Portus Diamonds Still Missing on Eve of Meeting

Date: Tuesday, June 20, 2006
Author: Shoshana Kordova, Diamonds.net

Rapaport...June 20, 2006) Investors of the now bankrupt hedge fund Portus will meet June 21 for the first time, in Toronto, to discuss the redistribution of their assets - including an estimated $8.8 million in missing diamonds.

Investors heard a bit of good news on June 17, when bankruptcy trustee KPMG estimated that investors might recover 85.8 percent of their funds.

However, the diamonds are part of an estimated $724 million in assets that the trustee is attempting to recover for Portus’ approximately 26,000 investors.

The problem is that KPMG is not quite sure where those diamonds are located.

The largest of the missing diamonds is called an extremely valuable 22-carat stone, as reported earlier by Robert Rusko, a vice president of KPMG. For this article however, KPMG representatives would only speak on the condition of anonymity to Rapaport News.

Several news reports suggest about 100 diamonds are in the missing stash, but neither KPMG nor the Israeli attorney of Portus co-founder Boaz Manor, 35, would confirm the amount of diamonds or their sizes. Manor's attorney, Boaz Ben Zur, did confirm that they were purchased from Meirov International Diamonds (MID) and picked up in Hong Kong. Manor allegedly bought the diamonds with Portus funds.

The latest development in the case is that the Israeli Supreme Court’s May 23, 2006, decision required updated statements on Manor’s attempts to locate the diamonds. The court also required Manor to submit a supplementary statement on the submission of related documents by July 6, although that date is not on the court’s docket. The Israeli litigation began as an effort by KPMG to enforce a Canada court order directing Manor to deliver the diamonds to the receiver.

Ben Zur said one week ago that he would file the required statements shortly, but would not provide further details.

KPMG representatives said the firm could not move forward with its search for the diamonds until the Supreme Court issues a long-delayed ruling on whether to uphold a lower court decision compelling Manor to face a week-long jail term for contempt of court if he does not give KPMG the diamonds.

“KPMG can do nothing further. It’s awaiting the decision of the [Israeli] Supreme Court,” said one official. “KPMG is urging the court to do whatever it possibly can to expedite the process of securing the diamonds or the equivalent cash.” Asked what the company will do if the gems or the monetary equivalent remain elusive, he said only: “I can’t answer that. That’s purely speculative at this point.”

Manor contends that he does not have access to the diamonds and should not be jailed for contempt of court if he is unable to fulfill the Tel Aviv District Court’s order to hand the gems over to the receiver. He has also filed a psychiatrist’s report supporting his argument that jail time would cause him irreversible damage.

KPMG argues that Manor “knows where the diamonds are and can return them,” according to an attorney for the firm. “We see Manor as responsible for the diamonds and as capable of returning them,” the lawyer told Rapaport.

The dispute revolves around whether financier Yitzhak Toib, who picked up the diamonds on Manor’s behalf in Hong Kong, has returned the diamonds to Manor.

Manor says Toib still has the diamonds --or their monetary equivalent-- possibly in a Vienna bank, and that he has asked Toib to return them. Toib says he has already returned the diamonds to Manor’s sister-in-law, Yu Jieying, in Hong Kong, on Manor’s orders. Yu Jieying says she does not have the diamonds.

“We’re certainly very pleased that the Israeli courts have agreed with the Canadian courts to pursue this very actively, but as yet there is no resolution in this dispute between Mr. Manor and Mr. Toib as to who has the diamonds and where the diamonds are,” said the KPMG official.

Manor moved from Canada to Israel in early 2005, after the Ontario Securities Commission began investigating Portus. The commission has accused him of unregistered trading and failing to act fairly, honestly and in good faith with his clients, among other charges.

The Tel Aviv District Court ruled in January 2006 that Manor had seven days to hand over the diamonds to KPMG, or else face jail, but since that order the case has been tied up in a series of appeals.

The district court determined that Manor’s argument (that he doesn’t have access to the diamonds) is not logical, “since the sum in question is not trivial, but rather many millions of dollars” and that Manor had “systematically evaded” submitting a substantive statement to the court.

However, the Supreme Court ruled that the jail sentence should be postponed, because it was not clear where the diamonds are located and “there is doubt over [Manor’s] ability to carry out the injunction.”

The court decided May 23 that Manor had taken steps to locate the diamonds, and decided not to issue a final ruling until receiving additional information.

“We have decided to leave the appeal pending, and before ruling on it we are requesting updated statements regarding the continued steps taken by the petitioner to locate the controversial property,” the Supreme Court said in its decision.