Enforcement order

IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c.29, as amended (the “Act”), in particular sections 19, 21, 38, and 39;

AND IN THE MATTER OF Hi-Rise Capital Ltd.

MINUTES OF SETTLEMENT AND UNDERTAKING

PART I – INTRODUCTION

Hi-Rise Capital Ltd. (“Hi-Rise”) is licensed as a mortgage brokerage (licence # 10897) and as a mortgage administrator (licence # 11893) under the Act.

Dimitrios “Jim” Neilas (“Jim Neilas”) was licensed as a mortgage broker under the Act (licence # M08003817) and was the principal broker of Hi-Rise until December 12, 2017. Jim Neilas is the sole owner of Hi-Rise.

On April 1, 2019, the Superintendent of Financial Services (“Superintendent”) issued a Notice of Proposal in respect of Hi-Rise (the “NOP”) proposing to revoke Hi-Rise’s mortgage brokerage and mortgage administrator licences and to impose administrative penalties for contraventions of the Act.

Hi-Rise disputed the allegations and, on June 7, 2019, requested hearings before the Financial Services Tribunal (the “Tribunal”) in respect of the NOP.

Effective June 8, 2019, pursuant to the Financial Services Regulatory Authority of Ontario Act, 2016, S.O. 2016, c. 37, Sched. 8, the Financial Services Regulatory Authority of Ontario (“FSRA”) became the regulator under the Act and the powers and duties previously vested in the Superintendent of Financial Services under the Act were vested in the Chief Executive Officer of FSRA (the “Chief Executive Officer”).

Hi-Rise and the Director, Litigation and Enforcement, (the “Director”), by delegated authority from the Chief Executive Officer, (collectively the “Parties”) wish to resolve this matter on consent and without a hearing before the Tribunal.

PART II – AGREED FACTS

A. Hi-Rise, Related Entities and Projects

During the period between 2004 and 2018 (the “Relevant Time Period”), Hi Rise acted as the mortgage brokerage (“Brokerage”) and the mortgage administrator (“Administrator”) for syndicated mortgage loans (“SMLs”) under which consumer investors are lenders (the “Investors”).

Jim Neilas was the sole owner of the Brokerage and Administrator and its sole director and principal broker. Prior to January 2017, Jim Neilas was also the chief executive officer, president, and secretary of Hi-Rise.

As of August 10, 2017, Hi-Rise was the mortgage brokerage acting on behalf of the borrower/developer (“B/D”), the mortgage brokerage acting on behalf of Investors, and the mortgage administrator for five syndicated mortgages relating to five real estate development projects (the “Hi-Rise Projects”) as follows:

Municipal Address	Project Name	Development Corporation
40-58 Widmer Street, Toronto	Widmer	40 Widmer Street Inc.
263 Adelaide Street West, Toronto	Adelaide Street Lofts (“Adelaide”)	Adelaide Street Lofts Inc.
1249 Queen Street East, Toronto	Stage East Lofts (“Queen”)	1249 Queen E. Inc.
54 & 60 Shepherd Road, Oakville	OpArts Lofts (“Oakville”)	54 Shepherd Road Inc. (amalgamated with 60 Shepherd Road Inc. on October 20, 2016)
799 College Street, Toronto	Cube Lofts (“College”)	799 College Street Inc.

The five development corporations listed above (the “Development Corporations”) were owned and controlled by Jim Neilas and were the developers on all of the Hi-Rise Projects and also the borrowers under the Hi-Rise SMLs.

Hi-Rise has not operated as a brokerage since November 2017.

B. Relationship between Entities

Prior to late 2017, Hi-Rise and related companies performed a number of roles in respect of Hi-Rise SMLs as follows:
1. Hi-Rise was the brokerage that brokered the Hi-Rise SMLs on behalf of the Development Corporations that are the borrowers under the SMLs. Hi-Rise also brokered the SMLs on behalf of the Investors;
2. Hi-Rise held the syndicated mortgages in trust for the Investors and was the mortgage administrator for the Hi-Rise SMLs;
3. The Development Corporations acted as developers of the Hi-Rise Projects; and
4. A related entity to Hi-Rise acted as construction manager on Hi-Rise Projects.
Hi-Rise disclosed that Hi-Rise Capital Ltd., Neilas Inc., AW General Contractors Inc., and the borrower companies were all owned by the same principal (Jim Neilas) as set out in Appendix “A”.

C. FSCO Examinations and Investigation

Since at least June 2008, FSCO conducted compliance activities, including on-site examinations, in connection with Hi-Rise. This included examinations in 2008, 2009, 2010, two examinations in 2011, and 2012. Documentation from the Hi-Rise Projects was provided by Hi-Rise to FSCO and was reviewed by FSCO. Some of this documentation included investor disclosures from projects over various time periods.

In the Fall of 2015, FSCO Staff conducted an onsite examination of Hi-Rise as part of an ongoing investigation.

In February of 2017, FSCO Staff was conducting a new investigation in which it requested from Hi-Rise and received comprehensive information and retained a forensic accountant. The purpose of the investigation was to assess Hi-Rise’s business practices and compliance with the Act. In response to FSCO’s requests, Hi-Rise, its related entities and their representatives provided the documentation sought to FSCO.

During the same period, FSCO received and reviewed 73 complaints from investors.

In 2018, FSCO Staff conducted a desk examination of Hi-Rise SMLs brokered after the 2015 Examination. As part of the 2018 Examination, 11 Investor files brokered by Hi-Rise were reviewed. The files related to the following Investors: PT and TP (Adelaide); DR and NHM (College); DSD, PD, RM, and WP/GP (Oakville); HL, PC, and TP/RS (Widmer).

The allegations in the NOP relate solely to the 11 Investor Files from the 2018 Examination. These 11 files were selected from outside the pool of 73 complaints previously received in 2017.

FSCO concluded that Hi-Rise had contravened the Act for the 11 Investor Files. Hi-Rise disputed FSCO’s conclusion.

FSCO found in its review of the 11 documents that as a mortgage brokerage, Hi-Rise did not:
- adequately document investors’ suitability assessments in a way that demonstrated that an adequate suitability assessment was completed, contrary to subsection 24(1) of Ontario Regulation 188/08;
- adequately identify project-specific risks to the investors contrary to sections 25 and 36 of Ontario Regulation 188/08;
- adequately maintain policies and procedures, contrary to sections 40(1), and 40(2) of Ontario Regulation 188/08;
- adequately disclose the relationships and conflicts of interest between Hi-Rise and other related entities contrary to sections 26, 27 and 33 of Ontario Regulation 188/08; and
- use the “as is” value of a project when calculating the loan-to-value ratios in disclosures made to two investors on one project contrary to Sections 31(1)1 and 33 of Ontario Regulation 188/08.
In addition, Hi-Rise failed to adequately disclose fees contrary to sections 31(1) 1, 31(1)10, and 33 of Ontario Regulation 188/08.

FSCO found that as a mortgage administrator, Hi-Rise did not:
- adequately disclose the nature of its relationship to the borrowers under the mortgages, contrary to sections 19, 20, and 21 of Ontario Regulation 189/08;
- adequately disclose the fees it was entitled to receive as administrator contrary to section 15(1) of Ontario Regulation 189/08;
- include mandatory information in the mortgage administration agreements contrary to sections 18(2)(5), 18(2)(6), and 18(3)(2) of Ontario Regulation 189/08; and
- ensure that its concurrent business activities did not jeopardize its integrity, independence, and competence as administrator, contrary to section 40 of Ontario Regulation 189/08.

Full details of the contraventions are set out in Appendix “B” of these Minutes of Settlement and Undertaking (“Minutes”).

Hi-Rise and all related entities were authorized to collect fees of approximately $57,000,000 under the terms of the various agreements related to the services they were to provide. HRC acknowledges that HRC and all related companies collected a total of $24,058,233 in fees over a 12-year period.

A number of investors in the Hi-Rise projects referenced in paragraph 9 did not recover full principal and interest.

The Superintendent issued the NOP to revoke the brokerage and administrator licences of Hi-Rise and to impose administrative penalties on Hi-Rise.

PART III – NON-COMPLIANCE WITH THE ACT

By engaging in the conduct described above in paragraphs 21 and 22, Hi-Rise admits and acknowledges that they breached the Act in the manner provided in Appendix “B” of these Minutes.

As a result of the above non-compliance, Hi-Rise admits that it is not suitable to be licensed under the Act, as contemplated by subsection 19(1) read with subsection 18(1) of the Act.

Hi-Rise agrees to the revocation of its mortgage brokerage and mortgage administrator licences.

Hi-Rise agrees to pay administrative penalties of $350,000.

PART IV – TERMS OF SETTLEMENT

Hi-Rise admits the facts contained in Part II of these Minutes.

Hi-Rise acknowledges and agrees that it has been given the opportunity to seek independent legal advice and has done so (or has waived the right to do so) and is entering into these Minutes voluntarily, understanding the consequences of doing so.

Hi-Rise acknowledges that these Minutes are an undertaking within the meaning of the Act, and that failure to comply may result in immediate regulatory action including, but not limited to, the issuance of a Notice of Proposal to revoke the licence, a Notice of Proposal to impose an administrative penalty, or a prosecution under the Provincial Offences Act.

(a) Issuance of Orders

Hi-Rise acknowledges that, upon execution of these Minutes, the orders attached as Appendix “C” to these Minutes (the “Orders”) will be issued.

(b) Process for Execution of Settlement

Hi-Rise acknowledges that these Minutes are not binding on the Director until signed by the Director.

These Minutes may be executed in counterparts and may be executed and delivered by facsimile or e-mail, and all such counterparts and facsimiles or e-mails, as applicable, shall together constitute one and the same agreement.

Upon receiving an executed copy of these Minutes from FSRA, Hi-Rise will withdraw its Request for Hearing (Form 1) in respect of the NOP before the Tribunal by completing a Withdrawal/Discontinuance (Form 5) and filing it with the Registrar at the Tribunal within two business days.

Upon confirmation from the Tribunal that the Request for Hearing has been withdrawn and the hearing has been cancelled, the Parties agree that the Director will issue the Order in the form attached as Appendix “C” to these Minutes.

The Parties accept and understand that these Minutes and any rights within the Minutes shall enure to the Parties and to any successors or assigns of the Parties.

(c) Disclosure of Minutes and Orders

The Parties will keep the terms of these Minutes and the Orders confidential until the Orders are issued, except that:
1. The Director shall be permitted to disclose the Minutes and the Orders within FSRA; and
2. The Parties shall be permitted to inform the Tribunal.

If either of the Parties do not sign these Minutes or the Director does not issue the Orders:
1. These Minutes, the Orders, and all related discussions and negotiations will be without prejudice to FSRA and Hi-Rise; and
2. FSRA and Hi-Rise will each be entitled to all available proceedings, remedies, and challenges, including proceeding to a hearing of the allegations contained in the NOP. Any proceedings, remedies and challenges will not be affected by these Minutes, the Orders, or any related discussions or negotiations.

Upon issuance of the Orders:
1. Hi-Rise agrees that these Minutes and the Orders form part of its administrative record for the purposes of any future licensing decision or as an aggravating factor in respect of a future administrative penalty or prosecution against it or any affiliated entities;
2. Hi-Rise acknowledges that these Minutes and the Orders are public and will be published by FSRA on its public website (or that of its successor) along with a press release that summarizes these Minutes and the Orders; and
3. The Parties agree not to make representations to any member of the public or media or in a public forum that are inconsistent with these Minutes or the Orders.

(d) Further Proceedings

Whether or not the Orders are issued, Hi-Rise will not use, in any proceeding, these Minutes or the negotiation or process of approval of these Minutes as the basis for any attack on FSRA’s jurisdiction, alleged bias, alleged unfairness, or any other remedies or challenges that may be available.

Upon issuance of the Orders:
1. Hi-Rise waives all rights to a hearing before the Tribunal regarding the NOP;
2. Hi-Rise waives all rights to a judicial review or appeal of the Orders;
3. The Director agrees that FSRA will not take any further proceedings against Hi- Rise arising solely from the facts contained in Part II of these Minutes, unless facts not disclosed by Hi-Rise come to the attention of FSRA that are materially different from those contained in Part II of these Minutes or Hi-Rise fail to comply with any term in the Orders; and
4. Hi-Rise agrees that should they fail to comply with any term in these Minutes or the Orders, FSRA is entitled to bring any proceedings available to it.

DATED May 1, 2023 at Toronto, Ontario,

Original signed by

Dimitrios “Jim” Neilas
For Hi-Rise Capital Ltd.

DATED May 1, 2023 at Toronto, Ontario,

Original signed by

Justin Nasseri
Name of Witness

DATED May 16, 2023 at Toronto, Ontario,

Original signed by

Elissa Sinha
Director, Litigation and Enforcement

Financial Services Regulatory Authority of Ontario

By delegated authority from the Chief Executive Officer

APPENDIX A

Conflict Disclosures made to Investors

Form 1: Investor/Lender Disclosure Statement for Brokered Transactions

Does the mortgage brokerage or any of its brokers or agents have or expect to have a direct or indirect interest in this property identified in section 3, Part A?
Yes

If Yes, explain:
Hi-Rise Capital Ltd. and related/affiliated companies will make a profit from the project if it is successful.

Does any person related to the mortgage brokerage or any of its brokers or agents have or expect to have a direct or indirect interest in this property?
Yes

If Yes, explain:
A related company holds title to the property and is entitled to profit from the project if it is successful.

The borrower and Hi-Rise Capital Ltd. are companies owned by the same principal, Jim Neilas.

Is the borrower related to the mortgage brokerage or to any of the officers, directors, partners, employees or shareholders of the brokerage or any of its brokers or agents?
Yes

If Yes, explain:
The borrower is a company owned by the same principal of Hi-Rise Capital Ltd., Jim Neilas.

Describe any conflicts or potential conflicts of interest in connection with this mortgage investment, other than those described above. Hi-Rise Capital Ltd., Neilas Inc., AW General Contractors Inc., and the borrower are companies owned by the same principal (Jim Neilas) and are entitled to profit from the project if it is successful.

Describe what steps the mortgage brokerage has taken to reduce the risk resulting from any conflicts or potential conflicts of interest. Hi-Rise Capital has taken the following steps to reduce the risk resulting from any conflicts or potential conflicts of interest

Established policies and procedures for Hi-Rise Capital Ltd.;

Segregates bank accounts among related/affiliated companies; and

Conducts annual audits of financial statement of Hi-Rise Capital Ltd.

The mortgage brokerage is acting for:

Both the Please refer to Appendix "A" for a list of all relevant fees.borrower and the investor/lender

Does the mortgage brokerage or any of its brokers or agents expect to gain any interest or benefit from this transaction other than the fees disclosed in Part D of this Disclosure Statement?
Yes

If Yes, explain:
Please refer to Appendix "A" for a list of all relevant fees.
[Appendix “A” to Form 1]
Conflict of Interest
Hi-Rise Capital Ltd. declares to the Investor that Hi-Rise Capital Ltd. (as mortgage brokerage and mortgage administrator), Neilas Inc., AW General Contractors Inc., Adelaide Lofts Inc. are companies owned by the same principal,
Jim Neilas and are entitled to profit from the project if it is successful. Neilas Inc. is also invested in the project.

Form 1.1: Investor/Lender Disclosure Statement for Brokered Transactions – Addendum for Construction and Development Loans

ls/are the developer(s) related to the mortgage brokerage or to any of the officers, directors, partners, employees or shareholders of the brokerage or any of its brokers or agents?
Yes

If Yes, explain:
The developer is a company owned by Jim Neilas, who is also the principal and owner of Hi-Rise Capital Ltd.

Is the brokerage or any of its brokers or agents related to any of the other investors/lenders in the mortgage?
Yes

If Yes, explain:
Brokers/agents of Hi-Rise Capital Ltd. are related to investors/lenders.

What due diligence has the mortgage brokerage done regarding the background and experience of the developer(s)?
The developer and the mortgage brokerage are related parties.

Mortgage Administration and Loan Participation Agreement

Syndication, Asset Management, and other Fees
The Participant acknowledges that fees are payable to HRC and Neilas Inc. or any other related entity for its role in the Participation Loan pursuant to and in accordance with the disclosure documentation provided to the Participant, as same may be amended from time to time.

Receipt and Acknowledgement

There is a potential conflict of interest in connection with this mortgage investment as Hi-Rise Capital Ltd., Neilas Inc., AW General Contractors Inc. and the Borrower are companies owned by the same principal and are entitled to profit from the project if it is successful.

APPENDIX B

List of Contraventions

S.No.	Contravention	Section
Hi-Rise (as Brokerage and/or Administrator)
1	Suitability	Section 24, Reg 188/08
2	Material Risk Disclosure	Section 25, Reg 188/08
3	Policies and Procedures	Section 40, Reg 188/08
4	Failure to disclose "as is" value of the property	Sections 31(1) 1 and 33, Reg 188/08
5	Inadequate Fee Disclosure	Sections 31(1) 1, 31(1) 10 and 33, Reg 188/08 Section 15, Reg 189/08
6	Conflict of Interest/Relationship Disclosure	Sections 26, 27 and 33, Reg 188/08 Sections 19, 20 and 21, Reg 189/08
7	Inadequate disclosure of related party payment (Marketing Fee)	Section 22, Reg. 188/08
8	Disclosure to investor (Improper Timing and Delivery)	Section 36, Reg 188/08
9	Non-compliant Administration Agreements	Sections 18(2)(5) and 18(2)(6), Reg 189/08
10	Inadequate disclosure of related party payment (Project Management Fee and Marketing Fee)	Section 15, Reg 189/08
11	Failure to provide Investor Notification	Section 18(3), Reg, 189/08

APPENDIX C

IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006,
S.O. 2006, c. 29, as amended (the “Act”), in particular sections 19 and 21;

AND IN THE MATTER OF Hi-Rise Capital Ltd. (“Hi-Rise”).

ORDER REVOKING LICENCES

Hi-Rise is licensed as a mortgage brokerage (licence # 10897) and as a mortgage administrator (licence # 11893) under the Act.

On April 1, 2019, the Superintendent of Financial Services issued a Notice of Proposal in respect of Hi-Rise (the “Notice of Proposal”) proposing to revoke the mortgage brokerage licence and the mortgage administrator licence issued to Hi-Rise.

A Request for Hearing (Form 1) dated June 7, 2019 was delivered to the Financial Services Tribunal (the “Tribunal”) in accordance with section 21(3) of the Act respecting the Notice of Proposal.

Effective June 8, 2019, pursuant to the Financial Services Regulatory Authority of Ontario Act, 2016, S.O. 2016, c. 37, Sched. 8, the Financial Services Regulatory Authority of Ontario became the regulator under the Act and the powers and duties previously vested in the Superintendent of Financial Services under the Act were vested in the Chief Executive Officer of Financial Services Regulatory Authority of Ontario (the “Chief Executive Officer”).

On [TBD], Hi-Rise withdrew its Request for Hearing, and, on [TBD], the Tribunal closed its file in respect of this matter.

This order is made pursuant to a settlement entered into by Hi-Rise and the Director, Litigation and Enforcement, by delegated authority from the Chief Executive Officer.

ORDER

The mortgage brokerage licence (licence # 10897) and mortgage administrator licence (licence # 11893) issued to Hi-Rise Capital Ltd. are hereby revoked, for the reasons set out in the Minutes of Settlement and Undertaking dated TBD.

DATED at Toronto, Ontario, May 16, 2023

Elissa Sinha
Director, Litigation and Enforcement

By delegated authority from the Chief Executive Officer

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IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006,
S.O. 2006, c. 29, as amended (the “Act”), in particular sections 38 and 39;

AND IN THE MATTER OF Hi-Rise Capital Ltd. (“Hi-Rise”).

ORDER IMPOSING ADMINISTRATIVE PENALTIES

Hi-Rise is licensed as a mortgage brokerage (licence # 10897) and as a mortgage administrator (licence # 11893) under the Act.

On April 1, 2019, the Superintendent of Financial Services issued a Notice of Proposal in respect of Hi-Rise (the “Notice of Proposal”) proposing to:

Impose administrative penalties on Hi-Rise for contravening Sections 24, 25, 26, 27, 31(1)1, 31(1)10, 33, and 40 of Ontario Regulation 188/08 and Sections 10.1, ,
15, 18(2)(5), 18(2)(6), 18(3)(5), 19, 20, 21, and 36 of Ontario Regulation 189/08; and

Requests for Hearing (Form 1) dated June 7, 2019 were delivered by Hi-Rise and Jim Neilas to the Financial Services Tribunal (the “Tribunal”) in accordance with section 39(5) of the Act respecting the Notice of Proposal.

On [TBD], Hi-Rise withdrew its Request for Hearing, and, on [TBD], the Tribunal closed its file in respect of this matter.

This order is made pursuant to a settlement entered into by Hi-Rise and the Director, Litigation and Enforcement, by delegated authority from the Chief Executive Officer.

ORDER

Administrative penalties in the total amount of $350,000 are hereby imposed on Hi-Rise Capital Ltd., for the reasons set out in the Minutes of Settlement and Undertaking dated [TBD].

TAKE NOTICE THAT the Financial Services Regulatory Authority of Ontario will deliver an invoice to Hi-Rise Capital Ltd. with information as to where and how to pay the administrative penalties.

If Hi-Rise Capital Ltd. fails to pay the administrative penalty in accordance with the terms of this Order and any further agreement or undertaking, the Chief Executive Officer may file the Order with the Superior Court of Justice and the Order may be enforced as if it were an order of the court. An administrative penalty that is not paid in accordance with the terms of an order imposing the penalty is a debt due to the Crown and is enforceable as such.

DATED at Toronto, Ontario,

Elissa Sinha
Director, Litigation and Enforcement

By delegated authority from the Chief Executive Officer

Si vous desirez recevoir cet avis en français, veuillez nous envoyer votre demande par courriel immediatement a : contactcentre@fsrao.ca.