The Royal Canadian Mounted Police have charged two men with fraud in connection with a syndicated mortgages scheme involving Fortress Real Developments, following a years-long investigation.
Jawad Rathore of Markham, Ont., and Vince Petrozza of Richmond Hill, Ont., co-founders of Fortress, are accused of “orchestrating an ongoing scheme whereby they did not disclose the various risks to brokers and investors.”
They are each charged with one count of fraud under the Criminal Code and one count of “secret commissions.”
The investigation, dubbed Project Dynasty, began following a 2016 complaint to the RCMP, alleging Fortress “was fraudulently obtaining investments in a syndicated mortgage investment scheme.” The RCMP’s Integrated Market Enforcement Team (IMET) obtained six warrants and searched Fortress’s offices in 2018.
The two accused are scheduled to appear in court Aug. 3.
None of the allegations have been proven.
A syndicated mortgage involves two or more investors backing a real estate development. Syndicated mortgages have been used to fund commercial and large-scale residential real estate developments in their early stages, and projects include condominiums as well as office and retail complexes.
Canada’s syndicated mortgage market grew rapidly amid a general real estate boom, ballooning to $6 billion in 2016. Many are solid investments that are discharged without incident.
But Fortress drew a number of complaints and lawsuits, with claims that investors were put into developments that were far riskier than they were led to believe. Others alleged investors were misled about where their money was going and how much was being held back and paid in commissions, who had priority on returns, and what recourse they had if the development ran into trouble.
In response to the lawsuits, Fortress denied any wrongdoing and moved to have the cases thrown out of court.
By 2018, thousands of retail investors seeking to capitalize on the real estate boom and searching for greater yield amid record low interest rates had put as much as $1.5 billion into syndicated mortgages, regulatory sources told the Financial Post at the time, with more than half connected to Fortress projects.
In addition to complaining to the RCMP, unhappy investors, many of whom had lost money, pressured regulators to get involved.
In February of 2018, four individual brokers and four brokerages who were involved in the distribution of syndicated mortgage investments for projects linked to Fortress were sanctioned by the Financial Services Commission of Ontario, part of a $1.1 million settlement that saw several lose their broker licences.
While Fortress was not a party to the settlement or subject to any of the orders handed down by FSCO, Petrozzo, who was Fortress’s chief operating officer at the time, had his mortgage broker licence revoked on consent.
In 2020, FSCO’s successor entered a settlement with Fortress in which the company was levied $250,000 in administrative penalties. FSRA said Fortress contravened the Mortgage Brokers, Lenders, and Administrators Act by “providing services to borrowers for the purpose of financing property developments while FRDI (Fortress) was not licensed to do so.”
The regulator said Fortress “assisted borrowers in connecting to mortgage brokers and administrators, which allowed these brokers to raise over $900 million in syndicated mortgage loans.”
Read more at : Financialpost.com.