Friday, March 09, 2007

Manulife Sues Societe Generale Over Portus

Financial Post, Peter Brieger, 9 March 2007

Manulife Securities International Ltd. has slapped French banking giant Societe Generale with a $1.6-billion class-action lawsuit in a bid to recoup money it paid angry clients who invested in defunct hedge fund company Portus Alternative Asset Management.

Manulife alleges that Soc Gen helped sell $800-million worth of notes linked to the performance of Portus hedge funds, money that was "misappropriated" to fund the company's operations.

A 21-page statement of claim filed in Toronto also claims Soc Gen hasn't paid back deposits that it "unconditionally guaranteed" and ignored red flags that hinted Portus was about to crater.

Manulife's claim, which asks for another $30-million in punitive damages, was filed on behalf of 26,000 Portus investors across the country.

"[Soc Gen and its subsidiaries] failed to make adequate inquiries or engage in adequate due diligence respecting Portus prior to accepting deposits consisting of money from the public," the claim reads. "By reason of [the defendants'] negligence, the plaintiff and all members of the class have suffered loss and damage."

None of the allegations has been proven in court.

In 2005, Manulife paid almost $250-million to clients who had invested in Portus. Since then, the insurer has been seeking to recoup those funds as well as the investment returns on SocGen-backed notes.

Discussions with the French bank proved fruitless so Manulife decided this week to go ahead with the claim, which was originally filed in Ontario Superior Court last summer, said J-P Bisnaire, Manulife's in-house lawyer and vice-president of business development.

"We've been pursuing our claim through all available avenues to maximize recovery for all investors," Mr. Bisnaire said. "We were hoping the matter could be resolved but, unfortunately, it has not."

In the claim, Manulife says Soc Gen and its subsidiaries have "exhibited a high-handed and callous disregard of the plaintiff and all class members' rights that deserve the censure of this Honourable Court."

In a press release, Soc Gen said Manulife "incorrectly describes" its businesss relationship with Portus, adding that $611-million in principal-protected notes -- the last will mature in 2011 --are "safe and "secure."

The lawsuit -- which also names SocGen's Canadian and securities subsidiaries as well as its Paris-based Lyxor Asset Management -- comes two years after Portus was pushed into receivership amid allegations that the firm's principals were diverting investors' money.

The Toronto-based company, founded in 2002, grew quickly as investors gobbled up notes that promised to protect buyers from a drop in the market while giving them the chance to profit from any gains.

The Mounties and securities regulators launched a probe of the company as Portus founder Boaz Manor fled to Israel, where he remains. He has been accused of buying $8-million worth of diamonds and other untraceable assets with investors' money.

Mr. Manor, who has denied any wrongdoing, is facing seven charges under the Ontario Securities Act, each of which carries a maximum penalty of five years in jail and a $5-million fine. His former business partner, Michael Mendelson, faces six charges.

The collapse was a debacle for Canada's hedge-fund industry in Canada and embarrassed companies such as Manulife Financial Corp., which referred investors to Portus in return for fees.

KPMG Inc., the receiver handling Portus's bankruptcy, has said investors won't recover all of their assets.

Damages sought in the Manulife lawsuit will be reduced by any payment that the receiver makes to investors, it said.