Enforcement order

NOTICE OF PROPOSAL TO IMPOSE ADMINISTRATIVE PENALTIES

TO: David Martino

AND TO: Kaleido Financial Ltd.

TAKE NOTICE THAT pursuant to section 39 of the Act, the Director, Litigation and Enforcement (the “Director”) is proposing to impose administrative penalties in the amount of $370,000 on Kaleido Financial Ltd and $135,000 on David Martino.

Details of these contraventions are described below.

SI VOUS DÉSIREZ RECEVOIR CET AVIS EN FRANÇAIS, veuillez nous envoyer votre demande par courriel immédiatement à: contactcentre@fsrao.ca.

YOU ARE ENTITLED TO A HEARING BY THE FINANCIAL SERVICES TRIBUNAL (THE “TRIBUNAL”) PURSUANT TO SECTIONS 39(2) and 39(5) OF THE ACT. A hearing before the Tribunal about this Notice of Proposal may be requested by completing the enclosed Request for Hearing (Form 1) and submitting it to the Tribunal within 15 days after the Notice of Proposal is received. A copy of that form is included with this Notice of Proposal. Additional copies can be obtained by visiting the Tribunal’s website at www.fstontario.ca.

TAKE NOTICE THAT if no written request for a hearing is delivered to the Tribunal within fifteen (15) days after this Notice of Proposal is delivered to you, an order will be issued as described in this Notice of Proposal. In order to request a hearing, a completed Request for Hearing Form (Form 1) must be delivered to the Tribunal within fifteen (15) days after this Notice of Proposal is served. The form must be mailed, delivered, faxed or emailed to:

Address:
Financial Services Tribunal
25 Sheppard Avenue West, Suite 100
Toronto ON M2N 6S6

Attention: Registrar

Fax: 416-226-7750

Email: contact@fstontario.ca

The hearing before the Tribunal will proceed in accordance with the Rules of Practice and Procedure for Proceedings before the Financial Services Tribunal (“Rules”), made under the authority of the Statutory Powers Procedure Act, R.S.O. 1990, c. S. 22. The Rules are available at the website of the Tribunal: www.fstontario.ca. Alternatively, a copy can be obtained by telephoning the Registrar of the Tribunal at 416-590-7294, or toll free at 1-800-668-0128 ext. 7294.

At a hearing, your character, conduct and/or competence may be in issue. You may be furnished with further and or other particulars, including further or other grounds, to support this proposal.

REASONS FOR PROPOSAL

I. INTRODUCTION

Kaleido Financial Ltd. (“Kaleido”) and David Martino (“Martino”) committed serious contraventions of the Act and regulations with respect to the brokering of syndicated mortgage investments (“SMIs”) of six SMI projects (“Projects”). SMIs are inherently high-risk investments involving early-stage property development projects. Investors in 1 of the 6 projects brokered by Kaleido and Martino are expected to lose their entire investment.

Kaleido, as the mortgage brokerage (“Brokerage”), contravened the Act and regulations by: a) providing false and deceptive information to investors; b) failing to provide proper disclosure of material risks and conflicts of interest; c) not assessing and documenting suitability of the investments; and d) failing to maintain adequate policies and procedures.

Martino as the mortgage broker (“Broker”), on 5 of the 6 Projects involving 10 of the 12 Investor Files reviewed (“Investor Files”), and as principal broker of the Brokerage, contravened the Act and regulations by: a) providing false or deceptive information to investors; b) causing the Brokerage to contravene the Act and regulations; c) failing to ensure compliance with the Act and regulations; and d) failing to review the policies and procedures of the Brokerage and make recommendations to ensure compliance with the Act and regulations.

The Director is proposing to impose administrative penalties in the cumulative amount of $370,000 on Kaleido and $135,000 on Martino for these contraventions.

II. BACKGROUND

A compliance review of Kaleido was commenced by staff of the Financial Services Commission of Ontario (“FSCO”), the former regulator of the mortgage industry in Ontario, on January 5, 2018.

At that time, Kaleido was the Brokerage on 6 SMI Projects involving 658 investors and $39,201,400 in SMIs. Martino was the Broker on all the Projects, except for Wenderly, defined below. The 6 Projects included:
1. Riverdale/Elevate Towns - Borrower: 485 Logan Developments Inc. (“Riverdale”);
2. Trafalgar Castle - Borrower: Landmark 416 Dundas Ltd. (“Trafalgar”);
3. Wenderly Park Towns - Borrower: Landmark Wenderly Inc. (“Wenderly”);
4. Willowdale Towns/Nova Urban Towns - Borrower: 57 Finch Developments Inc. (“Willowdale”);
5. Bathurst Heights/Harrington - Borrower: 665-671 Sheppard Ave West Ltd. (“Bathurst”); and
6. Gage Park Towns - Borrower: Landmark Clarence Inc. (“Gage”).

FSCO staff conducted an on-site examination of Kaleido on March 26, 2018. Kaleido provided supplemental documentation in relation to the on-site examination on May 28, 2018.

FSCO staff reviewed Kaleido’s policies and procedures related to SMIs, the then- current SMI portfolio, and Kaleido’s sales process. In addition, FSCO staff reviewed 12 individual Investor Files. These files were chosen (2 from each of the 6 Projects) to represent 2% of the total funds raised on the Project.

On September 26, 2018, Martino was interviewed, under oath, with respect to the business practices of Kaleido and the status of the Projects. At that time, FSCO became aware that Kaleido and Martino had contravened the Act and regulations.

On December 20, 2018, Kaleido and Martino entered into a consent agreement with FSCO to cease conducting mortgage brokering activities.

Kaleido was a licenced Brokerage (license 12493, formerly known as Landmark Capital) at the time of the contraventions. Kaleido received $569,800 in Brokerage fees from investors across all 6 Projects.

Kaleido was the Brokerage on each of the Investor Files in which contraventions arose. Kaleido applied to surrender its license on March 23, 2018. Kaleido’s license is suspended under section 7 of the Act, as it currently has no Mortgage agents (“Agents”) or Brokers authorized to deal or trade on its behalf.

Martino was a licenced Broker (licence M12002005) at the time of the contraventions. Martino was the Broker on 5 of the 6 Projects in which contraventions arose. Martino was principal broker of Kaleido from January 13, 2016 to May 24, 2017. Martino’s license expired on April 1, 2020.

Martino owns Kaleido. He also owns and operates entities which owned the Projects and which were the borrowers on the SMI transactions. In addition, he owned and operated Kaleido Mortgage Admin Inc. (“Kaleido Admin”). Kaleido Admin is a licensed mortgage administrator (licence 12716). Kaleido Admin received $390,000 in mortgage administration fees from investors across all 6 Projects.

In July 2020, Kaleido advised investors in Wenderly that they would lose their entire investment. Investors were informed that the sale price of the Property was only enough to cover the first mortgage.

III. CONTRAVENTIONS OR FAILURES TO COMPLY WITH THE ACT

Kaleido, as the mortgage Brokerage contravened the Act and regulations by:

Providing false or deceptive information to investors about the value of the Bathurst, Riverdale, and Gage Projects and the possibility of subordination of their investments on the Wenderly, Bathurst, Riverdale, Trafalgar and Gage Projects contrary to subsection 43(1) of the Act;

Failing to provide proper disclosure on all 6 Projects, including:

failing to disclose potential conflicts of interest, contrary to section 27 of Ontario Regulation 188/08 (“O. Reg. 188/08”); and

failing to disclose material risks to investors contrary to section 25 of O. Reg. 188/08.

Failing to properly assess and document investor suitability in all 6 Projects, contrary to subsections 24(1) of O. Reg. 188/08; and

Failing to maintain and implement adequate policies and procedures, contrary to subsection 40(1) and 40(2) of O. Reg. 188/08.

Martino, as the mortgage Broker on 5 of the 6 Projects reviewed, and as principal broker of the Brokerage, contravened the Act and regulations by:

As Broker, providing false or deceptive information to investors about the value of the Projects and the possibility of subordination, contrary to subsection 43(2) of the Act;

As Broker, causing the Brokerage to contravene the Act and regulations as outlined above, contrary to section 3 of Ontario Regulation 187/08 (“O. Reg. 187/08”);

As principal broker, failing to ensure compliance by the Brokerage and other Brokers or Agents with the requirements established under the Act contrary to section 2 of Ontario Regulation 410/07 (“O. Reg. 410/07”); and

As principal broker, failing to review the policies and procedures of the Brokerage and failing to recommend changes to the Brokerage to ensure they were compliant with the requirements established under the Act contrary to section 3 of O. Reg. 410/07.

KALEIDO

A. False and Misleading Information

Kaleido provided false and misleading information to investors regarding the loan- to-value ratio of the Bathurst, Riverdale, and Gage Projects and the ranking of the SMIs contrary to subsections 43(1) and (2) of the Act. Subsections 43(1) and (2) provide that:
Prohibition re false or deceptive information

(1) No mortgage brokerage or mortgage administrator shall give, assist in giving or induce or counsel another person or entity to give or assist in giving any false or deceptive information or document when carrying on the business of dealing in mortgages in Ontario or the business of trading in mortgages in Ontario, when carrying on business as a mortgage lender in Ontario or when carrying on the business of administering mortgages in Ontario.

Same

(2) No mortgage broker or agent shall give, assist in giving or induce or counsel another person or entity to give or assist in giving any false or deceptive information or document when dealing in mortgages in Ontario or trading in mortgages in Ontario.

i. Loan-to-Value Calculation

Loan-to-value ratios on the Form 1 require the use of the “as-is” value of the Projects. In the Bathurst, Riverdale, and Gage Projects, the value used was the “ready to develop” value instead. The “as-is” value was significantly lower than the “ready-to-develop” value in each case:

Project	Purported As-is	Actual As-Is
Bathurst	$17,250,000	$7,600,000
Riverdale	$16,610,000	$7,600,000
Gage	$5,180,000	$1,850,000

Brokerages are required to calculate the loan-to-value ratio on a Project using the “as-is” value. Accurate project values are essential to allow investors to assess the level of risk associated with a particular project and the capacity of the investor to recover their principal from the value of the land if the project is not successful.

ii. Subordination

In the Riverdale, Trafalgar, Wenderly, Bathurst, and Gage Projects, the Form 1 indicates that the ranking of the mortgage would not change. However, the loan agreements for these Investor Files stated that a postponement/subordination was possible to a first rank construction loan.

The Form 1 disclosure is false and misleading. The potential for subordination significantly increases the risk of the investment and potentially eliminates the ability to recoup the investment in the event the Project is not successful.

B. Failure to Provide Adequate Disclosure

i. Failure to Disclose Potential Conflicts of Interest

In all 6 Projects, Kaleido failed to adequately disclose potential conflicts of interest, contrary to section 27 of O. Reg. 188/08. Section 27 provides that:
Disclosure of conflicts of interest or potential conflicts of interest

(1) A brokerage shall disclose in writing to a borrower, lender or investor, as the case may be, any conflict of interest or potential conflict of interest that the brokerage or any broker or agent authorized to deal or trade in mortgages on its behalf may have in connection with a mortgage or a trade in a mortgage that the brokerage presents for the consideration of the borrower, lender or investor.
In all 6 Projects, the Form 1 disclosure used terms such as “common shareholder” and “certain family, friends, and business associates” to describe Martino’s various entities that may give rise to conflicts of interest.

These terms are vague and misleading, and do not clearly indicate the different parties, the relationships between them and the potential conflicts of interest. For instance, it is not clear that, as the Broker in 10 files Martino, may have been influenced in his recommendations to the investors by the fact that he was also the owner of the Projects in which the investors were investing. It is also not clearly explained that there was a risk of Kaleido, as Brokerage and mortgage administrator, being influenced in its approach to the Projects given that both they and the Projects were owned by Martino.

ii. Failure to Disclose Material Risks to Investors

In all 6 Projects, Kaleido failed to disclose material risks to investors contrary to subsection 25(1) of O. Reg. 188/08. Subsection 25(1) provides that:.

Disclosure of material risks

25. (1) A brokerage shall disclose in writing to a borrower, lender or investor, as the case may be, the material risks of each mortgage or investment in a mortgage that the brokerage presents for the consideration of the borrower, lender or investor.

Guidance to the industry identified the types of information that Brokerages were required to provide to investors. Bulletin No. M-01/15, issued by FSCO on June 30, 2015 (“Bulletin M-01/15”) requires Brokerages to ensure investors understand potential risks, including the risks of:
- Early withdrawals. It may be difficult for investors to withdraw money early from a syndicated mortgage investment. The investor may need to find another investor to take over the syndicated mortgage investment.
- Construction loans. If a syndicated mortgage is for a construction loan, investors need to understand the current value of an undeveloped property and the projected value of the project upon completion.
- Unforeseen circumstances. Investors need to understand what would happen if the project costs more than expected and the developer runs out of money and cannot complete the project.
- The position of the mortgage. Investors need to know whether the syndicated mortgage investment is a first, second or subsequent mortgage. Investors should also be aware if the position of this mortgage may change in the future.
- Requirements to invest more money. Investors need to understand situations where they may be required to put in more money. For example, if the borrower defaults on the mortgage, investors may incur additional costs to take legal action against the borrower.

Kaleido failed to provide disclosure with respect to unforeseen circumstances, the potential for the position of the mortgage to change due to subordination, or any details concerning the risks associated with early withdrawals. In addition, Kaleido failed to provide any disclosure of risks concerning the specific Projects. Only general SMI risks were disclosed on the Form 1s.

This disclosure was inadequate. It did not provide details on the taxation risks regarding using RRSP funds, risks in priority ranking, use of funds for the start-up costs or soft costs or any risks particular to the individual Projects. Investors cannot properly assess the degree of risk associated with a Project without a disclosure of the risks specific to that Project.

C. Failure to Properly Assess Investor Suitability

In all 6 Projects, Kaleido failed to properly determine whether the SMIs were suitable for investors, contrary to subsection 24(1) of O. Reg. 188/08. Subsection 24(1) provides that:
Duty re suitability of mortgage for customer

24. (1) A brokerage shall take reasonable steps to ensure that any mortgage or investment in a mortgage that it presents for the consideration of a borrower, lender or investor, as the case may be, is suitable for the borrower, lender or investor having regard to the needs and circumstances of the borrower, lender or investor.

Kaleido failed to ensure that the SMIs were suitable to the individual investor based on numerous factors that were seen across multiple Investor Files as set out in the following table:

Project	Investor	Risk Factors Affecting Suitability
Riverdale	RF	Investment knowledge, Risk tolerance
Riverdale	CS	Age, Income, Assets, Risk tolerance, Time horizon
Trafalgar	OC	Age, Income, Assets
Trafalgar	SU	Age, Income, Investment knowledge, Risk tolerance
Wenderly	DC	Age, Income, Risk tolerance, Time horizon
Wenderly	SD	Age, Income, Risk tolerance, Time horizon
Willowdale	ET	Age, Income, Risk tolerance
Willowdale	TH	No financial information collected from TH
Bathurst	DD	Income, Assets, Risk tolerance
Bathurst	BP	Income, Assets, Risk tolerance
Gage	OT	Income
Gage	PG	No financial information collected from PG

In addition, although Know Your Client (“KYC”) forms were completed, there was no documentation in any of the 12 Investors Files in the 6 Projects indicating that any other steps were taken to determine whether the investments were suitable or that the investor had understood all the details of the Projects in which they would be investing. There were no written notes documenting any comments or discussions made by the Broker or Agent when reviewing the Form 1 disclosures with investors. The ranges for annual income and approximate net financial assets were large and potentially misleading.

Bulletin M-01/15 provided that Brokerages had an obligation to keep appropriate documentation on file, including records that detail their discussions with clients. Financial information on the KYC forms did not include any such supporting documentation.

D. Failure to Maintain Adequate Policies and Procedures

Kaleido failed to establish and implement policies and procedures that were reasonably designed to ensure that every Agent and Broker complied with the requirements established under the Act, contrary to subsections 40(1) and (2) of O. Reg. 188/08. Subsections 40(1) and (2) provide that:
Duty to establish policies and procedures

40. (1) A brokerage shall establish and implement policies and procedures that are reasonably designed to ensure that the brokerage and every broker and agent who is authorized to deal or trade in mortgages on its behalf complies with the requirements established under the Act.

(2) A brokerage shall establish and implement policies and procedures providing for the adequate supervision of every broker and agent who is authorized to deal or trade in mortgages on its behalf.

Kaleido’s Policies and Procedures Manual (“PPM”) did not provide adequate information to ensure compliance with the Act. The PPM did not provide specific information on how agents were required to conduct project reviews, including assessing material risks, disclosure requirements, and financial viability of the investment. This lack of guidance is consistent with the failure to provide adequate disclosure to investors or determine whether an investment was suitable for the investor.

In addition, Kaleido did not have written copies of the sales process and flow of funds documents prior to January 2018. The sale process documentation available were not detailed nor comprehensive enough to ensure proper guidance and supervision of the Agents and brokers by the Brokerage.

Further, the PPM lacked detail with respect to the Identification and Disclosure of Material Risks section. It did not outline the different types of material risks inherent to SMI and did not provide Agents or Brokers with guidance in reviewing and assessing them. The consequences of this are demonstrated by the substantive failure to identify material risks for investors as set out above.

Finally, there were no hard limits specified in the PPM regarding how investors were accepted or rejected for SMIs. There was no way to ensure Agents and Brokers understood the risks associated with SMI and could explain the risks clearly and comprehensively to potential investors. The consequences are demonstrated by the substantive failure to properly assess the suitability of investors as set out above.

MARTINO

A. False and Misleading Information

As Broker on the Bathurst, Riverdale, Trafalgar, and Gage Projects, Martino provided false and misleading information to investors regarding the loan-to-value ratio of the Projects and the ranking of the SMIs, contrary to subsections 43(1) and (2) of the Act. As set out above, at paragraph 19, subsections 43(1) and (2) prohibits a Brokerage, Administrator, Broker or Agent from giving false or deceptive information.

i. Loan-to-Value Calculation

Loan-to-value ratios on the Form 1 require the use of the “as-is” value of the Project. In the Bathurst, Riverdale, and Gage Projects where Martino was the Broker, the value used was the “ready to develop” values. As set out above at paragraph 20, the “as-is” value was substantially lower than the “ready-to-develop” value.

Accurate Project values are essential to allow investors to assess the level of risk associated with a particular project and the capacity of the investor to recover their principal from the value of the land if the Project is not successful.

As Broker, Martino was responsible for ensuring the information contained in the Form 1 for the Projects outlined above was accurate and complete. In failing to do so, Martino contravened subsection 43(2) of the Act by providing false and misleading information in the Form 1 provided to the investors.

B. Broker responsible for Brokerage Contraventions

In the Bathurst, Riverdale, Trafalgar, and Gage Projects, the Form 1 indicated that the ranking of the mortgage would not change. However, the loan agreements for these Investor Files stated that a postponement/subordination was possible to a first rank construction loan.

As Broker on the Projects, Martino signed the Form 1 confirming the accuracy of the information. The Form 1 disclosure was false and misleading. The potential for subordination significantly increases the risk of the investment and potentially eliminates the ability to recoup the investment in the event of a power of sale.

ii. Subordination

As Broker, Martino was responsible for any of his actions that resulted in the Brokerage contravening the Act or regulations. As a result of Martino’s actions as Broker, the Brokerage contravened the Act and regulations in several ways, including failure to adequately disclose conflicts of interest and material risks, and failure to assess suitability. Section 3 of O. Reg. 187/08 states:

Duty re authorizing brokerage

3. A mortgage broker or agent shall not do or omit to do anything that might reasonably be expected to result in the brokerage on whose behalf he or she is authorized to deal or trade in mortgages to contravene or fail to comply with a requirement established under the Act.

As Broker on the Riverdale, Trafalgar, Willowdale, Bathurst, and Gage Projects, Martino’s conduct caused the Brokerage to contravene the Act and regulations. Martino either actively avoided the regulatory requirements or omitted to ensure that the Brokerage complied with the regulatory requirements described above.

C. Principal Broker Supervision of Brokerage

Martino was the principal broker of Kaleido for the Riverdale, Trafalgar, Wenderly, Bathurst, and Gage Projects on which he was also the Broker. Martino failed to adequately ensure compliance by the Brokerage which resulted in the contraventions outlined above, contrary to subsections 2(1) and (2) of O. Reg. 410/07. Subsections 2(1) and (2) of O. Reg. 410/07 state:

Duty re compliance

2. (1) The principal broker of a brokerage shall take reasonable steps to ensure that the brokerage, and each broker and agent authorized to deal or trade in mortgages on its behalf, complies with every requirement established under the Act.

(2) The principal broker shall ensure that the brokerage takes reasonable steps to deal with any contravention of a requirement established under the Act by the brokerage or by a broker or agent authorized to deal or trade in mortgages on its behalf.

As described above, the Brokerage failed to comply with numerous regulatory requirements involving disclosure and suitability assessments. There were extensive contraventions identified in the Investor Files reviewed by FSCO. Martino failed to take reasonable steps to ensure the Brokerage complied with all of the regulatory requirements given the pervasive nature of the contraventions.

D. Failure to Review and Update Policies and Procedures

Martino was the principal broker at Kaleido from January 13, 2016 to May 24, 2017. Martino, as principal broker, failed to review the policies and procedures for the Brokerage, to ensure compliance and supervision, contrary to subsections 3(1) and (2) of O. Reg. 410/07. Subsections 3(1) and (2) of O. Reg. 410/07 state:

Duty re policies and procedures

3. (1) The principal broker of a brokerage shall review the policies and procedures of the brokerage to determine whether they are reasonably designed to ensure,

that the brokerage, and each broker and agent authorized to deal or trade in mortgages on its behalf, comply with every requirement established under the Act; and

that each broker and agent authorized to deal or trade in mortgages on behalf of the brokerage is adequately supervised.

(2) The principal broker shall recommend to the brokerage that it make changes in its policies and procedures, if necessary, to ensure that the standards described in clauses (1) (a) and (b) are achieved.

Pursuant to subsection 3(1) of O. Reg. 410/07, the principal broker must review the policies and procedure of the Brokerage to determine whether they are reasonably designed to ensure that the Brokerage, and every Broker and Agent complies with every requirement established under the Act.

As principal broker, Martino had the obligation to review the PPM and advise the Brokerage of any deficiencies that needed to be rectified. As described above, the PPM contained numerous omissions and was inadequate for a Brokerage engaged in SMIs. There was no evidence that Martino reviewed the policies and procedures or made any recommendations for changes to ensure compliance.

IV. GROUNDS FOR IMPOSING ADMINISTRATIVE PENALTIES

The Director is satisfied that administrative penalties of $370,000 and $135,000 should be imposed on Kaleido and Martino respectively under section 39 of the Act for contravening or failing to comply with the requirements of the Act or regulations.

Administrative penalties of $370,000 on Kaleido are based on the following:

$80,000 ($20,000 for each of the 4 Projects) for providing false or deceptive information to investors contrary to subsection 43(1) of the Act;

$30,000 ($5,000 for each of the 6 Projects) for failing to adequately disclose conflicts of interest, contrary to section 27 of O. Reg. 188/08;

$120,000 ($20,000 for each of the 6 Projects) for failing to adequately disclose material risks to investors contrary to section 25 of O. Reg. 188/08;

$120,000 ($20,000 for each of the 6 Projects) for failing to properly assess and document investor suitability, contrary to subsections 24(1) of O. Reg. 188/08; and

$20,000 for failing to properly maintain and implement adequate policies and procedures contrary to subsection 40(1) and 40(2) of O. Reg. 188/08;

Administrative penalties of $135,000 on Martino are based on the following:

$40,000, as Broker, ($10,000 for each of the 4 Projects) for providing false or deceptive information to investors contrary to subsection 43(2) of the Act;

$60,000, as Broker, ($10,000 for each of the 6 Projects) for causing the Brokerage to contravene the Act and regulations contrary to section 3 of O. Reg. 187/08;

$25,000, as principal broker, ($5,000 for each of the 5 Projects) for failing to ensure compliance with the requirements established under the Act by the Brokerage and other Brokers or Agents, contrary to section 2 of O. Reg. 410/07;

$10,000, as principal broker, for failing to review the policies and procedures and failing to recommend changes to the Brokerage to ensure they are compliant with the requirements established under the Act contrary to section 3 of O. Reg. 410/07.

The Director is satisfied that the imposition of administrative penalties on Martino and Kaleido under section 39 of the Act will satisfy both of the following purposes under section 38(1) of the Act:

To promote compliance with the requirements established under the Act.

To prevent a person or entity from deriving, directly or indirectly, any economic benefit as a result of contravening or failing to comply with a requirement established under the Act.

In proposing the imposition of an administrative penalty in the amount of $370,000 against Kaleido and in the amount of $135,000 against Martino, the Director has considered the following criteria as required by section 3 of Ontario Regulation 192/08:

The degree to which the contravention or failure was intentional, reckless or negligent.

The extent of the harm or potential harm to others resulting from the contravention or failure.

The extent to which the person or entity tried to mitigate any loss or take other remedial action.

The extent to which the person or entity derived or reasonably might have expected to derive, directly or indirectly, any economic benefit from the contravention or failure.

Any other contraventions or failures to comply with a requirement established under the Act or with any other financial services legislation of Ontario or of any jurisdiction during the preceding five years by the person or entity.

In respect of the first criterion, the Director is satisfied that Martino’s and Kaleido’s conduct in respect of each contravention was intentional. The contraventions were part of established business practices. Kaleido was directly engaged as the Brokerage for all of the SMIs. Martino was directly engaged as owner, principal broker, and also as Broker on certain Projects.

In respect of the second criterion, the Director is satisfied that the actual and potential harm to others is significant. Investors in the Wenderly Project are expected to lose their entire investment for total losses of approximately $5,000,000. Investors were placed in high risk SMIs based on false and deceptive information, without appropriate disclosure or suitability assessments. As a result, they were placed at risk of not being able to realize on some or all of their investments in the event of Project failure. Investors were also at risk of negative tax consequences given the lack of disclosure regarding using RRSP funds and the inaccurate calculation of loan-to-value ratios.

In respect of the third criterion, the Director acknowledges that Kaleido and Martino entered into an agreement with FSCO to stop all mortgage brokering activities. However, this does not mitigate the potential harm caused by the contraventions, nor will it compensate the investors if they suffer losses.

In respect of the fourth criterion, the Director is satisfied that Kaleido and Martino derived economic benefits from brokering and administering the Projects. Kaleido derived benefits from fees charged to all investors on each Brokerage transaction. Martino derived even greater benefits as the owner of the Brokerage, the Administrator, and the Projects. Through this network of related companies, he received fees and commissions for the brokering and administration activities. Kaleido received $569,800 in Brokerage fees as disclosed by the Form 1s. Kaleido Admin received $390,000 in mortgage administration fees as disclosed by the Form 1s.

The fees collected by the Brokerage and Kaleido Admin for brokering and administrative services to all investors across all Projects were at least $959,800. The amount of the proposed administrative penalty will offset the economic benefit derived from SMIs brokered in contravention of the Act and regulations.

In respect of the fifth criterion, the Director is unaware of any contraventions or failures to comply with the Act or its regulations in the preceding five years by Kaleido or Martino.

V. PROPOSAL

For all the foregoing reasons, and subject to further and/or other particulars, including further or other grounds that become available, the Director proposes to impose administrative penalties in the total amount of $370,000 against Kaleido and in the total amount of $135,000 against Martino.

DATED at Toronto, Ontario, February 25, 2021.

Original signed by

Elissa Sinha
Director, Litigation and Enforcement

By delegated authority from the Chief Executive Officer

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