Angry Portus clients' claims put on ice

Trustee hopes to return 86% of funds, but investors get no promises, timeline


Thursday, June 22, 2006

PAUL WALDIE AND ANDY HOFFMAN

TORONTO -- About 500 investors in collapsed hedge fund company Portus Alternative Asset Management Inc. gathered in a hockey arena yesterday to vent their frustration and learn when they might get back some of their money. After four hours, many left with more questions than answers, and a good deal of anger.

"What a waste of time," said Shaun Collier, a financial adviser from Ajax, Ont., who put two clients into Portus. "They didn't answer any of my questions."

The meeting was the first time Portus clients have had a chance to air their views since the company was pushed into receivership last year by regulators amid a flurry of investigations that now includes a criminal probe. At its peak, Portus had about $800-million in assets and 26,000 investors.

Investors were told they might get back nearly 86 per cent of their money under certain circumstances. But exactly how much they will receive, and when they will get it, has yet to be determined. That left many at the meeting furious.

"They say we'll get back about 85 per cent or something, but after all the lawyers fees and government fees, we'll get probably half," said Gary Hughes, who put $36,000 into Portus funds.

A former federal cabinet minister, who did not want his name published, left the meeting shaking his head saying: "I guess 85 cents is better than a kick in the pants."

Portus is now in bankruptcy and Robert Rusko, a partner at KPMG LLP, which is serving as trustee, spent much of the meeting explaining the bankruptcy process and outlining Portus's complicated investment structure. In court filings, Mr. Rusko has alleged that Portus's assets had been misappropriated and some funds siphoned off for personal use. "Portus did not do what it said it would do," Mr. Rusko told the meeting.

Most of the company's assets are held in about a dozen investment notes issued by Société Générale Canada. The notes were purchased for $529.3-million between 2003 and 2004 but they each carry different maturity dates, some out to 2011. Mr. Rusko said KPMG is going after other Portus assets, including some allegedly held by company co-founder Boaz Manor, which could increase the overall recovery.

After repeatedly being pressed for a definite recovery figure and a timeline, Mr. Rusko said that depends on many factors including whether investors want to cash in the notes or wait until they mature. "I'd love to be able to answer your question with absolute certainty, but I can't," he said.

That didn't please many investors who criticized Mr. Rusko and lawyers involved in the bankruptcy for racking up $13.3-million in fees. Mr. Rusko defended the fees by saying that as a result of the legal efforts more money has been recovered. But many investors were not convinced.

"My mother has 50,000 bucks in this," said Carmine Mazzotta an investment adviser from Ottawa who has 33 clients in Portus who invested $4-million in total. "What has my mother got for 14-million bucks? Absolutely nothing." He added angrily: "It's a travesty."

Other investors took wider aim during the meeting and lashed out at a variety of perceived culprits. Some called for a class-action lawsuit against the Ontario Securities Commission and other financial regulators while others wanted to sue Mr. Manor, who left for Israel shortly after the company collapsed (he has denied any wrongdoing at Portus).

"Somebody must be responsible," said one woman, who added politicians to the blame list. "Someone must answer."

After the meeting, Mr. Rusko said he understood the frustration about the process and the legal fees. "I would expect them not to be happy about any fees," he told reporters. "It's not surprising. I hope that we provided full answers to it."

The meeting was held to elect five inspectors to advise KPMG on the bankruptcy and represent investors. Of the five elected, one is a lawyer from Manulife Securities International Ltd., which has taken over claims of 6,600 clients who invested $245-million in Portus. Another is an official with Berkshire Securities Inc., which had the next largest number of clients in the fund.

The OSC has laid charges in the Ontario Court of Justice against Mr. Manor and his partner Michael Mendelson. Yesterday the OSC adjourned administrative proceedings against the men pending the outcome of the court case.
 

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