An Appeal from a Notice of Proposal of the Registrar, Real Estate and Business Brokers Act, 2002, S.O. 2002, c.30, Sch. C – to Refuse Registration
Between:
Victor Fishman
Appellant
and
Registrar, Real Estate and Business Brokers Act, 2002
Respondent
REASONS FOR DECISION AND ORDER
ADJUDICATOR: Joanne E. Foot, Member
APPEARANCES:
For the Appellant: Victor Fishman, Self-Represented
For the Respondent: Jonathan K. Hurter, Counsel
HEARD in Toronto: August 20, 2018
A. OVERVIEW
1The appellant, Victor Fishman, is a 63-year-old man who was registered as a salesperson under the Real Estate and Business Brokers Act, 2002 (the “Act”) from December 2001 to March 2016. He was registered as a broker under the Act from April 2005 to March 2016. Homelife Victory Realty Inc. (“HVR”), a brokerage controlled by the appellant, was also registered under the Act from April 2005 to March 2016. The appellant was the broker of record of HVR during that period and, at all times, controlled its day‑to‑day operations and was its controlling mind.
2In March 2016, the appellant voluntarily relinquished his personal registrations as a salesperson and a broker and terminated the registration of HVR. The appellant applied for reinstatement of his registration as a broker in July 2017.
3By Notice of Proposal to Refuse a Registration dated March 28, 2018 (the “Proposal), the registrar under the Act (the “Registrar”) proposes to refuse the appellant’s registration. The appellant has appealed the Proposal to this Tribunal.
4The Registrar proposes to refuse the appellant’s registration:
a. because, having regard to the appellant’s financial position, the appellant cannot reasonably be expected to be financially responsible in the conduct of his business;
b. on the basis that the appellant’s past conduct affords the Registrar reasonable grounds to believe that the appellant will not carry on business in accordance with law and with integrity and honesty; and
c. because the appellant has made false statements and/or provided false information in his applications for registration and renewals and has failed to disclose changes in this information to the Registrar.
5The appellant has admitted all the allegations and particulars in the Proposal other than any allegation to the effect that he used funds from HVR’s real estate trust account to satisfy a personal judgement against him.
B. ISSUES
6The issues I must decide in this case are:
a. Having regard to the appellant’s financial position, can the appellant reasonably be expected to be financially responsible in the conduct of business?
b. Does the past conduct of the applicant afford reasonable grounds for belief that the appellant will not carry on business in accordance with law and with integrity and honesty?
c. Has the appellant made or provided a false statement in an application for registration or for renewal of registration and/or failed to disclose changes in this information to the Registrar?
d. Are there appropriate conditions that could facilitate the registration of the appellant as a broker?
Items a. to c. above reflect the tests for registration in Section 10(1)(a) of the Act. A negative finding in relation to any of the three questions set out above disentitles the appellant to registration under the Act.
7Section 14 of the Act sets out my powers on an appeal from a proposal to refuse a registration. Specifically, I may direct the Registrar to carry out the Proposal or substitute my opinion for that of the Registrar. As well, I am empowered to attach conditions to the appellant’s registration.
C. RESULT
8The Registrar bears the onus to show that the appellant falls within the criteria set out in Section 10(1)(a) of the Act. I find that the Registrar has satisfied that onus. This is aided by the appellant’s admission of all of the material facts (save in relation to any allegation that the appellant used funds from HVR's real estate trust account to satisfy a personal judgement).
9It is to the appellant’s credit that he admitted the material facts in this case (save in relation to the allegation relating to the specific use of certain trust funds). The appellant committed and was convicted of various offences under the Act, including breach of trust in relation to misuse of the funds in the real estate trust accounts of HVR. Lack of honesty lies beneath the impugned behaviour of the appellant and the appellant has not since established a track record of honest dealings. This is not a situation where registration with conditions is appropriate.
10For reasons set out below, I direct the Registrar to carry out the Proposal to refuse the registration of the appellant as a broker under the Act.
D. ANALYSIS
ISSUE # 1: FINANCIAL RESPONSIBILITY
Having regard to the appellant’s financial position, can the appellant reasonably be expected to be financially responsible in the conduct of business?
11The following facts and particulars set out in the Proposal have been admitted and are relevant in this connection:
a. the appellant owes in excess of $30,000 of fines resulting from convictions under the Act;
b. the appellant owes in excess of $64,000 in restitution resulting from a restitution order made under the Act;
c. the appellant owes a fine and a victim surcharge totalling about $1,950 arising from convictions under the Criminal Code for charges laid in February, 2016;
d. the appellant declared personal bankruptcy in July 2017 reporting liabilities of $1,243,774.78 and assets of $2,000, a deficiency of $1,241,774.78;
e. the appellant’s mismanagement of HVR resulted in compensation payments being made of $478,750.58 from the Real Estate Council of Ontario (“RECO”) insurance program comprising:
i. $51,696.14 ($64,156.14 including expenses) reimbursing consumers for money held on deposit with HVR, and
ii. $351,023.13 ($371,098.13 including expenses) reimbursing HVR’s own employees and employees of cooperating brokerages for commissions owed;
f. HVR owes a fine in the amount of $250,000 resulting from the conviction of HVR of offences under the Act;
g. HVR declared bankruptcy in February 2016 reporting liabilities of $2,581,284.36 and assets of $205,001, a deficiency of $2,376,283.36; and
h. that, as at the date of the hearing, neither the appellant nor HVR had paid any amount towards the fines imposed or under the restitution order.
12The appellant pled guilty to the various offences under the Act giving rise to the fines and restitution order referred to above. As well, he admitted that he caused, through misuse of trust funds, HVR’s breach of trust which resulted in the $478,750.58 payment by the RECO insurance program.
13In oral testimony the appellant stated on several occasions that he is “a terrible businessman” and that he did not attend to the details of HVR’s business appropriately.
14Based on foregoing facts, I must conclude that the appellant was financially irresponsible in the conduct of his own affairs and in the conduct of the business of HVR. However, the admitted facts relate to past conduct of the appellant and the test now applicable requires that I consider the appellant's current financial position in determining whether the appellant can reasonably be expected to be financially responsible in the conduct of business as a broker.
15Unfortunately, there was little evidence presented as to exact details of the financial position of the appellant as at the date of the hearing. While the appellant acknowledges that he made an assignment into bankruptcy in July 2017, he gave no indication of the status of those proceedings or the terms thereof. Nor did either the appellant or the respondent provide evidence as to whether the appellant had been discharged from bankruptcy on schedule. Likewise, no evidence or submissions were put before me as to whether the amounts owing by the appellant for the fines, penalties and restitution orders against him were stayed by the bankruptcy proceedings. In consequence, I am unable to make any findings as to the actual amount of the appellant's indebtedness as at the date of the hearing.
16However, the appellant gave evidence regarding his income and ability to manage day-to-day. He lives with his elderly father who is a pensioner, in considerably reduced circumstances. He has no current source of income. He had hoped to work as a consultant to another real estate brokerage but that “didn’t work out”. He stated that there is no work that he is qualified to do other than work in the real estate industry. The appellant has a background in engineering and is involved with a start-up in some capacity. However, he does not draw a salary from that venture and receives only reimbursement of his automobile expenses. The appellant testified that he owes $7000 per month in child support which he does not pay. He stated that his difficult financial circumstances have prevented him repaying even nominal amounts in relation to the fines and restitution order made against him. I accept this as an admission that these fines and the restitution order remain outstanding. I further accept that the appellant finds himself in straitened financial circumstances.
17The question is whether the appellant's existing difficult financial circumstances are enough to give rise to the conclusion that he cannot reasonably be expected to be financially responsible in the conduct of business. There may be circumstances when difficult financial circumstances alone would not be adequate to underpin such a conclusion. In this case, I have considered two additional factors.
18Firstly, the appellant has admitted to mismanaging the business of HVR when faced with financial pressures, describing himself as “an ostrich with its head in the sand”. Given the pressure of his current financial circumstances, I find that there is a justifiable concern that the appellant would again mismanage his business.
19Secondly, I considered the action taken by the appellant to “get back on his feet” following the failure of HVR and his own bankruptcy. HVR went out of business in March 2016, about two and a half years prior to the hearing. While contrite throughout the hearing, the appellant gave no evidence that he works at, or has attempted to secure, any position that would pay him a steady wage at any level to help him become re‑established. His declaration of bankruptcy occurred about one year before the hearing. Again, we heard no evidence about efforts the appellant may have made to rebuild his credit, of lessons learned from his experiences with HVR or the bankruptcy process or how he has changed so that there is some basis upon which to believe that he will appropriately manage his financial affairs in the future.
20In short, I have no reason to believe that the appellant has changed his ways, has learned anything or has taken any other positive step towards becoming a more adept financial manager. Furthermore, he has not taken any significant action in the past three years which would show that he is on a new path to this end.
21The Registrar also argued the appellant cannot reasonably be expected to be financially responsible in the conduct of his business because of his failure to pay his fines and the restitution order, or to pay some amount towards those items. To my mind, this is further support that appellant has not taken appropriate action to establish a new – and improved - track record and reflects poorly on his intention and ability to take financial responsibility.
22For the reasons set out above, I find that the appellant cannot reasonably be expected to be financially responsible in the conduct of his business.
ISSUE # 2: LAW, INTEGRITY AND HONESTY
Does the past conduct of the appellant afford reasonable grounds for belief that the appellant will not carry on business in accordance with law and with integrity and honesty?
23The Ontario Court of Appeal in Alcohol and Gaming Commission of Ontario v. 751809 Ontario Inc. 2013 ONCA 157 at paragraph 18 confirmed that the standard of proof of “reasonable grounds for belief” is a lower standard than that of “balance of probabilities”.
24Again, the particulars in the Proposal that are relevant in this connection have been admitted by the appellant. These can be grouped into three broad categories, namely, obstruction of efforts by RECO to inspect books and records of HVR, failure to maintain HVR’s real estate trust account in accordance with the Act and breach of trust relating to the use of the funds in HVR’s real estate trust account.
Obstruction
25Between November 2015 and February 2016 RECO made several attempts to meet with the appellant in order to inspect HVR's books and records. The appellant failed to respond to a number of RECO's requests to meet. As well, he failed to attend every appointment that had been agreed for the inspection. This is an offence under the Act of which the appellant was convicted. The Registrar points out that had it been permitted earlier access to HVR’s books and records, it may have been in a position to prevent some of the losses that eventually resulted.
Failure to Maintain Trust Account
26The real estate trust account is the account into which moneys received from consumers are deposited. These moneys are not owned by HVR and HVR had no right to use the funds for any purpose other than in accordance with the terms of the trust, generally, as directed by the consumer who deposited the money. The appellant admitted that HVR had not been preparing HVR's trust reconciliation statements with respect to its real estate trust account with Bank of Montreal. The Act requires all brokerages to prepare trust reconciliation statements on a regular basis. This is an offence under the Act of which the appellant was convicted.
27Following the bankruptcy of HVR, RECO was able to conduct an inspection and determined that as of January 31, 2016, the Bank of Montreal (BMO) real estate trust account had been "short" since February 2015 and was, at January 31, 2016, short in the amount of almost $390,000. The Act requires that brokerages immediately deposit funds to eliminate any shortfall in a real estate trust account. This was not done for the period from February 2015 to the time of the inspection. The appellant was convicted of failing to cause HVR to deposit sufficient funds eliminate the shortfall.
28In about April 2015, HVR opened additional trust accounts at TD Canada Trust and failed to disclose these changes to the Registrar, as required by the Act. The appellant was convicted of failing to cause HVR to disclose this information to the Registrar.
Breach of Trust
29This relates to the use of funds in the Bank of Montreal real estate trust account. In bank statements two payments were made from that account on August12, 2015 in the respective amounts of $83,914.49 and $163,566.08. In the bank statement these are described as “Legal Demand – Pymt”. Mr. Fishman denies that these were payments on account of his personal debts. However, he did admit that amounts from trust accounts were used to fund the negative cash flow generated by HVR. The appellant was convicted of failing to disburse money that came into the HVR’s hands in trust for others in accordance with the terms of the trust.
Summary
30The appellant’s obstruction of the efforts of RECO, the regulator of his business, to inspect HVR speaks to a lack of respect for authority and the law. His failure to prepare reconciliation statements, again, demonstrated a failure to play by the rules and a disregard for the protection of consumers. Similarly, carrying a shortfall in his trust account is further evidence of lack of compliance with the regulatory regime by which HVR was bound as is his failure to disclose to the Registrar the change in his trust accounts. It is clear that the appellant has failed to act in accordance with law in the conduct of the business in the past. The appellant submits that all this unfolded because he is “a terrible businessman”, “lousy at paperwork” and “lousy at bookkeeping”. That may well be the case, but it is not an excuse for failure to comply with the regulations by which he and his business were bound. The appellant failed to act as a responsible business person and this failure clearly demonstrates a lack of integrity.
31The use of the funds in the trust account for purposes other than the terms of the trust is at the most serious end of the spectrum for offences under the Act; the appellant used other people’s money for purposes they did not authorize. This goes to the heart of the consumer protection aspect of the regulatory regime. Beyond a disregard for the law, his use of these funds for unauthorized purposes demonstrates a lack of honesty and integrity. When the appellant and his business were under financial pressure, he chose to use these funds for unauthorized purposes, a choice that is both dishonest and lacking in integrity.
32I am satisfied that the appellant’s past conduct demonstrates that he has not carried on business in accordance with law and with honesty and integrity. I now must consider whether this constitutes reasonable grounds to believe that he will fail to do so in the future. Other than the admission of the material facts in this case, the appellant has done little to acknowledge the serious nature of his infractions and the resulting violation of the public trust. He continues to speak to his skills deficit as a businessman as the cause of all his past troubles. I find this disingenuous and, more importantly, an indication that he has not yet fully accepted the serious nature of his infractions and his need to take corrective measures. In order to regain the public trust, I find that the appellant must have a substantial track record of honest dealings. As discussed above, the appellant has not taken any significant action in the past three years which would show that he is on a new path to this end.
33Based on all of the above, I find that past conduct of the appellant affords reasonable grounds for belief that the appellant will not carry on business in accordance with law and with integrity. Again, this finding disentitles the appellant to registration as a broker under the Act, subject to consideration of conditions set out below.
ISSUE # 3: FALSE STATEMENTS/FAILURE TO DISCLOSE INFORMATION
Has the appellant made or provided a false statement in an application for registration or for renewal of registration?
34Again, the particulars in the Proposal which are relevant in this connection have been admitted by the appellant. The failure to disclose the opening of new trust accounts, as discussed in paragraph [28] above is relevant in this connection. HVR submitted a renewal application on April 24, 2015, the day after the new trust accounts were opened, which did not disclose the change in the trust accounts, as contemplated by that application. The appellant did not indicate that this false statement was made without his knowledge or through inadvertence. I find that the appellant made this statement knowingly.
35Hi Reconstruction & Property Management Inc. was incorporated in January 2005 and the appellant was the sole officer and director of that corporation. In his broker application submitted in April 2005, the appellant answered “no” to the question of whether he was or would be engaged or employed in another business, occupation or profession. Nor did the appellant disclose any change in that information in his renewal applications for 2007, 2009, 2011, 2013 and 2015.
36I find that the appellant has provided false statements in his applications (or those of HVR), the renewals of those applications and has failed to disclose information to the Registrar.
ISSUE #4: REGISTRATION WITH CONDITIONS
Are there appropriate conditions that could facilitate the registration of the appellant as a broker?
37The appellant has asked that he be registered and that conditions be attached to his registration. This, he submits, is the only reasonable way for him to mitigate the damage that he has caused. He expressed the desire to look to the future and move forward by doing something he knows how to do, by working in the real estate industry. Being allowed to make a living would permit him to make payments towards his fines and the restitution order, and appropriate conditions would permit oversight.
38The appellant advocated the most stringent conditions possible including that he provide the broker of record of a potential employer with an irrevocable direction that 25% of all commissions be paid towards his fines and the restitution order. He also indicated that he would agree not to enter into any commission advance agreements and expressed that he would be agreeable to being restricted from handling funds relating to real estate transactions. Any breach of these conditions would result in immediate termination for life of his registration.
39The Registrar argued strongly against a registration with conditions. The Registrar’s first line of objection to a registration with conditions is that the impugned activities of the appellant that are the basis of the Proposal took place in the real estate industry and are financial in nature. This, he argued, adds to their significance in the consideration of registration. In support of this argument the Registrar cited the payments made by the RECO insurance program being $51,696.14 reimbursing consumers for money held on deposit with HVR and $351,023.13 reimbursing registrants under the Act for commissions owing to HVR’s own employees and cooperating brokerages.
40The Registrar also argued that there are not any conditions on registration which would be effective to regulate the appellant’s future behaviour and business dealings. The Registrar’s witness had explained that much of the work of a real estate broker, including handling paperwork and funds, is conducted alone, out of the office. This makes supervision difficult, if not impossible, even assuming that another registrant were willing to take on a supervisory role in connection with any conditions imposed.
41Finally, the Registrar referred to the underlying purpose of the Act being protection of the public and submitted that integrity and honesty are fundamental and necessary requirements to be permitted to work in this industry. The Registrar submitted that the appellant had failed, in clear and dramatic fashion, to demonstrate these requirements.
42I agree that the appellant has demonstrated lack of integrity and honesty in conducting the business of HVR. As above, the appellant made a clear choice to use funds in HVR’s real estate trust account for purposes outside the terms of the trust. I agree, as well, that honesty and integrity cannot be created in a person by way of imposing external conditions. The appellant has demonstrated in the past a willingness to disregard the rules and that he does not possess the requisite honesty and integrity to make appropriate choices and, since that time, has not provided evidence of a track record of honest dealings. This is not a situation where conditions are appropriate.
E. ORDER
43Having heard the evidence and submissions of the parties, I direct the Registrar to carry out the Proposal to Refuse Registration dated March 28, 2018.
LICENCE APPEAL TRIBUNAL
Joanne E. Foot, Member
Released: December 28, 2018