Portus investors still in the dark on timing of refunds

Investors who pumped hundreds of millions of dollars into defunct hedge fund Portus Alternative Asset Management still have no idea as to when they might recover at least some of their funds.

Many of those who gathered at a special investors meeting held Wednesday in Toronto at the Ricoh Coliseum were hoping to find out what would happen to the Société Générale notes in which some $529.3 million of their money is currently tied up in. But that decision will be left to a slate of inspectors who were elected at the meeting.

Two representatives from Manulife and one from Berkshire will sit on the five person panel. They will ultimately decide what happens to the Portus notes.

From early on it was clear that there was a great deal of concern about how much the receivership was going to cost as the process drags on. A number of investors seemed content to simply take the money that has been found so far — which represents roughly 86% of their investment — and moving on with their lives, although there were several who held out hope that waiting for the notes to mature would make them whole again.

Aside from the notes, Robert Rusko, a senior vice-president with receiver KPMG, said there is approximately $160 million in cash which is currently earning interest at a rate of 4%.

Fuelling this concern was the growing cost of the receivership. “The outrageous costs that the regulators, the accountants, the lawyers — everybody — has cost us more than the thief, and that is morally wrong,” said one advisor at the meeting, who was also a Portus investor.

Another investor approached reporters echoed that sentiment. “KPMG is interested in an everlasting affair,” she said in reference to the mounting costs the receiver is collecting, which as of March 31 had reached $13.3 million.

“I would expect investors that have lost money to be frustrated, that’s perfectly understandable. I respect that they are not happy about any of the fees that they are paying,” Rusko said after the meeting. Still, he defended the fees by noting that they been approved by court order.

Nevertheless, those fees continue to rise. The full cost of the meeting at the Ricoh Coliseum has yet to be determined and added to the final bill. An earlier decision to connect investors in other cities via videoconferencing was scrapped because it was considered too costly.

As for how those fees will impact investors, Rusko suggested a good guide would be the sensitivity analysis provided in the most recent trustee’s report released over the weekend which says “for every $10 million of additional recoveries this would translate into approximately 1.2 cents per dollar of an investor’s claim.”

An estimated 400 to 500 people attended the meeting and many were left angry and frustrated.

Wave after wave of advisors, creditors and proxyholders asked questions and spoke their minds, taking aim at everyone from the Ontario Securities Commission and other regulators to the receiver itself. Most seemed more concerned with the progress of the case than with Boaz Manor, Portus’ founder who destroyed documents and then fled the country.

As for how much longer investors will have to wait before they start seeing their money, representatives from KPMG could only say that the process is very complex and requires further analysis. Rusko refused to speculate on the timeline when asked later by reporters.

A KPMG report released on the weekend revealed that Portus investors could recover as much as 86% of their cash, but stressed that figure was only an estimate. So far, $792 million has been recovered in the bankruptcy proceedings.

Meanwhile, the Ontario Securities Commission today adjourned proceedings against Portus and its executives, Boaz Manor, Michael Mendelson, Michael Labanowich and John Ogg, pending the results of a court action initiated by the regulator.

Pre-trial proceedings in the Ontario Court of Justice are scheduled for July 11, 2006, but the commission says it’s unlikely the trial itself will begin before the summer of 2007.

The OSC has therefore suspended its administrative proceedings in the case until the results of the trial. The respondents must appear before the commission within eight weeks of the court ruling.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(06/21/06)

Mark Brown