Only one in 10 victims of the collapsed Norbourg Asset Management Inc. mutual fund group will share in a $31-million compensation payout from an indemnity fund administered by Quebec’s financial markets watchdog.

The Autorité des marchés financiers says 925 investors will receive compensation, but the rest of the 9,200 investors who lost money in mutual funds offered by Norbourg are out of luck.

The Montreal-based Norbourg was shut down by the AMF and the RCMP in August 2005, and a total of $130 million in assets were found to be missing.

AMF chief executive Jean St-Gelais says the indemnity fund covers only fraud in the distribution of financial products and services.

In the case of Norbourg, the principal fraud occurred in the management of the group’s funds, St-Gelais told a press conference. That’s why most of the investors who lost money in the scandal aren’t eligible for compensation.

The investors whose claims were accepted did business with 20 investment executives working for two companies controlled by Norbourg chief executive Vincent Lacroix: Norbourg Capital Inc. and Groupe Futur Inc.

The investors were eligible for compensation because Lacroix and the two companies were found to have used incentives to encourage the sale of Norbourg funds, says St-Gelais.

The indemnity fund is financed by dues from Quebec’s 40,000 investment representatives. The payouts are capped at $200,000, but St-Gelais says only about 20 successful claimants had lost more.

He acknowledges that the payout is of no help to the vast majority of small investors who lost money entrusted to Norbourg funds.

The AMF is focused on helping victims, he says, noting a series of other ways that the victimized investors may be able to recover a portion of their money.

“Our No. 1 priority is to return the maximum amount of funds to defrauded investors,” St-Gelais says, “whether it be through the distribution of money remaining in funds or through the sale of the assets of Vincent Lacroix and Norbourg or through the legal proceedings initiated by the authority on behalf of the investors.”

The AMF has appeared anxious to look tough in its handling of the Norbourg case, the highest-profile of a series of Quebec-based financial scandals that have erupted up in the past few years.

The list includes huge and separate scandals at hedge-fund manager Norshield Financial Group and an associated company, Mount Real Corp.

The AMF has come in for heavy criticism for failing to detect wrongdoing at Norbourg earlier, and it is a defendant in a massive class-action lawsuit brought on behalf of Norbourg investors.

The AMF maintains it acted properly and says it will defend itself in the lawsuit, which seeks $130 million.

The AMF has brought its own $94-million civil lawsuit against Lacroix and has filed 51 criminal charges under the Securities Act against the one-time high-flying fund entrepreneur. The charges allege he manipulated mutual fund values and falsified documents.

The AMF alleges that Lacroix misappropriated a total of $84 million from various funds, of which $18 million was used for his personal benefit. The RCMP are also investigating the case but have brought no charges.

One of the lawyers for the plaintiffs in the class-action suit says the compensation payout leaves thousands of Norbourg investors out in the cold.

Serge Létourneau, a lawyer with Létour-neau & Gagné of Quebec City, says the AMF should fully compensate all the investors, then seek to recover the money through litigation against various parties it has already accused of negligence in its civil lawsuit.

“The 90% who won’t be indemnified were no more guilty of doing anything wrong than the 10% who will be indemnified,” says Létourneau. “If the AMF wants to maintain the public’s confidence in the Quebec financial products and investment professionals, it would indemnify 100% of the people.”

Ernst & Young LLP, liquidator of Norbourg’s assets, has sent out an interim payment totalling about $32 million to 5,600 investors from the money left in the funds when the scandal broke. A further $38 million remains to be paid, but that money is tied up in court proceedings over how it should be allotted.

There are wide divergences in how much money remained in the almost 30 funds Norbourg managed. Some funds weren’t touched, while others were almost completely emptied. The difference led investors in the hardest-hit funds to call for all unitholders to share the pain equally.

@page_break@Last summer, however, a judge approved a plan to distribute the remaining money fund by fund, a method that favours those holding units in funds that were relatively untouched by fraud.

That decision is currently under appeal.

The $31-million compensation award will leave just $5 million in the AMF’s indemnity fund. IE