Receiver can move on Portus
Bankruptcy proceeding is approved Court brings investors closer to their money
Investors in Portus Alternative Asset Management are one small but important step closer to recovering money from the fallen hedge fund after a proceeding in the Ontario Superior Court of Justice yesterday. Court- appointed receiver KPMG has been allowed to proceed with an application that would officially put Portus, as well as a group of related companies, into bankruptcy. The filing would be the first step in the process of declaring Portus insolvent and distributing its assets to the company’s creditors and investors.
Officials, however, said that day is still far off, as investigators are still working to trace and recover funds from a complex web of offshore companies and investments.
“I know for the investors it doesn’t get to the money yet, but it does go a considerable way to see that day happen,” Justice Colin Campbell said after signing the order yesterday.
Other developments involving Portus co- founder Michael Mendelson were revealed during the court proceeding: ‰ Mendelson is in negotiations with the Ontario Securities Commission to settle allegations that he misled investors. The talks may “ shortly” result in a settlement deal, his lawyer, Joyce Harris, told the court. ‰ Lawyers for KPMG have turned over new information to the RCMP. Investigators recently learned that Mendelson accompanied Portus co-founder Boaz Manor to the Cayman Islands and helped set up offshore accounts there.
“ It’s a little bit out of the movies, quite frankly, Your Honour, but then the truth can be stranger than fiction,” KPMG lawyer James Grout told the court.
Michael Watson, director of enforcement for the securities commission, declined to comment. The RCMP did not return phone calls seeking comment. No new information surfaced on the whereabouts of Yu Jieying, Manor’s sister- in- law, who is alleged to have purchased $ 8.8 million worth of diamonds, including a 22- carat gem, using investor funds. She has ignored court orders to submit to ques-
tioning.
Grout also urged the court to ignore the latest letter from Manor, sent through his Israeli lawyer, Yehuda Weinstein. The Nov. 7 letter warns that “ bankrupting Portus will . . . trigger a chain of events which will cause investors severe financial damage.” Manor has consistently denied any wrongdoing. Founded by Manor and Mendelson in 2002, Portus was one of the fastest-growing hedge funds in Canada with about $800 million in assets. The company began to unravel after regulators froze its accounts in early 2005 amid concerns about bookkeeping irregularities.
It is unclear when lawyers for KPMG will file the application to have Portus declared insolvent. The receiver favours a single bankruptcy proceeding for Portus, with all money recovered to be paid out in proportion to what was originally invested.
Investors with a Portus entity known as the Market Neutral Preservation fund are slated to go back to court Dec. 15 to argue that these assets are distinct from other Portus funds and should be distributed separately. The outcome of the mid- December hearing could affect the timing of the bankruptcy application.
Lawyers, accountants and investigators for KPMG, as well as Fraser Milner, the court-appointed law firm that represents Portus investors, have racked up about $ 10 million in fees to date, the court also heard yesterday. Lawyer Joel Vale urged the court to make all billing information public and available over the Internet.
“ The public is very skeptical about lawyers as it is,” Vale told the court. “ They see at this stage the only people getting paid are the lawyers, the accountants, the other professionals.” To date, about $ 662.15 million ( Canadian) and about $ 37.2 million ( U. S.) have been secured after being found in 130 Portus bank and investment accounts in Canada, the Turks and Caicos and the Cayman Islands. The receiver is continuing its search for the missing funds amid destroyed and corrupted records, said Robert Rusko of KPMG.
“ It’s really hard to tell at this point what the ultimate distribution will be.” The RCMP launched a probe of Portus in July to determine whether criminal charges are warranted.