Firm sanctioned over syndicated mortgage violations

A mortgage brokerage firm and its owner have been sanctioned by the Financial Services Regulatory Authority of Ontario (FSRA) for a host of violations stemming from their syndicated mortgage investment business.

FSRA issued orders revoking the licences of Hi-Rise Capital Ltd., imposing a $350,000 penalty on the firm, and also imposing a $38,888 penalty on its owner, Dimitrios (Jim) Neilas.

The sanctions follow findings that the firm violated various rules in connection with several syndicated mortgage investment projects, including provisions dealing with suitability, conflicts of interest, risk disclosure, and fee disclosure.

In 2019, the Financial Services Commission of Ontario (FSCO) initially sought a $3.175 million penalty against the firm, and $1.32 million against Neilas, alleging that their syndicated mortgage transactions were “defined by self-dealing and conflict of interest.”

“In its capacity as mortgage brokerage, Hi-Rise’s point of sale business practices reveal serious and systemic failures to comply with the basic consumer protection measures set out in the Act,” FSCO’s proposal alleged — adding that the firm also violated its regulatory and fiduciary obligations to investors in its role as a mortgage administrator.

FSCO was replaced by FSRA in mid-2019, and the new regulator began closer oversight of syndicated mortgage transactions.

As of July 1, 2021, FSRA and the Ontario Securities Commission (OSC) started sharing oversight of these vehicles.

The firm and Neilas ultimately settled the proceedings brought by FSRA, and, as part of the settlement, they “admitted to a range of contraventions” of the mortgage broker rules.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.