The Ontario Provincial Police have launched an investigation into fraud allegations involving the use of syndicated mortgage investment funds from the Tier 1 group of companies.
This comes one year after the Financial Services Commission of Ontario (FSCO) suspended the licenses of two mortgage brokers – Tier 1 Mortgage Corp. and First Commonwealth Mortgage Corp. – during an investigation into 16 syndicated mortgage investment pools the firms were promoting to investors.
The mortgage pools raised $119-million from 1,500 investors to fund a development group planning to build condominiums and student residences.
A report by accounting firm Grant Thornton, which has been appointed as trustee for the mortgage investors, said the OPP's anti-rackets branch is investigating a condominium project at 28 McMurray St. W. in Bracebridge, Ont., that was one of the developments funded by the syndicated mortgage loans.
The OPP sent a letter to investors in the McMurray project saying it is trying to identify victims and witnesses who will speak to the police.
Grant Thornton said it also contacted the RCMP about the case. The trustee's report asks for court approval to give police the names of investors in the McMurray loans, and says it anticipates police will ask for names of investors in the other, related projects as the investigation continues.
Toronto lawyer David Franklin, who is representing investors who lost money in the Tier 1 mortgage pools, said he contacted the OPP about the case because he was concerned that investors appeared to have lost money due to wrongdoing.
"They were told these are safe, secure investments, you'll get 8 per cent on your money, it's good for your retirement and it's RRSP eligible," Mr. Franklin said.
Mr. Franklin said he believes FSCO took too long to act on concerns about wrongdoing that stretched back for years, and most of the investors' money has been lost as result.
"FSCO has failed completely in its duty to protect the public interest with respect to these syndicated equity development mortgages," Mr. Franklin said.
According to court filings, FSCO suspended the two mortgage broker firms' licenses in October, 2016, after an investigation concluded that they promoted and sold the mortgage investments in violation of mortgage lending rules.
FSCO alleged it discovered numerous conflicts of interest involving Bhaktraj Singh, who was a senior executive at the mortgage broker companies that were marketing the syndicated loans. FSCO said Mr. Singh was also a "director, officer, shareholder (either directly or indirectly) and/or profit participation interest holder" in most of the development groups that borrowed from the mortgage pools.
The regulator said investors were not told about Mr. Singh's "clear conflict of interest" in marketing the syndicated mortgage investments without clearly disclosing he would also benefit from loans to entities in which he had a financial interest.
Mr. Singh's lawyer could not be reached for comment on Tuesday, but has said Mr. Singh denies the allegations and believed he had taken steps "that were to the benefit, not the detriment" of the syndicated mortgage investors.
Grant Thornton, which is overseeing 11 companies that held mortgages issued using the investors' funds, said in court filings it has concluded that most of the companies had loans outstanding for projects run by a group known as the Davies Developers headed by real estate developer John Davies. The group included Mr. Singh and others.
Earlier this year, the trustee asked the court to appoint a receiver – KSV Kofman Inc. – to take control of the eight Davies Developers properties.
In a report filed in court in June, KSV concluded only a small percentage of money borrowed from the investors appeared to have been used for its intended development purposes, while millions of dollars were paid to the Davies Developers group in management fees, consulting fees, dividends and loans.
Among the payouts, a private family company owned by Mr. Davies received $5.4-million, "including at least $4.1-million in prohibited management fees and $875,000 in dividends," KSV said in a report filed in court. KSV said Mr. Davies and his family members received more than $1.3-million, which was used toward mortgages on Mr. Davies's personal residence and cottage.
In a court filing in July responding to the claims, Mr. Davies said the allegations are "unsupportable and entirely without merit."
Mr. Davies said development fees he received were consistent with industry standards and used to pay administrative costs, and said there "was nothing 'secret' or 'covert'" about them. He said payments of funds to his personal companies were fees "that had been properly earned."
Mr. Davies also said he has no assets, has lost his home and business, and has large debts outstanding, including money owed for unpaid taxes that he cannot pay.
"This has been deeply distressing to both me and my entire family," he said in an affidavit.