Portus case crawls toward resolution

Investors in Portus Alternative Asset Management will recover up to 95% of their investment in the failed hedge fund company, following an Ontario court decision released Monday.

Justice Colin Campbell of the Ontario Superior Court of Justice has ordered a fourth payment to investors of 3.14 cents per dollar invested in the fund. Three previous payments had returned 92 cents on the dollar.

Portus had gathered in excess of $800 million from about 26,000 investors before the OSC shut the company down in 2005.

KPMG, the receiver in the Portus collapse, is still trying to recover assets from the company’s founder, Boaz Manor, including $8.8 million worth of diamonds and $3.l million in cash.

While Manor faces criminal charges for his role, he isn’t the only one in hot water over the Portus affair. It seems regulatory action is starting to catch up with some advisors that sold Portus.

On Tuesday Dec. 8, the Mutual Fund Dealers Association of Canada (MFDA) penalized Mark Kricievski, a former mutual fund salesperson with Ontario-based Sterling Mutuals, with a $5,000 fine and a five-year ban from conducting securities related business with an MFDA member firm.

In the settlement agreement, Kricievski admitted that he engaged in securities related business that was “not carried on for the account of the member and through the facilities of the member” by facilitating the sale of approximately $1.8 million of Portus notes to 44 clients.

Kricievski is only one of many Canadian advisors that took part in Portus’ lucrative referral arrangements, but according to the notice of hearing sent out earlier in the summer, he had the misfortune of referring to Portus even after his dealer had explicitly told him it was against MFDA bylaws.

On June 3, 2004, Sterling sent an e-mail to its salespeople, including Kricievski, stating the following;

“Please note that you are not allowed to sell products which has (sic) not been approved by the dealer. Paradigm Funds have changed their name to Portus Funds. They are not approved. The firm has been trying to bypass dealer compliance by offering their product on a referral basis through MGA channels. This is not allowed under the MFDA. Any advisor attempting to do so will be suspended and reported to regulators.”

The MFDA alleged that Kricievski continued to refer clients to Portus until January 2005 and did not notify his dealer of this ongoing arrangement. The MFDA says he was paid a referral commission of approximately 4% in connection with his involvement in the sale of Portus investment products to clients.

Kricievski claims that he rebated to clients half of the referral commissions he was paid at the time that he received the monies from Portus. MFDA staff estimates he still cleared about $36,000 in commissions from less than $2 million in business.

He also broke other MFDA rules by making untrue and misleading statements about Portus to clients. In the notice of hearing, it is alleged that he didn’t clearly identify the risks of investing with Portus to clients. Communications he sent out had obvious market forecasts, which were not identified as such.

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For a quick refresher on the case, check out The Portus Files.

(12/08/09)