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Boaz Manor, formerly of Portus Alternative Asset Management Inc.Fernando Morales/The Globe and Mail

John Finnigan's first question for Boaz Manor was a formality. Pen poised, Finnigan asked for Manor's address.

Manor stared at the ceiling.

A silence hung in the air of the law firm's boardroom. Finally, in exasperation, Finnigan demanded: "When you left the house this morning, what was the number on the door?"

The lawyer had good reason to be frustrated. He had fought a long, draining battle in Israel's courts to force Manor to answer his questions. It was February, 2006, and Finnigan, a commercial litigator with the Toronto law firm Thornton Grout Finnigan LLP, was in Tel Aviv attempting to extract information from the 33-year-old Manor.

Finnigan wanted to know about the whereabouts of tens of millions of dollars that had gone missing after the collapse of Portus Alternative Asset Management Inc., a Bay Street firm that had operated one of Canada's largest hedge funds. Manor was the investment brains behind Portus, which had been shut down by the Ontario Securities Commission (OSC) in 2005 amid allegations of fraud. Finnigan had been retained by KPMG Inc., the court-appointed receiver, to help it find the money that couldn't be accounted for.

But the young financier was proving to be an elusive quarry–not only because he had bolted Canada for Israel but also because his answers were unhelpful and elliptical. At one point, Finnigan asked Manor about the identity of a man in Milan, Italy, to whom Manor had given $3-million of Portus funds. Manor didn't seem to know a thing about him.

"How old was he?" Finnigan asked.

"I'm hazy on that part," replied Manor.

"You can't describe him?"

"I'm hazy on it. I don't want to guess."

At another point, after Finnigan told Manor that his version of events "sounds made up," Manor conceded: "I know that a lot of things that I'm saying are fantastic in nature. Going to Italy, going to Zurich–there's diamonds, there's hundreds of millions of dollars. If you lump it all together, it's sort of a fantastic story."


By early 2005, when the OSC discovered irregularities at Portus and shut it down, the hedge fund had raised $800-million from some 26,000 retail investors. Despite the OSC's imposition of a cease-trading order, Manor went rogue, attempting to move tens of millions of dollars in investor savings to Europe.

The upshot of his efforts was that $17.6-million (U.S.) of investors' cash was never recovered, of which as much as $12-million (U.S.) could still be under Manor's control. In total, as much as $130-million was fraudulently diverted by the Portus brain trust, although investors managed to get their original investment back because most of the money had been invested in principal-protected notes held by a French bank, Société Générale SA. By the time they'd matured, the notes' appreciation covered the losses.

This June, Manor was released from prison after serving a little over a year of a four-year sentence, mostly in a residential-style minimum-security facility. Soon after his release, the OSC slapped Manor with a lifetime ban on trading securities and sitting on the board of a public company, and with an order to disgorge $8.8-million. But the OSC is effectively accepting Manor's claim that he can't pay.

Manor may be a free man, but numerous questions hang over his head, especially about where all of that money ended up and whether his punishment fit the crime. "His sentence is a reinforcement that crime pays in Canada. It's totally inadequate. I'd do 16 months in a provincial or federal penitentiary if I could pocket millions of dollars," says Bill Majcher, a former RCMP investigator who specialized in financial fraud. "I know the investors were very disappointed with the length of the sentence," says Finnigan. Were he one of them, he says, "It would give me some heartburn that Manor was walking away with a smirk on his face feeling, 'They came after me with everything they got and I'm now going to live a very luxurious and happy life from this point on.' That would gall me."


Manor is not inclined to chat about the missing cash. But his lawyer is. Brian Greenspan is among Canada's top defence lawyers, famous for a bravura style of angry exhortation mixed with avuncular charm that he has wielded effectively for clients such as hockey agent Alan Eagleson, Livent co-founder Myron Gottlieb and investment banker Andrew Rankin. Although Manor pleaded guilty to breach of trust and disobeying a court order, that's as far as he'll go: He claims he doesn't have access to the $8.8-million worth of diamonds that he acknowledged in an affidavit he bought with investors' money. And although his sole partner was convicted of fraud, Greenspan insists Manor is not a master fraudster with a fortune squirrelled away somewhere. "Bo is adamant that he would defend any allegation that he intentionally diverted money to the detriment of investors and defrauded anyone," says Greenspan. "He's a strong-willed, stubborn, smart guy who still believes, had he been given the opportunity, he would have vindicated his plan and would've provided investors with significant return on their money."

The author of the Portus debacle was born in Israel, where his father, Daniel, developed defence systems for the Israeli military before moving his family to Canada in 1988. In Toronto, Daniel founded EIS Electronic Integrated Systems Inc., which manufactures traffic-monitoring equipment. The younger Manor had a classic Toronto Jewish upbringing, growing up in Forest Hill and attending Forest Hill Collegiate Institute. His yearbook photo for 1992, his graduating year, sported this oddly prescient and creatively spelled caption: "Into the future I see an array of precious jems, dimonds, and rubies glowing with effervesent light…and a guy named Louie yelling 'Put the jems in the yellow bag, the diamonds in the green bag, and get a move on it before we get busted.'"

Manor went on to attend the University of Toronto and completed a degree in applied science, graduating in 1996. But business was his calling. After working briefly for his father's firm, Manor met entrepreneur Michael Mendelson, who was running a small merchant bank, KBL Capital. Mendelson gave Manor some work, and soon they were fast friends, united by a desire to become spectacularly rich.

After KBL Capital took a hit when the dot-com bubble burst in 2001-'02, Manor and Mendelson looked around for a new line of business and settled on hedge funds. They devised an investment plan that was brilliantly simple: They told investors that all of their money was going to be plowed into principal-protected notes issued by a large bank–in this case, the French giant Société Générale. The bank then promised the notes would be linked to returns of a basket of hedge funds.

Normally, retail investors are not allowed to invest in hedge funds; they're too risky. But this structure provided a workaround. The upshot was that, after five years, investors would be guaranteed to get at least their principal back, plus whatever was made by being linked to the hedge funds. "You're selling zero downside," explains Mendelson. "And your upside is, you're tied to a sexy asset class." The duo's dream was to build an investment management firm that would grow to $5-billion in assets, sell it off and pocket $250-million apiece.

They opened Portus in January, 2003, with Mendelson acting as the operations guy and Manor the investment guru. Things took off when they managed to land a referral arrangement with a group of securities dealers, including a branch of Manulife Financial Corp., one of the most solid names in the financial industry. This meant hundreds of brokers across the country were steering their retail clients to Portus. It was like striking oil, with hundreds of millions coming through the door every quarter at one point. Eventually employing 120 people, Portus leased offices on the 24th floor of BCE Place at the foot of Bay Street, with a stunning view of Lake Ontario. It was a cocky, young workplace that "reeked of arrogance," recalls one former Portus salesman. "People wanted to work for us because we were the shit." Hours were long, expectations high. Vacations were frowned on.

In the office, Manor was introverted and private. "Boaz was often in his office with the door closed," says the former employee. "He was the strong, silent type. He was paranoid." Nevertheless, Manor was the face of Portus in marketing material and on a ghostwritten book, A Guide to Alternative Investing.


Despite appearances of success, Portus had a design flaw. Its managed account agreement said Portus would be entitled to an annual management fee ranging from 1.9 per cent to 2.25 per cent of the market value of assets in an investor's account. But Mendelson and Manor felt this was not enough money to grow the business as fast as they wanted. In particular, they needed a lot of cash to persuade financial planners to steer clients to Portus.

Their solution, as it turned out, was illegal. Although the firm's managed account agreement explicitly said Portus was required "to invest all assets which the investor contributes," in reality only 86 cents of every dollar was invested in the principal-protected notes. The remaining 14 cents went to meeting Portus's payroll and expanding the business by paying fees to brokers. "That was the fraud," says Joel Vale, a Toronto lawyer involved in a lawsuit against Portus's auditors, PricewaterhouseCoopers LLP, after the hedge fund crashed.

Mendelson claims it was not this straightforward: He says Portus received a huge discount from Société Générale, which Portus then used, through a complex manoeuvre, to pay for operating expenses. And Portus received a thumbs-up from its lawyers that it was perfectly legal. What no one disputes is that none of this was disclosed to investors, as it should have been.

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.


He said his name was Jean-Pierre Regli, and he was an investment adviser based in Lugano, Switzerland. His trade involved managing the assets of wealthy people and navigating the murky waters of private and offshore banking. Regli told KPMG he had been working for Manor since the previous year, setting up a bank account for him at the Banca di Roma in Italy and helping him move funds around. For instance, in the summer of 2004, $2.5-million (U.S.) of Portus investors' money was deposited into that Italian account. "[Manor] said the funds belonged to him," says Regli. "He claimed it was commission he took from investors up front." (None of this money was ever recovered.)

But what Regli said next really made Finnigan sit up and take notice. He said Manor had contacted him since he had left Canada, asking whether Regli could help him transfer between $34-million and $40-million (U.S.) from offshore bank accounts to Europe, apparently with the intention of investing the money. This, too, was Portus cash that KPMG and Finnigan had never heard about.

Regli contacted KPMG because he'd heard about the OSC investigation. Initially, Manor told Regli he wanted to use the money to buy a house in Italy and invest the rest in a Swiss bank. "And then after a few weeks, there was a new story popping up," recalls Regli. "He wanted all of the money in cash and no real estate and no Swiss bank account."

Thanks to Regli's tip, KPMG and Finnigan learned that in 2003, of the $800-million Manor and Mendelson had raised, about $53-million (U.S.) of it–derived from 900 investors–was supposed to be invested offshore. To that end, Manor had hired veteran Montreal lawyer Anthony Malcolm to set up a series of offshore trusts and companies. Malcolm later admitted he spent more than $1-million of Portus funds to make secret and unrecorded payments to bankers and board nominees in the Cayman Islands and Turks and Caicos to get the Portus companies and accounts off the ground. (Despite famously loose regulation in those jurisdictions, such payments are illegal.) Yet KPMG discovered that none of the $53-million (U.S.) had been invested; the money was languishing in the offshore accounts. Says Finnigan: "It's pretty clear there was no legitimate purpose to sending money offshore, and someone was trying to hide it and keep it from investors' reach."

Today Greenspan says that after Portus was shut down, Manor received legal advice confirming his opinion that the $53-million (U.S.) was not affected by the OSC's cease-trading order because the cash was offshore and therefore outside the commission's jurisdiction. "Bo thought the OSC had been precipitous," explains Greenspan. "I think Bo's position is that when he goes [abroad], he's trying to salvage things and make sure that the offshore money is invested." Whatever his intentions, once KPMG was appointed receiver, no Portus money was to be touched without its permission–no matter where it was.

Having learned about the offshore holdings, KPMG and Finnigan were soon unearthing a crazy quilt of offshore entities that Manor had set up over the previous two years–a total of 130 Portus accounts in 10 different countries.

They also learned that Regli was not the only proxy Manor had used to move money around. There was also Nigel Freeman, a debonair Cambridge-educated Brit who lives in Bermuda and acts as a private banker. KPMG concluded that Manor dictated instructions to Freeman through Anthony Malcolm, the lawyer in Montreal.

In 2004, Freeman had opened an account in his own name at the Credit Suisse bank in Zurich–which, to KPMG, became known as the Freeman Account. He opened a safety deposit box in Zurich as well. Freeman later testified that this account and box were used to transfer money on behalf of Manor. The only other person who had access to the box was John Dallas Campbell, a high school buddy of Manor's who acted as a "runner"–moving money in and out of the box.

In the end, KPMG and Finnigan succeeded in finding most–about $35-million (U.S.)–of the offshore money before Manor could move it. "We traced it through these various jurisdictions before we ended up at this account in the Turks and Caicos," recalls Finnigan. But of the original $53-million (U.S.), $17.6-million (U.S.) was still missing. Where had it all gone?


Malcolm, for one, had been paid $2.7-million (U.S.) for his services, it later became clear. Another $2.5-million (U.S.) had ended up in the Italian bank account Regli had helped set up; it also disappeared. (When finally confronted by Finnigan, Manor claimed he gave that money to the mysterious man in Milan whom he could not describe or name.) Then there was the money going in and out of the Freeman Account and safety deposit box–about $1-million vanished this way.

In July, 2005, Manor provided KPMG with a list of payments made with investors' funds. One line indicated he'd spent $11.6-million (U.S.) on "Precious Metals–Precious Stones." KPMG figured out what had happened to this money when its accountants examined the Freeman Account at Credit Suisse and found that nearly $9-million (U.S.) had passed through it to banks in Hong Kong.

The "precious stones" turned out to be diamonds Manor had purchased. The celebrated gem is an ideal commodity for those who want to transfer wealth across borders without being traced: Diamonds are small, easily concealed and liquid–on the black market.

After Manor arrived in Israel, he had gone to a diamond broker and selected 100 diamonds, including a 22-carat stone worth $4.5-million (U.S.). The stones were then flown to Hong Kong, where they were paid for and picked up.

Why wouldn't Manor simply have paid and taken possession in Israel? Finnigan theorizes that Manor made the transaction in Hong Kong to make it more difficult for the receiver to track down the assets.

Indeed, the diamonds remain shrouded in mystery, although the identity of the players is known. Manor's sister-in-law, Jieying Yu, is the founder of a Hong Kong company, Bringood Investments. According to court documents, Manor had Yu pick up the stones from the Israeli diamond broker's Hong Kong office in the summer of 2005. They then were given to a man named Yitzchak Toib.

Manor had met Toib in Israel through family connections. Manor paid Toib as much as $900,000 in Portus money to fly to Hong Kong and collect the gems. Toib stored them in a safety deposit box in the city. Toib later claimed he returned to China and gave the diamonds back to Yu, on Manor's orders. She denies receiving them this second time.

The diamonds have never been found. Manor insists Toib has the stones; he launched a lawsuit against Toib, but has allowed it to go dormant. Others believe Manor has the stones himself. "I think Manor did it and he knows where they are and is keeping them for a new day," says Israeli lawyer David Tadmor, who worked for KPMG on the Manor case.

The lawyers involved say it's irrelevant where the diamonds are: Manor used investor money to make the purchase. "He basically embezzled the funds and took millions of dollars and bought other things for himself," says Tadmor. "Whether Toib can produce the diamonds or not doesn't really matter. It's Manor who stole the money and bought the diamonds."


Soon after Manor arrived in Israel in the summer of 2005, KPMG obtained a court order preventing him from leaving that country. Manor responded by taking $700,000 (U.S.) of investors' funds and giving it to Yehuda Weinstein, one of Israel's top criminal lawyers and today its attorney-general (most of this money was eventually frozen after Weinstein was informed of its origins). For months, Weinstein told Finnigan that Manor was too ill to be interviewed. At one point, Weinstein arranged to have a psychiatrist interview Manor; the psychiatrist said the young man, suffering from depression and suicidal thoughts, "cried like a little boy." Manor's medical issues aside, his lawyer, Brian Greenspan, blames KPMG and Finnigan's "very aggressive position" as the reason why Manor was unwilling to co-operate.

After months of delay, Manor was finally forced by an Israeli judge to answer Finnigan's questions. In February, 2006, the lawyer and a pair of KPMG accountants examined Manor in Tel Aviv. Manor's answers were a surprise: He claimed that Anthony Malcolm, the elderly Montreal lawyer he'd hired to set up Portus's offshore companies, not only controlled Portus but that he, Manor, was a mere employee of Malcolm's.

KPMG couldn't find one shred of evidence substantiating this claim. When Finnigan presented Manor with OSC documents showing his signature on the corporate filings that established Portus, Manor shrugged them off. Mendelson agrees that Malcolm did not control Portus, while Nick Mancini, who was briefly CEO of Portus in 2004, said he'd never heard of Malcolm. "The ownership was around Boaz and Michael," Mancini says. Malcolm himself denies he controlled Portus or instructed Manor to do anything. "I don't even want to talk about it, the son of a bitch,…" he said when contacted.

In the end, the examination provided no useful information on the whereabouts of the missing diamonds and other funds. Manor did, however, produce a recording he'd secretly made in the fall of 2005 of a conversation between himself and Yitzchak Toib. At one point, Manor accuses Toib of taking his money, and demands that his "assets" be returned. Toib's answers are rambling and often incoherent, although he does say, "If you are willing to be patient and get out of the mess and so you can get your money, okay, you can get it. You have no patience–do what you want. Be my guest, I'm not cross…we're through." The word "diamonds" is never uttered in the conversation, but Greenspan holds up this tape as evidence that Toib has the gems. "Toib is a liar," he says.


In 2007, the RCMP laid 18 charges against Manor. That fall, after his lawyers had negotiated the terms of his return, Manor flew back to Canada, where he was arrested, released on $250,000 bail and ordered to live with his parents.

That same year, Mendelson, who'd co-operated with the RCMP and prosecutors, pleaded guilty to one charge of fraud and accepted a two-year sentence. While he could have fought the charges, he wanted to move on with his life and put the whole Portus episode behind him. He ended up spending six months behind bars. "I went through this spiritual transformation," says Mendelson. "I'm raising three daughters. I can't teach them the importance of being truthful if I'm scheming and trying to figure out how to get out of this. I'm clearly implicated in all this stuff that [Manor's] doing, even though I didn't have a hand in it. I just wanted to make a new life."

Manor, in contrast, refused to accept any blame for the Portus fraud or admit he'd stolen any money. After four years of negotiations and delays, Manor finally pleaded guilty to one count of breach of trust and another for disobeying a court order. Today, the Ontario Attorney-General's office refuses to discuss why the Crown prosecutor, John Pearson, cut this deal. Scott Hutchison, a well-regarded former Crown lawyer and now a Toronto criminal lawyer, observes that "four years is a pretty modest sentence for a breach of trust in the millions."

What softened the blow was that investors got all of their original money back because most of it had been invested in principal-protected notes. Although an estimated $110-million of investors' cash had been fraudulently siphoned off, by the time the notes matured a few years later, the interest earned made up for the lost money.

But a full accounting of the mess that Manor and Mendelson made puts many more millions on the loss side of the ledger. KPMG's work cost $13.7-million–which investors ended up paying, since their assets had been recovered. Lawsuits were launched against Société Générale and Portus's auditors, PricewaterhouseCoopers; thus the case not only damaged the companies' reputations but racked up hundreds of thousands in legal bills. And more costs were accrued to deal with the OSC charges that were settled this past August.

Then there are the losses that investors suffered because their cash was never fully invested in the first place. "It's a misleading story to say there's no loss," says one of the KPMG accountants who worked on the case. "If investors got back 100 cents on the dollar, they would've been just as well off to put that money under a mattress for three years." Nor does it take into consideration the hardship borne by investors wondering for up to four years if they would ever see their money again. "Nobody knows how many people had strokes, heart attacks, sleepless nights waiting for years to see if they would get their money back," says attorney Joel Vale, who was involved in a post-Portus lawsuit.

Mendelson now views his Portus experience with a mixture of regret and defiance, believing he never set out to defraud anyone. Working out of a small office in a holistic-health business complex in east-end Toronto, Mendelson operates a leadership development training agency under a new name. On a recent sunny morning, the 46-year-old sat Buddha-style in his chair, and reluctantly revisited how the two partners ended up in prison–an ordeal that almost cost Mendelson his marriage, and deep-sixed his high-flying career in finance.

"There was major greed there," Mendelson says. "We wanted to be considered successful in the eyes of other people. It's what young ambitious guys do on Bay Street." Since leaving prison, Mendelson has revised his life goals. "My values were misplaced," he says. "What was important to me back then was money, prestige and success on society's terms…I have now shifted from being ego-based and self-grasping, to practising living a life of service, using my skills and talents to help others achieve their goals."

How does he feel about Manor? "So much of my work today is around forgiveness. If you hold on to that kind of stuff, it just eats away at you.…He's got his karma. Whatever he has done and whatever he's doing, I feel he will pay for in his life."

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