Back in 2014, compliance officers with the Financial Services Commission of Ontario (FSCO) uncovered evidence of syndicated mortgages being marketed and sold illegally by Fortress Real Developments, and subsequently sent their findings to the regulator’s investigative arm.
However, documents recently uncovered by Reuters showed that FSCO investigators did nothing in response to the allegations.
The Reuters investigation further found that from 2011 to 2015, senior FSCO investigators have rejected or ignored compliance officers’ multiple recommendations that the regulator impose restrictions on the marketing and sales of Fortress syndicated mortgages.
Read more: Do the proposed amendments to syndicated mortgages go too far?
Said products have placed the savings of thousands of Canadian investors at grave risk.
For instance, in 2013, FSCO staff begun an investigation with information from the Canada Revenue Agency suggesting that Fortress syndicated mortgages were a Ponzi scheme. FSCO investigators closed the file less than a month later for “lack of valid or reliable information to support further investigation.”
According to the compliance officers’ findings, Fortress-affiliated brokers have misled clients by telling them that they could put their investments in retirement savings accounts administered by a trust company not licensed to do business in Ontario.
The activity was in clear violation of provincial law, the compliance officers determined. But Executive Director for Licensing and Market Conduct Anatol Monid decided in May 2015 that there was not enough evidence to act on the findings, according to the documents uncovered by Reuters.
It remains unclear why the FSCO investigation team repeatedly declined to pursue recommended investigations. FSCO staff said that the investigators were discouraged by senior regulators from pursuing complex cases, as they lacked the required skills and knowledge (most of them worked as police officers prior to joining the regulatory agency).
FSCO said it could not confirm or deny the existence of any investigation.
“In cases where FSCO believes there may be evidence of non-compliance with legislation and regulations, FSCO conducts a thorough investigation,” the agency told Reuters. “FSCO requires a high standard of proof and evidence to take enforcement action.”
Fortress spokeswoman Jenni Byrne said in a written statement: “Fortress will continue to vigorously defend themselves against false untrue claims.”
“[FSCO] could have removed this problem earlier,” according to certified fraud examiner Bill Vasiliou, who was responsible for regulating Ontario’s mortgage industry prior to the formation of FSCO in 1997. “There were complaints registered, and they buried them. They didn’t do anything about it.”
Widespread mortgage fraud helps people buy homes - agent