10 million in diamonds that he bought with Portus money, a purchase made last summer after he was ordered not to access the hedge fund's accounts.

Mr. Manor left Canada for Israel shortly after Canadian regulators began looking into Portus. Until recently he had refused to meet with KPMG representatives, who traveled to Israel to interview him. He also has dodged court rulings ordering him to return the diamonds Previous HedgeWorld Story. Most recently, the Israeli Supreme Court granted him another 30 days to come up with the gems.

Finally, though, Mr. Manor agreed to sit down with KPMG representatives. According to published reports, John Finnegan, an attorney representing KPMG, said at a court hearing on March 17 that Mr. Manor participated in four days of interviews in Israel in February. Mr. Finnegan described Mr. Manor as "loquacious," but added Mr. Manor said he does not know where the 100 diamonds are.

According to evidence provided to the Canadian court overseeing the Portus investigation and concurrent bankruptcy proceedings, Mr. Manor said he arranged for his sister-in-law to retrieve the diamonds in Hong Kong via three separate transactions. She in turn passed the diamonds on to Yitzhak Toiv, a private banker who was supposed to forward the diamonds to Mr. Manor in Israel.

But Mr. Manor said he never received the diamonds from Mr. Toiv; that Mr. Toiv still has them. Mr. Toiv said he gave the diamonds back to Mr. Manor's sister-in-law. She said she never got them.

And on it goes.

The diamonds represent slightly more than 1% of the total amount of Portus assets, estimated at about C$750 million (US$646 million).

Most of the assets, roughly C$530 million, are tied up in principal-protected notes issued by Société Générale Canada. The returns for those notes are tied to the performance of hedge funds managed by SG Canada-related entities and various third-party hedge fund managers. KPMG has been working with SG Canada and other parties that may oversee the notes to maturity in order to come to some agreement about sharing information Previous HedgeWorld Story.

KPMG has also filed motions with the Canadian court seeking to get itself appointed trustee of the bankruptcy proceedings and to set the date for the first meeting of Portus creditors—some 26,000 investors as well as others with a financial stake in the firm or its various funds—for a time within three months of the appointment of the trustee.

Typically, bankruptcy proceedings in Canada require the first creditors meeting to take place within 21 days of the appointment of a trustee. "Due to the number of creditors it is anticipated that the Trustee will require that this time period be extended to 90 days following the appointment, as the Trustee will require additional time to process the proofs of claim and to arrange for appropriate facilities."

That last point speaks to the fact that customarily the first meeting of creditors in a bankruptcy takes place at the receiver's office. KPMG may have a substantial office complex in Toronto, but probably not large enough for the hundreds or perhaps thousands who may turn out for Portus. Additionally, KPMG asked that court for permission to invite investors outside Toronto in Halifax, Calgary, Winnipeg, Edmonton and Vancouver to meet in central locations in those cities and be hooked into the Toronto meeting via videoconference.