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Boaz ManorFernando Morales/The Globe and Mail

Broke and banned from working in the financial industry for life, the co-founder of failed hedge fund Portus Alternative Asset Management Inc. has agreed to repay $8.8-million to make up for the fund's missing diamonds – despite saying he has no idea where the mysterious rocks are or how he'll make the payment.

Boaz Manor, 38, also agreed to a lifetime ban on trading securities except within his RRSP, or serving as a director or officer of a public company, to settle a long-running case with the Ontario Securities Commission.

The settlement was approved Monday by OSC vice-chairman James Turner, who said the conditions were appropriate considering Mr. Manor was also handed a four-year jail term in May, 2011, after pleading guilty to breach of trust and disobeying a court order related to his role at Portus.

Mr. Manor, who is out of jail on parole, attended the OSC hearing Monday but did not speak. His lawyer, Robin McKechney, said his client is happy to have his legal issues resolved.

"This has been a very stressful time for Mr. Manor and he is absolutely relieved to put all this behind him and move on with his life."

The OSC settlement agreement said Mr. Manor purchased the diamonds after leaving Canada using Portus investor money that was transferred to companies in Hong Kong. It says the diamonds were picked up in Hong Kong by Mr. Manor's former sister-in-law, but offers no further information on what happened to them after that.

Mr. Manor has long claimed he never received the diamonds after they were picked up, and alleges they were kept by Israeli middleman Yitzhak Toib, who has denied the allegation.

The $8.8-million payment involves an order to "disgorge" the value of the diamonds that disappeared after the hedge fund's collapse in 2005.

Following the completion of Monday's hearing, Mr. McKechney said his client doesn't have the diamonds and can't afford to pay the ordered $8.8-million.

"Mr. Manor is not in possession of the diamonds and does not know their whereabouts at this time," Mr. McKechney said.

He said Mr. Manor filed a legal action in Israel against a financier he believes has the diamonds, and hopes the case will lead to their recovery, enabling him to pay the OSC order.

The OSC order will remain in place even if the Israeli court action is unsuccessful, however, and the commission could still attempt to collect the money from Mr. Manor.

"This is a significant disgorgement order with a goal of returning funds to investors," said a spokeswoman for the securities commission. "The OSC will work with the receiver to recover any monies available."

At its peak, Portus was one of Canada's largest hedge funds, investing more than $800-million for 26,000 investors.

The hedge fund was shut down by the OSC in 2005 amid concerns that its money was not being invested as promised. Mr. Manor left Canada for Israel when the OSC stepped in to investigate, but returned in 2007 after the RCMP laid criminal charges against him.

After Portus's collapse, court-appointed receivers from KPMG recovered assets to pay back at least 97 per cent of investors' losses. Most of the recovered money came from payments by French bank Société Générale SA, which had guaranteed Portus notes.

At Monday's hearing, Mr. McKechney said "the single most important fact" for Mr. Manor is that investors got virtually all their money back.

An agreed statement of facts in the settlement agreement said a total of $17.6-million of investor funds were never recovered by KPMG, including the diamonds.

Mr. Manor's lawyer told his trial last year that he is bankrupt. A 2009 receivership hearing heard he was working for a "family holding company" at the time with an annual income of $60,000.

The OSC case was launched in 2005, but was adjourned in 2007 pending the outcome of the RCMP's criminal case. The commission reopened the case last summer following Mr. Manor's guilty plea in court in 2011.

The OSC also approved settlements Monday with two other former Portus officials, Michael Labanowich and John Ogg.