|Manulife faces class-action suit in Portus
Mar-3-2005 - Manulife Financial Corp is facing a multimillion dollar class
action lawsuit for allegedly failing to conduct proper due diligence on
investments sold by Portus Alternative Asset Management, a hedge fund
currently under suspension by Canadian securities regulators.
The statement of claim, filed this week in the Ontario Superior Court of
Justice, is seeking C$240 million (US$194 million) in compensation from
Manulife Financial, alleging the firm should have had a "heightened" sense
of duty to delve further into Portus's complex and risky strategy.
The claim also says other financial institutions in Canada had refused to
recommend Portus to their clients after performing due diligence, while
Manulife forged ahead with an arrangement that eventually saw it send more
than C$240 million in client assets Portus's way.
The plaintiffs "were not qualified or accredited investors to invest in
high risk and highly speculative hedge fund investments like those made by
the Portus Fund," the claim said.
Portus was also entitled to charge "excessive and egregious" management
fees, commissions and referral fees "significantly above those considered
prudent, fair or reasonable by industry standards and industry practice,"
according to the claim.
As a result, Manulife should have been aware it was "virtually impossible
and totally unrealistic" for investors to realize any return on their
investment capital, given market conditions and the fees being levied, the
The lawsuit marks another chapter in the ongoing Portus saga, which began
to unfold last month after regulators effectively shut down the fund amid
concerns over its sales and compliance practices as well as its allocation
of assets and promises of principal-backed guarantees.
A company spokesman had no comment on the lawsuit. However, Manulife has
stated in the past that the Portus structure and products sold to their
clients were not as presented to Manulife and not as disclosed in the
Portus offering memorandum.
According to Portus's marketing materials, the Toronto-based firm struck a
"strategic alliance" with Manulife Securities, the investment arm of
Manulife, in August 2003. It also said Portus was selected by Manulife
"after the company did extensive due diligence."
As part of the arrangement, Manulife Securities received a syndication
equivalent to 0.5% of assets, which by some estimates amounted to more
than C$10 million, plus "significant" trailing fees, according to the
Portus generally paid advisors 5% of referred assets, plus one-quarter of
an 18% annual performance fee. The underlying fund-of-funds managers
Portus selected were entitled to 1-2% annually, as well as a 20% upside
The statement of claim was filed on behalf of some 10,000 class members
comprising about 30% of Portus funds sold.
Portus, with approximately C$730 million under management and some 26,000
clients, was ordered by regulators last month to stop taking in new funds
and opening new accounts. Its founder, Boaz Manor, was also ordered to
stop trading on behalf of the firm's funds and accounts.
Investigators are also examining whether Portus shifted some of its assets
offshore to St Vincent and the Grenadines, out of reach of Canadian
regulators, and funneled other assets through additional offshore