PORTUS MISUSED FUNDS: KPMG
Fund used $94.5M for fees, expenses — not investments
Portus Alternative Asset Management Inc. allegedly used $95.4-million of investors’ money to pay its expenses, referral fees to brokers and to fund the redemptions of other investors — similar to the notorious schemes operated by Charles Ponzi.
The latest report of KPMG Inc., Portus’s court-appointed receiver, reveals that, on average, the collapsed hedge-fund firm deducted 13.3 ¢ of every dollar placed with it by investors for these purposes, instead of investing the money.
About a third of this amount was used for expenses, a third for referral fees and the remainder of new investor money was used to pay redemptions. A source familiar with the situation yesterday likened Portus to a “Ponzi scheme.”
Mr. Ponzi, who operated in the United States in the 1920s, essentially made a pyramid scheme appear legitimate by paying investors with returns funded by other investors’ money.
Portus was shut down by regulators in February. One of its cofounders, Boaz Manor, later left the country for Israel. The latest information shows the Torontobased firm had more than 30,000 client accounts and in excess of $800-million invested in it. The RCMP has begun a criminal investigation of the firm’s implosion and its aftermath.
Most investors were Canadian, but records of clients from Saudi Arabia, Oman, Nepal, Thailand, Kuwait, Australia and Venezuela have also been found.
The report published by KPMG yesterday depicted Portus as operating very differently from how it purported to operate: In many cases, the investment structure offered by Portus was implemented only partially; in other cases, not at all.
Portus, according to KPMG’s report, routinely pooled often- unrelated millions of investor dollars, with frequent transfers offshore, the receiver’s report states. This has made it difficult to trace the flow of funds. Tens of millions in investor funds was also flowed through Lines Overseas Management Ltd., or LOM, a Bermudabrokerage that was being investigated by U.S. regulators over allegations of fraud and market manipulation.