A major chapter is about to close in the three-year saga of the collapse of Portus Alternative Asset Management Inc.

Société Générale (Canada) , the Montreal-based Canadian arm of the French bank, has agreed to pay the distribution arm of Toronto-based Manulife Financial Corp. $611 million to compensate beleaguered investors of Portus, a former hedge fund. The settlement was to be submitted for court approval on Dec.18.

After Portus declared bankruptcy in 2005 in response to a regulatory probe, Manulife agreed to return the principal to clients who had bought Portus’s principal-protected notes and other products on the recommendation of advisors with Manulife Securities Investment Services Inc. The insurer went to court the following year to pursue SGC for compensation, seeking damages in a class-action suit on behalf of all Portus investors.

As part of the settlement, SGC will buy back its own deposit notes, now held by Portus trustee KPMG Inc., which had backed securities issued by Portus and continue to comprise the bulk of its remaining assets. According to a Nov. 24 letter from KPMG, what’s most significant about the settlement is that SGC has agreed to buy back the notes before most had reached maturity. KPMG estimates about 90% of investor claims will be covered, depending on other costs.

SGC acknowledges no wrongdoing in the affair, which, according to RCMP documents, affected 26,000 investors who had turned over a total of about $750 million to the Portus group of companies. Portus also dealt with about 700 “foreign” investors, the majority of whom lived in Canada, Hong Kong, Taiwan and Bermuda, who had invested almost US$53 million.

But the story hasn’t yet reached its conclusion: Manulife is being taken to task by the Mutual Fund Dealers Association of Canada. The MFDA alleges the insurer breached regulations when it failed to disclose some details of its referral compensation arrangements with the now-defunct fund, as required by MFDA rules.

The MFDA and Manulife have hammered out a settlement agreement, and a public hearing to review the deal has been scheduled for Dec. 22. The settlement can’t be released unless it is approved by the hearing panel, says Shaun Devlin, director of enforcement with the MFDA: “If the settlement agreement is accepted, then all of the details of the matter will become public.”

The case represents relatively new legal ground for the MFDA, a young self-regulatory organization established 10 years ago.

“This would be the first case really of any note,” says Hugh Corbett, director of litigation with the MFDA, “to go ahead on the referral arrangement section.”

While the Portus affair is coming to a close for aggrieved investors, the judicial process isn’t over for Portus Group co-founder Boaz Manor. Manor and co-founder Michael Mendelson were initially charged with a string of crimes including fraud, money laundering and possession of property obtained by crime, as well as a series of regulatory infractions. Manor was also charged with obstructing justice.

In 2007, Mendelson pleaded guilty to one count of fraud, and was handed a two-year sentence. Manor’s case is still before the courts. IE