The Ontario Securities Commission and the Mutual Fund Dealers Association of Canada are proposing a plan that would require dealers to repay all the fees received from Portus Alternative Asset Management Inc. in connection with client referrals.

The proposal, which was announced Friday, applies to 55 investment and mutual fund dealers who collected about $12 million in fees (excluding fees that have already been recovered). The Investment Dealers Association of Canada also supports the plan, which applies to five of its members.

The regulators propose that dealers agree to terms and conditions that would result in the repayment of fees received for referring clients to Portus. In addition to repaying their commissions, they would also agree to participate in regulatory studies relating to referral fee arrangements and non-mutual fund products; and, enact and comply with practices, policies and procedures to reflect the findings of these studies.

The regulators report that they have already received indications from 28 dealers, representing more than 80% of fees paid out of funds invested in Portus that they are willing to accept the terms and conditions. Dealers have been asked to confirm by January 24, that they intend to comply with the request and repay investors by May 31, under oversight by the MFDA and the IDA. The dealers will contact investors prior to issuing payment to confirm the accuracy of the amount of their investment in the Portus products, net of redemptions.

In total, 64 dealers across Canada approved referrals resulting in their clients investing in Portus through some 25,000 accounts. Fifty-nine of these dealers are MFDA members and five are members of the IDA. Two of the IDA members are also affiliated with an MFDA member. Of the 64 dealers, approximately 55 have operations in Ontario.

By accepting the terms and conditions, dealers will resolve the regulatory issues in Ontario regarding dealer due diligence and supervision. However, the MFDA will continue to investigate other matters relating to the conduct of dealers in referring clients to Portus. Investigations will also continue regarding the sales practices of referring advisors.

For dealers that do not agree to the imposition of the terms and conditions, regulators may continue to review and investigate all regulatory issues arising from referrals to Portus. Enforcement proceedings may be undertaken, as circumstances warrant, they say. Participation will be viewed by the regulators as a cooperative response to regulatory issues which maximizes prompt recovery to investors, they note.

Regulators note that the process does not affect the rights of clients to pursue further recoveries through the civil courts. And that failure to meet the terms and conditions will lead to the suspension of the dealer’s registration.

Any payments will be in addition to the money investors stand to recover from the insolvency proceedings currently involving the Portus Group. Investors had placed approximately $800 million in Portus products. Portus assets located by the Receiver, KPMG Inc., include $133 million and US$36 million in cash, as well as notes with a purchase price of $529 million and a maturity value of $611 million. No estimate of the likely realizable value of the notes is available at the present time.

The next appearance with respect to the administrative proceeding commenced against Portus, Boaz Manor, Michael Mendelson, Michael Labanowich and John Ogg is scheduled to take place on January 17, the OSC reports. With respect to the court proceeding against Boaz Manor, the next attendance in provincial court will take place on January 18.