Investors face major losses as court finds real estate executives guilty of syndicated mortgage fraud
The co-founders of Fortress Real Developments Inc. have been found guilty of fraud, as reported by The Globe and Mail, with the Ontario Court of Justice ruling they misled thousands of investors about the security of syndicated mortgage loans worth $920m.
Justice Daniel Moore stated he was satisfied beyond a reasonable doubt that Fortress co-founders Jawad Rathore and Vince Petrozza intentionally misled retail investors by basing loan-to-value ratios on future estimates instead of actual values.
“While they likely hoped that all the projects would be successful and the investors would be paid back,” Moore said, “I find beyond a reasonable doubt that they knew they were putting investor funds at risk.”
More than 14,000 investors participated in 80 real estate projects under Fortress, some of which were completed, while others failed.
According to the court, the actual “as is” property values were withheld from investors, and this “amounted to non-disclosure of material facts.”
The judge said their business model “would have worked if [loan-to-value] was calculated on an ‘as is’ value.”
The case, according to The Globe and Mail, focused on two real estate developments: the SkyCity tower in Winnipeg and the Collier Centre in Barrie, Ontario.
The court-appointed trustee, FAAN Mortgage Administrators, has stated that investor losses could total in the hundreds of millions, while the group Victims of Syndicated Mortgage Investments (VOSMI) has estimated the figure at $416.7m.
The verdict carries a minimum two-year prison term, as fraud over $1m mandates under the Criminal Code.
One investor, Ekaterina Denisevich, said she lost $170,000 across several Fortress projects.
Another, Corinne Sutej, who invested $25,000 in a Calgary project and lost 90 percent, said the ruling affirmed that investors were right to feel deceived.
The defence argued during the trial, which began in October, that disclosures were made indicating the speculative nature of the investments.
The Crown earlier dropped charges related to secret commissions.
Sources: The Globe and Mail; Reuters
