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Norshield funds may never be found

At best, investors will get 10 cents returned for every dollar invested, receiver says

Investors who put money into hedge funds managed by Norshield Financial Group will likely get back a maximum of 10 cents for every dollar they invested in the insolvent company. The actual recovery could be as low as 3 cents and investors might have to wait three years before any money arrives.

Montreal-based Norshield, considered Canada's first hedge fund, was founded in the early 1980s by John Xanthoudakis and it once boasted more than $1-billion in total assets. But it ran into trouble last spring and filed for receivership in June amid investigations by securities regulators in Ontario and Quebec.

The receiver, RSM Richter Inc., has said in court filings that most of the money invested in Norshield flowed offshore through a variety of entities in Barbados and the Bahamas, and that little actually ended up in hedge funds. The ownership of many of those entities is still in doubt and several are now insolvent, according to court reports. Mr. Xanthoudakis is co-operating with Richter and he has blamed a continuing legal battle with Cinar Corp., a producer of animated television programs for children, for many of the company's problems.

At the time Norshield filed for receivership, about 1,900 investors had $131.9-million invested in the company's funds while a group of institutional clients had $210-million invested.

Yesterday, more than 200 of those investors gathered in Toronto, while others watched video links in Montreal and Vancouver, to find out what happened to their money. Many were clearly restless and one man shouted "Let's go, let's go" when the meeting was delayed by a few minutes.

Outside in the hallway, a group calling itself Norshield Investors Advisory Group handed out a list of 34 questions they want answered.

Once the meeting got under way, Raymond Massi, a Richter partner, spent nearly two hours explaining Norshield's investment strategy. He added that Richter's investigation has been hampered by missing documents, incomplete records and competing legal claims in the Caribbean and the United States.

So far, Richter has recovered $8.1-million and Mr. Massi said he is hopeful that another $28-million will be retrieved. Of that amount, $17-million will be available for retail investors, not including up to $7-million in fees for the receiver.

Mr. Massi estimated that if all goes well, investors will receive between 8 cents and 10 cents for every dollar they invested. If things do not go well, they will get as little as 3 cents on the dollar.

"Unfortunately, that's the reality that we have been able to ascertain at the moment," Mr. Massi told the meeting. He then spent more than an hour answering questions, most about the status of the regulatory probes. Mr. Massi and other officials stressed that the receiver's job is not to investigate wrongdoing.

"Our mandate is to go out and identify evidence, gather it and distribute it to various stakeholders," said Grant Moffat, a Toronto lawyer representing the receiver.

Officials from the Ontario Securities Commission and the Autorité des marchés financiers or AMF -- Quebec's regulatory watchdog -- told those at the meetings they are continuing their investigations into the company. "The regulators have brought this matter to the attention of criminal law enforcement," OSC lawyer Melissa MacKewn said.

Ms. MacKewn added that the OSC and the AMF are working closely with Richter. "I can assure you that this conduct [at Norshield] . . . is considered to be egregious, it's considered to be problematic. We are vigorously investigating this with all the resources that we can and we will pursue any wrongdoing," she said.

Several investors left the Toronto meeting dismayed and annoyed.

"I think it's absolutely pathetic, a travesty," said Gary Johnson, who put $25,000 into Norshield funds. He blamed a variety of parties for the debacle, including senior management, regulators, auditors and financial advisers. "You begin to wonder how three-quarters of a billion dollars disappears. Who's minding the store?" he said.

"It's shocking," added John DiNovo, a Toronto financial adviser who put a handful of clients, including his mother, into Norshield funds. "These were portrayed as fairly conservative investments designed to stabilize a portfolio and reduce risk."

© 2007 The Globe and Mail. All rights reserved.

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