Millions of dollars from a collapsed Canadian hedge fund flowed through Lines Overseas Management, but despite making book entries that showed monies or shares being transferred through a series of brokerage accounts, investigators allege that no Canadian securities were bought or sold in the market by LOM on behalf of the fund.

Until regulators shut it down in February, Portus Alternative Asset Management was one of the fastest-growing hedge funds in Canada, raising in excess of $800 million through its various products from almost 30,000 customer accounts including some Bermudians.

Portus claimed its investment strategy involved buying Canadian securities, however court appointed receiver KPMG alleged in its ninth report released on Monday that no shares were ever bought and the money sent to brokerages including LOM were ?commingled at various times with monies? from other Portus series.

?The LOM brokerage statements indicate that the monies from each of these series were brought together and combined as they were transferred through each of the four LOM brokerage accounts,? KPMG said.

In one instance, $35.5 million was transferred from LOM to one account but $36 million was transferred from LOM back to another account. The additional $500,000 came from other Portus clients, the report said.

The receiver ?understands from conversations with LOM that LOM would make book entries on behalf of various Portus Group entities, either showing monies or shares being transferred through a series of brokerage accounts.

The receiver understands from LOM that there was no actual purchase or sale of Canadian Securities in the market by LOM? on behalf of the Portus entities, the report said.

LOM responded to the report by stating that a broker with LOM Securities (Cayman) Limited opened several accounts in late 2003 on behalf of Paradigm Alternative Asset Management and related entities which was later renamed Portus.

Due diligence confirmed that Paradigm was a ?well-known Canadian investment manager, licensed and regulated in Canada by Canadian securities regulators?, the LOM statement said. LOM also sought a legal opinion from a ?leading Toronto law firm? and confirmation from the entity?s directors detailing the structure of the accounts and the expected transactions.

?LOM Cayman executed transactions as agent for the customer over a four-and-a-half-month period. As specified by the customers? instructions and detailed in the legal opinion, the transactions were off-market, i.e. securities were bought and sold (crossed) internally between accounts, and not executed on the external markets.

?Virtually all funds came from an account in Paradigm?s name at Royal Bank of Canada, and were subsequently returned to an account in Paradigm?s name at Royal Bank of Canada,? LOM said.

The receiver is continuing to seek additional information on the transactions involving LOM.

LOM said that LOM Cayman has fully cooperated with KPMG from the outset and the ?small amount of funds? in the accounts have already been forwarded to the receiver.

?LOM had no other involvement with Portus, its principals, its customers or its investment programs,? LOM said, adding that the LOM Cayman accounts were a ?small part? of the more than 130 accounts identified in KPMG?s report which were held with dozens of banks and brokerages around the world.

LOM also said it was ?ludicrous? for Canada?s national newspaper the Globe and Mail to suggest that LOM was somehow ?key to the Portus probe? as it stated in a headline yesterday.

?The receiver is trying to locate the funds held by Portus for its customers; the funds which flowed through the few Portus accounts at LOM Cayman have been accounted for,? the LOM statement said.