The co-founder of failed hedge fund Portus Alternative Asset Management Inc. has been ordered to pay $320,000 to conclude a long-running Ontario Securities Commission case.
The OSC issued a ruling Friday ordering Michael Mendelson to repay $320,000 he agreed he improperly took in the three months before Portus was shut down by regulators, saying it was not appropriate for him to keep any money gained by a breach of securities laws. Mr. Mendelson argued at an October hearing he could not afford to make a payment to settle the case.
“The commission must order that the entire amount be disgorged in order to ensure that he not be permitted to retain any financial benefit from his breaches of the act and in order to send a message to the public that the commission does not permit the retention of any funds derived from the contravention of Ontario securities law,” said OSC commissioner Edward Kerwin, who wrote the decision in the case.
The OSC has also permanently barred Mr. Mendelson from trading securities, serving as a director or officer of a public company or working as an investment fund manager or promoter.
The ruling brings an end to the OSC’s long-running case involving Portus and four of its former officials. All have now reached settlements with the OSC, including co-founder Boaz Manor, who agreed in August to repay $8.8-million to cover funds he removed from Portus.
Mr. Manor and Mr. Mendelson also faced criminal charges over Portus’s collapse in 2005. Mr. Mendelson pleaded guilty to one count of fraud in 2007 and was sentenced to two years in jail, while Mr. Manor received a four-year sentence in 2011.
Portus at its peak was one of Canada’s largest hedge funds, investing more than $800-million for 26,000 investors. It was shut down in 2005 after the OSC raised concerns that money it raised was not being invested as promised.
Mr. Manor reached a partial settlement with the OSC in his case, agreeing he breached securities rules and agreeing to accept the bans imposed on him. The only dispute at the October hearing was whether he should also be required to make a cash payment as part of the conclusion of the case.
At the hearing, Mr. Mendelson admitted he had been greedy and dishonest, but said he had a change of attitude after Portus collapsed and has tried to “right any wrongs and to mend any damage” that he caused. He now works as a career consultant and coach and said he speaks to university students, churches, synagogues and youth groups about his story.
He said he lost his business and went into debt after Portus failed, and now lives modestly and does not have the money to pay a penalty, suggesting instead he could do community service work.
OSC staff said Mr. Mendelson provided no evidence of his inability to pay a penalty, and has not even made a modest offer to repay money lost by investors. Staff said he had “gone a ways down the road of remorse ... but not far enough.”
The OSC decision in the case gave Mr. Mendelson credit for the remorse he has shown, the time he served in jail, and his co-operation with OSC staff. But the commission said it has no authorization to impose community service work as a penalty, and said a financial payment is appropriate in the case.
The case stayed in the headlines for years after Mr. Manor left for Israel in Portus’s dying days, returning in 2007 to face criminal charges. He also became embroiled in a global search for $8.8-million worth of diamonds that he bought with Portus funds, which he has claimed for years were taken from him by a middle-man and he doesn’t know where they are.