The Ontario Securities Commission is going after commission fees Portus Alternative Asset Management Inc. paid approximately 1,000 financial advisers for referrals from 26,000 investors, The Globe and Mail reports.

The 5% return referral fee served as a nice incentive for advisers. Other rewards, such as 1% trailer fees and performance commissions came from $800 million that investors poured into the company. However, Portus was forced into receivership in March, and now the OSC and the Mutual Fund Dealers Association of Canada are looking into what role financial advisers played.

 

Mike Watson, the enforcement director of OSC said, "If in fact, as we say, it was an illegal distribution - that everything Portus did was an illegal distribution - any commissions that were paid were fruits of an illegal distribution." OSC also said that Portus "operation was not sustainable without the infusion of new funds from investors" and charges the company with taking approximately $95.4 million of investor funds to run the hedge fund's operations, including paying off these referral and trailer fees.

Some of the firms who referred clients to Portus said that their advisers would be happy to give back the money back to the cheated customers. Mark Kent, president of Portfolio Strategies Corp., advised his 340 agents to stop referring customers to Portus after he became leary of the hedge fund's structure.  The advisers who will give their clients money back will ask the clients to sign the accounts over, and hope to collect the sums released in Portus receivership.

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