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Manor points the finger at his lawyer

Boaz Manor, the co-founder of one of the largest failed hedge funds in Canada, has added another twist to his company's complex saga, telling investigators his former lawyer was the fund's secret owner and guiding mind.

The claim, which was greeted with skepticism by the investigators and an Ontario judge, was revealed yesterday in a special report released by KPMG Inc., the court-appointed receiver for Portus Alternative Asset Management Inc.

Lawyers for KPMG questioned Mr. Manor under oath for four days last year in Israel, where he moved following the collapse of Portus in 2005.

During the interview, the report says, Mr. Manor insisted he did not have the legal background to have created the elaborate schemes to move investors' money around at Portus, and he alleged the structures were all created by Anthony Malcolm, a lawyer who practises in Toronto and Montreal.

Even Michael Mendelson, who co-founded Portus, did not know of the arrangement, Mr. Manor said.

"Anthony didn't want to put his name down as the owner of the fund. ... But the owner of the fund would be Anthony," Mr. Manor said. "And then, on a yearly basis, I'm going to get paid a salary out of that fund."

Mr. Manor's revelation has been flatly denied by Mr. Malcolm, who told investigators he was never a shareholder or director and played no role in managing Portus. "There is absolutely no truth in that whatsoever," Mr. Malcolm said, according to the report.

KPMG investigators also concluded Mr. Manor's claims were not credible, noting no documents show Mr. Malcolm owned Portus.

KPMG said the claim contradicts two sworn reports filed by Mr. Manor with the Ontario Securities Commission, in which he said he was the sole owner of Portus.

The special report concludes Mr. Manor's evidence about Portus over all was "unhelpful, not credible, largely unsupported by documentation" and contradicted other sworn evidence.

The report said Mr. Manor acknowledges his version of events is "sort of a fantastic story."

"If I would've made up a story, I would've made up something that would've made sense," he said.

At a hearing in Toronto yesterday, where the report was filed in Ontario Superior Court as part of the receivership, Mr. Justice Colin Campbell said he watched video of Mr. Manor's four days of testimony, and also did not find him believable.

"I can tell you that from what I've looked at on the video discs, I concur," he said.

Mr. Malcolm was Mr. Manor's lawyer and assisted him in setting up offshore accounts, the investigator's report said. Earlier this year, KPMG filed a $25-million lawsuit against Mr. Malcolm, alleging he set up a series of accounts that Mr. Manor used to siphon off client money. Mr. Malcolm has denied the receiver's allegations in the lawsuit.

Portus collected more than $800-million from 26,000 investors between 2003 and its collapse in 2005. No Canadian securities were ever purchased with the funds as promised to investors, the receiver alleges in the special report.

Instead, more than $110-million collected from Canadian investors and a further $52.8-million (U.S.) collected from non-Canadian investors was diverted for other unauthorized purposes, the report said. Much of it was improperly spent to fund the operations of the company and pay referral fees to advisers, KPMG said.

About $250-million of investor funds came from clients of Manulife Financial Corp., whose agents steered clients to Portus in return for fees.

KPMG has estimated investors will collect about 86 cents on the dollar for their losses.

The receiver is currently negotiating with Canada Revenue Agency to determine how much is owed in taxes, and expects to make a preliminary payout to investors later this year once the tax issues are resolved, KPMG partner Bob Rusko said in an interview.

Mr. Rusko said the receiver has recovered $120-million in cash so far, and will use that to make a first payout to investors. A further $530-million is held in notes issued by French bank Société Générale SA, which mature between 2008 and 2011.

© 2007 The Globe and Mail. All rights reserved.

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