Ontario’s Capital Markets Tribunal ordered more than $47 million in disgorgement, penalties and costs against investment companies and executives connected with a securities fraud centred around mortgage brokerage Paramount Equity Financial Corp.
The tribunal found that five companies and three people (Marc Ruttenberg, Ronald Bradley Burdon and Matthew Laverty) defrauded investors by improperly diverting about $50 million of the $70 million they raised to fund higher-risk mortgages, rather than investing solely in residential second mortgages as promised.
The tribunal also found that Ruttenberg, Burdon and Laverty “improperly acquired ownership interests” in those projects, distributed securities without a prospectus, and traded without registration.
In its ruling on sanctions, the panel ordered that Ruttenberg and Burdon jointly disgorge $43.6 million, and that Laverty is jointly liable for $13 million of that total.
The disgorgement was lower than the total amount of the fraud, as some of the ill-gotten gains have been recovered and distributed to harmed investors as part of receivership proceedings, the panel explained in its reasons.
The panel also imposed penalties of $1.5 million, $1 million and $500,000 on Ruttenberg, Burdon and Laverty, respectively. It ordered a total of $600,000 in costs against the individual respondents, along with permanent market bans for Ruttenberg and Burdon, while Laverty was banned for five years.
In its reasons, the tribunal explained that it treated Laverty somewhat differently than the other two given his lesser role in the fraud and his cooperation with regulators. It said that Ruttenberg ran the overall business and Burdon played a central role by bringing in problematic mortgage projects, but that Laverty had no control over investors’ funds and didn’t deal with investors.
“We therefore conclude that while Laverty also played a central role in the business, and was a signatory to the offering memorandum, he was less active in the misconduct,” it said.
Staff of the Ontario Securities Commission didn’t seek financial sanctions against any of the companies involved, as they have already been placed into receivership. Any sanctions would take away from money that could be returned to investors as part of those proceedings.