A mortgage broker has reached a settlement with the Ontario Securities Commission (OSC) to resolve allegations that it violated securities rules by raising $32 million directly from investors without being registered.

An OSC hearing panel approved a settlement between the commission and Moskowitz Capital Management Inc. (MCMI), which agreed to pay a $350,000 penalty and $25,000 in costs after admitting it traded securities without registration when it distributed preferred shares in mortgage investment entities (MIEs).

According to the settlement, the firm raised money for its investment vehicles through investment dealers and exempt market dealers, and these distributions were not an issue.

However, the OSC also found that the firm raised approximately $31.7 million directly from investors without being registered.

“MCMI carried on its unregistered capital raising activities with repetition, regularity and continuity, raising an average of approximately $3.2 million from 11 investors per year through these direct distributions,” the settlement said.

The settlement also noted that the firm provided performance information and testimonials from investors both on its website and in slide presentations to investors that “amounted to solicitations to invest in the MCM funds.”

MCMI self-reported its violations to the commission in the spring of 2019. The settlement also noted that the firm voluntarily took remedial action, including taking down the solicitations to investors, directing its investors to use dealers for future investments, and completing updated KYC and suitability assessments for the investors.

MCMI also corrected its filings with the regulator and paid $125,000 in late filing fees to the commission.

The firm and its president, Brian Moskowitz, also provided “substantial co-operation” to OSC staff’s investigation, the settlement said.

“All the investors in the MCM funds appear to have qualified for a prospectus exemption,” the settlement noted.

Additionally, the investments have generated positive returns, and investors have not filed any complaints over the sales.

“MCMI has since submitted an application for registration as an exempt market dealer to the commission,” the settlement said.

According to the settlement, the Canadian Securities Administrators first issued guidance on registration requirements for mortgage investments in 2011, and has reiterated these requirements in various forms, including through industry outreach and enforcement actions.

“Staff will continue to take appropriate action against MIEs that fail to comply with their obligations under Ontario securities law,” the settlement said.