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Financial Services Regulatory Authority of Ontario

IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006,
S.O. 2006, c. 29 (the “Act”), in particular sections 38 and 39;

AND IN THE MATTER OF the Notice of Proposal to Impose Administrative Penalties dated February 25, 2021, against Kaleido Financial Ltd. and David Martino, issued by the Director, Litigation and Enforcement by delegated authority from the Chief Executive Officer of the Financial Services Regulatory Authority of Ontario;


MINUTES OF SETTLEMENT AND UNDERTAKING

    PART I - INTRODUCTION

  1. Kaleido Financial Limited ("Kaleido") was a licenced mortgage brokerage at the material times (licence 12492). Kaleido is no longer licenced.

  2. David Martino ("Martino") was a licensed mortgage broker with Kaleido at the material times (licence M12002005). Martino was also principal broker of Kaleido from April 1, 2014 to May 24, 2017 and from July 10, 2018 onwards. He is no longer licenced.

  3. On February 25, 2021, the Director of Litigation and Enforcement ('"Delegate"), by delegated authority from the Chief Executive Officer ("CEO") of the Financial Services Regulatory Authority of Ontario ("FSRA"), issued a Notice of Proposal ("NOP") in respect of Martino and Kaleido (collectively the "Applicants").

  4. The Applicants disputed the allegations and, on or about March 12, 2021, requested a hearing before the Financial Services Tribunal (the "Tribunal") in respect of the NOP.

  5. The Applicants and the Director, by delegated authority from the CEO, (collectively the "Parties") wish to resolve this matter on consent and without a hearing before the Tribunal.

  6. PART II - AGREED FACTS

  7. Martino is the owner of Kaleido. He also owns and operates entities which owned six development projects as outlined below ("Projects"). These Projects were the borrowers in syndicated mortgage investments ("SMI"). Kaleido acted as the mortgage brokerage to prospective SMI investors seeking to invest in these Projects.

  8. In addition, Martino is the owner of Kaleido Mortgage Admin Inc. ("Kaleido Admin"). Kaleido Admin is a licensed mortgage administrator (licence 12716). Kaleido Admin was not subject to the NOP.

  9. A compliance review of Kaleido was commenced by staff of the Financial Services Commission of Ontario ("FSCO"), the former regulator of the mortgage industry in Ontario, on January 5, 2018. Twelve investor files were reviewed as part of the review.

  10. Kaleido was the Brokerage on the six SMI Projects referred to above. These Projects involved 658 investors and $39,201,400 in SMls. Martino was the Broker on all the Projects, except for Wenderly. The six Projects included:

    1. Riverdale/Elevate Towns - Borrower: 485 Logan Developments lnc.("Riverdale");

    2. Trafalgar Castle - Borrower: Landmark 416 Dundas Ltd. ("Trafalgar");

    3. Wenderly Park Towns - Borrower: Landmark Wenderly Inc. ("Wenderly");

    4. Willowdale Towns/Nova Urban Towns - Borrower: 57-63 Finch Avenue West Inc. ("Willowdale");

    5. Bathurst Heights/Harrington - Borrower: 665-671 Sheppard Ave West Ltd. ("Bathurst"); and

    6. Gage Park Towns - Borrower: Landmark Clarence Inc. ("Gage Park").

  11. On each Project, Kaleido required that its staff fill out a Know Your Client Form before presenting any investors with a syndicated mortgage product.

  12. The Form 1 disclosures provided by Kaleido provided investors with general statements regarding the risks involved with investing in SMI products, such as the general illiquidity of SMI investments.

  13. The shared ownership between the brokerage and the developers associated with each SMI investment was disclosed in general terms on the Form 1s, and referred to in the associated mortgage agreements, and other marketing materials provided to potential investors associated with each Project.

  14. By the end of 2017, Kaleido was no longer engaged in the sale of SMls. On August 27, 2018, Kaleido submitted a voluntary request to surrender its mortgage brokerage license with FSCO.

  15. On December 20, 2018, Kaleido and Martino entered into a consent agreement with FSCO to cease conducting mortgage brokering activities.

  16. For the purposes of this settlement, Kaleido, as the brokerage on all six Projects, admits to the following in relation to the 12 investor files:

    1. Using ready-to-develop values, rather than as-is values, provided by the appraisals to calculate the loan to value ratio on the Riverdale and Bathurst Projects;

    2. Disclosing conflicts of interest in a generalized fashion;

    3. Not adequately disclosing certain Project-specific risks;

    4. Not adequately documenting the suitability assessments associated with the 12 investors in a way that demonstrated that an adequate suitability assessment was completed; and

    5. Not maintaining and implementing adequate policies and procedures.

  17. For the purposes of this settlement, Martino, as the broker on five of the six Projects and the principal broker, admits to the following:

    1. As broker, using ready-to-develop values provided by the appraisals, rather than as-is values, to calculate the loan to value ratio on the Riverdale and Bathurst Projects;

    2. As broker, not doing or omitting to do actions that might reasonably be expected to result in the brokerage contravening or failing to comply with a requirement established under the Act;

    3. As principal broker not adequately ensuring compliance by Kaleido and other brokers or agents with the requirements of the Act; and

    4. As principal broker not adequately reviewing the policies and procedures of Kaleido and failing to recommend changes to ensure they were compliant with the requirements established under the Act;

    PART Ill - NON-COMPLIANCE WITH THE ACT

  18. By engaging in the conduct described above in Part II, Kaleido admits and acknowledges the following breaches of the Act and its regulations:

    1. Using ready-to-develop values in the calculation of loan-to-value ratios in the Form 1 disclosures on the Riverdale and Bathurst Projects, contrary to subsection 43(1) of the Act;

    2. Not adequately identifying conflicts of interest in accordance with Section 27 of Ontario Regulation 188/08;

    3. Not adequately identifying certain Project-specific risks in accordance with Section 25 of Ontario Regulation 188/08;

    4. Not adequately documenting investors' suitability assessment in a way that demonstrated that an adequate suitability assessment was completed in accordance with Section 24(1) of Ontario Regulation 188/08; and

    5. (v) Not adequately maintaining policies and procedures in accordance with Sections 40(1) and 40(2) of Ontario Regulation 188/08.

  19. By engaging in the conduct described above in Part II, Martino admits and acknowledges the following breaches of the Act and its regulations:

    1. As broker, using ready-to-develop values in the calculation of loan-to-value ratios in the Form 1 disclosures on the Riverdale and Bathurst Projects, contrary to section 43(2) of the Act;

    2. As broker, not doing or omitting to do actions that might reasonably be expected to result in the brokerage contravening or failing to comply with a requirement established under the Act contrary to section 3 of Ontario Regulation 187/08;

    3. As principal broker, not adequately ensuring compliance by Kaleido and other brokers and agents with the requirements of the Act contrary to section 2 of Ontario regulation 410/07; and

    4. As principal broker, not adequately reviewing the policies and procedures of Kaleido and recommending changes to Kaleido in accordance with section 3 of Ontario regulation 410/07.

  20. As a result of this non-compliance, Kaleido and Martino admit to contravening the Act, as set above, and accept and acknowledge that the following administrative penalties shall be imposed on them:

    1. $280,000 against Kaleido in administrative monetary penalties; and

    2. $55,300 against Martino in administrative monetary penalties.

    PART IV - TERMS OF SETTLEMENT

  21. The Applicants admit the facts contained in Part II of these Minutes.

  22. Martino has the authority to bind Kaleido to the terms of this settlement.

  23. The Applicants acknowledge and agree that they have been given the opportunity to seek independent legal advice and have done so (or have waived the right to do so) and are entering into these Minutes of Settlement and Undertaking ("Minutes") voluntarily, understanding the consequences of doing so.

  24. The Applicants acknowledges that these Minutes are an undertaking within the meaning of the Act, and that failure to comply may result in immediate regulatory action including, but not limited to, the issuance of a Notice of Proposal to revoke the licence, a Notice of Proposal to impose an administrative penalty, or a prosecution under the Provincial Offences Act.

  25. (a) Issuance of Order

  26. The Applicants acknowledge that, upon execution of these Minutes by both Parties, the order attached as Schedule "A" to these Minutes (the "Order") will be issued.

  27. (b) Process for Execution of Settlement

  28. The Applicants acknowledge that these Minutes are not binding on the Director until signed by the Director.

  29. These Minutes may be executed in counterparts, and may be executed and delivered by facsimile or e-mail, and all such counterparts and facsimiles or e-mails, as applicable, shall together constitute one and the same agreement.

  30. Upon receiving an executed copy of these Minutes from FSRA, the Applicants will each withdraw their Requests for Hearing (Form 1) in respect of the NOP before the Tribunal by each completing a Withdrawal/Discontinuance (Form 5) and filing it with the Registrar at the Tribunal within two business days.

  31. Upon confirmation from the Tribunal that the Request for Hearing has been withdrawn and the hearing has been cancelled, the Parties agree that the Director will issue an Order in the form attached as Schedule "A" to these Minutes.

  32. The Parties accept and understand that these Minutes and any rights within the Minutes shall enure to the Parties and to any successors or assigns of the Parties.

  33. (c) Disclosure of Minutes and Order

  34. The Parties will keep the terms of these Minutes and the Order confidential until the Order is issued, except that:

    1. The Director shall be permitted to disclose the Minutes and the Order within FSRA; and

    2. The Parties shall be permitted to inform the Financial Services Tribunal.

  35. If either of the Parties do not sign these Minutes or the Director does not issue the Order:

    1. These Minutes, the Order, and all related discussions and negotiations will be without prejudice to FSRA and the Applicants; and

    2. FSRA and the Applicants will each be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing of the allegations contained in the NOP. Any proceedings, remedies and challenges will not be affected by these Minutes, the Order, or any related discussions or negotiations.

  36. Upon issuance of the Order:

    1. The Applicants agree that these Minutes and the Order form part of their administrative record for the purposes of any future licensing decision or as an aggravating factor in respect of a future administrative penalty or prosecution against them or any affiliated entities;

    2. The Applicants acknowledge that these Minutes and the Order are public and will be published by FSRA on its public website (or that of its successor) along with a press release that summarizes these Minutes and the Order; and

    3. The Parties agree not to make representations to any member of the public or media or in a public forum that are inconsistent with these Minutes or the Order.

    (d) Further Proceedings

  37. Whether or not the Order is issued, the Applicants will not use, in any proceeding, these Minutes or the negotiation or process of approval of these Minutes as the basis for any attack on FSRA's jurisdiction, alleged bias, alleged unfairness, or any other remedies or challenges that may be available.

  38. Upon issuance of the Order:

    1. The Applicants waive all rights to a hearing before the Tribunal regarding the NOP;

    2. The Applicants waive all rights to a judicial review or appeal of the Order;

    3. The Director agrees that FSRA will not take any further proceedings against the Applicants arising solely from the facts contained in Part II of these Minutes, unless facts not disclosed by the Applicants come to the attention of FSRA that are materially different from those contained in Part II of these Minutes or the Applicants fail to comply with any term in the Order; and

    4. The Applicants agree that should they fail to comply with any term in these Minutes or the Order, FSRA is entitled to bring any proceedings available to it.

DATED at February 10, 2022, Vaughan.

Original signed by

David Martino on his own behalf and on behalf of Kaleido Financial Limited

Original signed by

Matt Yu

Name of Witness

DATED at Toronto, Ontario, February 11, 2022

Elissa Sinha
Director, Litigation and Enforcement

By delegated authority from the Chief Executive Officer


Financial Services Regulatory Authority of Ontario

APPENDIX A

IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006,
S.O. 2006, c. 29 (the “Act”), in particular sections 38 and 39;

AND IN THE MATTER OF Kaleido Financial Ltd. ("Kaleido") and David Martino ("Martino").


ORDER IMPOSING ADMINISTRATIVE PENALTIES

Kaleido was licensed as a mortgage brokerage (licence #12493). Kaleido is no longer licensed.

Martino was licensed as a mortgage broker (licence #M12002005) under the Act until his licence expired on April 1, 2020. Martino was also principal broker of Kaleido from April 1, 2014 to May 24, 2017 and from July 10, 2018 onwards.

On December 20, 2018, Martino and Kaleido entered an undertaking on consent with the Superintendent of Financial Services. On behalf of Kaleido and himself, Martino undertook that, amongst other things, neither Martino nor Kaleido would deal or trade in mortgages nor carry on business as a mortgage lender. This undertaking remains in force.

Effective June 8, 2019, pursuant to the Financial Services Regulatory Authority of Ontario Act, 2016, S.O. 2016, c. 37, Sched. 8, Financial Services Regulatory Authority of Ontario became the regulator under the Act and the powers and duties previously vested in the Superintendent of Financial Services under the Act were vested in the Chief Executive Officer of Financial Services Regulatory Authority of Ontario (the "Chief Executive Officer").

On February 25, 2021, by delegated authority from the Chief Executive Officer, the Director, Litigation and Enforcement (the "Director") issued a Notice of Proposal to:

  1. impose administrative penalties on Kaleido for:

    1. using ready-to-develop values in the calculation of loan-to-value ratios in the Form 1 disclosures on the Riverdale and Bathurst Projects, contrary to subsection 43(1) of the Act;

    2. not adequately identifying conflicts of interest in accordance with Section 27 of Ontario Regulation 188/08;

    3. not adequately identifying certain Project-specific risks in accordance with Section 25 of Ontario Regulation 188/08;

    4. not adequately documenting investors' suitability assessment in a way that demonstrates that an adequate suitability assessment was completed in accordance with Section 24(1) of Ontario Regulation 188/08; and

    5. not adequately maintaining policies and procedures in accordance with Sections 40(1) and 40(2) of Ontario Regulation 188/08.

  2. impose administrative penalties on Martino for:

    1. as broker, using ready-to-develop values in the calculation of loan-to-value ratios in the Form 1 disclosures on the Riverdale and Bathurst Projects, contrary to section 43(2) of the Act;

    2. as broker, not doing or omitting to do actions that might reasonably be expected to result in the brokerage to contravene or fail to comply with a requirement established under the Act contrary to section 3 of Ontario Regulation 187/08;

    3. as principal broker, not adequately ensuring compliance by Kaleido and other brokers and agents with the requirements of the Act contrary to section 2 of Ontario regulation 410/07; and

    4. as principal broker, not adequately reviewing the policies and procedures of Kaleido and recommending changes to Kaleido in accordance with section 3 of Ontario regulation 410/07.

A Request for Hearing (Form 1) dated March 12, 2021, was delivered to the Financial Services Tribunal (the "Tribunal") in accordance with section 39(5) of the Act respecting the Notice of Proposal.

This order is made pursuant to a settlement entered into by Kaleido, Martino, and the Director.

On [TBD], Kaleido and Martino withdrew the Request for Hearing, and, on [TBD], the Tribunal closed its file in respect of this matter. This Order is made pursuant to a settlement entered into by Kaleido, Martino and the Director.

ORDER

Administrative penalties in the total amount of $280,000 are hereby imposed on Kaleido Financial Ltd., for the reasons set out in the Notice of Proposal.

Administrative penalties in the total amount of $55,300 are hereby imposed on David Martino, for the reasons set out in the Notice of Proposal.

TAKE NOTICE THAT the Financial Services Regulatory Authority of Ontario will deliver an invoice to Kaleido Financial Ltd. and David Martino with information as to where and how to pay the administrative penalties. Kaleido Financial Ltd. and David Martino must pay the administrative penalties no later than sixty (60) days after the date of the invoice.

If Kaleido Financial Ltd. and David Martino fail to pay the administrative penalties in accordance with the terms of this Order, the Chief Executive Officer may file the Order with the Superior Court of Justice and the Order may be enforced as if it were an order of the court. An administrative penalty that is not paid in accordance with the terms of the order imposing the penalty is a debt due to the Crown and is enforceable as such.

DATED at Toronto, Ontario,

Elissa Sinha
Director, Litigation and Enforcement

By delegated authority from the Chief Executive Officer

 

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