Enforcement order

TO: Money Gate Corp.

AND TO: Morteza Katebian

AND TO: Payam Katebian

Subsection 19(1) of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (the “Act”) provides that the Superintendent of Financial Services (the “Superintendent”) may, by order, revoke a licence in certain specified circumstances.

Section 21 of the Act provides that if the Superintendent proposes to revoke a licence without the licensee’s consent, the Superintendent shall give written notice of the proposal to the licensee, including the reasons for the proposal.

Subsection 19(3) of the Act provides that if, in the Superintendent’s opinion, the interests of the public may be adversely affected by any delay in the revocation of a licence as a result of the steps required by section 21, the Superintendent may, without notice, make an interim order suspending the licence.

INTERIM ORDER SUSPENDING LICENCES

IT IS ORDERED THAT pursuant to subsection 19(3) of the Act and for the reasons described below, the mortgage brokerage licence of Money Gate Corp (“MGC”) (FSCO Licence #12451) is suspended. During the suspension, MGC is not authorized to deal or trade in mortgages in Ontario.

IT IS ORDERED THAT pursuant to subsection 19(3) of the Act and for the reasons described below, the mortgage administrator’s licence of MGC (FSCO Licence #12290) is suspended. During the suspension, MGC is not authorized to administer mortgages in Ontario.

IT IS ORDERED THAT pursuant to subsection 19(3) of the Act and for the reasons described below, the mortgage broker’s licence of Morteza (Ben) Katebian (“Ben”) (FSCO Licence #M08007482) is suspended. During the suspension, Ben is not authorized to deal or trade in mortgages in Ontario.

IT IS ORDERED THAT pursuant to subsection 19(3) of the Act and for the reasons described below, the mortgage agent’s licence of Payam Katebian (“Payam”) (FSCO Licence #M14000193) is suspended. During the suspension, Payam is not authorized to deal or trade in mortgages in Ontario.

TAKE NOTICE THAT these suspensions take effect immediately and will remain in effect until the expiry of the period for requesting a hearing in respect of a Superintendent’s Notice of Proposal (15 days after the Notice is given, or deemed to have been delivered), or 21 days after the date on which this Order is made if no Notice is given.

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) of the Act 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 act or omission by the partnership or entity which, if committed by a person, would be an offence under the Act, is guilty of an offence.

Si vous désirez recevoir cet ordre en français, veuillez envoyer votre demande immédiatement à: Adjointe, audiences, Greffe, Commission des services financiers de l’Ontario, 5160 rue Yonge, 14^em, Toronto ON M2N 6L9.

REASONS FOR ORDER

These are the reasons to support the Superintendent’s Interim Suspension Order suspending the mortgage brokerage licence and mortgage administrator’s licence of MGC, the mortgage broker’s licence of Morteza (Ben) Katebian (“Ben”) and the mortgage agent’s licence of Payam Katebian (“Payam”) (together the “Licences”).

Ben and Payam are father and son. Ben is the principal of MGC. Ben and Payam are also the principals of Money Gate Mortgage Investment Corporation (“MGMIC”), a mortgage investment corporation that provides loans secured by mortgages out of funds raised from investors. The Ontario Securities Commission (“OSC”) has conducted a detailed investigation of MGMIC and the activities of Ben and Payam (“the “OSC Investigation”). As a result of this investigation, OSC staff have determined that MGMIC, Ben and Payam are guilty of serious violations of the Securities Act, R.S.O. 1990, c. S.5. Further, the OSC has concluded that Ben and Payam are guilty of the diversion of corporate funds from MGMIC for their own personal benefit.

OSC staff have filed affidavit evidence to support their allegations in regulatory proceedings before the OSC as well as in an unopposed application before the Superior Court of Justice (Commercial List) for, inter alia, the appointment of a receiver and manager over MGMIC which was granted on November 6, 2018. Based on this evidence, the Superintendent is of the view that there are reasonable grounds for belief that MGC, Ben and Payam (together, the “Respondents”) will not carry on business in accordance with the law and with integrity and honesty and are, therefore, not suitable to hold licences under the Act. The Superintendent has issued a Notice of Proposal (the “NOP”) seeking the permanent revocation of the Licences. The Superintendent is also of the opinion that the findings of the OSC Investigation demonstrate that the interests of the public may be adversely affected by any delay associated with a potential hearing before the Financial Services Tribunal concerning the NOP and, therefore, the Superintendent issues this order under section 19(3) of the Act to impose interim suspensions on the Licences.

Specifically, the OSC Investigation uncovered evidence of the following misconduct:

Diversion of Corporate Funds: the OSC has obtained evidence indicating that on at least two instances Ben and Payam have diverted MGMIC corporate funds to their own personal benefit. The assets of MGMIC do not belong to Ben or Payam they belong to the shareholders of MGMIC including investors who invested in shares of MGMIC. The total amount of funds diverted is in excess of $1.3 million;

Contraventions of Securities Laws: The OSC Investigation also determined that the Respondents and MGMIC were guilty of contraventions of securities laws including contraventions relating to misleading and untrue statements in disclosure documents, unregistered trading and the illegal distribution of securities.

Based on the findings from the OSC Investigation, the Superintendent is of the opinion that the interests of the public may be adversely affected by the delay associated with any hearing before the FST concerning the NOP. Ben and Payam have demonstrated a propensity to divert investor funds that do not belong to them to their own benefit. They are required, in performing MGC’s mortgage administration functions, to have access to and control of trust funds including payments owing to lenders under the mortgages under MGC’s administration. There is a significant risk that these funds will also be diverted given the past conduct of the Respondents.

Further, the contraventions of securities laws include contraventions relating to the provision of misleading and untrue statements, unregistered trading and the illegal distribution of securities. Such contraventions give rise to material and ongoing public risk if the Respondents are permitted to continue brokering mortgages. The solicitation of investors to lend money under mortgages is a routine activity for mortgage brokerages like MGC and there is a material risk that the Respondents will also engage in the provision of false and misleading information and otherwise demonstrate a disregard for regulatory requirements in the context of brokering mortgages.

The Superintendent has considered whether measures short of the imposition of interim suspensions would be sufficient to protect the public. Specifically, and prior to learning of the diversion of corporate funds, FSCO Staff contacted the Respondents to determine if they would be prepared to consent to the imposition of conditions on the licences of the Respondents because such conditions cannot be imposed on an interim basis without the consent of the licensee. Ben, on behalf of the Respondents, responded that the Respondents were not prepared to consent to any conditions on the licences of the Respondents. In light of the new evidence of diversion of corporate funds, the Superintendent is of the view that license conditions may not be sufficient to protect the public. In any event, it does not appear that interim licence conditions are available to deal with the risk to the public because of the outright refusal of the Respondents to consider any conditions whatsoever.

The Superintendent also relies on all of the grounds set out in the NOP and such further and other grounds as the Superintendent may specify.

DATED at Toronto, Ontario, December 13, 2018.

Original Signed by

Brian Mills
Chief Executive Officer and
Superintendent of Financial Services

TO:

Financial Services Tribunal
5160 Yonge Street, 14th Floor, Box 85
Toronto ON M2N 6L9

Attention: Registrar

Tel: (416) 226-7752
Fax: (416) 226-7750
Email: contact@fstontario.ca

AND TO:

Ministry of the Attorney General, Civil Law Division
Financial Services Commission of Ontario Branch
5160 Yonge Street, 17th Floor
Toronto ON M2N 6L9

Attention: Mark Bailey
Senior Legal Counsel
Ministry of the Attorney General Civil Law Division, FSCO Branch

Tel: (416) 590-7555
Fax: (416) 590-7556
Email: mark.bailey@fsco.gov.on.ca

Counsel for the Superintendent of Financial Services