IS
E 12 SU
9 G 201 N I R P S
CANADA’S LEADING SOURCE FOR ALTERNATIVE LENDING AND MORTGAGE INVESTING EDUCATION
GIVING BACK TO THE COMMUNITY
PROTECTING YOUR LOVED ONES WITH A WILL
M ORTGAGE INVESTMENT & RAISING CAPITAL
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WWW.PMTODAY.CA
“Geneva Centre gave me the tools to seek meaningful employment. I have gained confidence and a new sense of direction; there is no other program like this!” -Rick, graduate, Pathways of Extended Learning program
Invest in futures when you support programming for individuals with autism. Call 416-322-7877 x256 or visit www.autism.net/donate Are you looking for services for families? Please contact info@autism.net
2 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA
EDITORIAL
E
DITOR’S NOTE
In recent months, stress test, B-20, B21 and other department of finance changes have been under heavy scrutiny. Particularly, the impact on the real estate market is being felt across the country. Industry associations such as MPC and CMBA have been heavily lobbying for some reprieve. On the other hand, the economic fundamentals such as employment rate, inflation and most importantly debt to income ratio all point to a trajectory that validates maintenance of status quo posturing. With the current state of the market, private lending and equity continue to be important factors that are bridging a gap on both investment and lending sides. In this issue of Private Matters Today, we again turn our focus on doing things right. Raising capital through the right channels and complying with securities legislation to lending funds, while adhering to regulations and legislations designed to protect investors and borrowers alike. The fundamental premise is very simple: raise funds with full disclosure while adhering to licensing and suitability requirements and lend funds while protecting investors while providing full disclosure to borrowers. As always, we have engaged industry experts in sharing their views on how to strike the balance between compliance and running a profitable and compliant business.
www.pmtoday.ca Issue 12 . Spring 2019 EDITORIAL
CONTRIBUTORS
Harry Singh
Anil Aggarwal
Lina Muasher
Geneva Centre for Autism
Kendra Lui
John Rider
ART DIRECTOR / DESIGNER Nina Salehpoor PRODUCTION MANAGER
Maral D. Alacer Ravneet Pannu Robert Gascon Yvonne Garvey
Lina Muasher
FOR EDITORIAL & ADVERTISING INQUIRIES PLEASE CONTACT:
Happy reading!
Lina Muasher, Production Manager Tel: +1 416-400-3977 x 30 info@pmtoday.ca Private Matters Today Inc. 135 Queens Plate Dr, Suite 410, Toronto ON M9W 6V1
Harry Singh MBA, CRM Private Matters Today Inc. is a national event planning and publishing company. We produce a national print and digital publication as well as organize events dedicated to providing educational content surrounding the alternative lending and investments industry. Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor.
ADVERTISERS INDEX 21
Alacer Law
16
Indigoblue Legal Group
18
Case Insurance Brokers Inc.
19
Welch LLP
24
Community Trust
07
Indigoblue Mortgage Investment Corporation
23
Chicago Title Insurance Company Canada
09
Oriana Financial
15
Chadah Financial Inc
02 Geneva Centre for Autism
4 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA
F EATURES 10
GIVING BACK TO THE COMMUNITY
14
PROTECTING YOUR LOVED ONES WITH A WILL
17
M ORTGAGE INVESTMENT & RAISING CAPITAL
Indigoblue Group of Companies made a $2,000 donation to Geneva Centre for Autism on World Autism Day.
Ravneet Panuu from Indigoblue Legal Group discusses the importance of protecting yourself and your estates with a will.
Lawyers from Fasken highlight the securities laws that apply when raising capital for mortgage investment entities.
CONTENTS
08 12 20 22
DOING IT RIGHT Robert Gascon from Raven Financial Services (“Raven”) outlines the essential differences between a mortgage broker, lender and administrator.
CRYPTO-ASSET TRADING PLATFORMS Maral D. Alacer, Founder and Principle Lawyer at Alacer Law explains how the new consultation paper sets out a proposed framework for regulating crypto-asset trading platforms.
C RITICAL ILLNESS INSURANCE POLICY-A GAME CHANGER Yvonne Garvey shares her personal story and explains how having a critical illness insurance policy has truly saved her from an unexpected diagnosis of Retinitis Pigmentosa.
H OW TO PROTECT YOURSELF FROM FRAUD John Rider from Chicago Title, shares valuable information of how fraud is on the rise and how to prevent fraud.
MARKET INTELLIGENCE
1
2
BOC PRIME
1.75%
5 YEAR BOND YIELD
3.95%
1.57%
BOC BENCHMARK
5.34%
DEBT TO INCOME RATIO CPI
BEST 5 YEAR VARIABLE MORTGAGE RATE
3
BANK PRIME
1.9%
178.5%
BEST 5 YEAR FIXED MORTGAGE RATE
2.94%
3.13%
Source: www.mortgagedashboard.ca/en/home. Effective as at May 14, 2019.
INDIGOBLUE MIC VS. S&P/TSX COMPOSITE INDEX
UNEMPLOYMENT RATE 6.1%
$107,295.64
$110,000
INDIGOBLUE
$105,000 $100,000
MIC
S&P/TS
$90,000
X COMPO
SIT
6% 5.9%
$95,938.36
$95,000
6%
6%
5.8%
5.8%
NDEX EI
5.9% 5.8% 5.8% 5.8%
5.8%
5.7%
$85,000
5.6% 5.6%
5.8% 5.7% 5.6%
$80,000
5.5% Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jul 2018
† S&P/TSX Index 2018 performance data is adjusted for splits & dividends. Indigoblue MIC actual 2018 performance is based on an annualized dividend rate of 7% until Nov 30 and at 7.75% for Dec.
Oct 2018
Jan 2019
Apr 2019
Source: www.tradingeconomics.com/canada/unemployment-rate
MORTGAGE ARREARS RATE
CREDIT CARD ARREARS RATE
0.5%
5%
0.4%
4%
0.3%
3%
0.2%
2%
0.1%
1%
0
0 2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2008
2009
2010
2011
2012
2013
2014
2015
Source: www.cba.ca
600,000 550,000 500,000 450,000
Source: www.creastats.crea.ca/natl/index.html
2019-Q1
2018-Q4
2018-Q3
2018-Q2
2018-Q1
2017-Q4
2017-Q3
2017-Q2
2017-Q1
2016-Q4
2016-Q3
2016-Q2
2016-Q1
2015-Q4
2015-Q3
2015-Q2
2015-Q1
2014-Q4
2014-Q3
2014-Q2
400,000 2014-Q1
Number of Transactions
NATIONAL RESIDENTIAL REAL ESTATE SALES ACTIVITY
information purposes only. Private Matters Today is not responsible for accuracy of the information above. Subject to change. 6 • PRIVATE MATTERSFor TODAY • WWW.PMTODAY.CA
2016
2017
2018
INDIGOBLUE MIC WILL DELIVER WHEN YOU NEED IT MOST! RENTAL FINANCING
INTEREST ONLY PAYMENTS
BRIDGE FINANCING
QUICK CLOSINGS
LARGE LOANS
MAJOR URBAN CENTRES IN ON, NS, NB, NL, AB
CONDO FINANCING
FULLY OPEN TERMS AVAILABLE
PRAKASH BECTOR VP SALES & MARKETING
ng
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WWW.IBMIC.CA
Ra
DEALS@INDIGOBLUE.CA
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(647) 697 3637
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D
OING IT RIGHT UNDERSTANDING THE BENEFITS OF OUTSOURCING MORTGAGE ADMINISTRATION Article by Robert Gascon, CEO and founder of Raven Financial Services
What is a Mortgage Administrator? “A Mortgage Administrator is a business that is licensed to receive mortgage payments from borrowers and send them to lenders. Mortgage Administrators are hired by lenders to monitor the agreement and take steps to enforce mortgage payments.”* There is a difference between a Mortgage Broker, a Lender and an Administrator. Raven Financial Services (“Raven”) has taken private mortgage administration to a new level of service. We customize our services to all of our clients, depending on what they need and want. What sets us apart is our experienced management, technology, human resources, along with a commitment to compliance, disclosure and transparency. We are a company that only administrates private mortgages, we do not broker or co-broker. We do not handle any post-dated cheques. Everything Raven does is electronic and paper-less. Times have changed…When was the last time you filled out 12 post-dated cheques? We have given the tools to the investor to eliminate their work load. Lenders are now expecting more than just electronic payments; they want to see all details of their mortgage portfolio online, ledgers, accounting, reports and more. We have seen a large increase in the number of lenders recognizing the value of our services. Lenders are now more than ever outsourcing their mortgage administration because it allows them
8 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA
to focus on lending and leaving all the other highly time-consuming functions to the administrator. Raven takes care of all of those tasks such as following up with fire insurance policies, renewals done on time, getting property tax bills, and confirming that the first mortgage is up-to-date and more. Default management is extremely important for lenders. As administrators, we can prepare a default package for the lender’s lawyer within hours. We have a strong process in place to manage returned payments. There is no need to reconstruct the mortgage accounting from spreadsheets or a box of returned cheques. Another important factor to some investors is risk management. Investors make their own credit decisions. We can never say “yes, fund that mortgage” but if the lender asks for an opinion we can say “No, don’t fund that mortgage” and give them a wealth of experience to the answer. If the investor does want to fund a mortgage and asks for insight, we can say “condition the mortgage a certain way, to cover any red flags”. Capital preservation is paramount. Our mortgage expertise and advice can be a way to mitigate risk for some investors. Our services are very cost effective, with most costs being paid by the borrower. Raven handles all files from point of closing to the point of payoff. We don’t take a mortgage advance. All funds are sent from the lender to the lender’s lawyer with the borrower(s) having their own legal representation. Raven is registered as a mortgage administrator, has mandatory E & O insurance, agreements with all lenders and capital requirements with fully audited financial statements with a strong eye on the trust account.
WHAT’S IN IT FOR YOU? Top Management are Top Producers More Opportunities to Earn Our Affiliation with The CIMBC Unbelievable Staying Power A Company of Professionals Savvy Marketing Support Industry Leading Commission Splits
Competive and More. That’s The Oriana Difference. “Great Mortgages Made Simple” www.orianafinancial.com ● 905-265-8315 ● joinoriana@orianafinancial.com
I believe that going forward, new lenders will outsource administration and the existing lenders will switch from the old methods of mortgage administration to a professional licensed mortgage administrator. These lenders will demand and expect a high standard of performance. Therefore, invest in technology, experienced management, human resources and step up to the plate and do it right!
Robert Gascon
CEO and founder
Raven Financial Services
Robert Gascon has been in the mortgage industry since his early twenties and has a career * Financial Services Commission of Ontario (2018, November 16). What is a Mortgage Administrator? Retrieved from http://www.fsco.gov.on.ca/ en/mortgage/pages/faq-c.aspx
that spans many decades. He is the CEO and founder of Raven Financial Services (“Raven”). Through ongoing research, he remains aware of the current mortgage conditions and trends which allows him to effectively implement Raven’s vision and be the leader in private mortgage administration to small and mid-sized lenders. Raven’s projected mortgages under administration by the end of 2019 is expected to be over $100 million.
FEATURE
G
IVING BACK TO THE COMMUNITY PUTTING PEOPLE FIRST AND RASING AUTISM AWARENESS Article by Geneva Centre for Autism
A community is made stronger by each individual’s strength, yet individuals with autism are frequently overlooked in classrooms, work places, and social circles. In fact, only 1 in 4 adults with autism or an intellectual disability are employed yet, once hired, employers report a higher than average retention rate. Geneva Centre for Autism (‘Geneva”) provides evidence-based programing for children, youth, and adults with autism to discover their own strengths and overcome challenges throughout life. Indigoblue Group of Companies (‘Indigoblue”) has generously supported autism causes over the years and we’re thrilled that they have chosen to invest in the 3,000 families we serve. It is clear upon entering the Indigoblue head office in Etobicoke, Ontario that this is not an ordinary group of financial companies. Harry Singh, CEO, is quick to greet guests and introduce his friendly team. Every piece of art on the wall has a personal story, often including the local artist, and reflect scenes we all see in our daily lives. Every employee has a favourite treat nearby and would be happy to learn about your goals. They’re also proud to share their best ping-pong score, in case you’d like to play when they get a well-earned break. They are each engaged in the work that they do and invested in the causes that they support. It is clear, in the work that they do individually and as a team, that people come first.
answers to all of their financial questions under one roof. On top of that, they ran a silent auction to raise funds to support programs for children, youth, and adults with autism. Steph Douglas, Geneva Centre for Autism’s Foundation Lead, marveled at the rare social engagement that connected adults of all ages and interests. She also learned a few tips regarding insurance, wills and power of attorney from the Indigoblue presenters to share with family and friends. Reflecting on a great evening, Douglas explains, “It’s clear that community is at the heart of everything they do.”
Geneva Centre for Autism
Geneva Centre for Autism is an international leader in the development and delivery of clinical intervention services and training. As a full service agency, Geneva Centre for Autism offers personalized, strength based programming for over 3,000 individuals
Indigoblue’s warm, welcoming environment extends far beyond its workplace walls; it also hosts frequent events to connect with partners and anyone who wants to learn more about investing. Most recently, at their Blue Concierge event, the team at Indigoblue provided an informative and convenient opportunity for busy people to find
10 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA
and families in Toronto. It’s Training Institute and International Autism Symposium build professional capacity worldwide to empower all individuals with autism spectrum disorder (“ASD”) to reach their full potential.
On April 15, 2019, Indigoblue Group of Companies celebrated World Autism Day by presenting Geneva Centre for Autism with a $2,000 cheque.
Left to Right - Harry Singh (CEO of Indigoblue), Steph Douglas (Foundation Lead & Events Manager of Geneva), Nancy Bent (Head of Communications of Geneva), Lina Muasher (Marketing Manager of Indigoblue).
C
YPTO-ASSET R TRADING PLATFORMS DISSECTING THE PROPOSED FRAMEWORK FOR REGULATING CRYPTO-ASSET TRADING PLATFORMS Article by Maral D. Alacer, Founder and principal lawyer, Alacer Law
The Canadian Securities Administrators (“CSA”) and Investment Industry Regulatory Organization of Canada (“IIROC”) have published a Consultation Paper* which sets out a proposed framework for regulating crypto-asset trading platforms. Undeniably, crypto assets are transforming the landscape of the financial industry at an alarming pace, and in doing so, are affecting investors, governments, and regulators globally. The Canadian public at large is also increasingly aware of this emerging digital enterprise, with many first learning about crypto assets as they witnessed the whirlwind rise and fall of bitcoin. Although bitcoin is just one facet of crypto assets, it served as a stark example of the volatility of this largely unregulated market. Operating akin to the wild west, a reported US $1 billion in crypto assets were allegedly stolen in 2018 alone. It comes as no surprise then that crypto assets have heightened risks related to loss and theft compared to other assets. Today, there are no less than 2,000 crypto assets being sold, bought, and traded across over 200 platforms, many of which are operating without any regulatory oversight but may actually be subject to securities legislation. For example, the CSA has found that crypto assets offered as “utility tokens” typically involve a distribution of securities, although the case is less clear when crypto assets operate as commodities, such as bitcoin. However, despite the volume of trade, the CSA reports that there are no platforms in Canada that are currently recognized as an exchange or otherwise authorized to
12 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA
operate as a marketplace or dealer of crypto assets. Hoping to establish a regulatory framework, and after evaluating the regulatory approaches in other jurisdictions, the CSA and IIROC have introduced a “Proposed Platform Framework” that would see the integration of tailored regulatory requirements to address the novel features and risks of crypto-assets, while operating in conjunction with current securities legislation pertaining to platforms. Feedback is requested from the financial technology community, market participants, investors and other stakeholders to better understand requirements and to formulate a framework that provides regulatory clarity, addresses risks, and creates greater market integrity. The Proposed Platform Framework (the “Framework”) will apply to platforms that operate in Canada or that have Canadian participants, and to any person or company advertising, offering, selling, or otherwise trading in crypto assets in Canada. The Framework will address platforms that perform marketplace functions and dealer functions, although those currently qualifying under the exempt market dealer under National Instrument 45-106 may continue to do as long as they do not fall within the definition of “marketplace”. The Consultation Paper proposes that a platform acting as a marketplace should be subject to tailored requirements designed to mitigate many of the risks that have been identified surrounding crypto assets. However, when a platform intends to carry on business as an exchange, the approach is not as straightforward. In that case, the CSA advises that the relevant securities regulatory authority
would be required to take a closer look at the nature of the platform to determine whether categorization as an exchange is appropriate, or if it would be better suited to align under the new Framework. The CSA aptly acknowledges that some platforms are hybrid in nature, and therefore cannot fit neatly into one category. As part of their conceptualization of the Framework, the CSA is evaluating the distinctiveness of various market participants and considering how a regulatory scheme specifically pertaining to crypto assets will play into the already established regulations governing trading systems, exchanges, dealers, custodians and clearing agencies. Recognizing that the existing regulatory requirements have been designed for marketplaces trading traditional securities, the CSA hopes that the proposed Framework’s tailored requirements will successfully address the unique risks introduced by the crypto asset boom. The Consultation Paper offers a great opportunity for the financial technology community and market participants and stakeholders to inform the CSA and IIROC of what additional considerations should be addressed when shaping the new Framework.
Alacer Law can offer key guidance and advice on the unique challenges, risks, and opportunities surrounding the rapidly-changing crypto asset market to help you stay protected and compliant. Once the CSA and IIROC finalize the Framework, we will be able to explain how these new regulations will specifically affect your enterprise, helping you to navigate this emerging market with confidence and security. To learn more about the Proposed Platform Framework, view the Consultation Paper here. www.bcsc.bc.ca/Securities_Law/Policies/Policy2/PDF/21-402__CSA_ IIROC_Consultation_Paper___March_14__2019/ The author wishes to acknowledge the contributions of articling student Deidra Ivens in the preparation of this article.
Maral D. Alacer
Founder and principal lawyer
The CSA and IIROC have asked for feedback on the following elements and are accepting comments until May 15, 2019:
Alacer Law
• Mitigating risks; • Price determination;
Maral is the founder and principal lawyer at Alacer Law. Throughout her career as a lawyer, she has assisted private and public companies in mergers and acquisitions, equity and
• Surveillance of trading activities;
debt financing, securities as well as commercial and residential real estate transactions. Her practice also includes advising clients on corporate governance and commercial matters.
• Possible circumstances under which an exemption from the requirement to conduct an independent systems review should be granted to a platform;
She acts as external counsel for real estate investment and development companies,
• Management of conflicts of interest and disclosure requirements;
Alacer Law in 2016, Maral practiced in the corporate finance and securities group of a large
• Insurance coverage; and
Ontario. In addition to her J.D. she holds Honours Bachelor’s and Master’s degrees in
• Clearing and settlement.
together with her robust academic background and business acumen makes her a well-
* www.bcsc.bc.ca
and regularly works with entrepreneurs and start-ups. Maral brings to her practice years of experience in the real estate and information technology sectors. She has served as a board member for start-ups, non-profit and mid-sized organizations. Prior to establishing national law firm. She obtained her law degree in 2013 from Queen’s University in Kingston, information technology. Maral has lived and worked in three different continents, which rounded legal advisor.
FEATURE
P
OTECTING YOUR R LOVED ONES WITH A WILL A WILL CAN PROVIDE THE PROTECTION AND SECURITY YOU NEED TO ENSURE YOUR LOVED ONES ARE WELL TAKEN CARE OF Article by Ravneet Pannu, Lawyer & Partner, Indigoblue Legal Group
It is widely known that two things in life that are certain are death and taxes, yet in a 2018 poll conducted by Angus Reid*, it was discovered that approximately 51% of Canadians do not have a will. Out of those who hadn’t drafted a will, 25% cited that they were “too young to worry about it” with almost the same amount, 23%, stating that they did not “have enough assets to make a will worthwhile”. An even smaller, but sizable percentage of people (8%) stated that they did not draft a will yet as they didn’t want to think about dying. No matter one’s reasoning for not drafting a will, the one constant that remains is that if you don’t plan for the distribution of your estate, which includes both your assets and liabilities (except those assets that are jointly held or have specified beneficiaries), the Estates Act will govern and determine who can apply to be the Executor (the person in charge of distributing your estate) and the Ontario Succession Law Reform Act will determine who the beneficiaries will be. But what truly happens to one’s estate when they die without will? The simple answer: you and your family do not get a say in who gets what and your surviving loved ones can be left behind with lengthy court proceedings, accumulating debt and taxes. While many do not draft a will in their life time due to the expenses associated, their failure to plan now can result in higher costs for their loved ones after their death. While there are no inheritance taxes payable by beneficiaries in Ontario, the estate is subject to income taxes due for the deceased for the year of death and an Estate Administration Tax which is determined by the value of the estate itself.
14 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA
If a person dies intestate (without a will), the Estates Act dictates that one’s spouse, including a common-law spouse, can apply to be the Estate’s Trustee. If somebody does not have a spouse, the deceased party’s next of kin can apply. Ultimately it will be the Court’s decision and they have the authority to appoint more than one person if they deem necessary. This process can take many months. When it comes to the distribution of property, Part 2 of the Ontario Succession Law Reform Act specifically outlines the way in which property is distributed pursuant to your family structure. For example purposes, if an Ontario resident dies intestate, leaving behind a legally married spouse and 3 children with no grandchildren and they have $740,000 in their estate, the Ontario Succession Law Reform Act states that the spouse will first get preferential share, which in Ontario is $200,000, and one-third of whatever is left, with the remaining twothirds divided amongst the children. In the aforementioned example, the spouse would inherit $380,000 with each of the three children inheriting $120,000. If the funds in your estate are the value of your home that you share with your spouse, your home may have to be sold to pay the children, ousting your spouse. It is important to note that the Ontario Succession Law Reform Act, only give automatic entitlement to legally married spouses. Common law spouses, on the other hand, do not have the same automatic entitlement. Ultimately, if you have no living next of kin, your estate will go to the Ontario government.
There are also instances in which if you die leaving behind young children without naming a guardian for them. The State will have to step in as act as one. Although, naming a guardian in a will itself is not legally binding on a Court, the appointment of a guardian in a will could give weight to any custody Application, should there be a dispute. While it is not essential that a will be constructed and executed by a legal professional, a lawyer can assist in making sure that the will that is being drafting is legally valid and recognized by the Courts, should it be challenged and they can help you consider many issues that you may not know about that could potentially arise. Further, it is important to note that proper tax planning with the assistance of lawyers and/or accountants can virtually reduce or eliminate the Estate Administration Tax, leaving more funds to be divided amongst your beneficiaries. Should you find yourself thinking about Estate Planning, including the completion and execution of a will or powers of attorney, or if you
simply have any questions regarding wills or estates, let Indigoblue Legal Group help turn your questions and wishes into reality.
Ravneet Pannu BA, JD
Lawyer, Partner
Indigoblue Legal Group
Ravneet Pannu is a cum laude law graduate of Western Michigan University. During law school, Ravneet was awarded Certificates of Merit for having obtained the highest grades in her Trial Skills and Medical Malpractice classes. She attended McGill University where she obtained a Bachelor of Arts in Psychology with a minor in Politics, Law and Society. Prior to joining Indigoblue Legal Group, Ravneet was an Associate at a Family Law firm in northern Ontario, where her work included advocating for a diverse clientele including high net worth clients with various assets. Ravneet’s practice focuses on complex Family Law matters
* www.angusreid.org/will-and-testament/
including litigation as well as Wills and Estates.
Chadah Financial Inc. Insurance, Investments and Mortgages Segregated Funds, Group Benefits, Life Insurance, Disability Insurance, Critical Illness Insurance, Mortgages, Refinances, First Time Home Buyers, Consolidation, RRSP's, RRIF's, LIRA's, LIF's, TFSA's & RESP's.
Bindu Chadah 9131 Keele St. Unit A4
Vaughan, ON L4K 0G7 Cell: 416-616-2775 bchadah@chadahfinancial.com www.chadahfinancial.com
LEGAL GROUP LLP
FAMILY LAW LIFE EVENTS ARE UNPREDICTABLE!
LET US HELP YOU BUILD YOUR PATH TO RECOVERY... FREE CONSULTATION FIXED LEGAL FEES MOBILE SERVICE
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For more information please contact: Ravneet Pannu, Family Lawyer, Partner www.iblegal.ca Ra
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FEATURE
M
RTGAGE O INVESTMENT & RAISING CAPITAL UNDERSTANDING SECURITY LAWS WHEN RAISING CAPITAL Article by Anil Aggarwal, Daniel Fuke, & John Webster, Fasken
A recent order made by the Ontario Securities Commission (“OSC”) highlights the securities laws that apply when raising capital for mortgage investment entities (“MIEs”) such as mortgage investment corporations (“MICs”) or trusts and limited partnerships that invest in mortgages. In most cases, a MIE is required to engage an OSCregistered dealer or become registered as a dealer itself before raising capital from a broad investor base, as MIEs often do. The OSC considers such capital raising efforts to indicate that an entity is “in the business of trading” in securities, which is the trigger for dealer registration.
Background On March 28, 2019, the OSC issued an order approving a settlement agreement with real estate investment firm Clifton Blake Asset Management Ltd. (“CBAM”) and its principals, for violating securities laws in connection with the sale of $25 million in units of Clifton Blake Mortgage Fund Trust (“CBMF Trust”), a MIE. The CBMF Trust was established in June 2015, with CBAM as its manager and with Clifton Blake Capital Corp., a related entity, as the originator and administrator of the mortgage loans funded by CBMF Trust. From July 2015 to December 2016, CBAM and its principals sold approximately $25 million worth of units in CBMF Trust to approximately 144 investors, mainly in Ontario. There was no prospectus filed, no registered dealer was engaged and none of CBAM, CBMF Trust, or its principals were registered as dealers with the OSC.
Contraventions of Ontario Securities Law According to the terms of the order, CBAM and its principals contravened the following Ontario securities laws by distributing units of CBMF Trust:
i. Dealer registration requirements CBAM engaged in the business of trading in securities of CBMF Trust without being registered as a dealer, contrary to section 25(1) of the Securities Act (Ontario) (the “Act”), and where there were no exemptions available. While there is an exemption in the Act for licensed mortgage brokers that trade in mortgages, the issuance of securities by the MIE itself (e.g. trust units to investors) is a separate distribution of securities and there is no exemption for such trades.
ii. Know-your-client requirements The OSC also found that CBAM engaged in conduct contrary to the public interest by failing to adequately “know their clients” and ensure the investments were suitable for each investor. In addition, while investors in the CBMF Trust completed forms indicating which prospectus exemption they were relying on, such as the “accredited investor” exemption, no formal review was conducted with prospective investors to see if they in fact qualified for the prospectus exemption. Ultimately, it was determined that 12 investors made unsuitable investments in the CBMF Trust.
iii. Prospectus requirements CBAM relied on certain prospectus exemptions, such as the family, friends and business associates exemption, when distributing units of CBMF Trust, but it was later determined that five investors did not meet the requirements of that exemption. As a result, CBAM contravened section 53 of the Act, which requires companies to file a prospectus with the OSC if they are distributing securities, unless there is an exemption available.
Anil Aggarwal
Lawyer & Partner Fasken
Anil is a Partner in the firm’s Investment Products and Wealth Management group and regularly acts as counsel to investment funds, dealers, and managers. Anil is frequently enlisted to advise on structuring and implementing new fund launch strategies including,
In addition, the OSC found that the directors and officers of CBAM authorized, permitted, or acquiesced in CBAM’s and CBMF Trust’s non-compliance with Ontario securities law and accordingly, failed to comply with securities law.
in particular, public and private mortgage investment entities, REITs, private debt funds and funds that develop, own and manage residential and commercial real estate.
Daniel Fuke
As a result of the violations, CBAM and its principals agreed to a $100,000 fine, a reprimand, and a promise to honour any subsequent redemption requests from any of the affected investors.
Lawyer & Partner Fasken
Takeaways If your business involves raising capital through the distribution of units or shares of a MIE such as a MIC, you should consider your obligations under Ontario’s securities laws, including whether you (i) are required engage the services of a registered dealer or to register as a dealer with the OSC, and (ii) have established and implemented appropriate regulatory compliance policies and procedures to ensure that the prospectus exemptions that you are relying upon are available to you.
Daniel is a Partner in the firm’s Securities and Mergers & Acquisitions group and also advises clients in the investment funds and blockchain industries. Daniel’s experience in the real estate industry includes advising public and private mortgage investment entities and pooled funds investing in real property.
John Webster
Articling Student
In this case, a real estate investment firm undertook a widespread distribution of securities in a MIE without registering with the OSC or establishing the necessary regulatory compliance infrastructure. The result was that both the firm, as well as its principals, were publicly and punitively reprimanded by the OSC.
Fasken
John is an articling student at Fasken, and a graduate of the University of Alberta Faculty of Law. Prior to law school, John worked as an Executive Assistant to the Deputy Mayor of Toronto.
Calling All Landlords and Investors Thinking about home-sharing? We have the insurance you need. Our home-sharing insurance covers • liability arising out of a short-term rental • loss or damage to buildings and personal property • intentional acts, criminal acts, or failure to act by a guest • loss or damage to a guest’s property up to $1,500 • fair rental value (loss of rental income)
We can help! Call us at 416.484.3810 or email us at info@caseinsurance.ca
18 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA
YOUR MORTGAGE INVESTMENT CORPORATION
ACCOUNTING, AUDIT, TAX & ADVISORY SPECIALISTS
1918
300
40
12
Year Founded
# Employees
# Partners
# Offices
Kathy Steffan, CPA, CA Partner, Toronto ksteffan@welchllp.com
Derek Chu, CPA, CA Senior Manager, Toronto dchu@welchllp.com
Toronto 647.288.9200 | 36 Toronto Street, Suite 1070 | welchllp.com
C
RITICAL ILLNESS INSURANCE POLICY-A GAME CHANGER AN UNDENIABLE LIFESAVING POLICY Article by Yvonne Garvey, YMG Communications
At the age of 36, I realized a valuable lesson. That lesson was I didn’t know what I didn’t know. I was going about my life, thinking everything was fine. I didn’t know anything was different for me than anyone else. I noticed I consistently tripped over “Wet floor” signs everywhere I went, when others didn’t, but I didn’t know why. I found that people seem to be always sneaking up on me. I knew that I found night driving particularly difficult, but once again I didn’t know why. This list could go on, but what I really didn’t know was by the age of 36, I had been progressively going blind. I was diagnosed with Retinitis Pigmentosa (“RP”), a rare genetic disorder of the eyes that causes loss of peripheral and night vision, resulting in tunnel vision. There is currently no cure for RP. Finally, things started to make sense. I was devastated by this news. I was terrified and I didn’t know how things would unfold with this new diagnosis. A small miracle came along though when I remembered I purchased a $200,000 Critical Illness Insurance Policy from my Insurance Advisor, Bindu Chadah five years ago. Before meeting with her, I had never heard of this type of policy. I originally reached out to her for a simple life insurance policy because as an entrepreneur, I had no other coverage and needed something. While meeting with Bindu and going over my options, she suggested the Critical Illness Insurance Policy. She sat down with me to ensure I understood what I was buying exactly. She asked the
20 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA
right questions to ensure how much money I would need to make an impact in case I ever become critically ill. We went through the 28 illnesses covered, one being legal blindness. I originally bought the policy thinking it would be comforting to have this sort of coverage in my later years if I was diagnosed with cancer or a more common illness. However, never in a million years did I ever consider I’d be diagnosed as legally blind at the age of 36. Shortly after my diagnosis, Bindu reached out to me for my annual review. Despite Bindu going through the policy with me five years earlier, I had forgotten that it covered legal blindness. Fortunately, she did not, and she told me the good news and got the process started. I had the cheque in my hand 2 months later! Bindu worked hard to ensure I received the money I deserved and as quickly as possible. One thing I was truly fearful about and shared with her, was losing more vision before tackling some of my life bucket list items, specifically travel. There was and is so much to see! Thanks to her expertise and the policy, I traveled all over Ireland and Scotland in August 2018 and will be heading to New Orleans this month. I’ve also invested a large portion of the money, which is quite comforting considering my future is so unknown. The policy also allowed me to hire a life coach to start planning my career around
further vision loss, a service I would not have otherwise been able to afford. I now have a new Critical Illness Insurance Policy to protect me from the other illnesses that may still come my way. Fingers crossed; I don’t have to use it! Working with an Insurance Advisor was one of the best decisions I ever made.
Yvonne Garvey YMG Communications
There may not be a cure for RP yet, and I may need to travel with my white cane, but thanks to the Critical Illness Insurance Policy, I feel much better prepared for whatever the future brings. Yvonne Garvey runs YMG Communications, a writing, communications and marketing business that strives to increase the profile of entrepreneurs through creative writing and
To learn more about Retinitis Pigmentosa visit the Foundation Fighting Blindness: https://ffb.ca/retinitispigmentosa/
communications so they can focus on what they do best...business! After being diagnosed with Retinitis Pigmentosa in February of 2018, Yvonne has been utilizing her 15 years of experience in both communications and fundraising, to help raise funds and public awareness about blindness and vision impairment.
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W TO PROTECT O YOURSELF FROM FRAUD KEEP THE DISCUSSION GOING Article by John Rider, Senior Vice President Retail & Commercial, Chicago Title Insurance Company Canada
March being the Fraud Prevention Month, always contains a flurry of social media postings of articles and stories around fraud. It is an excellent way for us to know what fraudsters are doing out in the market and be aware of ways to prevent ourselves from defraud. But with the end of March, and hopefully the start of spring, it doesn’t mean we can put away our worries for another year. Fraud Prevention Month ends in March, not fraud. The fraudsters are out there yearround and getting increasingly sophisticated in their frauds. Chicago Title Insurance Company of Canada would like to continue the discussion into April and beyond as it is imperative that we remain vigilant year-round.
Fraud is on the rise and you need to be cautious
Title insurance is essential but is not a complete answer
With or without title insurance, no one wants or needs to be embroiled in a fraud mess trying to prove what information all parties had or provided and who these people truly were. While spring brings the hope of sun, flowers and being outdoors for a change, don’t take your eyes off the game. We can work together and beat these criminals; we just need to work together as a team to do so.
Title insurance is one excellent way to protect yourself against fraud. While there isn’t coverage for financial fraud, fraud against title or impersonation of a borrower is covered. However, lenders can be duped when someone pretends to be the owner of a property and is able to get access to confidential information, often because there is a renter, construction going on at the property, or long absences of the homeowner. Title insurance is not the complete answer! You can’t be willfully blind to the information that you are getting from your borrowers to ensure that they are who they say they are. Your lawyer or notary needs to be checking IDs carefully to ensure it is legitimate, and you, a lender, need to be asking the right questions and doing credit checks to confirm the information that an authentic property owner would know. Companies like Equifax and TransUnion have services that can ask your borrower questions to ensure they know bank accounts, credit card and other information about the true owner. If they can’t answer those basic questions, you don’t want to lend to them, with or without title insurance. Nowadays, title insurance companies are now doing checks on some of these borrowers and we believe there should be increasing checks that you and we should be conducting. 22 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA
US title insurance companies are seeing rapidly increasing amounts of frauds being perpetrated. Increasingly, fraudsters are taking control of lawyers, lenders, borrowers emails and redirecting funds. They are getting real ID from provincial agencies by producing information about the owner, at some level, even these checks against IDs are not foolproof. We don’t need to become paranoid and freeze up the whole market, but we need to be aware and if it smells foul, there is probably something wrong with the deal. You need to run from it or at least do more due diligence before signing over those funds.
John Rider
Senior Vice President Retail & Commercial Chicago Title Insurance Company Canada (“CTIC”)
John joined CTIC in July of 2015 bringing a wealth of career knowledge and experience in strategic planning, operational restructuring and innovation, sales and sales training and product development. John is determined to make CTIC the number one title insurer in Canada by providing the best offering of coverage, customer service and pricing in the Canadian market. He also believes that the key to achieving this goal is: working to people’s strengths, motivating the team to always go the extra mile for their customers and having fun in the process.
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