The judge let the bad-faith claim live - and reminded advisors that a license is not a seal of approval
An Ontario judge has cleared seniors to sue the province's former financial regulator over a syndicated mortgage scheme that consumed their retirement savings in a failed Guelph project - and the ruling lands squarely on advisors who steer clients into alternative real estate products.
In an endorsement released on May 7, 2026, Justice Ranjan K. Agarwal of the Ontario Superior Court of Justice granted Betty Wei and Lawrence Vanderklei leave to pursue a proposed class action for misfeasance in public office against the Crown and two senior officials of the Financial Services Commission of Ontario (FSCO). The plaintiffs say FSCO's failure to act earlier on Tier 1's risky syndicated mortgage investments was an act of bad faith.
Justice Agarwal did not decide whether FSCO actually behaved badly. That is for the trial judge. But he found a reasonable possibility that a court could infer the regulator's conduct was, in his words, so inexplicably and seriously careless that a trial judge could infer bad faith.
The story behind the ruling is one wealth professionals will recognize. The plaintiffs are senior citizens. In 2016, on the recommendation of their financial advisor, they attended a series of presentations and put roughly $220,000 of their retirement savings - moved through Olympia Trust - into a Guelph student housing project called Textbook Student Suites.
What they got, on paper, was a FSCO Form 1 disclosure. The form carries the regulator's logo but plainly states that FSCO has not reviewed or approved it. They were not given a copy of the appraisal. They were not told their investment sat behind $75m in construction financing, or that they could not act on the security without the first mortgagee's consent. The loan-to-value ratio was 100 percent. The lawyer who advised them had been retained by Tier 1.
The project failed. Receiver KSV Kofman found that of $8.4m raised, only $29,000 went to development. Almost $5m flowed to shareholders, referral and commission fees, legal fees and an undisclosed reserve. When the property eventually sold for $7.5m, every cent went to the first mortgagee. The plaintiffs got nothing back from that sale. Grant Thornton, suing Tier 1 in 2018, alleged the operation had raised more than $130m and looked like a Ponzi scheme, with later investors' money paying earlier ones.
For advisors, the most useful piece of the ruling is what the court would not allow. Justice Agarwal denied leave to proceed on both the negligence and misconduct by a public authority claims, reaffirming the rule from Cooper v Hobart that the regulator's duty runs to the public at large, not to any individual investor. A license is not a seal of approval. Leaning on the fact that an issuer or mortgage broker is registered is not a substitute for doing the work on the product itself.
The case also drags the Fortress/Tier 1 saga back into view. Tier 1 borrowed its model from Fortress Real Developments, which raised $920m at its peak. Fortress principals Jawad Rathore and Vince Petrozza were found guilty of fraud in May 2025. Olympia Trust - the Alberta-based custodian that handled the registered-account flows into the SMIs at issue - was hit with a FSCO cease-and-desist in June 2017.
The trial judge will decide whether FSCO acted in bad faith. The lesson for advisors has already arrived.
