FINANCIAL SERVICES TRIBUNAL
Citation: MSF Group Inc. v. Ontario (Superintendent Financial Services), 2016 ONFST 16 Decision No. M0643-2015-1 Date: 2016/09/08
IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act 2006, S.O. 2006, c. 29, (in particular sections 18, 19, 21, and 43;
AND IN THE MATTER OF the Notice of Proposal to Revoke Licences, dated July 21, 2015, against MSF Group Inc. and Lilia Reznik, issued by the Director, Licensing Branch by delegated authority from the Superintendent of Financial Services;
AND IN THE MATTER OF a Hearing in accordance with subsection 21(3) of the Mortgage Brokerages, Lenders and Administrators Act 2006, S.O. 2006, c. 29.
B E T W E E N:
MSF GROUP INC. and LILIA REZNIK
APPLICANTS
and
SUPERINTENDENT OF FINANCIAL SERVICES
RESPONDENT
BEFORE:
Florence A. Holden Chair of the Panel and Chair (Acting) of the Tribunal
Denis Boivin Member of the Panel and Vice-Chair (Acting) of the Tribunal
Ian McSweeney Member of the Panel and Vice Chair (Acting) of the Tribunal
APPEARANCES:
For the Applicant – Ian J. Collins, counsel
For the Superintendent of Financial Services – Mark Bailey and Jessica Spence, counsel
REASONS FOR DECISION
I. INTRODUCTION
1This matter comes before us in relation to a Notice of Proposal dated July 21, 2015 (the "NOP") issued by the Director, Licensing and Market Conduct Branch by delegated authority from the Superintendent of Financial Services of Ontario ("Superintendent") proposing to revoke the mortgage brokerage licence of MSF Group Inc. ("MSF") and the mortgage broker licence of Lilia Reznik. The grounds for the proposal to revoke these licences relate to a series of allegedly false information and/or documents provided by Ms. Reznik, or another agent authorized to deal or trade in mortgages on behalf of MSF, to Scotiabank in support of five separate mortgage applications.
2The Superintendent's position is that MSF and Ms. Reznik (jointly referred to herein as the "Applicants") respectively contravened section 43(1) and (2) of the Mortgages Brokerages, Lenders and Administrators Act, 2006, S.O. 2006 , c. 29 (the "Act") by giving or assisting in giving false or deceptive information and documents to Scotiabank (also referred to herein as the "Bank") when dealing in mortgages in Ontario. The Superintendent argues that contravening the Act is sufficient reasonable grounds for the Superintendent to revoke both licences.
3The Superintendent also believes that MSF and Ms. Reznik are not suitable to be licensed because Ms. Reznik's past misconduct and willing participation in the solicitation of false income and employment documents in her position as MSF's principal broker and directing mind, affords reasonable grounds for belief that neither will deal, trade or conduct the business of mortgages in accordance with the law and with integrity and honesty.
4The Applicants submitted Requests for Hearing before this Tribunal and were represented by legal counsel. At a pre-hearing conference held on October 20, 2015, there was no objection that both Requests for Hearing made by the Applicants be conducted as a single concurrent hearing.
II. PRELIMINARY issues
5At that same pre-hearing conference, the parties accepted the jurisdiction of the Tribunal.
6The parties were informed that Ms. Holden would be the chair of the panel on October 20, 2015 at the initial pre-hearing conference. Confirmation of the full panel was provided in the Notice of Hearing dated October 27, 2015 which was provided to the parties, and during additional pre-hearing conferences conducted by Ms. Holden on November 17, 2015 and May 16, 2016. No concerns about the panel composition and in particular as to Ms. Holden as the panel chair were raised until the commencement of this hearing on June 6, 2016, at which point Mr. Collins complained about Ms. Holden's role as panel chair. While conceding that he had not made any prior complaints or objections, he suggested that he may not have been as forthcoming in the pre-hearing discussions had he realized that the same chair would chair the panel. Following discussion the Tribunal advised that the hearing would continue as constituted noting that the Tribunal's pre-hearing conferences were normally conducted by the panel chair; Mr. Collins was not alleging any bias on the part of the Chair or unfairness to his clients; the pre-hearing conferences clearly did not constitute settlement discussions; the identification of the Chair was clearly communicated on multiple occasions without objection; and that any delay of the proceedings, scheduled for 8 days, was unnecessary and that the Applicants would not be prejudiced in the circumstances.
III. MOTIONS ON EVIDENCE
7In one of many objections made during the proceedings, Mr. Collins objected to the introduction of two affidavits of witnesses (Robert Greig and Anatol Monid) for the Superintendent, which affidavits he received only days before the hearing and which he claimed not to have had time to read. He requested a lengthy adjournment, advising that he would object to the inclusion of certain documents attached to the affidavits in any event, even if he had fully reviewed the documents. Mr. Collins did indicate that he was made aware of the witnesses and the witness statements in the disclosure process in November 2015, but had a personal preference for viva voce evidence. Mr. Bailey advised that all of the documents attached to Mr. Greig's affidavit were disclosed in the NOP, as well as during the pre-hearing process which led the parties to conclude an Agreed Statement of Facts submitted by the parties, and that all of the documents had been disclosed to Mr. Collins in November 2015 prior to the hearing.
After considering the submissions of both parties, the Tribunal ruled that the affidavits would be admitted as exhibits for these reasons: (1) they would be helpful to the panel to decide the issues in these proceedings; (2) the witnesses were available for cross-examination; (3) the parties were requested by the Tribunal in May 2016 to file affidavit evidence, if possible; (4) the Tribunal had the authority to direct a party to submit evidence in a specific format to it pursuant to Rule 29.02 of its Rules of Practice and Procedure for Proceedings Before the Financial Services Tribunal (the "Rules") and had done so on May 16, 2016; (5) Mr. Collins had the witness statements and evidence attached to Mr. Greig's affidavit for six months prior to the hearing which gave him sufficient time to prepare for the hearing; and (6) that the Tribunal would ultimately assess the credibility of each witness and the weight of their evidence in its deliberations and decision. The Tribunal dismissed Mr. Collins' further objection that the affidavits be excluded under Rule 29.03, as that subsection leaves the discretion to the Tribunal, not a party, to place conditions on evidence. The Tribunal chose in this instance not to apply Rule 29.03 as the affidavit evidence was submitted in accordance with Rule 29.02 as directed by the Tribunal and therefore did not breach Rule 29.01.
8During cross-examination, Mr. Greig referred to personal handwritten investigative notes and a memorandum from him to his boss, Terry Weller dated January 6, 2015, which memorandum was amended on March 25, 2015. Mr. Greig testified that the notes and January memo had previously been disclosed to Mr. Collins in January of 2015 and Mr. Collins did not deny that statement. At Mr. Collins' request Mr. Greig's notes and memorandum were also provided to the Tribunal and Superintendent's counsel for purposes of cross-examination, subject to submissions. Mr. Collins subsequently asked that the notes and memorandum be made exhibits on consent. Information as to non-parties was redacted.
9At the conclusion of Mr. Greig's testimony and cross-examination, Mr. Collins moved that the copies of emails attached to his affidavit were not authentic for the purposes of Section 15(4) of the Statutory Powers Procedure Act, R.S.O. 1990, Chapter s.22 ("SPPA") and should be excluded from evidence.
He submitted that the Superintendent was required to prove the authenticity of such evidence. On this burden of proof we agree. If found as authentic, Mr. Collins conceded that he had no objection as to admissibility. Mr. Collins also conceded that the SPPA conferred wide latitude to accept relevant evidence under section 15(4) "where a tribunal is satisfied as to its authenticity".
10Mr. Collins' objections as to authenticity of the documents attached to Mr. Greig's affidavit may be summarized as follows:
The emails came from a third party's (YD) server, not the Applicants. The fact that the RCMP seized documents from YD's server was not disputed by the Applicants.
Mr. Greig is not able to verify under oath the authenticity of the documents; they are copies of copies of an electronic document, not the original copy. In Mr. Collins' view, only Constable Picard-Blais of the RCMP, the sender of the documents to FSCO could do so.
Even if Mr. Greig can authenticate the documents, his evidence is not reliable, creditable, or trustworthy. To this end, Mr. Collins charged that Mr. Greig was sloppy and unprofessional in his conduct of the investigation, if not incompetent. As such, Mr. Greig's evidence would then not be clear, cogent and compelling in regards to the authenticity of the documents attached to his affidavit.
11On questioning by the panel, Mr. Collins conceded that: 1) the standard of proof to be applied on the authenticity of the documents before an administrative tribunal in this case was proof on a balance of probabilities; 2) that there was no suggestion that Mr. Greig was intending to deceive the Tribunal; and 3) that he was not suggesting that Mr. Greig, or the prior FSCO investigators Mr. Logan and Mr. Mang, tampered with or altered or created the documents attached to Mr. Greig's affidavit. With respect to 3), Mr. Collins qualified his response to note that Mr. Greig had altered the memorandum to Mr. Weller by adding information in March 2015 after he originally sent the memorandum in January 2015. Mr. Greig freely admitted that he did so and we find nothing untoward with respect to these additions in that the investigation was, at the time, still ongoing.
12Mr. Collins did not provide any evidence that the documents attached to Mr. Greig's affidavit were not authentic; he just argued that it was up to the Superintendent to prove the authenticity of the documents. We find that it was open to the Applicants to call evidence as to the integrity of the electronic documents (emails). They did not do so.
13Counsel for the Superintendent submitted that in addition to the concessions referred to in paragraph 11 above: 1) that the Applicants had conceded in the Agreed Statement of Facts (paragraphs 7-15) regarding YD and the RCMP investigation, that evidence and files were turned over to FSCO; 2) that Mr. Greig's testimony was that the documents attached to his affidavit were the same as those in the RCMP evidence binder and that they were received directly by Mr. Greig; 3) the source of the documents remains unchallenged; 4) Mr. Greig's report-writing skills do not taint the evidence; and 5) the documents are what they purport to be in that the email addresses for YD and the Applicants match those on record and that it is highly probable that the emails recovered from YD's server were sent from the Applicant Ms. Reznik or another agent authorized by MSF to act on its behalf.
14We adopt the courts' reasoning in the case of R. v. Richard Avanes, Drago Jankovic and Salvatore Formusa1, that authentication is a condition precedent to admissibility satisfied "by evidence sufficient to support a finding that the evidence sought to be admitted is what it purports to be." This common law concept of authentication is accepted as a fairly low standard. The Avanes case involved data on a DVD alleged to have been downloaded from electronic data on a Blackberry. The court noted in Avanes that "the authenticity requirement can be satisfied by appeal to circumstantial evidence. No single or 'optimal' witness is strictly required." In this case Mr. Collins argued that, based on references in R. v. Andalib-Goortani,2 Mr. Greig was incapable of verifying the documents: only RCMP officer Picard-Blais could properly attest to the authenticity of the documents. We disagree. Knowing that the documents were going to be put into evidence six months before the hearing, and being aware of the Superintendent's witness list, Mr. Collins was free to subpoena Cst. Picard-Blais if he wished. He did not.
15We note that as discussed in the case of F.H. v. McDougall, et al. (2008) SCC 53, in paragraph 46, the court said ".., evidence must always be sufficiently clear, convincing and cogent to satisfy the balance of probabilities test. But again, there is no objective standard to measure sufficiency." The court noted that a document need not be the original as long as it was a genuine copy and the affidavit attests as to its nature.3 We reject Mr. Collins' contention that "more quantity of evidence" is needed under this case to meet the standard in respect to the admissibility of the emails. He did not indicate what "more" is enough, nor did he articulate what additional evidence would, in his view, have been sufficient in the circumstances.
16We accept the submissions of the Superintendent and are satisfied that the Superintendent has gone beyond the standard to establish the authenticity of the exhibits to Mr. Greig's affidavit in relation to the alleged contravention of subsection 18(1)(c) read together with subsection 19(1) of the Act. We accept Mr. Greig's affirmation as to the source of the attachments to his email being the RCMP evidence binder and RCMP CD supplied to him directly, and the fact that he kept the documents in a locked cabinet in his office credible. The documents came into existence under circumstances that make them inherently trustworthy. Mr. Greig, in testimony, reviewed and identified each of the documents and testified that that's how they were in the RCMP evidence binder. There is no reason for the Tribunal to believe that the documents are not what they purport to be and are authentic. Consequently, we find that the Greig affidavit and its related attachments are admissible under section 15(4) of the SPPA, and further, we find the documents relevant to prove the alleged offences. Mr. Collins was free during the hearing to question, and did question, the accuracy, proper interpretation and ultimate reliability of the documents.
17Our findings of fact and relative weight are discussed below. We note that subsequent to this ruling, we accepted the evidence of Messrs. Patterson and Stewart, investigators for Scotiabank, that the documents in question attached to Mr. Greig's affidavit were the same as those provided to the Bank by the RCMP. We would have come to the same conclusion as to the authenticity of the documents at a later point in the proceedings.
18Mr. Collins was free to make arguments as to the prejudice that such documents may cause his clients, however he did not do so directly, perhaps because the evidence, as discussed below, directly implicates his clients in relation to the alleged offences.
19Lastly we also accept the investigative notes of Mr. Greig and his memorandum as authentic, although as we discuss below not evidence of itself as to the offence. Mr. Greig's investigation was largely limited to the exercise of warrants to obtain RCMP evidence. Any brevity in note-taking does not affect the authenticity of the documents attached to his affidavit given the concession by Mr. Collins that he was not alleging that Mr. Greig created, altered, or tampered with the documents, nor was he alleging that Mr. Greig was attempting to deceive the Tribunal. We note that the Superintendent was not relying on Mr. Greig's notes or memo to prove its case – these documents were introduced by the Applicants' counsel, who then argued they were prejudicial, unfair and inaccurate. Mr. Collins could have chosen simply not to ask that they be introduced into evidence. However we find that the notes and memorandum do not detract from the authenticity of the documents attached to Mr. Greig's affidavit.
20For completeness, we note that on a question by the Chair, the Tribunal ruled that tab 30 of Mr. Greig's affidavit be removed from the record as being unduly prejudicial to the Applicants. It was not considered as evidence as it related to a mortgage transaction other than those which formed part of the allegations against the Applicants and on which there was no direct evidence from any of the witnesses.
21With respect to Mr. Monid's affidavit it was tendered to give background in respect of regulatory sanctions and to rebut the Applicants' assertion that "no harm or loss" resulted from the Applicants' conduct. It was admitted on that basis. We accept Mr. Monid's evidence as simply standing for the proposition that the financial regulator in Ontario (FSCO) is concerned with mortgage fraud in the industry as being detrimental to public confidence in the regulated sector. We do not take issue with that proposition, nor is it our place to do so. Further we accept Mr. Monid's statement as a general proposition that mortgage fraud is difficult to detect and so not surprisingly, statistical information on the extent and cost of mortgage fraud (real or attempted) to the industry and public does not currently exist within FSCO. However, other than providing support for these two broad propositions, the affidavit of Mr. Monid is of little assistance to the Tribunal.
22The Tribunal also declined a last minute request from Mr. Collins, made after evidence had been presented by both parties, to then tender into evidence an affidavit with an attached transcript of an interview between FSCO investigator Mr. Mang and Ms. Reznik made June 24, 2014. The affidavit in this case was by a person who had transcribed a tape and not someone who could actually present any facts as evidence to the Tribunal and was not available as a witness. Mr. Collins did not intend to call either Mr. Mang or his client Ms. Reznik as witnesses. The transcript was intended to offer up evidence by his client as to some of her statements to Mr. Mang. He had not disclosed the transcript prior to the hearing as per the Tribunal's orders, and the Superintendent objected to its introduction without an opportunity for cross-examination of the participants. Mr. Collins was reminded that he had been advised in the pre-hearing conferences prior to the hearing that affidavit evidence was to be accompanied by the witness attesting to its contents at the hearing.
23Contrary to Mr. Collins' assertion, the Tribunal did not accept his argument that such a transcript would be the "best evidence" of his client's recollection of events. The person who could do that was Ms. Reznik herself, who was present. The introduction of prior statements that were not made in a legal proceeding or forum, and were not subject to cross-examination, would in our view, clearly offend the concept of a full and fair disclosure of the relevant matters in issue at the hearing. There would be no reliable way to assess the credibility of such evidence without the parties involved in the interview being available for cross-examination. Section 15.01 of the SPPA is permissive; it does not of itself require us to accept as "evidence" such a transcript in these circumstances.
Mr. Collins also argued that Section 31.05 and 31.04 of the Tribunal's Rules could be applied to permit the transcript to be admitted. Section 31.05 has no application: the Tribunal was not ordering that the affidavit be produced. Had we done so, we would have also invoked under section 31.05(c) a requirement that the witness be examined under oath or affirmation before the hearing.
Section 31.04 of the Tribunal's Rules permits the Tribunal to "refuse to consider the evidence of a witness where the party putting forward the witness has failed to comply with Rule 31.02 (i.e. on 30 days' notice and provision of a witness statement) or Rule 31.03 or may direct that the evidence shall only be considered on such conditions as the Tribunal may specify". In this case, the panel was content to accept the transcript on consent of the parties, but the Superintendent did not consent and therefore it was not admitted into evidence.
Mr. Collins made the same request again during his submissions, which was refused on the same grounds.
24A number of other minor objections were made by Mr. Collins, but these largely related to evidence that was not before us, evidence that was subsequently admitted on consent, or by the elimination of non-relevant material. The Tribiunal considered and dealt with them as they arose.
IV. ISSUES
25The following issues were raised in these proceedings:
a. Did the applicant, Ms. Reznik contravene the provisions of section 43(2) of the Act or regulations, or otherwise engage in past conduct which affords reasonable grounds for belief that she will not deal or trade in mortgages in accordance with the law and with integrity and honesty?
b. Did the applicant MSF Group Inc. contravene the provisions of section 43(1) of the Act or regulations? Further as a director or officer of MSF Group Inc. and its Principal Broker does Ms. Reznik's past conduct afford reasonable grounds for belief that the business of MSF Group Inc. will not be carried on in accordance with the law and with integrity and honesty?
c. If the answer to issue a) or issue b) is yes, what penalty, if any, should be imposed on either of the Applicants?
26For reasons that follow, the NOP is upheld.
V. FACTS
27Much of the evidence that is relevant to these issues is contained in an Agreed Statement of Facts ("ASF") and an Agreed Book of Documents ("ABD") filed on the consent of the parties, and in the Affidavit of Robert Greig, an investigator with FSCO ("Greig's Affidavit"). Additional documentation was also filed in support of the testimony of other witnesses on consent in the hearing and considered by the Tribunal. Oral testimony by Mr. Robert Greig, Mr. Anatol Monid, Mr. Stephen Patterson, and Mr. Andrew Gordon Stewart, all witnesses for the Superintendent, and of Ms. Suzanna Keselman and Mr. Alex Fridman, witnesses for the Applicants, was also received and considered by the Tribunal.
28The Tribunal did not hear from the Applicant, Lilia Reznik, as she elected not to testify.
29Based on all of the evidence before us, we find the following facts related to the Applicants have been established on a balance of probabilities by clear, cogent and compelling evidence:
a. At all relevant times and currently, MSF Group Inc. ("MSF") was and is a corporation incorporated under the laws of the Province of Ontario that is licensed as a mortgage brokerage (licence # 10236) under the Act. MSF carries on business under the trade name Money Solutions Financial.
b. At all relevant times and currently, Lilia Reznik was and is licensed as a mortgage broker (licence # M0800875) under the Act. Lilia Reznik is the sole director and officer of MSF, as well as MSF's Principal Broker. Ms. Reznik's accountant, Ms. Keselman testified that Lilia Reznik owns MSF through a numbered company with her sister Marina Reznik.
c. At all relevant times, Marina Reznik, the Applicant Lilia Reznik's sister, was licensed as a mortgage agent (licence # M08002679) under the Act and was authorized to deal in mortgages on behalf of MSF.
d. At all relevant times and currently, MSF's principal place of business on record with the Financial Services Commission of Ontario ("FSCO") was and is 1450 Center Street, Unit #1, Thornhill, ON, L4J 3N1. At all relevant times and currently, Lilia Reznik's email address on record with FSCO was and is liliareznik@rogers.com.
e. We find that FSCO did not receive any complaints by borrowers in relation to the Applicants.
f. Ms. Keselman was retained as a chartered accountant by the Applicants 4-5 years ago and advised that she is also a personal friend of Ms. Reznik. We find she was a credible witness. She was not the Applicants' accountant at the time of the 2010 transactions. We accept her uncontested testimony that Ms. Reznik was in her words "very aware of her business", detail-oriented, quick, responsive, and very organized. By all accounts Ms. Reznik was successful in her mortgage practice and had an established relationship with Scotiabank, the lender in the transactions which were the subject of this hearing, as well as strong ties to the local Russian-Jewish business community.
g. Oral testimony of Mr. Robert Greig, a FSCO investigator, indicates that as at April 28, 2014, searches conducted by an unnamed FSCO staffer of the Canadian Police Information Centre ("CPIC") and Criminal Name Index ("CNI") databases with respect to the Applicant Lilia Reznik produced a result of "negative."
h. We accept the ASF and uncontested evidence of witness Greig and of witnesses Patterson and Stewart, both investigators within Scotiabank's internal security and loss prevention unit, that each was advised of an RCMP criminal investigation of a suspected forgery operation led by YD ("Project Olena") in 2011. On July 21, 2011, the RCMP executed three search warrants issued by the Ontario Court of Justice on several properties owned or associated with YD (the "Project Olena Warrants"), and in executing the warrants seized electronic data storage devices, including several hard drives and a USB key.
The RCMP had also observed YD's residential and business premises from April to July 2011. We find that there is no evidence that the Applicant, Ms. Reznik was observed attending those premises or that she met YD personally at those locations in that time frame.
i. We find, based on the evidence of Mr. Greig, that YD's email address was finch200@acanac.net.
j. On May 20, 2014, Mr. Greig, obtained a search warrant from the Ontario Court of Justice with respect to the Project Olena materials in the RCMP's possession relating to, inter alia, MSF, Lilia Reznik and Marina Reznik (the "FSCO Warrant").
k. In response to the FSCO Warrant, the RCMP delivered to FSCO in May 2014, one .pdf file created by the RCMP by scanning a hard copy evidence binder (the "RCMP Evidence Binder"). The RCMP Evidence Binder contained documents obtained from Scotiabank in addition to documents obtained as a result of the execution of the Project Olena Warrants, seizure of electronic storage devices and recovery of materials therefrom.
l. On September 21, 2015, following discussions with Scotiabank, Mr. Greig obtained an inspection order, pursuant to section 32 of the Act, from the Ontario Court of Justice with respect to the Project Olena materials in the RCMP's possession relating to MSF, Lilia Reznik and Marina Reznik (the "FSCO Inspection Order").
m. In response to the FSCO Inspection Order, the RCMP delivered to FSCO the RCMP Evidence Binder and a compact disc containing files recovered from the electronic storage devices seized during the execution of the Project Olena Warrants (the "RCMP CD").
n. The RCMP CD contained copies of electronic files relating to MSF, Lilia Reznik and Marina Reznik in .jpeg, .html and .pdf file formats. The documents essentially replicated what was in the RCMP Evidence Binder. The contents of those files as they relate to the five mortgages in question in this case are reproduced in Mr. Greig's Affidavit. We accept Mr. Stewart's evidence that he matched the documents in the Greig affidavit to those in the Bank files as provided by the RCMP. As noted in paragraph 16 of these Reasons, we find and accept those copies to be authentic for the purposes of subsection 15(4) of the Statutory Powers Procedure Act and therefore admissible as evidence in this case.
o. We do find evidence of emails directly between the Applicant Lilia Reznik and YD, and between Marina Reznik, an agent authorized to deal in mortgages on behalf of MSF, and YD, all of which we discuss in the context of each of the five mortgages below.
p. With respect to YD, we find that, contrary to the inferences raised by Mr. Collins, there is no evidence that YD was in 2010 a qualified or chartered accountant for the alleged employers of the borrowers, or for the borrowers themselves in the five mortgage transactions which form the basis of these proceedings. We accept Mr. Greig's testimony that his former colleague, Mr. Mang, checked on YD's professional status, and that he was not registered as an accountant. Certainly if YD was the accountant for any of the alleged employers, he would not need sample letters of employment, sample pay stubs or logos from the Applicants in order to prepare income and employment documents at the Applicants' request and submitted to Scotiabank in support of the mortgage applications. The same is true if YD had acted for the borrowers. Our finding reflects common sense and is consistent with the evidence of the Applicants' own chartered accountant, Ms. Keselman. We reject the Applicants' contention, unproven, that YD was the accountant for the borrowers or their employers.
We note for completeness that Mr. Greig's investigative report contained a summary of a FSCO interview with Ms. Reznik during which she reportedly stated that somebody told her that YD was an accountant. However, Ms. Reznik's own witness, Ms. Keselman, testified that in the close-knit Russian-Jewish community in which the Applicants and Ms. Keselman operated in Vaughn, that she did not know of YD, but did not believe he was a chartered accountant within that community.
Moreover because Ms. Reznik did not testify, we have no explanation of the source of such an alleged statement and Superintendent's counsel had no opportunity to cross-examine her as to her belief, if in fact it did exist. By the same token Mr. Collins asked us to discount the very investigative report which he had asked be introduced into evidence, which report contained a brief summary of her interview or to "cherry-pick" limited portions of such report arguably helpful to his client such as the statement referred to above regarding YD. Portions of the report less helpful to Ms. Reznik place her statements in doubt, such as the Applicant's response when questioned that she did not know YD, but when given the emails between them, she simply indicated that she had not paid for the documents. On a balance of probabilities, we give the tenuous, indirect, and untested belief of Ms. Reznik that YD was an accountant, only found in Mr. Greig's memorandum, no weight whatsoever.
We do not find it necessary to conclude whether or not the characterization by the RCMP or others of YD as a "suspected forger" is true for purposes of this hearing. While this suspicion may have formed the basis for an investigation by the RCMP, we note that no prosecution took place. Fraud charges laid by the RCMP against YD were apparently stayed by the Crown for breach of Section 11 (b) of the Canadian Charter of Rights and Freedoms, which section provides that any person charged with an offence has the right to be tried within a reasonable time.
There is no evidence before us of any direct contact between YD and the borrowers or their alleged employers.
In the absence of any evidence that YD acted as an accountant for the employers of the borrowers, or for the borrowers in the five transactions that form the basis for the proceedings before us, we find that there would be no credible or legitimate reason that YD would be asked by Lilia Reznik or MSF to provide letters of employment or pay stubs for the borrowers. In some instances Ms. Reznik or an agent of MSF dictated the contents of and letterhead to be used for those documents. No credible reason was advanced or alternative explanation given to the Tribunal by the Applicants given this finding to explain YD's involvement for legitimate purposes. The suggestion that Ms. Reznik had a reasonable belief that the documents provided to her by YD were true we find false given our findings below.
q. Between July 2010 and November 2011, MSF and Lilia Reznik acted as a mortgage brokerage and broker, respectively, in obtaining mortgage loans from Scotiabank for the following clients ("MSF Clients"):
i. GD and DD (the "D Mortgage");
ii. AZ and DZ (the "Z Mortgage");
iii. AS (the "S Mortgage");
iv. LC and NC (the "C Mortgage");
v. ZL and ER (the "L Mortgage").
r. We accept the uncontested testimony of Mr. Patterson, currently the Senior Manager, Investigations at Scotiabank, and a former Detective Sergeant with Peel Regional Police services, that the Applicant MSF Group Inc. operated in conjunction with the Scotia Mortgage Authority. ("SMA"). SMA is a subsidiary of Scotiabank and one of the three main business channels for its mortgage lending with whom the Applicants had dealings. The Business Relationship Manager ("BRM") at Scotiabank was AT in 2010. AT was involved on all five transactions which form the basis of these proceedings and she was the recipient of certain information and documents directly from the Applicants. We accept Mr. Patterson's evidence that when interviewed in November 2012, AT admitted to not having done all of the due diligence required on her files and had placed erroneous information on bank documents. Mr. Patterson's evidence is that AT is no longer employed by Scotiabank. We note however that there is no allegation or evidence that AT knowingly falsified any of the income and employment documents used to secure mortgages in these five transactions, or that she had any dealings with YD.
s. All of the five mortgage transactions closed and Scotiabank advanced funds to the MSF Clients under their respective mortgages.
t. The Applicant MSF directly received commission income on the advancement of funds for the five mortgages. Ms. Keselman testified that Ms. Reznik, as owner of MSF through a holding company, received personal income through the withdrawal of earnings from MSF.
u. There is no evidence that any of the five mortgages in question were in default or alternatively whether they were paid off in accordance with their terms.
v. There is no evidence of any payment from the Applicants to YD in relation to the five mortgages.
w. Although the NOP made references to forged records from the Canada Revenue Agency to support the mortgage applications for the MSF clients, the Superintendent did not proceed on those allegations and we found no evidence of that type of infraction. The allegations in these proceedings related to fabricated income and employment documents given to support the mortgage applications for the MSF Clients.
30We discuss our findings of fact in respect of each of the five mortgages below. We accept the testimony of Mr. Stewart that the documents in relation to these mortgages as attached to Mr. Greig's Affidavit are accurate copies of RCMP Evidence Binder documents he reviewed against the Scotiabank files. Mr. Stewart was the senior investigator for the Bank assigned to the file on August 15, 2012.
31It appears to us that FSCO's own investigators, of which there were four over the period of review from November 2012 to September 2015, did no independent income or employment checks of any of the borrowers who are referenced in these proceedings, but appeared to rely solely on information provided by the RCMP investigator, the RCMP Evidence Binder and RCMP CD. Furthermore, FSCO's investigators did not interview YD, or any of the borrowers. Their investigation was cursory at best. We give Mr. Greig's investigative report filed at the request of Applicants' counsel little weight, although we accept the documents attached to his affidavit as both authentic and admissible. Consequently we prefer the evidence of Mr. Patterson and Mr. Stewart, in addition to the documents before us.
32In relation to the five mortgages in question, we find that the following facts have been established on a balance of probabilities by clear, cogent and compelling evidence:
a. The D Mortgage
i. Mr. GD and Mrs. DD, the borrowers, applied for a residential mortgage through their mortgage broker, Ms. Reznik. It was approved by the BRM AT as a closed 5-year mortgage by Scotiabank effective October 1, 2010 in the amount of $548,289.50, which included an insurance premium of $15,289.50)
The Bank also approved a bridge loan in the amount of $50,000.00. The BRM was AT.
It appears that Mr. D and Mrs. D were prior mortgage clients of the Bank.
ii. With respect to GD, the Bank received from Ms. Reznik, along with the mortgage application, a letter of employment from Ontario Motor Car ("OMC") dated August 16, 2010. The letter indicated employment of GD as a full-time Finance Manager with annual earnings of $87,000. Mr. Stewart testified that he had contacted OMC and confirmed that the earnings information was correct, but that GD was paid on commission, not salary. He also testified that OMC did exist on a corporate search conducted by his former colleague Ms. Jessica Feiereisen. On cross-examination he advised that GD's earnings were $73,738, but no hard evidence was provided to the Tribunal and he subsequently testified that this earnings information came to him from the RCMP, but was not documented. On its face and standing alone, we find insufficient evidence that the 2010 letter of employment from OMC was falsified. In addition we find that use of the term "earnings" is sufficiently broad to include both salary and/or commission income. A copy of this letter resides in MSF's D Mortgage file.
iii. A pay stub related to GD for July 2010, with a cheque date of August 10, 2010 with monthly gross earnings of $7,250.17 was also provided by Ms. Reznik to the Bank on September 8, 2010. The monthly amount translates to roughly $87,000 per annum, assuming a steady rate of pay. The 2010 pay stub we do find false regardless of whether or not it accurately reflects GD's actual gross earnings. It was provided to the Applicant, Ms. Reznik by YD at her request in an email sent by her to YD on August 23, 2010 in relation to the D Mortgage which read:
"Hello Yuri,
need pay stubs for this couple, see attached.
change the last name, address and amount to $40k but use the same format.
any good looking paystub paid monthly."
Attached to the email was the OMC letter of employment.
Another email from Ms. Reznik to YD sent on August 31, 2010, in respect of GD reads: "Need a 2009 T4 for it". YD replied on September 1, 2010: "Need her SIN and home address for this." Ms. Reznik replied on September 3, 2010: "Gxx Dxx SIN xxxxxxxxxxxx. Address yyyyyyyyyyyyy." (note personal information redacted by the Tribunal)
On September 8, 2010, Ms. Reznik provided to the Bank a 2009 T4 earnings statement in respect of GD with earnings of $69,136.00 from a different company, with a handwritten note indicating "Previous Employment".
MSF's D Mortgage file did not contain the 2009 T4, but did contain the 2010 pay stub. No credit check was performed by MSF as shown in their file, although there were copies of bank statements for the period May 3, 2010 to August 12, 2010. No deposits reflecting the pay stub amount were reflected in the bank statements, although we accept that it may have been deposited in another bank account of the borrower so nothing turns on those bank statements.
In the absence of any other credible explanation we find that the 2010 pay stub and 2009 T4 in relation to GD were false and created by YD at the express request of Ms. Reznik to supply false documents regarding GD's earnings to the Bank. Ms. Reznik provided no evidence regarding the reasons for her request as she did not testify. Had YD been the accountant for the borrowers as Mr. Collins suggested, YD would have already had GD's SIN and address. Had YD been the accountant for the employer OMC, he would have requested that information from OMC or already had it in his file. There would have been no need to ask a mortgage broker for that information.
iv. With respect to DD, we find inconclusive evidence exists to determine that the letter of employment submitted by Ms. Reznik to the Bank is false. Mr. Stewart conceded he did not check her employment status or income, and neither did FSCO. However, we find that sufficient evidence does exist to conclude that the related pay stub also submitted by Ms. Reznik to the Bank was false.
The letter of employment in question is from ESP Group of Companies. It indicated full-time employment at an annual salary of $40,000. As noted in paragraph 32(a)(iii) above, Ms. Reznik requested a pay stub for DD using the same format as an attached ESP pay stub which reflected a YTD gross income from ESP as at May 22, 2009 of $11,553.85 or roughly $30,000 p.a.. A hand-written entry on the pay stub changed DD's name from her maiden name, indicated a current address and indicated "Change to $40K". Ms. Reznik provided a revised pay stub to the Bank on September 8, 2010 showing a bi-weekly pay of $1,538.48 at July 31, 2010 or roughly $40,000 per annum.
If ESP employed Mrs. D, and we have no evidence otherwise, then she presumably could have easily obtained a current pay stub directly from her employer. We have already found that there is no evidence before us that YD acted for the employer or for the borrower. In the absence of any credible evidence or explanation of the request, we find that the request by Ms. Reznik to YD for a revised pay stub for DD was intended to provide the Bank with a false document regarding DD's earnings and that the pay stub for DD is false.
v. The Applicant MSF received commission income of $4,388.32 on the DD mortgage loan.
b. The Z Mortgage
i. The Applicants acted for Mr. AZ and Mrs. DZ in securing a residential mortgage from the Bank in the amount of $368,547.84 (which included an insurance premium of $8,637.84). The BRM was AT. The information provided by Ms. Reznik to the Bank included letters of employment and pay stubs, which were contained in both the Bank and MSF files.
ii. AZ was alleged to have been employed as a driver by Sunbelt Logistics Group at an annual income of $65,000. Ms. Reznik provided a letter of employment and a bi-weekly pay stub to support that amount of income, both dated August 17, 2010, to the Bank. We accept the evidence of Mr. Patterson that on two separate telephone contacts with AZ's alleged employer he was advised by the purported signor of the letter of employment that AZ was not then and had never been an employee of Sunbelt Logistics Group and that the letter of employment was not prepared by the signor, nor did it reflect her proper title. Further the purported signor advised that the pay stub was not their company pay stub. We find, based on this uncontested evidence and in the absence of any other explanation or evidence, that these documents were false. However there is no evidence that they were prepared at the request or direction of the Applicants. It is possible that they were furnished by the borrowers.
iii. We note that the Applicants' mortgage file contained what appear to be copies of Equifax credit checks on AZ and DZ. The credit checks do not provide any employment information for AZ, and suggest DZ was unemployed as at July 9, 2010.
iv. A letter of employment and pay stub was also provided to the Bank by the Applicants in respect of DZ, and we find both of these documents to be false. We accept the testimony of both Mr. Patterson and Mr. Stewart that, on October 24, 2012 DZ's alleged employer, Provincial Rehabilitation Centre Inc., did not physically exist at its stated address in North York. This information of itself is insufficient to prove or disprove the existence of the company in 2010, and we note the evidence of an internet search by the Bank on the alleged employer.
However, we find that the email request by Ms. Reznik to YD on August 19, 2010 is a request for a false letter of employment and pay stub. That email followed earlier emails on August 17, 2010 and August 18, 2010. The August 18, 2010 email said "SEE BELOW. Sending it over again. This was supposed to be done yesterday but you said you didn't get it." The email tag provided an address, employer name and YTD earnings from April of $25K for DZ with a request for a pay stub. YD replied on August 19, 2010: " Hi, It is ready and in the mailbox waiting on you. It is done biweekly. Sincerely, Yuri."
The August 19, 2010 email from Reznik to YD said:
"Yuri,
The pay stub you did for me for (DZ) is from the same company as attached
Please make sure they are the same and also make the letter for DZ."
The email request appeared to attach an unsigned letter of employment for DZ from Provincial Rehabilitation Centre Inc. indicating DZ was an administrative clerk with an annual income of $25,000.
The documents provided by the Applicants to the Bank on August 23, 2010 included a bi-weekly pay stub for $2,083.33 or roughly $54,157 per annum.
Note that the Tribunal finds that the reference in the pay stub to a bi-weekly pay period is likely an error. DZ is alleged to have been hired in April 2010 with YTD earnings to the end of July 2010 of $8,333.32. Had the preparer of the pay slip simply taken the 4 months of earnings and multiplied by three, it would have come to a neat $24,999.96. We also note that the letter of employment provided to the Bank now had a signature on it.
Based on the request by Ms. Reznik, we find that the letter of employment was supplied by YD to her either directly via a "mailbox" or via the borrowers along with the pay stub. We find both the letter of employment for DZ and related pay stub to be false. As we have already found that YD was not the accountant for the borrowers or alleged employers, no such legitimate request from a mortgage broker would have been made to a third party.
v. We find that the Applicant MSF received commissions related to the Z Mortgage of $2,948.38.
c. The S Mortgage
i. The Applicant Ms. Reznik was the mortgage broker for Mr. S on a residential mortgage approved by Scotiabank in the amount of $396,869.63 (which includes an insurance premium of $12,119.63).
ii. Mr. S did not provide employer information on his mortgage application. However, MSF'S own credit report from Equifax Canada Inc. dated August 23, 2010 suggests employment of Mr. S with Sibwest Construction.
iii. Mr. S listed his occupation as a foreman on his mortgage application, and a letter of employment was provided by Ms. Reznik to the Bank from RES 2000 Structures Inc. indicating employment since November 2008 at an hourly rate of $47.00 per hour. That same signed letter appears to have been attached to an email sent by Ms. Reznik to YD on September 29, 2010 which read:
"please make pay stubs for this client
His home address is:
Xxxxxx (redacted by Tribunal)
His SIN#xxx (redacted by Tribunal)
Please use a different format from those last week.
Thanks."
iv. Ms. Reznik sent the letter of employment and a related pay stub to the Bank on October 5, 2010. The pay stub showed Mr. S's YTD income at September 24, 2010 of $71,440.00. The Bank's internal documents suggest that the BRM, AT "verbally confirmed Mr. S's income per the LOE/stub on drop doc" on the same date that the documents were received from Ms. Reznik. We know however from the evidence of Mr. Patterson that AT may not have conducted any due diligence.
Having already found no evidence that YD acted as an accountant for the purported employers or borrowers, in the absence of any reasonable explanation otherwise, on balance of probabilities, we find the September 29, 2010 email request from Lilia Reznik a request for false documents and that the letter of employment and pay stub for Mr. S provided by YD to her and by Ms. Reznik to the Bank to be false.
v. We accept Mr. Stewart's testimony that he did not contact RES with respect to Mr. S's employment or earnings.
vi. The Applicant MSF received commission income of $3,174.96.
d. The C Mortgage
i. This mortgage file differs slightly from the other four in that Ms. Reznik's sister, Marina Reznik, then a mortgage agent authorized to deal or trade in mortgages on behalf of MSF Group Inc., faxed the mortgage application to the Bank on December 3, 2010. The BRM was AT. Attached to that request was a 2009 Notice of Assessment from the Canada Revenue Agency indicating that the borrower had a 2009 income of $6,145. Ms. Marina Reznik acting for MSF attached a Google search page for ASAP Plus, with a handwritten note reading:
ii. "Employment started since Oct 2009. (Ms.) C is a full time dispatcher with annual income $37K".
iii. We reject the Applicants' suggestion that this note is evidence of employment verification by MSF. If conducted by Marina Reznik or another MSF agent, she or he could have been called as a witness to affirm the search if performed. An attached Credit report from Equifax in MSF's own files indicated no employment information. Equifax reports do not, in our view, constitute reliable employment verification.
iv. We note that the Bank investigators made no personal attempts, nor did FSCO, to verify Ms. C's employment or income.
v. An email request from Marina Reznik to YD on December 6, 2010 attached documents forwarded to Marina from the Applicant Lilia Reznik. The attachments included a letter of employment from ASAP Plus in respect of an unknown third party GD described as a "full-time truck driver" with an annual salary of $49,000, and a pay stub in respect of that same unknown third party. Marina Reznik's request read:
"Hello Yuri,
Same employer, therefore pls same letter and same paystub, but different client information…. (Tribunal has redacted borrower's name, DOB and address)...
Annual $37K, pay frequency same as paystub attached please. Client needs both letter and 1 paystub.
Thank you."
As for the other mortgages, we find that no such legitimate request would reasonably have been made of an accountant for the borrower or an accountant of their employer. Having already found YD was not the accountant for either the alleged employer or the borrower, we find that the December 6, 2010 email was a request to YD to prepare false documents in support of Ms. C's mortgage application, and that the requested documents subsequently provided to the Bank by MSF on December 8, 2010 were false.
vi. The Applicant MSF received $3,276.87 in respect of the C mortgage.
e. The L Mortgage
i. The L Mortgage relates to a residential mortgage application by ER and ZL brokered by the Applicant Ms. Reznik on October 5, 2011. The total approved loan amount was $449,209.15 (including an insurance premium of $3,659.15). A bridge loan was also extended in the amount of $30,485.00. Again the lender was Scotiabank and the BRM was AT.
ii. We find based on the testimony of Mr. Patterson that the borrowers had a previous mortgage with Scotiabank secured in 2010.
iii. Evidence seized by the RCMP includes an email request by Ms. Reznik to YD on September 22, 2010.That request attached two purported signed letters of employment dated September 9, 2010: one for ER as an employee for Gymalaya Newmarket at an annual salary of $81,600 and one for ZL as a travel agent (consultant) for Peerless Travel & Cruises at an annual income of $28,000. The email request appears to be in connection with the earlier 2010 mortgage.
iv. The request read:
"attached are two letters the first Peerless has to be changed to $35K and need 2 paystubs.
The second one (gymalaya) just need 2 pay stubs
please try to use the logos on the stubs.
The client will come to pick it up.
The address of the clients is . (redacted by the Tribunal)
Thank you."
v. Two pay stubs reside in the MSF mortgage file in relation to ER for 2010 that appear to relate to the email request. However we cannot determine if they were ever provided to the Bank by the Applicants.
Another letter of employment dated October 5, 2011 confirming ER's employment and annual income of $83,232.00 also exists in MSF's mortgage file in respect of the 2011 mortgage application and we find was provided to the Bank by Ms. Reznik. A further related pay stub for the pay period ending at September 23, 2011 with roughly equivalent YTD earnings of $57,622.14 for ER also appears in the Bank file and was sent by the Applicants.
vi. We accept Mr. Patterson's undisputed testimony that ER was in fact not an employee, but a co-owner in Gymalaya's Newmarket location. However, there was no evidence before us that the earnings information in the 2011 letter of employment for ER was incorrect, although the information in the letter as to his status as an employee (as opposed to a co-owner) may have been misleading.
vii. No investigation of the pay stubs for ER was conducted by the Bank or FSCO. In the absence of any other evidence, we cannot conclude that the 2011 paystub for ER that was provided to the Bank in support of the mortgage application in question was false. It remained open to the Superintendent to provide evidence that owners or co-owners of a business do not receive pay stubs, or that employers and co-owners would be treated in materially different ways by the Bank on a mortgage application, but counsel did not provide us with such evidence.
viii. More troubling were the letters of employment and pay stub for ZL, ER's wife. Two 2010 pay stubs that appear to be connected to the 2010 email request appear in the MSF mortgage file but in respect of the prior 2010 mortgage application. The Bank file in relation to the 2011 mortgage application shows an updated October 7, 2011 letter of employment for ZL with Peerless Travel which indicated her employment as Accounting Controller and annual salary of $50,000.00, as well as a pay stub for the period ending September 23, 2011. Mr. Patterson testified that Peerless Travel advised him that the Bank had not previously contacted them in relation to ZL's employment or income. We find that both the 2011 letter of employment and 2011 pay stub for ZL were provided to the Bank by the Applicants.
We accept the undisputed testimony of Mr. Patterson that two conversations with managers of Peerless Travel on October 30, 2012, confirmed that ZL was not the "Accounting Controller" as stated in the October 7, 2011 letter or accounting clerk, but that ZL was a commissioned sales agent with earnings in each of 2010 and 2011 of approximately $15,000 per annum, not the $28,000 and $50,000 earnings information provided to the Bank in 2010 and 2011. We find that both sets of employment letters and their related pay stubs in respect of ZL are false. Further, we find that YD created the 2010 letter of employment and pay stub for ZL. Although there is no direct evidence before us that Ms. Reznik requested preparation of the 2011 documents, however she obtained them, Ms. Reznik provided false documents to the Bank in both 2010 and 2011 in respect of ZL. For purposes of the NOP, the Superintendent appears to only rely on the 2011 false documents.
ix. We find that the Applicant MSF earned direct commissions of $687.10 in respect of the L mortgage.
f. Although Mr. Collins advised us that Ms. Reznik also earned bonus income from Scotiabank related to her sales performance, we are unable to ascertain in the absence of evidence how much additional bonus income, if any, would have been directly related to these five mortgages. As well, while we found that MSF directly received commission income related to the five mortgages, according to Ms. Kesleman, Ms. Reznik drew an amount from MSF earnings through her ownership interest in MSF via a holding company, so we cannot directly trace the commissions from the five transactions to her directly. However we find that Ms. Reznik did receive an indirect financial benefit through her ownership of MSF in relation to the commission income earned by MSF for the mortgages in question.
VI. STATUTORY FRAMEWORK AND ANALYSIS
33Prior jurisprudence makes it clear that the Tribunal hears these cases de novo and owes no deference to the Superintendent's determination in coming to its own conclusions. Accordingly, the Tribunal must make its own independent determination, on the basis of the evidence before it, of whether the Act has been breached and if so, what, if any, regulatory sanctions should be imposed on the licensee or the applicant for a licence. The Applicants' contention in oral submissions that the Superintendent relied too much on the RCMP evidence is not relevant to a determination as to whether the Applicants breached the Act and regulations once we have determined that the related evidence is admissible. The Tribunal only needs to consider the evidence before it, regardless of the sources and determine the appropriate relevance, credibility and weight of evidence. The standard of proof related to any breach of ss. 43(1) and (2) of the Act is on a balance of probabilities.
34Subsection 43(1) of the Act prohibits any mortgage brokerage from giving, assisting in giving or inducing or counseling another person or entity to give or assist in giving any false or deceptive information or document when carrying on the business of dealing or trading in mortgages in Ontario. Similarly, subsection 43(2) prohibits any mortgage broker or agent from giving, assisting in giving or inducing or counseling another person or entity to give or assist in giving any false or deceptive information or document when dealing or trading in mortgages in Ontario (emphasis ours). Simply read, the Superintendent is not required to prove intent or mens rea in order to establish a breach of section 43; it is sufficient to prove on a balance of probabilities that the offence of providing false documents or information when dealing in mortgages has taken place. We leave open the question of whether a defence of due diligence exists under section 43 because, in this case based on our findings, there is no evidence that the Appliants exercised care in order to ensure that the documents supplied to the Bank were not false documents.
35The provision of accurate and truthful information lies at the core of a mortgage broker's duties to borrowers and lenders. If given an inaccurate picture of the borrower's finances, lenders risk issuing a mortgage to unworthy borrowers that may default on the mortgage thereby exposing the financial institution acting as lender to material financial risk.
36The NOP suggests that the Applicants "retained" YD or "employed" him to create false documents. While no legal arguments were made before the Tribunal in relation to the terms "retainer" or "employed", we cannot in the absence of clear evidence, make a finding of fact as to whether or not the Applicants directly retained or employed YD on a fee-for-service basis We find it plausible that YD was retained and paid by the individual borrowers, not the Applicants, for the same purpose: namely to create false documents to support their individual mortgage applications, although we note the lack of direct evidence. We of course have no jurisdiction over those borrowers, and they were not witnesses before us. It was open to the Applicants to call them as witnesses with respect to their relationship to YD or to prove that the information provided to the Bank was "demonstrably accurate" or "accurate and true" as their written submissions suggest. The Applicants did not do so.
We instead must rely on the Superintendent's witnesses who, in our view, have clearly demonstrated that false documents were created at the request of the Applicants and attached to email communications between the Applicants and YD, and that these false documents were not placed in the Applicants' own records, but did exist in the RCMP Evidence Binder and RCMP CD as direct communications between the Applicants and YD. It would appear that the purpose was to deceive Scotiabank as to the Applicants' clients' ability to qualify for mortgage debt. It is not necessary for this purpose to have convicted YD or Ms. Reznik in criminal court and in our view, the Superintendent could rely in part on evidence uncovered by the RCMP. Nor is it necessary for this purpose for the Tribunal to determine how or by whom YD was retained or employed. Rather, it is sufficient that we are satisfied, as we are, that false documents were requested by the Applicants and submitted to the Bank when carrying on the business of dealing in mortgages in Ontario.
37In summary for the five mortgages in relation to this NOP, we have found based on clear, cogent and compelling evidence, that seven false pay stubs, one false T4, and five false letters of employment were made at the direct request of the Applicants, and further that the Applicants provided such false information to the Bank in support of mortgage applications. In addition, based on all the evidence, we find that Ms. Reznik was not a passive participant. She was, in fact, a willing participant.
38Given our findings of fact, we find that Ms. Reznik, as mortgage broker, and that MFS as the brokerage, have contravened subsections 43(2) and 43(1) of the Act respectively. In particular, on the basis of the clear, cogent and compelling evidence described above, we find on a balance of probabilities that the Applicants knowingly gave false documents to Scotiabank in support of five distinct mortgage applications. Therefore, the answers to the first part of issues (a) and (b) are yes.
39The second part of issues (a) and (b) involves a determination of whether the past conduct of Ms. Reznik, as found in the previous paragraphs, affords reasonable grounds for belief that they will not deal or trade in mortgages in accordance with the law and with integrity and honesty: see Ontario Regulation 409/07, s. 10(1) (Ms. Reznik) and Ontario Regulation s. 1(2)(2) (MSF). In terms of the standard of proof related to this separate determination, the Superintendent need only establish that he has reasonable grounds for belief that a licensee will not deal or trade in mortgages in accordance with the law and with integrity and honesty. In Joshi, this Tribunal concluded that the "Superintendent does not have to go so far as to show that [a licensee's] past conduct makes it more likely than not that he will not carry on business as required."4
40In Joshi, this Tribunal relied on the Ontario Court of Appeal finding in Famous Flesh Gordon's that "reasonable grounds for belief" is a lower standard of proof than "balance of probabilities." It requires something more than mere suspicion, but less than proof on a balance of probabilities. Reasonable grounds will exist where there is an objective basis for the belief which is based on compelling and credible information.5
41Any licence revocation in respect of Ms. Reznik can only be founded on reasonable grounds for belief that Ms. Reznik is no longer personally suited to hold a mortgage broker's licence, taking into account the factors that are relevant to that determination under the terms of the Act and Regulation. The unsuitability basis for a licence revocation that has to be considered in this case is the same as the unsuitability basis for a licence denial, a refusal to renew a licence and a licence suspension.
42As noted in Strazzeri,6 in determining the suitability of a person to be licensed as a mortgage agent or broker under the Act, "the Tribunal must be mindful of two overriding considerations: 1) the Act and its regulations are designed to protect the public interest and enhance public confidence in the mortgage industry and 2) a decision to refuse to issue a licence under the Act, or to suspend or revoke an existing licence can have severe financial consequences for the applicant or licensee. Given these serious consequences, a finding of unsuitability must not be made lightly."
43In considering suitability, the Tribunal adopts a contextual approach and considers all relevant circumstances. The considerations outlined by the Tribunal in its decision in Henderson v. Ontario (Superintendent Financial Services), impose a general framework for addressing the issue and are not an exhaustive list.7 The public interest in general deterrence or in maintaining the integrity of the regulatory process, can not be the sole basis for denying a licence or for a licence revocation, overcoming the need for an assessment of the suitability of a person to hold a licence that is called for by the Act and the Regulation. Provided that the evidence is "clear, convincing and cogent, as in this case, we can still conclude that Ms. Reznik is unsuitable to be licenced.
44We also adopt the comments of the Tribunal in Strazzeri8 that "the absence of a previous contravention, conviction or sanction does not prohibit the Superintendent from invoking section 10.1 of Ontario Regulation 409/07 in order to revoke a licence issued under the Act, nor does it prevent the Tribunal from reaching a conclusion that (the applicant) is unsuitable to be licensed on the basis of his past conduct. Section 10.1 uses the expression "past conduct" – not "past contravention", "past conviction" or "past sanctions". A finding of unsuitability can still be made on the basis of otherwise unpunished past conduct, as in this case.
45The decision in Henderson does provide a useful guide to assessing suitability by providing a non-exclusive list of considerations to be taken into account in determining whether past conduct meets the test for disqualification as a licensee.9 We have, therefore, considered those circumstances in light of the facts of the present case.
46(i) The time that has elapsed since the conduct occurred.
The past conduct of Ms. Reznik and MSF that potentially affects suitability to hold a licence took place in July 2010 to November 2011, some five years ago.
47(ii) The prolonged or repetitive nature of the conduct.
The past conduct of Ms. Reznik and MSF occurred in the context of a series of transactions – the provision of false documents to the Bank in support of five distinct mortgage applications.
48(iii) The advertent or inadvertent nature of the conduct.
There is no question that Ms. Reznik's conduct was advertent. The communications were purposeful and methodical. The emails were not mistakes. These conclusions are equally true of MSF in relation to the C mortgage. The Applicants offered no evidence or credible explanation otherwise. In our view these are serious offences.
49(iv) The extent to which the conduct can be taken to call into question the integrity, honesty and law abiding nature of the individual.
Ms. Reznik's conduct does call into question her honesty and law abiding nature. She was not just engaged in a lack of due diligence, but was actively engaged in the misconduct of giving false documents and information in relation to the impugned mortgage applications. The Applicant offered no testimony and therefore no rationale for her actions but in fact through her counsel she did not admit any wrongdoing. She attempted to minimize the seriousness of the allegations by suggesting, through her counsel that no harm was done, or alternatively others were at fault (the borrowers and the Bank). Her conduct was not isolated to a single event, and suggests a propensity to act dishonestly and without regard to the law. Any superficial internet or credit checks done by MSF were not proof of borrowers' employment or income, and do not override our findings in this regard.
50(v) The closeness of the context of the conduct to the context of activities in which the individual would be engaged as a mortgage agent.
Ms. Reznik's and MSF's conduct involved a number of mortgage loans and the activities of a mortgage broker are directed to financing and lending on the security of real estate. The context is at the very foundation for which she is engaged as a mortgage broker.
51(vi) The fairness of any process involved in holding the individual to account for his or her conduct.
Ms. Reznik was not subject to any criminal or civil proceedings and there was no criminal conviction before the courts.
52(vii) The seriousness with which the court or other body holding the individual to account treated the conduct as reflected in the severity of the sanction it imposed.
Ms. Reznik was not held to account under any other proceedings.
53(viii) Any unusual and severe pressure the individual was under at the time of the conduct that would explain the conduct but is unlikely to reoccur.
Despite the description by Mr. Collins of Ms. Reznik's marital difficulties and personal circumstances as a single parent of her three children, there was no evidence that the Applicant was under any unusual and severe pressure leading up to the conduct that is relevant for the purposes of this case. She did not testify.
54(ix) Any consistent and prolonged pattern of reformed or redeeming behaviour on the part of the individual since the conduct occurred.
We are mindful of the fact that no evidence was presented as to the Applicant's professional conduct after 2011, other than that of her two character witnesses, neither of whom were engaged with her professionally during the time period in question and neither of whom testified directly as to her honesty. We have already found in paragraph 29(e) above that FSCO did not receive any complaints from her clients. However we cannot be confident that she has reformed given that she has not acknowledged her misconduct or expressed any remorse in this regard.
55In addition, by obtaining for MSF Clients mortgages those clients may not otherwise have been entitled to, Ms. Reznik and MSF obtained commissions they would not have obtained but for the false documents that they provided to the Bank.
56After considering all of these circumstances, as listed in Henderson, we have come to the conclusion under the second part of issue (a) that Lilia Reznik's past conduct does afford reasonable grounds for belief that she will not deal or trade in mortgages in accordance with the law and with integrity and honesty.
57We agree with the Applicants' submissions that "The Tribunal's finding regarding Lilia Reznik's conduct should equally apply to MSF." As the owner, principal broker and guiding mind behind this business, her actions are the actions of the brokerage.
58Consequently, we find that under the second part of issue (b) there are also reasonable grounds for finding that MSF will not carry on business in accordance with the law and with integrity and honesty because based on clear, cogent and compelling evidence:
a. the past conduct of Ms. Reznik, the sole director and officer of MSF, in obtaining and providing false income and employment documents to Scotiabank, affords reasonable grounds for belief that the business of the corporation will not be carried on in accordance with the law and with integrity and honesty; and
b. MSF, its brokers and agents have demonstrated a pattern of obtaining and providing false income and employment documents to Scotiabank, and therefore, MSF has carried on activities that contravene the Act, as more particularly described above.
59We reject the Applicants' contention that as the mortgages were fully discharged, a fact on which we have no actual evidence, that "no loss or harm was suffered by anyone" and that these events constituted a "victimless" crime. This is nonsense. Even if the Bank suffered no direct financial loss, it is not an excuse for the Applicants or other participants in the mortgage industry to engage in the procurement and provision of false documents to a lender. The actions of the Applicants certainly offend the public interest and if permitted and unpunished, would not enhance public confidence in the mortgage industry.
60Given our findings on issues (a) and (b), we must now turn our minds to the appropriate penalty, if any, including licence revocation under the remaining issue.
61Counsel for the Superintendent argued that revocation of Ms. Reznik's licence is the only appropriate sanction which will protect the public interest and public confidence in the mortgage industry, for both of which Ms. Reznik has demonstrated a complete lack of respect. Simply put, the argument is that failure to revoke her licence would send a message that a person who knowingly and frequently provides false information in a mortgage application on behalf of a client is still suitable to deal in mortgages in Ontario. Revocation is appropriate to provide guidance to the industry on the appropriate sanction in the event of misconduct of this nature.
The Superintendent's submissions as to alternative penalty consisted of a substantial fine ($10,000 per individual breach) which would amount to $130,000.00 in this case, a six-month suspension of both licences or longer until the financial penalty is paid, and removal of Ms. Reznik from MSF's operations. In respect of MSF, the Superintendent also required that MSF satisfy the Superintendent that none of the agents or brokers implicated in the anticipated evidence, including Ms. Reznik, have involvement in MSF's future business operations. Ms. Reznik under this alternative would work for and be supervised by another licensed broker acceptable to the Superintendent for one year, and be required to complete an ethics course.
62Counsel for the Applicants argued that his clients honestly believed at all times that the information provided to Scotiabank for the subject mortgages showed the true place of employment for each mortgagor and the true income of each mortgagor. The Applicants he argued had reason to possess this honest belief. However the Applicants failed to provide any evidence of such belief as Ms. Reznik did not testify and her own character witnesses had no evidence in this regard. In fact her own witness, Ms. Keselman testified that she had never heard of YD and did not believe he was a certified accountant. We have found that some of the false documents provided to the Bank were created at the express request of Ms. Reznik; information that she would reasonably have known to be false. The argument of "reasonable and honest belief" fails both on the evidence and on common sense.
63The Applicants asked in the alternative that financial penalty be imposed in lieu of licence revocation, but then suggested that lost commission income from the Bank related to Ms. Reznik's removal by Scotiabank on its list of approved brokers was sufficient penalty. In the alternative he suggested a minor penalty of roughly $15,000 or $1-2,000 per offence. We find that there is no actual evidence of any lost commission before us, but nothing turns on this fact.
64Ms. Reznik has operated unencumbered in the last five years and continued to run, by all accounts, a successful business despite the alleged loss of Bank commissions. She continued to draw on MSF's earnings during that period. Counsel's submissions against a licence revocation were based on an assertion that the Applicants had not breached the Act and we have found that assertion not to be the case. Counsel's assertion that Ms. Reznik had not received any benefit we found also to be false, as MSF certainly received the related commissions directly and therefore she benefitted indirectly as the owner of MSF as well. In addition she collected Bank bonus of unknown amounts in 2010 in relation to the five mortgages in question. The loss of that bonus should not in our view be used as an argument to reduce a financial penalty under the Act and regulations.
65The Act requires that mortgage brokers be licensed by the Financial Services Commission of Ontario, which licence may be held by an individual (s. 8). Brokers are generally licensed on two-year licensing cycles, at the end of which they must apply for a renewal of their licence and have their qualifications and suitability reassessed by the Superintendent. (O. Reg. 409/07, s. 8.1). A mortgage brokerage licence is automatically suspended if the brokerage ceases to have at least one mortgage broker authorized by licence to deal in mortgages or trade in mortgages on behalf of the brokerage: (s. 17(1)).
66The legal basis for the proposed revocation of the broker licence is s.16 (4) of the Act. That subsection provides:
The Superintendent shall renew the licence of an applicant who satisfies the prescribed requirements for renewal of the licence unless the Superintendent believes, on reasonable grounds, that the applicant is not suitable to be licensed having regard to such circumstances as may be prescribed and such other matters as the Superintendent considers appropriate. (emphasis ours)
67Subsection 19(1)(a) of the Act provides that the Superintendent may, by order, revoke a licence in any of the circumstances in which he or she is authorized by clause 18(1)(a), (b), (c), or (d) to suspend the licence.
68These provisions of the Act are supplemented by s. 10 of the O. Reg. 409/07, which provides:
In determining whether an individual is not suitable to be licensed as a mortgage broker or agent, the Superintendent is required by subsections 14(1) and 16(4) of the Act to have regard to the following prescribed circumstances:
Whether the individual's past conduct affords reasonable grounds for belief that he or she will not deal or trade in mortgages in accordance with the law and with integrity and honesty.
Whether the individual is carrying on activities that contravene or will contravene the Act or the regulations if he or she is licensed.
Whether the individual has made a false statement or has provided false information to the Superintendent with respect to the application for the licence.
Only the first circumstance is to be considered in this case. We find that it has been met.
69The Act also makes provisions for suspension or revocation of licences and for conditions to be imposed on a licence.
70By engaging in the mortgage brokering industry, like any regulated activity, licensees agree to adhere to strict standards, and they accept that they will be rigorously held to those standards.
71Having found Ms. Reznik's past conduct constitutes both a breach of the Act and is reasonable grounds to believe she will not deal or trade in mortgages in accordance with the law and with integrity and honesty, we also find her to be unsuitable to be licensed as a mortgage broker. The imposition of a fine only we feel will be insufficient deterrence to Ms. Reznik or the industry. The acts she engaged in, as did MSF, were deliberate. She neither admitted her conduct, nor did she demonstrate any remorse. The fact that FSCO has not received any complaints as to her conduct otherwise is insufficient in our view to find her conduct reformed or to conclude that the unlawful behaviour will not reoccur.
72We are mindful of the financial consequences of a decision to revoke the Applicant's licence. We accept that Ms. Reznik's personal circumstances, as a mother of three with the attendant financial responsibilities, will be difficult in the short term. However those circumstances are not exceptional. We also note that licence revocation is not a lifetime ban from the mortgage industry. On the contrary, the Applicant could apply for a new licence once twelve months have passed from the date of revocation10, by satisfying the Superintendent that new or other evidence is available or that material circumstances have changed. At that time the Superintendent could approve or disapprove the application or make approvals subject to conditions such as supervision by another broker.
73Taking the Superintendent's and Applicants' submissions into account, we find the grounds for licence revocation reasonable. Ms. Reznik as a broker is not subject to supervision should she carry on at MSF. There is no ability to apply reasonable supervisory conditions as was the case in De-Ann Gooding, where the applicant was an agent, not a broker, and her employer was aware of her past conduct and willing to supervise.11
74Licence revocation protects the public interest by removing the licence of a person found unsuitable, as in this case, based on clear, convincing and cogent evidence; and by encouraging Ms. Reznik to change her conduct to regain the privilege of holding a licence. A mere financial penalty and suspension is not appropriate in our view to achieve these objectives. The Applicant's proposed financial penalty would simply have restored the Applicant to the same position she would have been in had she complied with the Act. There would be no element of penalty or deterrence.
75The circumstances prescribed for the purposes of determining the suitability of a brokerage corporation under clause 18(1)(b) are set out in subsection 1(2) of O. Reg. 408/07. Only one is relevant to MSF:
- Whether the past conduct of any director or officer of the corporation affords reasonable grounds for belief that the business of the corporation will not be carried on in accordance with the law and with integrity and honesty.
76We find that MSF Group Inc. is also unsuitable to be licensed given that Ms. Reznik is its sole broker, director and officer. We find that its licence must also be revoked as Ms. Reznik's past conduct as MSF's authorized agent suggests that MSF will not operate honestly and in accordance with law. The Applicant did not argue that an alternative broker be put in place and we find that there is no other appropriate penalty, for the reasons already noted with respect to Ms. Reznik. We were advised by counsel that MSF's only current employees are immediate relatives of Ms. Reznik, namely her mother (in an unknown capacity) and the afore-mentioned Marina Reznik. Given the circumstances of the offence we find that the Superintendent has reasonable grounds to revoke MSF's licence.
VII. ORDER
77The Superintendent's NOP is upheld. The Superintendent is ordered to carry out his proposal to revoke the mortgage broker licence of Lilia Reznik, and the mortgage brokerage licence of MSF Group Inc.
Dated at Toronto, this 8th day of September, 2016.
"Florence A. Holden" Florence A. Holden
"Denis Boivin" Denis Boivin
"Ian McSweeney" Ian McSweeney
Footnotes
- R. v. Richard Avanes, Drago Jankovic and Salvatore Formusa, 2015 ONCJ 606.
- R. v. Andalib-Goortani, 2014 ONSC 4690 at para 28, citing R. v. Creemer and Cormier, 1967 711 (NS CA), [1968] 1 C.C.C. 14 (M.S.S.C. APP. DIV.).
- Paragraph 3.
- Joshi v. Ontario (Superintendent Financial Services), 2015 ONFST 16 at paragraph 15. In Joshi, the Divisional Court remitted the matter back to the Tribunal in order to reconsider the penalty imposed on Mr. Joshi, but the Court confirmed the analysis and decision on the merits: see Joshi v. Ontario (Superintendent of Financial Services), 2016 ONSC 4477.
- Joshi, ibid., at paragraph 14 references Ontario (Alcohol and Gaming Commission of Ontario) v. 751809 Ontario Inc. (Famous Flesh Gordon's), 2013 ONCA 157 at 18-19.
- Strazzeri v. Ontario (Superintendent Financial Services), 2012 ONFST 6, paragraph 66, citing Millenium Mortgage Corporation v. Ontario (Superintendent Financial Services), 2009 ONFST 6.
- Henderson v. Ontario (Superintendent Financial Services), 2008 ONFST 7.
- Op cited, paragraph 70.
- Henderson, page 9.
- O. Reg 409/07.
- De-Ann Gooding v. Ontario (Superintendent Financial Services), 2008 ONFST 12.