A panel of the Ontario Securities Commission has ordered the principals of Paramount Equity Financial Corp., which sold pooled mortgage products until it was shut down in 2017, to pay $47.2-million, after they were found to have defrauded investors.
But one of the defendants, the company’s chief executive, has gone missing, and another defendant is collecting employment insurance, raising questions as to how much of the judgment will be paid.
Paramount and several affiliate companies, which were placed under the control of a receiver at the request of the OSC in 2017, promoted themselves as a vehicle for investing in second mortgages on residential homes. They raised about $78-million from 500 investors for their two funds.
About $50-million was instead directed to higher-risk mortgages for undeveloped land, or the redevelopment of existing buildings. The OSC panel, called the Capital Markets Tribunal, also found in April, 2022, that the principals of Paramount – CEO Marc Ruttenberg, senior vice-president Brad Burdon and director of sales Matthew Laverty – had undisclosed, indirect ownership interests in these riskier development projects.
In the panel’s directive, which it issued on Tuesday, it ordered the three men to pay back $43.61-million in ill-gotten gains from the fraud. The panel said Mr. Laverty should contribute no more than $13-million of that amount.
The panel said Mr. Laverty played a smaller role in the fraud than the other two men and was “sincere in his efforts and honest in his intentions.” But, the panel said, he had responsibility for reviewing the marketing materials and had an ownership interest in the group of companies, “through which the individual respondents engaged in hidden self-dealing.”
The panel also ordered administrative penalties of $1.5-million, $1-million and $500,000, respectively, for Mr. Ruttenberg, Mr. Burdon and Mr. Laverty. The three must also reimburse the OSC for $600,000 in investigative costs.
The three are subject to market-participation bans. All received permanent prohibitions against acting as directors and officers of any company registered with securities regulators. Mr. Ruttenberg and Mr. Burdon also received permanent bans against trading securities, while Mr. Laverty’s is a five-year prohibition.
The OSC said it was unable to locate Mr. Ruttenberg when it started its enforcement proceeding, and that the most up-to-date address it had for him is a post-office box in a Toronto UPS store. In its order, the panel said Mr. Ruttenberg did not appear, provide evidence, make submissions or participate in any other way in the proceeding.
The panel said Mr. Burdon’s written submissions provided in the sanctions phase “tried to re-litigate issues that the merits panel had already determined. He also made factual assertions unsupported by evidence, as well as irrelevant statements.”
The panel said Mr. Laverty submitted an affidavit that established that he has “minimal assets and a negative net worth.” He declared bankruptcy in 2019 and has not been able to work in the financial industry, instead finding odd jobs in construction and at car dealerships. “He currently relies on employment insurance. Laverty lives either at his brother’s or his son’s homes, depending on where he can find work.”
But, the panel said, “it would be perverse here to extend to Laverty the sympathy he seeks when his own misconduct significantly harmed investors and prevents them from experiencing a similar sort of relief.”
The OSC calculated the $43.61-million financial penalty by taking the $78.6-million originally raised from investors and subtracting $30-million, the amount that a court-appointed receiver has recovered and distributed to investors. It also subtracted $5-million, an amount that Paramount properly invested in residential second mortgages, and that was not obtained by fraud, the panel said in its order.
“We cannot be certain whether there will be any further recovery in the future,” the panel said.
David Milstead