OTTAWA - The saga of the $698 million collapse of Portus Alternative Asset Management Inc. has taken another twist.
The Ontario Securities Commission alleges that Portus of Toronto took about $83 million of investor funds to bankroll its operations.
Some 55 investment and mutual fund dealers and assorted investment advisers will have to repay investors fees received in connection with client referrals to Portus. Although no dealer has been accused of fraud, due diligence and "know your investor" issues have been raised in investor lawsuits surrounding Portus, according to an OSC release.
The deal was announced by the OSC, the Mutual Fund Dealers Association of Canada and the Investment Dealers Association of Canada last month. Both Toronto-based associations traditionally have played quasi-regulatory functions.
"This seems like a reasonable settlement," said Jim McGovern, chairman of AIMA Canada, a Toronto-based chapter of the global Alternative Investment Management Association Ltd., based in London, and president and chief executive of Toronto-based Arrow Hedge Partners Inc.
"Advisers should not be seen to be profiting in any way from this debacle," he said. "This will help bring closure."
About 1,000 advisers steered some 26,000 clients to Portus in exchange for 5% referral fees before the hedge fund operator was shut down last February and forced into receivership last March.
Founded in 2003 as Paradigm Asset Management Inc., Portus reportedly was receiving about $17 million in assets a week at its peak. The agency said that 28 dealers have indicated they are willing to accept the plan. In exchange for dropping investigations against firms and financial advisers, they are being asked to return about $8 million to clients they steered to Portus.
The payment will be in addition to the money investors stand to recover from the insolvency proceedings of Portus assets located by receiver KPMG Inc. of Toronto. These include $152 million in cash, as well as notes with a purchase price of $461 million and a maturity value of $533 million.
Manulife Financial Corp. of Toronto - whose clients accounted for more than 30% of all assets at Portus - is the largest creditor. Under threat of a class action, Toronto-based Manulife refunded its clients' full exposure including $10 million of fees.
"Investigations will also continue regarding the sales practices of referring advisers," an OSC statement said. Dealers who don't agree to the OSC proposal may be investigated, prosecuted and fined if rules on protecting clients' interests were violated.
Among the 55 dealers are well-known names such as Aegon Dealer Services Canada Inc. of Toronto, Odyssey Capital Corp. of St. Catharines, Ontario, and Quadrus Investment Services Ltd., a subsidiary of London (Ontario) Life Insurance Co.
"During the investigation, ADSCI was part of a working group of seven companies that led an initiative representing nearly 50 investment dealers across Canada," Scott Sinclair, Aegon's president and chief executive, said in a statement.
"The Portus scandal was a shock to us all, and ADSCI will continue to take a lead role in helping the industry, regulators and authorities find relief for the victims of this impropriety," Mr. Sinclair said.
Still, the settlement has its critics.
"It would be wrong to single out the advisers, because certainly, many others have their share of fault, too," said Miklos Nagy, president and chief executive of Quadrexx Asset Management Inc., a Toronto-based hedge fund company.
"I think that securities commissions, compliance officers and advisers have all their share of blame," he said. "To single out advisers and make them pay is highly unfair unless others are paying too."
Dealers and investment advisers had until Jan. 24 to decide whether to comply and repay investors by May 31.
Meanwhile, Boaz Manor, the co-founder of Portus, has fled to Israel, his native country, and took his case to its Supreme Court in January. He faces a judge's order to deliver nearly $9 million in diamonds or face imprisonment in an Israeli jail.
The OSC last February suspended his partner, Michael Mendelson, and Portus executives Michael Labanowich and John Ogg, from the business.