Interim Compliance Order to Cease and Desist Unlicensed Activity and Notice Of Proposal to Impose Compliance Order to Cease and Desist Unlicensed Activity Against Spartan Financial

Regarding the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c.29, in particular sections 2, 21 and 35.
 
And Regarding Spartan Financial Inc.

Interim Compliance Order To Cease And Desist Unlicensed Activity

 

And


Notice Of Proposal To Impose Compliance Order To Cease And Desist Unlicensed Activity

 

To: Spartan Financial Inc.

Subsection 35(2) of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (the "Act") provides that the Superintendent of Financial Services (the "Superintendent") may order a person or entity to cease committing an act or cease pursuing a course of conduct identified by the Superintendent or to perform such acts as, in the Superintendent's opinion, are necessary to remedy the situation. 

Subsection 35(3) of the Act provides that where the Superintendent proposes to make a compliance order, the Superintendent shall give written notice of the proposal to the licensee, including the reasons for the proposal.

Subsection 35(7) of the Act provides that, if in the Superintendent's opinion, the interests of the public may be adversely affected by any delay in making an order as a result of the steps required by section 35, the Superintendent may, without notice, make an interim order and may do so before or after giving the notice required by subsection 35(3).

Interim Compliance Order To Cease And Desist Unlicensed Activity

 
It is ordered that that pursuant to sections 2, 11 and 35 of the Act, and for the reasons described below, Spartan Financial Inc.:

 

  1. Immediately cease soliciting persons or entities to borrow or lend money on the security of real property in Ontario, or holding itself out as doing so, including the deactivation of the website http://spartanfinancial.ca and other internet or social media content including but not limited to content on Facebook, Twitter, LinkedIn and YouTube; and
  2. Immediately cease otherwise dealing in mortgages as defined in section 2(1) of the Act.

Take notice that this Interim Order takes effect immediately and will remain in effect until the expiry of the period for requesting a hearing in respect of the Superintendent's Notice of Proposal set out below.

And take notice that pursuant to subsections 48(4) and 49(1) and (2) of the Act, every person who fails to comply with an order made under this Act is guilty of an offence and every individual convicted of an offence under the Act is liable to a fine of not more than $100,000.00 or imprisonment for a term of not more than a year or both a fine and imprisonment.  Every corporation convicted of an offence under the Act is liable to a fine of not more than $200,000.00.

Pursuant to subsection 48(5) of the Act, every director or officer of a corporation that commits an offence under this Act who directed, authorized, assented to, acquiesced in or participated in the commission of the offence, or who failed to take reasonable care to prevent the corporation from committing the offence, is guilty of an offence, whether or not the corporation is prosecuted or convicted.

Subsection 48(6) provides that every partner of a partnership and every individual who is a member of the directing body of an entity, other than a person or partnership, who directed, authorized, assented to, acquiesced in or participated in the commission of an actor omission by the partnership or entity which, if committed by a person, would be an offence under the Act, is guilty of an offence.
 

Notice Of Proposal To Impose Compliance Order To Cease And Desist Unlicensed Activity


Take notice that pursuant to sections 2, 11 and 35 of the Act and for the reasons described below, the Superintendent is proposing to order Spartan Financial Inc.:
 

  1. Immediately cease soliciting persons or entities to borrow or lend money on the security of real property in Ontario, or holding itself out as doing so, including the deactivation of the website http://spartanfinancial.ca and other internet or social media content including but not limited to Facebook, Twitter, LinkedIn and YouTube; and
  2. Immediately cease otherwise dealing in mortgages as defined in section 2(1) of the Act.

And take notice that pursuant to subsection 35(3) of the Act, a hearing before the Financial Services Tribunal about this proposal may be requested by completing the enclosed Request for Hearing (Form 1) and submitting it to the Tribunal within 15 days after the Notice is received. A copy of that form is included with this notice. Additional copies can be obtained by visiting the Tribunal's website at www.fstontario.ca [New Window].  

If a written request for a hearing is made within 15 days, subsections 35(4) and 35(5) of the Act provide that the Tribunal shall hold a hearing and decide whether or not to direct the Superintendent to carry out this proposal, with or without changes, or substitute its opinion for that of the Superintendent, and the Tribunal may impose such conditions as it considers appropriate in the circumstances. If a hearing before the Tribunal is requested, the Superintendent may extend the interim compliance order until the proposal is finally determined.

If no written request for a hearing is made within 15 days after this Notice is received, take notice that the Superintendent will carry out the proposal to make the compliance order as set out above. 

Completed Request for Hearing Forms must be received by the Tribunal within 15 days after this notice is given. They may be mailed, faxed or delivered: 

To:             

 

Financial Services Tribunal

5160 Yonge Street
14th Floor
Toronto ON  M2N 6L9

Attention: Registrar                                        

Fax: 416-226-7750

And To:      

 

Superintendent of Financial Services 

Regulatory Discipline Officer

Licensing and Market Conduct Division

5160 Yonge Street
Toronto ON  M2N 6L9                                     

Fax: 416-590-7070


The hearing before the Tribunal will proceed in accordance with the Rules of Practice and Procedure for Proceedings before the Financial Services Tribunal made under the authority of the Statutory Powers Procedure Act, R.S.O. 1990, c. S. 22. Those Rules are available at the website of the Tribunal: www.fstontario.ca [New Window]. Alternatively, a copy can be obtained by telephoning the Registrar of the Tribunal at 416-590-7294, or toll free at 1-800-668-0128 ext. 7294.

At a hearing, the character, conduct and/or competence of the officers and directors of Spartan Financial Inc. may be in issue. You may be furnished with further and or other particulars, including further or other grounds, to support this proposal.

Si vous désirez recevoir cet ordre et avis en français, veuillez envoyer votre demande immédiatement à: Adjointe, audiences, Greffe, Commission des services financiers de l'Ontario, 5160 rue Yonge, boîte 85, Toronto ON M2N 6L9.


Reasons For Interim Compliance Order and Proposal For Permanent Compliance Order

Unlicensed Activity

 

  1. Section 2(2) of the Act prohibits any person or entity from carrying on the business of dealing in mortgages in Ontario unless he, she or it has a brokerage licence or is exempted from the requirement to have such a licence.  No exemptions apply in this case.
  2. Section 2(1) of the Act defines "dealing in mortgages" as engaging in any of the following activities or holding oneself out as doing so:
    1. Soliciting another person or entity to borrow or lend money on the security of real property;
    2. Providing information about a prospective borrower to a prospective mortgage lender; 
    3. Negotiating or arranging a mortgage on behalf of another person or entity, or attempting to do so.
  1. Section 11(1) of the Act states that "[n]o person or entity shall use in Ontario the title of 'mortgage brokerage' … unless he, she or it is licensed as a mortgage brokerage."  

Background

  1. Spartan Financial Inc. ("Spartan") is a corporation incorporated in Ontario with its registered office in Barrie, Ontario.  Spartan is not licensed as a mortgage brokerage under the Act.
  2. Michael Parker is the Chief Operating Officer and a Director of Spartan.  Mr. Parker is also a licensed mortgage broker (Licence # M10002235).  Mr. Parker is authorized to deal and trade in mortgages on behalf of Turnbull Financial Inc. (carrying on business under the trade name The Mortgage Centre) a mortgage brokerage licensed under the Act (Licence # 12569). 

Spartan Website

  1. A website exists under the name "spartanfinancial.ca" which displays the Spartan name and emblem on each page of the website (the "Spartan Website").  The Spartan Website also displays the Mortgage Centre's name on each page of the website immediately next to the Spartan name and emblem.  The homepage of the Spartan Website describes Spartan's aim to "help our clients increase their net worth, through responsible mortgage lending, consumer debt elimination, and strategic investing." 
  2. The section of the Spartan Website entitled "Disclosure" states that Spartan "itself, is not a licensed Mortgage Brokerage" but is described as "an introductory source of various real estate investments and financing options". 
  3. Mr. Parker is identified as the contact person for Spartan in the disclosure section of the Spartan Website.  Elsewhere on the Spartan Website, Mr. Parker's phone number and e-mail address are identified as the contact for Spartan.   
  4. The Spartan Website is aimed at soliciting persons or entities to borrow or lend money on the security of real property.   Specifically, the content on the Spartan Website as captured during the period October 21 to 26, 2015 which constitutes solicitation under the Act includes the following:
    1. The Spartan Website features a tab labelled "Mortgage Lending" that contains content identified as "introductory information on the wide array of mortgage financing options we have access to."  This content is separated according to categories labelled "BUYING PROPERTY", "REFINANCING", "RENEW" and "OTHER SOLUTIONS".  Under each of the categories, in turn, there is detailed promotional information designed to encourage or induce a person to  borrow money under a mortgage;
    2. The Spartan Website also features a tab labelled "Reverse Mortgage" that contains content describing the "CHIP Home Income Plan". This plan is advertised as "the simple and sensible way to turn up to 50% of the value that is locked up in your home into tax-free cash you can use today." The content includes two videos, one that describes reverse mortgages and a second that examines myths and facts about reverse mortgages. 
    3. The tab labelled "Investing" on the Spartan Website encourages viewers of the website to "speak with us rather than going directly to the product issuer." This section of the Spartan Website notes that Spartan Financial Inc. is a mortgage brokerage. 
    4. The Spartan Website has a search function. A search of the word "syndicate" yields two results within the Spartan Website. The first result, entitled "Syndicated Mortgage Investments", brings the user to a section of the Spartan Website dedicated to syndicated mortgages. It describes what a syndicated mortgage is, that they are registered funds eligible and explains that each lender has his or her principal registered on title.  This "investment option" is branded as having certain specific, listed traits: 
      1. Pays 8% interest per year for standard 3 year term RSP, RESP, TFSA, RIF, LIRA, LIF and of course CASH eligible
      2. Is secured by a mortgage registered against real estate in your name
      3. Additional profit participation 10-14% (estimated – calculated on amount invested) on 3 year terms or longer
    5. The viewer is invited to learn more about this opportunity and a link provides the contact information for Mr. Parker.

      The second search result is entitled "Investments". The link takes the viewer to a section of the Spartan Website that encourages the viewer to consider alternative investment strategies beyond stocks, bonds, mutual funds and GICs. The viewer is told that Spartan can consult on how to "use your RRSP, RESP, LIRA, TFSA and other registered savings accounts to invest in one of the most reliable and secure investments available to you." This page then describes three "Investment Products". The first product is called "Syndicated Mortgage Investments – Development Projects" and offers yields averaging 12% per year on minimum investments of $25,000. Product two is called "Private Mortgage Lending – Consumer Mortgages", which offers yields between 8-12% per year on minimum $10,000 investments. The third product is labelled "Equity Based Real Estate Investment – Development Projects". Yields for this product area are noted to "typically start at 14% per year" with minimum investments of either $50,000 for accredited investors and $150,000 for non-accredited investors. All three products are described as "registered funds eligible."

Previous Warning Regarding the Spartan Website

  1. Mr. Parker had been previously warned about ensuring that the Spartan Website is compliant with the Act. On May 26, 2014, FSCO alerted Royden Deeks, the principal broker for whom Mr. Parker worked, that two websites operated by Mr. Parker were not in compliance with FSCO regulations and the Act. These websites were "spartanfinancial.ca" a previous incarnation of the current website with the same name, and "rsprockstar.ca". These website featured promotional material designed to solicit persons or entities to borrow and lend money on the security of real property. 
  2. Mr. Deeks conveyed FSCO's warnings to Mr. Parker on or about May 26, 2014 or May 27, 2014. On May 27, 2014, after being alerted to the website's non-compliance with the Act, Mr. Parker confirmed to Mr. Deeks in an email that he had removed all content from both websites. In his email to Mr. Deeks, Mr. Parker promised not to publish any content on his websites until he had reviewed the deficiencies with Mr. Deeks and that his objective was to "meet or exceed FSCO requirements."
  3. Since May 27, 2014, "spartanfinancial.ca" has been reincarnated in its current form. Despite Mr. Parker's awareness of the deficiencies in his first websites and his stated desire to adhere to FSCO's requirements, the second version of the Spartan Website fails to meet these standards as it solicits persons or entities to borrow or lend money on the security of real property as outlined above. 

Unlicensed Activity

  1. On the basis of the above information and evidence, the Superintendent has grounds to believe that Spartan is dealing in mortgages in Ontario without being licensed under the Act.  In particular, the Spartan Website contains content which constitutes the solicitation of another person to borrow and lend on the security of real property.
  2. The Spartan Website also identifies Spartan as mortgage brokerage contrary to section 11(1).
  3. Section 35(7) of the Act provides that, if in the Superintendent's opinion the interests of the public may be adversely affected by any delay in making a permanent compliance order as result of the steps required by section 35, the Superintendent may, without notice, make an interim order and may do so before or after giving the notice of his proposal to issue a permanent compliance order under section 35(3).
  4. The Superintendent is of the opinion that "the interests of the public may be adversely affected by any delay in making an order" and, therefore, the issuance of the interim compliance order is necessary. The Spartan Website is still active and contains the content outlined above.  This content alone constitutes solicitation contrary to the Act.  Spartan is unlicensed.  Spartans activities, including its solicitation activities through its promotional web based material, are not otherwise subject to the requirements of the Act or oversight by the Superintendent.
  5. Accordingly, the interest of the public will be affected by any delay in making a compliance order. The criteria for issuance of an interim compliance order has, therefore, been met.
  6. For all of the reasons mentioned above and such further and other reasons as may come to my attention, the Interim Compliance Order and Notice of Proposal is hereby issued.

Dated at Toronto, Ontario, December 1, 2015.

 

original signed by "Michael Doi", Acting Superintendent


Brian Mills
Superintendent of Financial Services