Manor says Portus money

(May 2007) Boaz Manor denied he was the owner of Portus Alternative Asset Management, despite sworn documents filed with the Ontario Securities Commission Management, says a special report filed by receiver KPMG.

However, KPMG does not believe Manor is credible. “Now I know that a lot of things that I’m saying are fantastic in nature. Going to Italy, going to Zurich, there’s diamonds, there’s hundreds of millions of dollars. If you lump it all together, it’s sort of a fantastic story,” Manor told the receiver.

The receiver’s report was introduced today in Ontario Superior Court to Justice Colin Campbell. KPMG also wants authorization to file the special report in other jurisdictions. The report documents the conduct of Portus’s two guiding minds, Manor and Michael Mendelson, efforts by Manor to divert and misuse investor funds, and efforts by the receiver to recover funds from Manor and others.

Portus was put into receivership in March 2005. At the time, some 26,000 investors had placed $750 million and another $52.8 million US in one of three investment structures: a hedge fund, a series of principal-protected notes and a series of U.S-dollar-denominated notes, both of which had as their underlying investment a series of hedge funds.

The U.S.-dollar investments were never made.

The receiver found that $110 million and $17 million US were not invested but instead were diverted to pay redemptions, sales commissions and operating costs, among other things. As of the date of the report, investors can expect recovery of 85.8 cents on the dollar.

Manor says he was not the owner of Portus Alternative Asset Management. Instead, he was a nominee acting on behalf of Montreal lawyer Anthony Malcolm. In turn, Malcolm billed Portus for legal services that predated its founding.

In testimony in Israel in February 2006, Manor said, “I was interested in one aspect of this hedge fund, which is an ability to evaluate managers, speak with managers and decide — sort of look at their math background and their math formulas. That seemed like a really cool job.” But he said Malcolm put the hedge fund structure together.

Malcolm said his services related to giving advice on offshore transactions, establishing companies in the Caribbean, opening bank accounts for those companies, getting individuals to act as nominees for those companies, getting instructions from Manor on transactions and giving instructions to banks and nominees for transactions.

Of the money used to finance Portus, Manor said that the group was receiving fees. “This was a very successful operation that had [investments of] $20 million a week coming in, another 12% in fees coming in. So that’s every week $2 million,” Manor told the receiver. In the offering materials, Portus said it charged a management fee of 1.95% to 2.25%, with an 18% incentive fee for performance above a benchmark.

Manor also engaged securities lawyer Joseph Groia. Groia warned that Portus potentially faced civil, regulatory and criminal action. Groia warned Manor that Portus should take in no more new money — Portus went on to receive another $400 million. He also recommended that Manor and Mendelson retain legal counsel.

Kroll Lindquist Avey, Forensic accountants brought in by Groia,raised concerns about client money used to fund operations, co-mingling of funds, the authenticity of documents supporting some transactions and lack of transparency on some transactions.

Manor told the receiver that Kroll “looked through all the books and Kroll went berserk. They didn’t understand the operations.” Manor said he took the Kroll report to Malcolm, adding that “I was satisfied at the end of that meeting with Malcolm that Kroll was way off the mark.”

When KPMG took possession of Portus’s offices in Toronto, it found that documentation on the $52.8 million U.S. account was missing. Manor said he took the records with him and gave them to Malcolm. He also said he has copies of those records but has refused to turn them over to the receiver. Malcolm, however, says Manor took all records relating to his dealings with him in February 2005. Manor also said that he left Canada in order to invest that money on behalf of clients.

KPMG has recovered $35.2 million US of the U.S. accounts. Of the remaining $17.6 million US, $11 million US was used to purchase diamonds or was withdrawn in cash; $2.5 million US was transferred to Italy, in part to buy gold bullion; $2.7 million US was paid to Malcolm, who billed between $700 and $800 US an hour for what the receiver calls administrative and clerical functions; and $700,000 US went to Manor’s lawyer in Israel.

In addition, after the OSC froze Portus, $5.9 million in investor money was paid out to Manor, Manor’s family and friends, Mendelson and Mendelson’s wife, the directors and officers of Portus Trust. Some funds also went to PAAM’s legal counsel, as severance for seven of Portus’s 90 employees, and to companies associated with Portus or Portus employees.

Manor also said Malcolm ordered him to obtain the diamonds. Malcolm said he wired Manor money only for the diamonds.

As for the diamonds, Manor said Yitzchak Toib, an Israeli private banker who received $100,000 for his services in obtaining the diamonds, is holding them as well as cash. Manor is suing for their return. Toib has asked that the judge in the case recuse himself. The judge has refused and Toib has appealed to the Israeli Supreme Court.

KPMG is also suing Malcolm for $25 million.

Filed by Scot Blythe, Advisor.ca, scot.blythe@advisor.rogers.com

(05/18/07)