Charges laid in Hedge Fund Scandal
Moves made against central figure at Portus, Receiver has traced, secured 85% of funds
By James Daw
The Toronto Star
October 6, 2005
The Ontario Securities Commission has laid charges that could result in a jail sentence and fines for the central figure in Canada's biggest hedge fund scandal if he returns here after leaving for Israel earlier this year.
The OSC announced yesterday it has filed charges in the Ontario Superior Court of Justice against Boaz Manor, the former president of Portus Alternative Asset Management Inc., and served notice of a separate hearing at the OSC into allegations against Manor and three associates.
Regulators ordered Portus to shut down earlier this year after it had received in excess of $800 million in deposits from more than 25,000 clients. A receiver has managed to trace and secure about 85 per cent of the funds in accounts around the world.
For each of the three Securities Act allegations the OSC is pursuing in the courts, the penalty could be up to five years in prison, and a fine of up to $5 million.
Michael Watson, director of enforcement, said yesterday after the release of allegations naming Manor and three of his associates that a trial could proceed with or without Manor returning to defend himself.
But, even if there is a conviction, the only way Manor would face penalties would be if he returned voluntarily, or was later charged by the Royal Canadian Mounted Police and extradited for offences under the Criminal Code, said Watson.
"If we are able to conduct a prosecution in his absence and, at the end of it a jail sentence were imposed, that sentence would come into effect any time he came into the country, whether voluntarily or involuntarily," said Watson.
OSC officials allege that Manor destroyed Portus documents and supplied misleading information to investigators earlier this year. Investigators also allege Manor had earlier traded in mutual funds without a licence and distributed mutual funds for which no preliminary prospectus had been filed.
"Manor provided staff with false or misleading information in an effort to conceal: the illegality of the investment structures offered by Portus; the inappropriate and undisclosed use of investors' funds to fund the ongoing operations of Portus; and Manor's personal use of investors' funds," OSC staff alleges.
In a 19-page statement, investigators allege that, late on Feb. 16 and in the early hours of Feb. 17, Manor directed the deletion of electronic files, the reformatting of 90 computers believed to have contained client data and the destruction of paper files dealing with offshore structures.
"During the (OSC's) review, documents were created by temporary employees hired by Manor to work during the evenings out of office space located in First Canadian Place and elsewhere," the OSC alleges.
These documents were allegedly used to create a false record of purchases of securities and option contracts, and to support false claims by Manor about the elaborate investment scheme to give investors a guaranteed return of their principal, and the chance of high returns from offshore hedge funds.
The OSC is seeking to ban Manor from the securities industry and senior positions with companies, and impose administrative penalties of up to $1 million for each failure to comply with securities law.
The same sanctions will be sought for Michael Mendelson, former president of a company called Portus Asset Management and allegedly a directing mind in all the entities involved in Portus investment products, as well as two former compliance officers, Michael Labanowich and John Ogg.
Watson said the OSC is continuing to work with the Investment Dealers Association of Canada and the Mutual Fund Dealers Association to investigate the sales representatives who earned hefty referral fees for directing clients to Portus.
OSC staff members state in their allegations that referral agents, both registered and non-registered, received a fee comprised of 4 per cent to 5 per cent of the client's account contribution, an annual trailer fee comprised of 1 per cent of Portus's assets under management and 25 per cent of any performance fee earned by Portus.
Watson said regulators will consider whether investment advisers, or their sponsoring companies, did enough to investigate Portus before directing clients to it.
In addition, he said, they will investigate whether advisers considered the suitability of hedge fund investments for their clients, many of whom were elderly and had committed a large portion of their savings.
Watson said a dozen OSC staff, including accountants, lawyers and former police officers, completed an extremely complicated investigation in a relatively short period. The RCMP has yet to finish a probe, he noted.
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