Angry investors, claiming they lost millions of dollars after the collapse of a Toronto real estate development firm, are demanding an inquiry into why the Ontario regulatory agency responsible to investigate didn’t do more to punish the company, and have collected more than 700 petition signatures calling on the province to find out why.
In April 2018, the RCMP raided the offices of Fortress Real Developments, alleging the company engaged in fraudulent syndicated mortgage activities after it raised $920 million from investors for various developments that never materialised.
In September, Fortress Real settled with the Financial Services Regulatory Authority of Ontario (FSRA), successor to the disbanded Financial Services Commission of Ontario (FSCO) that initiated proceedings, to pay $250,000 in administrative penalties, which petition organizers call wholly inadequate.
“The recent fine from FSRA is a clear indication that current regulations don’t deter, but entice, fraud because if you’re going to fine a company like Fortress a quarter of a million dollars, it’s an invitation for them to perpetrate fraud,” Corinne Sutej, one of the investors, told CREW, adding that Fortress Real’s directors, Jawad Rathore and Vince Petrozza, kept roughly 17% of the $920 million raised. “Wouldn’t you pay $250,000 to make $150 million?” she said.
The petition seeks a public inquiry into why Fortress Real was punished with what it says is tantamount to a slap on the wrist, and what Sutej calls a slap in her face, in light of the fact that FSCO had been made aware of probable artifice as far back as 2011.
Petrozza and Rathore previously settled with the Ontario Securities Commission for $3 million, and Rathore also received a lifetime ban from the Mutual Fund Dealers Association, to which he paid $25,000 in penalties and $7,500 in costs.
The petition claims that, despite mounting evidence they were engaged in fraudulent activities, this time using syndicated mortgages, FSCO failed to protect the public.
“[It] demands an independent public inquiry to investigate FSCO’s handling of Fortress and affiliate brokerages for syndicated mortgage complaints and its failed duty to protect the investors,” said Sutej, a former HR professional living in Ottawa who says she lost $25,000 on a Calgary-based project called The Orchard, which was to be co-developed by Lamb Development Corp. but never broke ground.
FAAN Mortgage Administrators, licensed under the Mortgage Brokerages, Lenders and Administrators Act (MBLAA) of 2006, confirmed the monies lost by investors, according to the petition.
It “confirmed to investors that over $200 million is lost, with another $200 million sitting in projects that are in distress,” according the petition.
“We’d also like them to investigate the executives, from the top down, of the licencing and market conduct division, the investigative team, their procedures, what their escalation and complaint processes were, risk management, and adherence to legislation,” Sutej added.
According to a statement FSRA provided CREW, FSCO, its predecessor, had only identified 12 offences, each of which carried a $25,000 fine that the government subsequently raised to $500,000 per offence. Had Fortress Real’s alleged fraud been investigated after the amendment, its fine would have been $6 million. But it wasn’t.
“When it came to Fortress syndicated mortgage investments, much of the regulatory work had been completed before FSRA was launched. As you know, in 2018, the Superintendent of the Financial Services Commission of Ontario (FSCO) issued orders providing that four Fortress-related brokerages pay a total of $1.1 million in administrative monetary penalties. FSCO also revoked numerous licences under the MBLAA and appointed a receiver to administer the syndicated mortgages,” said FSRA’s statement to CREW.
“In November 2020, in the legislation accompanying the 2020 Ontario Budget, the government introduced amendments to the MBLAA that will increase maximum administrative penalties,” the statement continued. “Once in force, the maximum administrative penalty amount for mortgage brokerages and administrators will increase to $500,000 per contravention (from the current maximum of $25,000), and the maximum administrative penalty amount for individual mortgage brokers and agents will increase to $100,000 per contravention (from the current maximum of $10,000).”
Others like David Franklin, a Toronto-based lawyer, who’s been a vocal critic of Rathore, Petrozza and FSCO, called the penalty FSRA levied against Fortress—which omitted a declaration of guilt—“a joke.”
“That is unbelievable, how in God’s name could they do that? That shows you that even FSRA isn’t doing what they’re supposed to be doing because there should be a major penalty,” said Franklin. “The fine is a joke and it took away their credibility. It’s an insult, given all the stuff that’s been in the media. What’s the purpose of FSRA? It encourages people to commit illegal acts because the penalty was so small.”
He added that, because of the COVID-19 pandemic, the petition might be in vain.
“Compared to the pandemic, this isn’t a major issue for politicians.”