Shtivelman v. Ontario (Superintendent Financial Services), 2018 ONFST 17

Citation: Shtivelman v. Ontario (Superintendent Financial Services), 2018 ONFST 17 Decision No. M0797-2018-1 Date: 2018/08/16

IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c.29 (the “Act”), in particular sections 14 and 21;

AND IN THE MATTER OF the Notice of Proposal to Refuse Application dated March 16, 2018 against Lilia Shtivelman, 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 Act.

and

BEFORE:

Craig Brown Chair of the Panel and Member of the Tribunal

Jeffrey Richardson Member of the Panel and Member of the Tribunal

Jill Wagman Member of the Panel and Member of the Tribunal

For the Applicant – Dan Schofield

For the Superintendent of Financial Services – Brendan Forbes

DATE HEARD: July 26, 2018

REASONS FOR DECISION

I. INTRODUCTION

1This case arises from a Notice of Proposal, dated March 16, 2018, in which the Superintendent of Financial Services proposed to refuse the application of Lilia Shtivelman for a mortgage broker’s licence. Ms. Shtivelman previously held a mortgage broker’s licence but this was revoked in 2016, following a hearing by the Tribunal (2016 ONFST 16) and subsequent request for review (2016 ONFST 22). Having waited the required 12 months, Ms. Shtivelman applied for a new mortgage broker’s licence or a mortgage agent’s licence. When the Superintendent proposed to refuse this application, Ms. Shtivelman requested a hearing to allow her to present new or other evidence or evidence of material changes of circumstances, which, she argues, justify the granting of a new licence under subsection 4(1) of Ontario Regulation 409/07.

2For the reasons that follow, we conclude that Ms. Shtivelman has failed to present sufficient evidence to satisfy the requirements of subsection 4(1) and order the Superintendent to carry out the proposal to refuse the application for a mortgage broker’s licence or mortgage agent’s licence.

II. ISSUE

3At the start of the hearing, Counsel for the Superintendent conceded that the case turned on a single issue: has Ms. Shtivelman provided new or other evidence or evidence that her material circumstances have changed in order to be issued a mortgage broker’s licence, as prescribed by s. 4 of Ontario Regulation 409/07?

III. FACTS

4The parties both signed an Agreed Statement of Facts as follows:

(1) Prior to her marriage to Oleg Shtivelman, Ms. Shtivelman’s legal name was Lilia Reznik.

(2) Ms. Shtivelman was previously licensed by the Superintendent as a mortgage broker from July 1, 2008 until October 5, 2016. Ms. Shtivelman’s previous licence number was M08000875.

(3) Ms. Shtivelman was previously the Principal Broker of MSF Group Inc., a mortgage brokerage licensed with the Superintendent from April 2, 2008 until September 8, 2016. MSF’s previous licence number was 10236.

(4) On July 21, 2015, the Superintendent issued a Notice of Proposal to revoke the mortgage broker licence of Ms. Shtivelman and to revoke the mortgage brokerage licence of MSF Group Inc. On August 4, 2015, Ms. Shtivelman filed a Request for Hearing with the Financial Services Tribunal in respect of the July 21, 2015 Notice of Proposal.

(5) On September 8, 2016, the Financial Services Tribunal issued a decision ordering the Superintendent to carry out his proposal to revoke the mortgage broker licence of Ms. Shtivelman and to revoke the mortgage brokerage licence of MSF Group Inc.

(6) On September 19, 2016, the Superintendent issued an Order revoking the mortgage broker licence of Ms. Shtivelman and revoking the mortgage brokerage licence of MSF Group Inc.

(7) On September 28, 2016 Ms. Shtivelman filed a request for Review of the September 8, 2016 Financial Services Tribunal decision to the Financial Services Tribunal.

(8) On October 7, 2016, Ms. Shtivelman appealed the September 8, 2016 decision of the Financial Services Tribunal to the Divisional Court of Ontario.

(9) On October 28, 2016, Ms. Shtivelman abandoned the appeal of the September 8, 2016 Financial Services Tribunal decision before the Divisional Court of Ontario.

(10) On November 22, 2016, the Financial Services Tribunal issued a decision upholding the decision directing the Superintendent to revoke Ms. Shtivelman’s mortgage broker’s licence upon review.

(11) On November 29, 2017, Ms. Shtivelman reapplied to be a mortgage broker with the Financial Services Commission of Ontario.

(12) Ms. Shtivelman had been unlicensed for 14 months between her prior revocation and her November 29, 2017 application for a mortgage broker’s licence.

(13) On March 16, 2018, the Superintendent issued a Notice of Proposal to Refuse Application against Ms. Shtivelman in respect of her November 29, 2017 application.

(14) Ms. Shtivelman was served with the March 16, 2018 Notice of Proposal to Refuse Application on March 23, 2018.

5In addition, we accept as established facts the findings of the panel of the Tribunal as set out in the decision dated September 8, 2016. In particular we refer to paragraph 37 of that decision:

In 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.

6At the hearing in this case, evidence was presented by two witnesses on behalf of the Superintendent, Ron McCracken, investigator with the Financial Services Commission and Heather Driver, Director of Licensing at the Financial Services Commission; and two witnesses in addition to Ms. Shtivelman herself on behalf of the Applicant, Barbara Morgan, who holds a supervisory role with Mortgage Intelligence, a mortgage brokerage and Sangeeta Nair, Director of Compliance at Mortgage Intelligence. We shall return to specific elements of their testimony below. For now we make the following general additional findings of fact based on this testimony and the Agreed Book of Documents.

Ms. Shtivelman has recently been working in an administrative role at Mortgage Intelligence.
Mortgage Intelligence supports her application for a mortgage broker’s licence or mortgage agent’s licence.
Mortgage Intelligence undertakes to provide close supervision of Ms. Shtivelman’s work should she become relicensed.
Ms. Shtivelman disclosed to both Ms. Morgan and Ms. Nair that she previously held a mortgage broker’s licence that had been revoked. However, she did not disclose details of the false pay stubs and other forged income information. She said merely that information about mortgage applicants’ income had been submitted in the wrong form.
In her interview with Ron McCracken, Ms. Shtivelman stated that she “never believed that I was falsifying documents” and that she thought the resource she was sending clients to was merely “for printing basically”. However, at the end of the interview, she admitted that “I understand what I did wrong back in 2009 … there were a few instances that … I used that resource … when I realised back then that it wasn’t the proper practice… “
The “resource” is the person found by the Financial Services Tribunal in the original hearing to be the forger of false income information.
Around 2009 – 2010, Ms. Shtivelman suffered at the hands of an abusive husband.
Ms. Shtivelman now accepts the findings of fact of the original Tribunal and is genuinely remorseful.
Since the events of 2010 that led to the revocation of licence in 2016, Ms. Shtivelman has been accused of no other misconduct.

IV. THE LAW

7The criteria we must consider when an applicant reapplies for a mortgage broker’s licence after revocation are contained in subsection 4(1) of Ontario Regulation 409/07 which states:

An individual whose mortgage broker’s licence has been revoked, or whose application for a mortgage broker’s licence or for renewal of such a licence has been refused, cannot apply for a mortgage broker’s licence unless,

(a) 12 months have passed since the revocation or refusal; and

(b) the individual satisfies the Superintendent that new or other evidence is available or that material circumstances have changed.

8While this subsection, which deals specifically with reissuing of licences after revocation, is properly the focus of our attention in this matter, we find assistance for its interpretation in broader legislation and relevant case law. We refer first to section 14(1) of the Mortgage Brokerages, Lenders and Administrators Act 2006, S.O. 2006, c. 29 which provides in general terms the criteria relevant to the issuing or withholding of a licence:

14(1) The Superintendent shall issue a licence to an applicant who satisfies the prescribed requirements for a 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 added]

9The relevant “prescribed circumstances” are set out in Section 10 of Ontario Regulation 409/07:

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 regulation 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.

10In our view, the cumulative effect of these provisions as applicable to this case is that the new or other evidence or change(s) to the material circumstances, as mentioned in subsection 4(1) of O.R. 409/07, must demonstrate that Ms. Shtivelman is now suitable to be licensed according to these criteria, whereas, when her licence was revoked, she was deemed not to be.

11These statutory and regulatory provisions have been considered in several cases before this Tribunal. Prominent among these cases is Henderson v. Ontario (Superintendent Financial Services) 2008 ONFST 7 which was referred to by both parties. That case involved an applicant for a mortgage broker’s licence who had previously been disciplined by the Law Society of Upper Canada for professional misconduct as a solicitor in relation to real estate transactions. The Tribunal considered the application to these facts of section 14 of the Act and section 10 of the regulations. While section 4(1) of the Regulation was not in play in that case, the Tribunal’s treatment of the criteria for suitability for obtaining a licence are relevant, if not determinative, in the present case.

12In general terms, the approach of the Tribunal in the Henderson case was to seek a balance between considering the potentially severe consequences for the applicant of denial of a licence and considering the public interest in being protected from the potentially severe consequences of fraud and other misconduct on the part of brokers and agents. Previously imposed sanctions by a disciplinary tribunal do not automatically disqualify an applicant from obtaining a mortgage broker’s or agent’s licence. In our view, that approach is equally relevant to proceedings to which subsection 4(1) of O.R. 409/07 are directly applicable and we apply it here.

13The Henderson case sets out a series of indicators as to the likelihood that an applicant will deal or trade in mortgages in accordance with the law and with integrity and honesty. These are:

(i) the time that has elapsed since the conduct occurred;

(ii) the prolonged or repetitive nature of the conduct;

(iii) the advertent or inadvertent nature of the conduct;

(iv) the extent the conduct can be taken to call into question the integrity, honesty or law abiding nature of the individual;

(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;

(vi) the fairness of the process followed in the disciplinary proceeding;

(vii) the seriousness with which the disciplinary body treated the conduct as reflected in the in the severity of the sanction it imposed;

(viii) any unusual or severe pressure the individual was under at the time of the conduct that would explain the conduct but is unlikely to reoccur;

(ix) any consistent and prolonged pattern of reformed or redeeming behaviour on the part of the individual since the conduct occurred.

14In Henderson, the Tribunal was careful to note (at p. 9 of its decision):

This is not meant to be an exhaustive list of considerations nor to suggest that the application of all or any particular number of these considerations must favour the conclusion that the individual should be disqualified from holding a mortgage agent’s licence, on the basis of past conduct, before such a conclusion can be reached.

Thus, each case must be considered on its own merits. Nonetheless, these criteria have been applied by the Tribunal in other cases involving consideration of an individual’s suitability to hold a mortgage broker’s or agent’s licence. (See e.g. Martin v. Ontario (Superintendent Financial Services) 2016 ONFST 26; Joshi v. Ontario (Superintendent Financial Services) 2015 ONFST 16 and Glaude v. Ontario (Superintendent Financial Services) 2008 ONFST 11). Although this case involves an individual’s suitability for relicensing after revocation, and not whether a licence should be issued in the first place or revoked, in our view the Henderson criteria are relevant in assessing new or other evidence and in determining whether material changes in circumstances have occurred.

V. ANALYSIS

15Given that more than 12 months elapsed between the revocation of Ms. Shtivelman’s previous licence and her application now under review, the sole issue for consideration under subsection 4(1) of O.R. 409/07 is whether there is new or other evidence available or whether material circumstances have changed.

A. New or Other Evidence

16The only evidence put forward by the Applicant that could be considered “new or other evidence” was that, during the period when she engaged in the conduct that led to the revocation of her licence, she was the victim of domestic abuse and felt pressure to provide independently for her children. She testified that her domestic troubles came to a head in 2011 when her then husband was arrested for domestic violence and the couple separated. She stated that these personal circumstances were the root cause of her misconduct in 2010 and that, following the separation from her former husband, she has a clean record, including during the period from 2010 until her licence was revoked in 2016.

17If domestic violence was the root cause of the conduct that led to her licence being revoked, the question begged is why was this not raised before now as a central focus of her case. Ms. Shtivelman’s explanation was that her lawyer in the original proceedings would not let her testify so that the full extent of her problems were not put before the Tribunal. We note that the Tribunal was apprised of “marital difficulties” but did not consider that to be of sufficient significance to affect its decision to the revoke the Applicant’s licence. At paragraph 53 of its decision (2016 ONFST 16) it stated:

Despite the description by Mr. Collins [counsel for the Applicant] of Ms. Reznik’s marital difficulties and personal circumstances as a single parent of three children, there is no evidence that the Applicant was under any unusual or severe pressure leading up to the conduct that is relevant for the purposes of this case. She did not testify.

18Ms. Shtivelman’s testimony before this Panel suggested that these marital difficulties were considerably more severe than the original panel was led to believe. Although there was no corroborating evidence, such as documentation of the criminal proceedings involving her former husband, presented to us, the Superintendent’s counsel did not challenge this testimony and we accept that she had been a victim of domestic violence.

19But this evidence was “available” at the time of the original hearing. Moreover, it does not, by itself, provide a causal connection between the violence and the fraudulent conduct she was found to have engaged in. What fuels doubt about this connection is the fact that the point was not made more forcefully at the original hearing supported by evidence. While this might have been the fault of the Applicant’s lawyer, as she claims, it is noteworthy that, in the Request for Review process in which the Applicant sought to have the revocation overturned (see decision 2016 ONFST 22), in which she employed a different lawyer, no attempt was made to introduce new evidence relating to domestic violence and to persuade the Tribunal that such evidence was not reasonably available at the time of the original hearing. It is also noteworthy that, in these proceedings, no mention was made of domestic violence as a significant contributing factor either in the Request for Hearing or her counsel’s written submissions. It was first raised only in Mr. Schofield’s opening remarks at the hearing.

20Without diminishing the horrors of domestic violence, and without denying Ms. Shtivelman’s experience in this regard, we are nonetheless led to the conclusion that it has been raised as a rationalisation for her dishonest conduct after the fact and we are not persuaded that a different conclusion to that reached by the panel in the original hearing on this point is warranted.

B. Have Material Circumstances Changed?

21In its decision of September 2016, the Tribunal applied the Henderson test to determine whether the Applicant was a suitable person to continue to hold a mortgage broker’s licence. Taking into account (i) the conduct in question occurred five years before the hearing; (ii) the conduct related to five distinct transactions; (iii) the conduct was advertent and serious; (iv) the conduct called into question her honesty and law abiding nature by refusing to admit wrongdoing and minimizing the seriousness of what was done; (v) the conduct occurred in the context of mortgage business; (vi) the Applicant was not subject to criminal or civil proceedings arising out of the conduct; (vii) the Applicant was not held to account under any other proceedings; (viii) the Tribunal did not regard the Applicant’s marital circumstances as causing unusual or severe pressure; and (ix) while there were no complaints or problems with professional conduct in the 5 years prior to the hearing, this was offset by the fact that she had not acknowledged her misconduct nor expressed remorse, the Tribunal concluded as follows:

After considering all these circumstances, as listed in Henderson, we have come to the conclusion … 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.

22The task before us is to determine whether, in terms of this conclusion reached by the original panel, anything has changed materially.

23Regarding the lapse of time since the conduct occurred, 14 months passed between the revocation of the previous licence and Ms. Shtivelman’s application for a new one. That is the period within which we must find evidence of change. Mr. Schofield argued that we should look at the whole period from the time of the misconduct until now and that demonstrates a pattern of reform. With respect, we disagree. The original panel considered the pattern of conduct prior to the 2016 hearing and found that it was insufficient at that time to justify retention of Ms. Shtivelman’s licence. We must decide if there has been any change since then to justify the issuing of a new licence.

24Bearing in mind what we have already concluded regarding new evidence in relation to marital difficulties, the only remaining Henderson criterion relevant to the present case is whether there has, in the 14 months under review, been a consistent and prolonged pattern of reformed or redeeming behaviour on the part of the Applicant such that the cumulative record since the misconduct occurred materially changes the conclusion reached by the original panel.

25Heather Driver, Director of Licensing for Financial Services Commission of Ontario, testified that, for the Commission to approve a relicensing application after revocation of a licence, it would take into account such factors as any restitution made to injured parties, apologies, volunteer work, continuing education, and a shift in attitude involving acceptance of responsibility for past wrongdoing. We find this approach to be consistent with Tribunal jurisprudence such as Henderson and the original decision involving the Applicant in this case.

26When asked to detail the changes in her circumstances since the revocation of her licence Ms. Shtivelman stated that she had remarried and had another child, that she had closed her brokerage letting agents go, had worked in administrative roles, had done volunteer work, had completed the mandatory relicensing course and a course on ethics and mortgage practice standards.

27We were provided with no supporting evidence of volunteer work and no detail of it was provided. We conclude it was relatively minimal. We note the two courses taken, particularly the one on ethics. We also accept that the changes in Ms. Shtivelman’s personal life and that the emotional turmoil and personal embarrassment associated with the revocation of her and her brokerage’s licences have provided a lesson learned and that she is unlikely to offend again in the same way. It is also significant that the Mortgage Intelligence brokerage has expressed willingness to take her on at least as an agent in a supervised capacity.

28Paradoxically, however, it is our view that the “shift in attitude”, to use Ms. Driver’s phrase, has yet to be fully demonstrated. In her interview with FSCO investigator Ron McCracken, Ms. Shtivelman minimized the nature of her conduct by claiming that she thought the forger involved was merely providing printing services. Although she subsequently told him she realised what she did was wrong and was not the “proper practice” she still did not admit expressly to what had been found as fact by the original Tribunal. Similarly, the two witnesses from Mortgage Intelligence, Ms. Morgan and Ms. Nair, under cross-examination agreed that, while the Applicant had told them about her licence revocation, she had not been forthcoming about the true nature and seriousness of the conduct that had led to it. Their understanding was that there had been errors regarding the “format” of the offending documents. They did not know that there were serious discrepancies regarding the income levels entered on the mortgage applications submitted to the bank. Ms. Shtivelman had admitted only minor wrongdoing, not the serious infractions that actually occurred. It was only at the hearing that she more fully acknowledged the gravity of her conduct.

29We are therefore of the view that, while positive steps have taken place, Ms. Shtivelman has yet to demonstrate a full understanding of the seriousness of her actions related to her licence revocation and therefore has not shown that material circumstances have changed within the meaning of the Regulation.

30We have taken into consideration the impact that a further period without a licence will have on Ms. Shtivelman both personally and professionally, magnified, we add, by the unfortunate error made by FSCO in initially granting a licence only to withdraw it less than two weeks later after a more thorough review of her file. However, as we must, we have also taken into account the public interest in the integrity of the licensing regime as a means of protection against fraudulent practices within the mortgage industry. In balancing both those considerations, we have concluded that, in this case, the public interest prevails.

31We have also taken into account the undertaking by the Mortgage Intelligence brokerage to employ Ms. Shtivelman as an agent and to supervise her work closely. However, the endorsement reflected in that offer is perhaps to be discounted somewhat by the fact that, as noted, she has not been entirely honest with them in describing her licence revocation.

32Although the licence application under review in this case is for a broker’s licence, it was made clear that Ms. Shtivelman would be content for now with an agent’s licence subject to stringent conditions. We have given careful consideration to this option especially given the impact continued denial of a licence will have. However, we have concluded that, given that she has yet to establish full confidence in her honesty and her understanding of the seriousness of what she did, it is premature even for that option.

VI. ORDER

33The Superintendent’s NOP is upheld. The Superintendent is ordered to carry out the proposal to refuse Lilia Shtivelman’s application for a mortgage broker’s or mortgage agent’s licence.

Dated at Toronto, this 16th day of August, 2018.

“Craig Brown” Craig Brown

“Jeffrey Richardson” Jeffrey Richardson

“Jill Wagman” Jill Wagman