OSC investigating alleged $30m real estate fraud

OSC investigating alleged $30m real estate fraud

OSC investigating alleged $30m real estate fraud Some Canadians may be regretting their hunger for investment in real estate. The CEO of a real estate investment company is now facing allegations of misusing investors’ funds to buy an expensive home, luxury cars and to pay himself “excessive” management fees totalling over $1 million.

Titan Equity Group’s CEO, Lance Kotton, raised $30.7 million from 335 investors starting in 2011 against three development properties in York Region, the Ontario Securities Commission alleges in court documents.

Investors are owed approximately $21.6 million, but no criminal charges have been laid yet. The OSC is still investigating.

Various investors in the Titan Group commenced inspectorship proceedings on two separate occasions. In the first case in May, the allegations were suspicion regarding the use of funds, inadequate financial disclosure, insufficient funds to meet obligations and commingling of funds.

The second proceeding conducted by the court-appointed inspector, the Fuller Landau Group Inc., delivered a report to the court dated August 27, 2015. Some of the findings were:
  • significantly incomplete internal and externally reviewed accounting records
  • a single bank account was used for multiple development projects
  • the investor funds were deposited into Executive Leasing's bank account and were comingled with funds raised on other projects, over $1 million was expensed by Titan 230 Major Mack Inc for management fees, which appears to be inconsistent with the policies for payment of management fees;
  • payments totaling over $482,000 were made to "Maple Leafs Sports and Entertainment Ltd." in respect of fiscal 2013 and 2014 which were capitalized in the books of 230 Major Mack Holdings Inc. as a cost of the property under development.

Kotton told the Toronto Star he was ambushed before he had time to defend himself by the OSC. His company, home and assets were tied up by the court.

“They’ve taken my office. They sent a receiver to itemize every item in my home. They’re trying to liquidate everything before I have a chance to prove myself,” Kotton said to The Star.

The OSC also alleges that “the misappropriation of investor funds to Kotton’s personal benefit constitutes fraud.”

Asked about the allegations, Kotton dismissed them as “half truths.” Kotton said he followed proper procedures when selling securities to investors.