The Ontario Securities Commission has formally accused collapsed hedge fund Norshield Asset Management (Canada) Ltd. and three of its former top executives of misleading investors and investigators.
The OSC alleges most of the money deposited by investors was transferred offshore and cannot be recovered.
John Xanthoudakis, who founded and controlled Norshield at the relevant times, as well as two other men in senior positions at Norshield and ites Olympus United Group , are alleged to have violated parts of the Ontario Securities Act over several years.
None of the OSC allegations have been proved. Many of the key allegations were made public in June 2005 when the Norshield group was put under court-ordered receivership.
OSC staff allege that 1,900 retail investors had a total of $132-million in claims against Norshield-related companies as of June 30, 2005, but it appears there will be minimal recovery of those assets.
“Adequate books and records in relation to the flow of funds through the Norshield investment structure during the material time have not been produced nor has any documentation with respect to transactions occurring after Sept. 30, 2003, been produced,” the allegations released Wednesday state.
In addition, Xanthoudakis and Dale Smith, who was an officer and director of Norshield and Olympus for several years until his resignation in March 2005, are accused of misleading the OSC enforcement staff.
The third individual named in the accusations is Peter Kefalas, who was employed at Norshield or its predecessor corporations from March 1985 to April 2005 and was an officer and director from May 31, 2000 to Nov. 19, 2004.
Xanthoudakis and Smith are also accused of failing to inform OSC staff of the existence of the so-called “Channel Funds” and their role within the overall Norshield investment structure.
The Channel Funds, all incorporated in the Bahamas, had assets with an assigned book value of $368 million as of Sept. 30, 2003.
But the court-appointed receiver that has taken over Norshield reports that “the vast majority of the investments allegedly made in the Channel funds were placed into non-arms length entities which have little or no realizable value.”
The OSC staff also allege that Xanthoudakis and/or Smith failed to safeguard documents of the companies, despite their obligation to do so. In particular, more than 40 boxes of documents were moved in May 2006 to the United States.
“Upon their removal and relocation, attempts were made to destroy all such documents,” the allegations state.
The receiver, RSM Richter, was able to recover some of the boxes but OSC staff has been unable to determine the contents of documents that were destroyed.
Among other things, the OSC staff will ask a tribunal to force Norshield, Olympus or any of the three individuals to pay an administrative penalty of up to $1 million for each failure to comply with Ontario securities law.
The tribunal will also be asked to force any of the accused to disgorge any profit they have received through non-compliance with the law and for the three individuals named to be ordered to pay the costs of the investigation and any hearings before the tribunal.