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Jawad Rathore, chief executive officer and majority owner of troubled Fortress Real Developments, has a history of run-ins with regulators dating back to the early 2000s.

Different regulators, that is.

In 2005, the Mutual Fund Dealers Association of Canada banished him for life from the mutual fund industry.

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Six years later, the Ontario Securities Commission banned him from trading in securities or giving securities advice for 15 years.

But Mr. Rathore never really got out of the business of selling investments. He didn’t have to.

Fortress, based in Richmond Hill, Ont., would go on to sell nearly $1-billion worth of risky syndicated commercial real estate mortgages to thousands of often unsophisticated small investors between 2008 and 2017, according to a sweeping investigation of Fortress by reporter Janet McFarland in Saturday’s Globe and Mail. Several of the real estate projects its mortgages funded are now in trouble. The company is also facing an RCMP investigation, several class-action lawsuits and possible fines for undisclosed violations by the Financial Services Commission of Ontario (FSCO), which regulates mortgage brokers.

Many investors risk losing everything.

A reasonable person might wonder why someone with Mr. Rathore’s track record was allowed anywhere near retail investors. Maybe securities regulation in Canada is like baseball: It takes three strikes to get you out.

The problem is that the earlier sanctions imposed by the OSC and the Mutual Fund Dealers Association did not extend to Fortress and its syndicated mortgage activities, which are covered by another regulator – the Financial Services Commission of Ontario. Fortress arranged early-stage construction mortgages on condos and other projects and then sold them to small investors through a network of affiliated brokers.

The good news – if there is one in this sad saga – is that Ontario is moving to tighten rules around the selling of sophisticated mortgage and insurance products. The objective is to ensure they’re regulated as strictly as other investment products, which is currently not the case. Next year, the province will replace the FSCO with a new, independent regulator, called the Financial Services Regulatory Authority.

A provincial panel has recommended that the OSC eventually take over regulation of syndicated mortgages. Under a proposed rule, mortgage issuers would have to file an “offering memorandum” with the commission before selling a product to retail investors.

The FSCO has also implemented a series of reforms of its own. Small investors are now limited to investing a maximum of $60,000 into most types of syndicated mortgages in any 12-month period. Mortgage brokers must also provide investors with an official land appraisal and a written warning of the risks involved.

All of this is likely cold comfort to many existing investors in Fortress and its network of mortgage brokers. For them, it’s way too late.

There are obvious lessons to be learned here, starting with the fractured nature of securities regulation in Canada. There is no shortage of regulators – federal, provincial, industry-run, with layers multiplied across the many sectors of financial services.

But this patchwork of agencies can leave investors badly exposed, particularly if regulators are not actively sharing information, co-ordinating enforcement and applying similar rules across different types of retail financial products. Too often regulators are playing catch-up.

Perhaps what is most troubling about the Fortress story is that there were plenty of warning signs. The earlier sanctions brought against Mr. Rathore should have been red flags to regulators and investors alike. Unfortunately, that track record was not readily visible to unwitting investors.

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It’s still far too easy for bad actors – even when caught – to continue doing what they’ve been doing. They can move from industry to industry, product to product, or down the Trans-Canada highway to another province. A 2017 Globe and Mail review of three decades of disciplinary cases found that one in nine people found guilty of financial crimes by a securities regulator in Canada returned to do it again.

Of course, investors share responsibility. They need to better educate themselves about what they are buying, and to know the risks. Commercial mortgages are not like GICs or mutual funds.

But governments and regulators also have an obligation to adequately protect investors from unseen risks, including conflicts of interest, hidden commissions and previous enforcement actions.

It’s not clear that investors enjoy that kind of protection when it comes to non-traditional investments, such as syndicated mortgages. It’s still the Wild West out there.

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