Judge finds thousands of investors were misled about syndicated mortgage loans
The co-founders of Fortress Real Developments Inc., once a major player in the syndicated mortgage industry, have been found guilty of fraud following a lengthy trial in Ontario’s provincial court.
Justice Daniel Moore delivered the verdict on Wednesday in a Toronto courtroom, stating he was “satisfied beyond a reasonable doubt” that Fortress misled thousands of investors about the level of security attached to its syndicated mortgage loans. The case was decided by a judge without a jury.
Jawad Rathore, former chief executive officer, and Vince Petrozza, former chief operating officer, were both convicted of fraud over $5,000 – an offence that carries a maximum prison sentence of 14 years under the Criminal Code. Because the case involves more than $1 million in total losses, the law mandates a minimum sentence of two years’ imprisonment. Sentencing has not yet been scheduled.
Court finds intentional misrepresentation
Founded in 2008, Fortress Real Developments helped introduce syndicated mortgages to the broader public by enabling retail investors to fund early-stage real estate projects – an opportunity previously reserved for high-net-worth and institutional investors.
In total, more than 14,000 individuals invested approximately $920 million across 80 development projects nationwide. While several of these ventures reached completion, others faltered, leaving many investors with significant financial losses.
Central to the Crown’s case was Fortress’s representation of loan-to-value (LTV) ratios – a key measure of investment risk. The court found these ratios were based on projected future property values rather than current “as is” appraisals. The omission of actual values amounted to “non-disclosure of material facts,” according to the court.
“Mr. Rathore and Mr. Petrozza are very smart, sophisticated businessmen,” said Justice Moore. “Their business model would have worked if [loan-to-value] was calculated on an ‘as is’ value. I find beyond a reasonable doubt that they both intentionally misled investors about the value of their secured interest in order to induce them into investing.”
Both men intend to appeal the decision. “We were surprised and very disappointed with the decision today,” said Scott Fenton, Rathore’s lawyer, in a statement. “In due course, we will be bringing an appeal to seek to set aside the verdict.”
The trial, which began in October, originally included charges related to secret commissions, but those counts were dropped earlier this year. The Crown also narrowed its case from four to two real estate projects: SkyCity, a proposed 45-storey tower in Winnipeg, and the Collier Centre in Barrie, Ont.
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