In the spring of 2004, Manor and Mendelson went to one of Bay Street’s top securities lawyers, Joe Groia, and asked him to conduct due diligence on Portus. Groia was singularly unimpressed with Manor and his investment theories. “He just gives us gobbledygook,” he remembers. Groia quickly discovered that Portus was using investors’ money without proper disclosure and told Manor and Mendelson that unless they ceased this practice, they could be facing dire consequences. “And they basically said, ‘Thank you very much but you’re fired,’” says Groia. After receiving Groia’s warnings, Portus would go on to raise another $400-million from investors.
“They disagreed with [Groia],” says Greenspan with a shrug. “[Manor] thought he was doing things in accordance with other advice he received. It’s about accepting the opinion you like to hear. They had another opinion they chose to follow.”
Mendelson claims that after receiving Groia’s advice, he told Manor to fix this fundamental problem. “And he didn’t do it,” he says.
The end for Portus came when another provincial securities regulator triggered an OSC compliance review in January, 2005. The following month, the commission issued a cease-trading order. At that juncture, Mendelson thought they could iron out their differences with the regulators and be back in business. He was convinced Portus wasn’t engaged in fraud. “I felt we could get out of it,” he maintains. “I thought this was a disclosure issue. That it was civil, it was not a career killer, it’s not an ‘I am going to prison’ thing.”
Manor’s subsequent actions made any simple resolutions all but impossible. According to court documents, two weeks after Portus was shut down, on the evening of Feb. 16, 2005, and into the following day, Manor oversaw the deletion of the fund’s electronic files and e-mail accounts, and the reformatting of servers and hard drives of 60 desktops and 30 laptops. He collected all backup tapes and duplicate electronic copies of records. Voluminous paper files were also removed or destroyed, and a laptop containing vital data disappeared. “I came in the next morning and people were freaking out,” says Mendelson. “It was a disaster zone.” KPMG says Manor even hired temporary employees to forge backdated documents that showed investors’ money had been invested, when it had not.
Two weeks later, after KPMG was appointed as the receiver, it sent accountants to Portus’s offices to examine the books. “It looked like a whirlwind had gone through the offices,” says one KPMG accountant. “We soon find out records have been deleted and the computer system had been trashed.” KPMG had to bring in forensic IT experts, who attempted to reconstitute files.
Today, Greenspan vehemently denies that Manor destroyed records, although he concedes “I am not saying [Manor] made it easy for anybody or made them accessible to them.” He insists records were later returned. But KPMG says many of the records Manor removed were never recovered.
Court documents indicate that just prior to the OSC opening its investigation into Portus, Manor and Mendelson spent millions of investor dollars on themselves, friends and family. Mendelson authorized payments to himself over and above his salary totalling $320,000 prior to and after the start of the OSC investigation. Manor paid himself, friends and family nearly $2.4-million. The two claim they were repaying people who’d loaned them start-up funds for Portus.
Up to this time, Manor and Mendelson had paid themselves relatively modestly. Over all, they were each making about $100,000 a year. “They were not spending the money on the usual toys, like big houses or cars,” says Finnigan, who was hired by KPMG soon after the receiver was appointed.
KPMG’s most stunning discovery was that during its two years in operation, Portus had spent $110-million of investors’ money just to keep the fund running–money investors were led to believe was being invested. Of this sum, $41-million had gone to financial planners; some of this money was then used to pay redemptions to clients, but the larger part went to the advisers themselves for recommending Portus to their clients. In an agreed statement of fact, the Ontario Crown, which alleged that fraud had been committed, says Portus “misappropriated” this money. But neither of the Portus founders were truly held to account by the Crown on this allegation.
When KPMG approached Mendelson to help sort out Portus’s complex financial structure, he co-operated. Manor, on the other hand, refused. In March, 2005, the receiver obtained court approval to interview him. A few days later, Manor’s lawyer told KPMG his client had left the country. “It was either the day of or day after the Canadian court makes the order that his lawyer says, ‘Uh oh, he’s not here,’” recalls Finnigan.
Greenspan says he doesn’t know why Manor chose that moment to leave Canada. And initially, neither did KPMG. Manor flew to France and Switzerland before heading on to Israel. A few weeks later, KPMG received a phone call from a Swiss banker that shed light on Manor’s sudden departure.