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A home at 211 Glenview Dr. in Mississauga on Sept. 23 2020. This home, an asset of developer Moninder Khudal, has been ordered frozen by an Ontario judge.

Fred Lum/The Globe and Mail

An Ontario judge has ordered the assets of Toronto-area developer Moninder Khudal to be frozen, ruling that Mr. Khudal appears to have perpetrated an investment scheme against “his own community for personal enrichment.”

More than 80 families, most of them from the large Sikh community in Brampton, Ont., have alleged in a lawsuit that $38-million they collectively invested in real estate companies controlled by Mr. Khudal has been misappropriated. On Monday, Justice Frederick Myers forbid Mr. Khudal and his wife, Ramanpreet Khudal, from selling or transferring any assets – what is known as a Mareva injunction and ordered that notices of pending litigation be placed on a dozen properties connected to them. That includes the couple’s residence, a luxury home with a pool in Mississauga that had been listed for sale for $4.9-million.

Although Justice Myers cautioned that his findings are based only on a preliminary review of evidence, and not a full trial, he likened Mr. Khudal’s real estate investment companies – which enticed investors with promises of high returns and “principal security” – to a Ponzi scheme. Such schemes require a constant stream of new investors to satisfy interest payments to previous investors because the core business isn’t generating enough, or any, money.

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Justice Myers said the freezing order was necessary because there was a risk the Khudals will move assets out of Ontario. “The brazenness of the Ponzi scheme leads me to infer a lack of empathy that will likely lead the perpetrators to want to keep their booty.”

Lawyers for Mr. Khudal did not respond to a request for comment. In court filings, Mr. Khudal has said he will fight the investors' lawsuit and he denies their “allegations vociferously.”

In a statement, Kevin Sherkin, the lawyer for the investors, said, “Our clients are very pleased with the result of the motion and hope this is the first step to recovering some or all of the funds that they have lost.”

As Toronto real estate prices have skyrocketed, there have been a spate of cases before the courts and the Ontario Securities Commission in which retail investors have alleged they were taken in by schemes that offered them a piece of the action through various investment vehicles.

In this case, investors allege Mr. Khudal utilized salespeople, who worked for his mortgage brokerage firm, Financial Ties Ltd., to solicit funds for his development projects, such as a failed 119-unit condominium project in Toronto’s east end called On The Danforth. Some of these investments took the form of shares in Mr. Khudal’s development companies, while others were syndicated mortgages and loans. Financial Ties solicited prospective clients “on radio and television programs in the South Asian community,” court records show.

One investor, 77-year-old Kulwinder Liddar, said in an affidavit that she invested $100,000 with Mr. Khudal for a term of four years. When she met with him as the investment was about to mature in October, 2019, he told her he had invested her funds in a luxury home north of Toronto, and that she wouldn’t receive the funds until the house was sold, her affidavit states. Since then, she has not received back her $100,000 principal and Mr. Khudal has not responded to her phone messages, she alleges.

Justice Myers found that, although Mr. Khudal and Ms. Khudal were both licensed investment professionals in the past, they did little due diligence concerning the risk tolerance of their clients.

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“They raised tens of millions of dollars from trusting community members with no compliance, with rudimentary ‘know your client’ and suitability assessment compliance.”

A spokesperson with the Ontario Securities Commission, which regulates the sale of securities, declined to comment on the case, and whether it was reviewing the matter.

Justice Myers also took issue with what the Khudals said they knew, or didn’t know, about how investors' money was used. Seema Makhija, a former part-time chief financial officer for some of Mr. Khudal’s companies, co-operated with lawyers for the investors and provided them with ledgers that she said she reviewed with Mr. Khudal monthly.

But under cross-examination by the investors' lawyers, Mr. Khudal said he could not explain why investment funds moved back and forth between his companies, or why he didn’t understand his companies’ books. “I just don’t understand the accounting ... I just don’t know how it works,” he said.

Justice Myers called the explanations “facile and inadequate.”

“So, where is the money?” Justice Myers asked in his ruling. “If [the Khudals] continue to feign ignorance the process will take longer, will be expensive, time consuming and stressful. But either way, the financial documents are obtainable and money will be traced.”

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