Portus refund may need more time

The court appointed receiver for Portus Alternative Asset Management has released its eighteenth report — yes, there have been that many — and most need a program to identify all the players and to navigate the web of court cases they’re involved in. But underneath it all, observers want to know one thing: who was minding the store?

Thanks to a deal worked out between the Ontario Securities Commission and the SROs, mutual fund and investment dealers are being asked to fall on their swords and pay back the money they took in through referral fees. It’s an unprecedented step.

According to Sandra Kegie, the executive director of the Federation of Independent Mutual Fund Dealers and a member of the Portus working group, the OSC’s plan was spearheaded by Berkshire Investment Group, which was looking for its own solution. “As they were going down that road, though ‘why just look for a solution for us, why not bring in other dealers and have it be an industry solution.'”

After Berkshire, AEGON Dealer Services is the only other firm that has publicly stated it will comply with the commission’s request. As for how many firms will accede to the OSC’s request, that information should be available any day now.

Without saying how many firms have heeded the OSC call to return investor fees, the Mutual Fund Dealers Association says the response to the request has been good. In total, 59 MFDA member firms collected some $11 million in referral fees. Five IDA firms are also being pressured to return an estimated $1 million in fees.

Founded in 2003 as Paradigm Asset Management, Portus was reportedly receiving roughly $20 million in assets a week at its peak. When the hedge fund operator was shut down in February 2005 there were roughly 24,500 investors who had purchased some $800 million in Portus products.

Those investors will no doubt be happy to see their money. Still, it’s important to note that the $12 million in fees that may be returned to investors could also mean they will have less to claim in the receivership proceedings even though the OSC arrangement is outside of the receivership.

One person close to the file explains that if Portus investors collect money independently from the amount they paid to the hedge fund, that money will decrease the amount they recover. “People who have recovered some money will have less to claim in the receivership proceedings,” according to a source.

So far the receiver itself has been approved by the court to borrow $250,000, not including interest, although the court can authorize a greater amount.

While everyone agrees getting money back into the hands of investors caught up in Portus is a good thing, at least one observer overseeing the mess wonders if the OSC has been too rash.