The Royal Canadian Mounted Police has charged two men with fraud related to a syndicate of mortgages involving Fortress Real Developments, after a years-long investigation.
Jawad Rathore of Markham, Ontario, and Vince Petrozza of Richmond Hill, Ontario, co-founders of Fortress, are accused of “orchestrating an ongoing plan where they failed to disclose the various risks to brokers and investors.”
They are each charged with one count of fraud under the Criminal Code and one count of ‘secret commissions’.
The investigation, dubbed Project Dynasty, began after a 2016 complaint to the RCMP alleging that Fortress “fraudulently acquired investments in a syndicated mortgage investment scheme.” The RCMP’s Integrated Market Enforcement Team (IMET) obtained six arrest warrants in 2018 and searched Fortress’ offices.
The two suspects will appear in court on August 3.
None of the allegations have been proven.
A syndicated mortgage involves two or more investors who support a real estate development. Syndicated mortgages have been used to finance early stage commercial and large-scale residential real estate developments, and projects include condominiums, as well as office and retail complexes.
Canada’s syndicated mortgage market grew rapidly amid a general real estate boom, rising to $6 billion in 2016. Many of it are solid investments that are executed without incident.
But Fortress attracted a number of complaints and lawsuits, alleging that investors were involved in developments that were much riskier than they thought. Others argued that investors were being misled about where their money was going and how much was being held back and paid in commissions, who was prioritizing returns and what recourse they had if development ran into trouble.
In response to the lawsuits, Fortress denied any allegations and decided to take the cases out of court.
By 2018, thousands of retail investors seeking to capitalize on the real estate boom and seeking higher returns amid record-low interest rates had put as much as $1.5 billion into syndicated mortgages, regulatory sources told the Financial Post at the time, with more than half associated with Fortress projects.
RCMP investigating syndicated mortgage fraud by GTA offices, including Fortress, sources say:
The lax oversight of syndicated mortgages hurts Ontario investors with little relief in sight
Ontario watchdog revokes license from Fortress’s leading mortgage broker BDMC
In addition to complaining to the RCMP, hapless investors, many of whom had lost money, pressured regulators to get involved.
In February 2018, four individual brokers and four brokers involved in the distribution of syndicated mortgage investments for Fortress-related projects were sanctioned by the Ontario Financial Services Commission as part of a $1.1 million settlement involving several of their broker licenses lost.
While Fortress was not a party to the settlement or subject to any of FSCO’s orders, Petrozzo, who was Fortress’ chief operating officer at the time, had his license as a mortgage broker revoked.
In 2020, FSCO’s successor settled a settlement with Fortress that imposed $250,000 in administrative fines on the company. FSRA said Fortress violated the Mortgage Brokers, Lenders and Administrators Act by “providing services to borrowers for the purpose of financing real estate developments, when FRDI (Fortress) was not licensed to do so.”
The regulator said Fortress “helped borrowers connect with mortgage brokers and administrators, enabling those brokers to raise more than $900 million in syndicated mortgages.”