REGARDING the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c.29, in particular sections 2 and 35;
AND REGARDING Tier 1 Transaction Advisory Services Inc.
Interim Compliance Order to Cease and Desist Unlicensed Activity
Tier 1 Transaction Advisory Services Inc.
7 Bowan Crt.
Toronto, ON M2K 3A8
Subsections 35(1) and (2) of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (the “Act”) provides that if the Superintendent of Financial Services (the “Superintendent”) is of the opinion that a person or entity is committing or has committed any act or is pursuing or has pursued any course of conduct that contravenes or does not comply with a requirement established under the Act or that might reasonably be expected to result in a state of affairs that would contravene or not comply with a requirement established under the Act, 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 and to follow the other steps in section 35, including the holding of a hearing before the Financial Services Tribunal (the “Tribunal”) if requested.
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).
Tier 1 Transaction Advisory Services Inc. (“Tier 1 Transaction”) is not licensed as a mortgage brokerage. However, it has carried on the business of dealing in mortgages by arranging and facilitating syndicated mortgage investment transactions in respect of several development projects.
The Superintendent has issued a Notice of Proposal to make a permanent compliance order against Tier 1 Transaction and to refuse the mortgage brokerage licence application of Tier 1 Transaction (the “NOP”). For the reasons outlined in the NOP and for the reasons set out below, the Superintendent is of the opinion that the interests of the public may be adversely affected by any delay in the the making of a permanent compliance order. Accordingly, the criterion for the issuance of an interim suspension order under section 35 has been met.
The unlicensed activities of Tier 1 Transaction include:
- soliciting persons or entities to borrow or lend money on the security of real property;
- providing information about a prospective borrower to a prospective lender;
- assessing prospective borrowers on behalf of prospective lenders;
- negotiating or arranging a mortgage on behalf of another person or entity; and/or
- provided fees and remuneration to licensed and unlicensed individuals.
Tier 1 Transaction solicits borrowers and originates the construction development deals that are marketed and sold by two brokerages, First Commonwealth Mortgage Corporation and Tier 1 Mortgage Corporation and a network of agents. A series of referral agreements, redirection agreements and co-brokerage agreements facilitate the investments in the development projects and direct the flow of fees and commissions associated with the solicitation and acquisition of investors. The brokering process in which investors are solicited and procured to invest in the syndicated loans for the various development projects is rife with contraventions of the Act by the brokerages, their principal brokers, and Tier 1 Transaction.
The syndicated mortgage investments facilitated by Tier 1 Transaction pose a significant risk to current and potential future investors. The value of the properties against which the mortgages are secured are likely not of sufficient present value to satisfy the investments by the individual lenders/investors. Although many of these projects are fully funded, as the syndicated mortgages approach their renewal or termination dates, efforts to secure renewal of the existing investments and, potentially, additional investments from new investors threatens to prolong the risk exposure of existing investors and incorporate further investors into these risky investments. Syndicated investors are also actively being sought for at least one new development project.
Bhaktraj Singh (“Mr. Singh”) is the director, officer and shareholder of Tier 1 Transaction and has conflicting interests in other entities in the syndicated mortgage transactions. Mr. Singh also has an ownership interest in the borrowers under the syndicated mortgages. As part of the syndicated scheme, the mortgage is held in trust for the group of investors by a special purpose trustee corporation, of which Mr. Singh is also the director, officer and shareholder. In contravention of the Act, these conflicts of interest and interrelationships were not disclosed to investors and give rise to significant risks to investors because Mr. Singh, through the special purpose trustee corporations, is required to administer and enforce the mortgages on behalf of the investor as against the borrower entities in which he enjoys an economic interest.
For the reasons contained in the NOP and for the above reasons, the Superintendent is of the opinion that the interests of the public may be adversely affected by any delay in making a permanent compliance order against Tier 1 Transaction. Accordingly, the criterion for the issuance of an interim compliance order under section 35 against Tier 1 Transaction has been met.
Interim Compliance Order to Cease and Desist Unlicensed Activity
IT IS ORDERED THAT that pursuant to sections 2 and 35 of the Act, and for the reasons described above, Tier 1 Transaction Advisory Services Inc.:
- 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;
- Immediately cease providing information about a prospective borrower to a prospective mortgage lender or holding itself out as doing so, in respect of real property in Ontario;
- Immediately cease negotiating or arranging a mortgage in respect of real property in Ontario on behalf of another person or entity, or attempting or holding itself out as doing so;
- Immediately cease accepting any fees or funds in connection with the solicitation, negotiation, or arrangement of a mortgage in respect of real property in Ontario;
- Immediately cease using a description that might reasonably be expected to lead to the belief that it is a mortgage brokerage in respect of real property in Ontario;
- Immediately cease advertising as a mortgage brokerage or as associated with a mortgage brokerage in Ontario;
- Immediately cease making any claims or representations in relation to mortgages that are false or misleading; and
- Immediately notify all entities and individuals with whom Tier 1 Transaction Advisory Services Inc. has a referral arrangement of this Interim Compliance Order and that Tier 1 Transaction Advisory Services Inc. is prohibited from paying any referral and/or other fees.
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 as detailed in that Notice of Proposal (15 days after the Notice of Proposal is given, or deemed to have been delivered).
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, 14em, Toronto ON M2N 6L9.
DATED at Toronto, Ontario, October 20, 2016.
original signed by “Anatol Monid”
Superintendent of Financial Services
Financial Services Commission of Ontario