Former executives were found guilty of fraud last year
The two men who helped turn syndicated mortgages into a mass-market product in Canada have been handed five-year prison terms and multimillion-dollar financial penalties.
Former Fortress Real Developments Inc. chief executive officer Jawad Rathore and former chief operating officer Vince Petrozza are each sentenced to five years in custody and ordered to pay $12.2 million, the Globe and Mail reported on Monday. They were found guilty of fraud in connection with syndicated mortgage loans tied to two projects: the Collier Centre in Barrie, Ont., and the proposed SkyCity tower in Winnipeg.
Prosecutors sought 10 years and $26 million in forfeiture, while the defence pushed for a conditional sentence to be served in the community.
“Obviously, no sentence that I impose is going to get the investors their money back or undo the significant financial and psychological harms caused,” Justice Daniel Moore said in a Toronto courtroom.
Rathore and Petrozza, who founded Fortress in 2008, built their business on bringing syndicated mortgages to mom-and-pop investors, allowing them to pool funds to finance early-stage real estate projects that have once been mainly the preserve of institutions and the wealthy. More than 14,000 retail investors ultimately provided about $920 million across 80 projects, some of which finished while others failed.
In his verdict last year, Moore said he was “satisfied beyond a reasonable doubt” that Fortress misled investors about the level of security on its loans by presenting loan‑to‑value ratios based on future projected values rather than current “as is” appraisals, a “non-disclosure of material facts” that went to the heart of the investment risk.
“Mr. Rathore and Mr. Petrozza are very smart, sophisticated businessmen,” Moore said. “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.”
At sentencing, Moore stressed that the fraud allowed projects to proceed on an overleveraged basis and highlighted several aggravating factors, including planning and complexity, a scheme that ran for nearly four-and-a-half years and the fact that almost 800 investors were directly affected in the two projects before the court.
The impact on many investors have been “financially catastrophic,” he said, with some suffering “extremely serious deteriorations of their mental health which in turn also impacted on their physical health.”
Still, he stopped short of the decade-long jail term sought by the Crown, noting that this is “not a pure scam or Ponzi-type scheme where the investment does not even truly exist,” and citing the men’s lack of prior criminal records and what he describes as strong rehabilitation prospects. Defence counsel argued that a 10-year sentence would have been disproportionate to the conduct at issue.
The order includes an additional five years’ imprisonment if either man failed to pay the fine in lieu of forfeiture within 10 years of release. Lawyers for Rathore and Petrozza said they appealed the Ontario Court of Justice verdict and are seeking bail pending appeal.
Syndicated mortgage fallout and regulatory response
The Fortress case has already become a touchstone for regulators. The court’s findings on non-disclosure line up with years of lawsuits and regulatory worries about how loan‑to‑value is shown to retail investors in high‑risk real estate deals.
In Ontario, securities and mortgage regulators have since tightened the rules around non‑qualified syndicated mortgages. Amendments to the province’s Mortgage Brokerages, Lenders and Administrators Act in 2018 and the subsequent transfer of oversight for many syndicated mortgage offerings to the Ontario Securities Commission in 2021 brought stricter suitability, disclosure and reporting expectations, especially when products are sold to non‑sophisticated investors.
The Financial Services Regulatory Authority of Ontario, for example, has focused its supervision on higher‑risk non‑qualified syndicated mortgage investments where loan‑to‑value ratios exceed 100% on an “as is” basis, repayment priorities could be postponed, or borrowers are related to the brokerage or administrator – a risk profile that mirrors concerns raised in Fortress‑linked projects.
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