Ontario's Securities Chief Blames Brokers For Portus Fiasco

by Carla Johnson, Investors Offshore.com

13 May 2005

Ontario Securities Commission chairman David Brown said on Tuesday that collapse of Portus Alternative Asset Management, which took in more than C$700m from 26,000 investors before collapsing, has left a black mark on the country's fund industry.

"So what could have accounted for the firm's tremendous sales record?" asked Mr. Brown. "Perhaps there is only one particular feature to speak of -- high up-front fees and trailer fees for referrals. The potential earnings for agents were high." Agents who referred clients to Portus earned a 4% referral fee.

Manulife Securities International Ltd. (MSIL), a unit of Manulife Financial Corp., also received a 0.5% syndication fee. Manulife has promised to guarantee the principal investments of the clients it referred to Portus, and has provided C$40m in its most recent accounts against Portus-linked liabilities.

"I think that what everybody involved in the recommendation of complex financial products needs to do is to reassess their understanding of the product, to reassess their commitment to investors to make sure that products are suitable for them and to make sure that they are motivated with the best interests of their investors in mind," said Mr Brown.

In February, the OSC forbade Portus from taking on new business and, in March, put the Toronto-based firm in receivership under KPMG, while investigations continued. Surprisingly, Portus co-founder Boaz Manor was allowed to leave Canada for Israel in March. Dominic D'Alessandro, Manulife Financial Corp.'s chief executive, calls it 'scandalous'. Mr. Manor has not been charged with any wrongdoing and Portus has said that investor funds are safe.

In a court report, KPMG drew attention to $238-million in "unexplained" offshore wire transfers. Newspaper reports in Canada suggest that Portus sent C$246 million to bank accounts in the Cayman Islands while regulators across Canada were already scrutinizing its operations. KPMG is also reported as saying that attempts were made to destroy corporate records.

Police are reported to be considering whether there are grounds for launching a criminal investigation into Portus's affairs. Three months after the fund collapsed?

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