Receivers KPMG said that negotiations were ongoing, according to the Toronto Globe and Mail. Manor fled to Israel after Portus went belly-up in 2005, allegedly in possession of US$7m of diamonds among other assets, although extensive court proceedings in Israel instigated by KPMG have failed to turn up the diamonds, and at one point the Israeli courts themselves were preventing Manor's return.

Last week Manor, 33, and co-founder Michael Mendelson, 41, were finally charged with fraud. Mendelson appeared in a Toronto court and an arrest warrant was issued for Manor.

Portus had collected about $800 million from 26,000 investors in Canada, Hong Kong, Taiwan and Bermuda. The police investigation, in parallel with work by liquidators KPMG, involved enquiries in Austria, Bermuda, the Cayman Islands, Cyprus, Hong Kong, Italy, Jersey, Panama, the Turks and Caicos Islands, Switzerland and the UK.

In August, a Canadian judge ruled that KPMG can begin distribution to investors of some of the assets of the defunct hedge fund. KPMG says that it now has permission to distribute about $130m in cash.

Mr Justice Colin Campbell of the Ontario Superior Court issued an order that will allow receiver KPMG to mail 20,000 cheques in the fall. KPMG has said that eventually about 86% of the $800m collected by Portus will be returned.

KPMG said last summer that about $662.15 million (Canadian) and about $37.2 million (US) of Portus assets have been found and secured in 130 bank and investment accounts in Canada, the Turks and Caicos and the Cayman Islands. The majority of Portus assets remain tied up in notes issued by France's Société Générale which were purchased for $529m, and mature between 2008 and 2011. KPMG is asking the bank whether some of those notes can be redeemed before their maturity dates.

Manor and Mandelseon had had previously been charged by the Ontario Securities Commission with failing to act in good faith with clients. Mendelson was also charged with unregistered trading and issuing securities without filing a prospectus. The maximum penalties are C$5 million and five years in jail.

Earlier this year, KPMG filed suit in an Ontario court against Montreal lawyer Anthony Malcolm, alleging that he helped Portus founder Boaz Manor to siphon off assets through offshore accounts both before and after the fund collapsed.

"There was no legitimate business purpose for the creation or use of these accounts," said KPMG in the suit, which asks for damages of C$25m. Accounts were set up in the Cayman Islands, the Turks and Caicos Islands, and in Switzerland.