Boaz Manor, a founding partner of Portus Alternative Asset Management, fled to Israel days before an investigation into the collapse of the Portus hedge fund.

KPMG, the appointed receiver for Portus, has advised the Canadian court that it hadn't even had a chance to serve Manor with a notice of examination, before discovering that he had restored his status as resident in Israel.

The multinational accounting firm says it doesn't know whether Manor means to return to Canada or if he even knew of the probe. Meanwhile, the lawyers who had been representing the former and present Israeli don't represent him any more. KPMG says it might try to question Manor in Israel.

Portus has accrued a USD 1.1 billion debt and seems unable to return more than 62 percent of the investors' money, says KPMG. Among other things Portus mysteriously transferred CAD 238 million out of Canada, the receiver alleges, but it has CAD 662.40 million worth of assets. KPMG means to declare Portus bankrupt, to facilitate restoration of capital to its backers.

If it uncovers criminal activity, the global accounting firm warned, it will hand the matter over to the Canadian police. Meanwhile, it's struggling to track down all Portus' debts and assets - a difficult task given the complexity of its structures.

Manor moved to Canada with his father in 1988. In 2002 he founded Portus together with Michael Mendelson. It rapidly became one of Canada's fastest-growing hedge funds, with 26,000 customers.

Questioning of Portus co-founder Michael Mendelson has already begun, and questioning of former Portus VP Ali Hamid is also reportedly underway.

The reputation of the CAD 14 billion Canadian hedge fund industry is still vulnerable because it lacks the size or stature of, say, the CAD 480 billion Canadian mutual fund business.

The prospect of a long, drawn-out investigation may temporarily slow the Canadian industry's ongoing efforts to attract new inflows into its fast growing hedge funds sector.