Manulife, Societe Generale settle Portus lawsuit

TORONTO (Reuters) - Canadian insurer Manulife Financial said its securities unit has settled a legal spat with the Canadian unit of French bank Societe Generale over investments in a defunct Canadian hedge fund.

According to Manulife, Societe Generale will repurchase deposit notes that backed securities issued by Portus Alternative Asset Management. Portus went bankrupt in 2005 after regulators started investigating its business.

The deposit notes are now held by bankruptcy trustee KPMG.

Manulife said that the approximate C$611 million face value of all the deposit notes "will have been paid," but that Societe Generale continues to deny allegations of wrongdoing.

The parties will seek Ontario Superior Court approval of the settlement on December 18.

Manulife said in March 2007 that its Manulife Securities unit would go ahead with a proposed class action against Societe Generale (Canada) and affiliates on behalf of investors over Societe Generale's alleged role in the failed Canadian hedge fund. The lawsuit sought damages of C$1.6 billion for negligence, breach of trust and breach of fiduciary duty, and C$30 million in punitive damages.

Montreal-based Societe Generale (Canada) said the allegations were without merit.

The settlement was reached before a hearing to determine whether the suit could proceed as a class action.

Manulife Securities was the largest investor caught up in the collapse of Portus, with an aggregate investment of about C$246 million. Portus raised roughly C$800 million from investors.

Societe Generale has said that Portus purchased principal-protected deposit notes from Societe Generale as part of the investment program of its trusts, but that it did not sell investments to Portus investors or refer customers to Portus.

In 2005, Manulife repaid its own clients who had invested in Portus on the advice of Manulife financial advisers.

The co-founders of Portus, Boaz Manor and Michael Mendelson, were charged with various crimes including fraud and money laundering. Manor's case has not yet gone to court, while Mendelson pleaded guilty to one count of fraud.

(Reporting by Lynne Olver; editing by Peter Galloway)