The information is contained in a search-warrant application that could spell trouble for the embattled developer
Fortress Real Developments is pleading ignorance, claiming that it had no knowledge of mortgage brokers intentionally misleading investors about valuations - even though it created the brokerages for which they worked and was in possession of real appraisals.
According to an RCMP search-warrant application, Fortress Real is accused of telling investors in its SkyCity condo project in Winnipeg that the “as is” land valuation is more than three times higher—$18 million in 2013 and $37.3m in 2015—than the $5.92m valuation provided by an independent appraiser the company previously hired, as well as another $11m appraisal the RCMP found in the company’s headquarters.
In a statement, Scott Fenton, legal counsel for Fortress Real, claims investors were apprised of all “material risks involved in the projects.” Moreover, according to Fenton’s statement, “all investors were fully advised in writing of the assumptions and methodologies used by respected industry valuators in the development-based ‘opinions of value’ for the projects as opposed to bare ‘as is’ appraisals as incorrectly alleged by the RCMP.”
But according to David Franklin, a lawyer representing investors, Fortress Real is trying to pass on the buck.
“The position they’re taking is they didn’t do anything wrong, it was all the licensed parties who did,” said Franklin. “They’re putting the responsibility to do all this on the FSCO-licensed brokers. By saying that, they’re saying that they provided all the correct information to the brokerages. We have it now from the affidavit that Fortress had appraisals done and they didn’t disclose them. They had real appraisals, which were below the value that they gave to the brokerages to go sell the deals to the investors. Fortress is saying the brokerage has a responsibility to make sure the investors were told everything and to make sure these were suitable investments for the investors.”
The brokerages in question are Building Development and Mortgages Canada (formerly Centro Mortgage Inc.), FFM Capital, FMP Mortgage Investments, and FDS Broker Services—all of which were established by Fortress Real.
“Who were the controlling minds [of the brokerages]? The two principals of Fortress,” said William Vassiliou, president of Toronto chapter of the Association of Certified Fraud Examiners. “They created the four brokerages and they put the people in place and marketed their product. They created the product and they were providing training to the mortgage brokers associations.”
The investors were also advised by Fortress Real’s lawyers—whom they were led to believe were, in fact, independent lawyers—that the developments were safe investments.
“The lawyers weren’t independent,” said Vassiliou. “Fortress was paying them.”
In 2008, Fortress Real had sold $5m worth of syndicated mortgages, and that number rose to $24m a year later. By 2012, when Fortress created the four brokerages, sales for its syndicated mortgages spiked to $196m, and hit $501m in 2014. By 2017, Fortress Real had raised $920m.
This article was amended on Oct. 31, 2018, to rectify a statement attributed to Scott Fenton, in which it was originally written that he blamed mortgage brokers for not apprising investors of "material risks involved in the projects."
