Two financiers who defrauded hundreds of investors in a Winnipeg condo development and a mixed-use centre in Ontario were each sentenced Monday to five years in jail and fined $12.2 million.
Jared Rathore, 49, and Vince Petrozza, 50, were founders of Fortress Real Developments Inc., a now defunct syndicated mortgage company that raised funds to build a 45-storey high-rise in downtown Winnipeg and a development in Barrie, Ont., called the Collier Centre.
The Winnipeg project, dubbed SkyCity Centre, was advertised as what would’ve been the tallest tower between Calgary and Toronto when complete, according to a Fortress pamphlet issued in July 2016 and obtained via The Wayback Machine, an Internet archival website.
The high-rise was planned to have 388 residential units, 20,000 square feet in retail space, and five levels of climate-controlled parking.
The pamphlet on the Winnipeg project claims it obtained excavation and shoring permits in January 2016, with construction drawings starting in March; however, neither SkyCity nor the Collier Centre took off.
The RCMP laid fraud charges against the two executives in Ontario in 2022 following an investigation that stems back to 2016 and was prompted by complaints.
The Ontario Court of Justice ruled in May that Rathore, the former president and chief executive officer, and Petrozza, the former chief operating officer, defrauded nearly 800 investors of $33.1 million over almost four and a half years by misrepresenting the value of the properties. The scheme led to a loss of $24.4 million.
Justice Daniel Moore sentenced the pair Monday to five years in prison and potentially another five years each, if they do not pay their $12.2 million fines within a decade of their release, according to a sentencing reasons judgment.
For the SkyCity project, investors were defrauded of at least $17.7 million.
Syndicated mortgages involve investors pooling their funds together to lend their money to finance projects, which is registered as a charge on the title to the property. In return, investors were promised interest and a mortgage to secure their investment.
However, Moore found the mortgages registered against the properties far exceeded the value of the properties by as much as 300 per cent, placing their investment at risk as it was not sufficiently secured.
“That risk of loss became an actual loss when the projects did not go ahead, and the properties did not have sufficient value to protect their principal investment,” wrote Moore.
“The overleveraging caused by the fraud virtually guaranteed there would be a loss if the projects failed.”
The sentencing reasons a major developer’s bankruptcy was the “immediate cause” of the projects’ failure.
Lawyers for Rathore and Petrozza told CTV News they have filed appeals on the verdict.
“The mainstay of the appeal is that the trial judge seriously misapprehended the evidence of Fortress’s use of opinions of value on all its projects, including the two projects that were the focus of the trial, resulting in an unreasonable verdict,” Rathore lawyer Scott Fenton said in a statement.
Moore wrote the fraud targeted “mom and pop” investors, noting that the impact of the losses was much greater and in certain cases was “financially catastrophic.”
“Most victims suffered some degree of psychological harm, and some suffered extremely serious deteriorations of their mental health, which in turn also impacted on their physical health.”
Moore found that Rathore and Petrozza would have financially benefited if the projects had been successful and that they wanted the developments to succeed.
“Colliers and Sky City were real construction projects that might have been able to provide the expected returns to the investors,” wrote Moore.
“This was not a pure scam or Ponzi-type scheme where the investment does not even truly exist. That said, the fraud did allow the projects to proceed on an overleveraged basis, meaning that the losses suffered were directly attributable to the fraud.”
The judge noted the men have no prior criminal records and “strong potential” for rehabilitation but said he did not see any evidence of true remorse for the fraud.
‘Three minutes to figure out it was a fraud’: retired lawyer
David Franklin, a retired lawyer from Toronto who specializes in corporate commercial real estate, said he filed a complaint against Fortress in 2016. He said this prompted the RCMP investigation.
Franklin said he immediately suspected fraud after he was approached by two of his clients, who shared documentation of their investment in the Fortress deal.
“It didn’t take long from the documents,” Franklin told CTV News Wednesday afternoon.
“You started off as a first mortgage, but they could postpone your mortgage to become a second or third or fourth at any time. At the same time, they had a maturity date, but they had the right to extend the maturity date,” he said.
Franklin said the company represented to investors that the property valuations were performed by certified appraisers when the investigation found that they were not.
“I got great satisfaction that there was a conviction,” he said.
