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 35 and 39;

AND IN THE MATTER OF Arman Raymond Iskin and Streamline Mortgages Ltd.

NOTICE OF PROPOSAL TO IMPOSE ADMISTRATIVE PENALTIES

and

NOTICE OF PROPOSAL TO IMPOSE COMPLIANCE ORDER

TO: Arman Raymond Iskin

AND TO:
Streamline Mortgages Ltd.
3107 Dundas Street West Toronto ON M6P 1Z9

TAKE NOTICE THAT pursuant to section 39 of the Act, and by delegated authority from the Chief Executive Officer, the Director, Litigation & Enforcement (the “Director”) is proposing to impose an administrative penalty in the total amount of $15,000 on Arman Raymond Iskin for omitting to take steps that might reasonably be expected to result in Streamline Mortgages Ltd. contravening or failing to comply with a requirement established under the Act, contrary to section 3 of O. Reg. 187/08.

AND TAKE NOTICE THAT pursuant to section 39 of the Act, and by delegated authority from the Chief Executive Officer, the Director is proposing to impose two administrative penalties in the total amount of $10,000 on Streamline Mortgages Ltd.:

$5,000 for failing to take reasonable steps to verify the identity of a borrower, contrary to subsection 11(2) of O. Reg. 188/08; and

$5,000 for failing to disclose material risks of a mortgage to a lender, contrary to subsection 25(1) of O. Reg. 188/08.

AND TAKE NOTICE THAT pursuant to 35 of the Act, and by delegated authority from the Chief Executive Officer, the Director is proposing to issue a compliance order requiring Streamline Mortgages Ltd. to retain an independent consultant, approved in advance by the Director, to:

Within 60 days, review and update its policies, procedures and practices regarding identity verification, disclosure of material risks and all other obligations to lenders and borrowers as set out in Ontario Regulation 188/08;

Within 120 days, train all sponsored brokers and agents on the updated policies, procedures, and practices; and

Provide a written report to the Director with respect to the completion of items (i) and (ii).

Details of these contraventions and reasons for this proposal are described below. This Notice of Proposal includes allegations that may be considered at a hearing.

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 by the Tribunal about this Notice of Proposal may be requested by completing the enclosed Request for Hearing Form (Form 1) and delivering it to the Tribunal within fifteen (15) days after this Notice of Proposal is received by you. The Request for Hearing Form (Form 1) must be mailed, delivered, faxed or emailed to:

Address:
Financial Services Tribunal
25 Sheppard Avenue West, 7th floor
Toronto, ON M2N 6S6

Attention: Registrar

Fax: 416-226-7750

Email: contact@fstontario.ca

TAKE NOTICE THAT if you do not deliver a written request for a hearing to the Tribunal within fifteen (15) days after this Notice of Proposal is received by you, orders will be issued as described in this Notice of Proposal. TAKE FURTHER NOTICE of the payment requirements in section 4 of Ontario Regulation 192/08, which state that the penalized person or entity shall pay the penalty no later than (thirty) 30 days after the person or entity is given notice of the order imposing the penalty, after the matter is finally determined if a hearing is requested or such longer time as may be specified in the order.

For additional copies of the Request for Hearing Form (Form 1), visit the Tribunal’s website at www.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, as amended. 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 extension 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

These are reasons for the proposal by the Director to impose:
1. An administrative penalty of $15,000 on Arman Raymond Iskin (“Iskin”);
2. Two administrative penalties in the total amount of $10,000 on Streamline Mortgages Ltd. (“Streamline”); and
3. A compliance order on Streamline.

II. PARTIES

Iskin is licensed as a mortgage broker under the Act (license #M12001646). He has been licensed since August 29, 2012. His license is presently scheduled to expire on March 31, 2023.

Iskin is the director, president, secretary, and principal broker of Streamline, a mortgage brokerage licensed under the Act (license #12750).

III. THE FRAUDULENT MORTGAGE TRANSACTION

This matter involves a fraudulent mortgage transaction.

In January of 2021, an unlicensed person (“BS”) sent an employee of Streamline (“AD”) an email regarding a borrower (“JC”) purportedly seeking a mortgage on his residence in Toronto (the “Toronto Property”).

JC was 96 years old.

AD forwarded this information to Iskin.

Iskin forwarded this information to “RM,” a real estate lawyer, and asked if RM knew any potential lenders.

RM identified a lender who would be interested in advancing funds in respect of this mortgage.

AD subsequently sent Iskin documents related to this transaction, including an appraisal, property tax bill, and a copy of JC’s passport.

Iskin provided BS with a Streamline mortgage application and requested that BS have JC complete it.

Iskin did not know JC and did not meet with him, speak with him, or have any dealings with JC directly. Nor did Iskin arrange for any Streamline employee to do so.

Iskin did not know the lenders and did not meet with them, speak with them, or have any dealings with them directly.

Iskin provided RM with a copy of the “Form 1 - Investor/Lender Disclosure Statement For Brokered Transactions” (“Form 1”) and requested that RM provide it to the lenders. However, RM did not return a signed Form 1 to Iskin. Iskin took no additional steps to confirm that the Form 1 had been provided to the lenders or that they had been made aware of the information contained therein.

On March 2, 2021, a private mortgage of $467,500 was registered against JC’s Toronto Property (the “Mortgage”). On closing, Streamline was paid a fee of $9,350.

It was subsequently determined by the Ontario Land Registry Office that the Mortgage was fraudulent, and had been put in place without the knowledge or consent of JC. JC’s passport had been falsified and the tax bill for the Toronto Property had been modified.

The Land Registry Office removed the Mortgage from the title of the Toronto Property.

Title insurance reimbursed the lenders the $467,500 they had advanced in respect of the Mortgage.

Iskin stated to FSRA that he and Streamline acted as the mortgage agent for the lenders only in respect of the Mortgage, even though his initial inquiry to RM was seeking a lender on behalf of JC.

Iskin engaged in no due diligence with respect to the Mortgage. Iskin:
1. Relied on BS, an unlicensed individual to provide information regarding a borrower;
2. Failed to take any steps to verify the identity of JC;
3. Failed to take any steps to verify the accuracy of the information provided about JC, the Toronto Property, or JC’s ability to pay the Mortgage;
4. Failed to meet with the lenders in respect of this transaction; and
5. Failed to obtain a signed Form 1 from the lenders.

IV. CONTRAVENTIONS OR FAILURES TO COMPLY WITH THE ACT

A. Failure to Verify Identity of the Borrower

Subsection 11(2) of O. Reg. 188/08 states that if a brokerage wishes to present a mortgage or renewal to a lender for consideration, the brokerage shall take reasonable steps to verify the identity of each borrower.

Iskin claims that he relied on the fact that lawyers were involved in the transaction and assumed that they had verified JC’s identify. However, given that Streamline and Iskin took steps to source a mortgage for JC, relying on documents and information provided by an unlicensed individual, and took no independent steps to verify the identity of JC, this assumption was not reasonable.

Accordingly, the Director is satisfied that Streamline breached subsection 11(2) of O. Reg. 188/08.

B. Failure to Disclose Material Risks

Subsection 25(1) of O. Reg. 188/08 states that 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.

Streamline’s Policies and Procedures Manual (the “P&P Manual”) reinforces the importance of this disclosure. It states:
Every Private Lender must be presented with an Ontario Investor Disclosure Form for each and every mortgage transaction in which they are a participant (O. Reg. 188/08 s.31). Once signed by the Private Lender, a copy of this form must be included in both the Client mortgage transaction file, and the Private Lender file at Streamline Mortgages Ltd.’s head office …

However, Streamline and Iskin failed to meet with the lenders, failed to have any direct communication with the lenders, and failed to obtain a signed Form 1 from the lenders in respect of the Mortgage. This document contains important information about material risks of mortgages, including a requirement for the brokerage to advise if it cannot verify the identity of another party to the transaction. The Form 1 stated that Streamline had not verified the identity of the borrower.

By failing to obtain a signed Form 1 from the lenders, the Director is satisfied that Streamline breached subsection 25(1) of O. Reg. 188/08.

C. Causing Brokerage to Contravene the Act

Section 3 of O. Reg. 187/08 states that 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 a broker of Streamline, Iskin was responsible for any of his actions or omissions that put Streamline at risk of contravening the Act or regulations. Iskin failed to take any steps to verify the identity of JC, failed to meet with the lenders in respect of this transaction, and failed to obtain a signed Form 1 from the lenders or otherwise disclose to them the material risks of the Mortgage. As a result of Iskin’s omissions, Streamline contravened subsections 11(2) and 25(1) of O. Reg. 188/08.

Accordingly, the Director is satisfied that Iskin contravened section 3 of O. Reg. 187/08.

V. GROUNDS FOR IMPOSING ADMINISTRATIVE PENALTIES

The Director is satisfied that imposing administrative penalties on Iskin and Streamline under section 39 of the Act will satisfy one or both of the following purposes under section 38(1) of the Act:
1. To promote compliance with the requirements established under the Act.
2. 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.

The Director is satisfied that the following administrative penalties should be imposed
1. On Iskin, $15,000 for omitting to take steps that might reasonably be expected to result in Streamline contravening or failing to comply with a requirement established under the Act, contrary to section 3 of O. Reg. 187/08; and
2. On Streamline:
  1. $5,000 for failing to take reasonable steps to verify the identity of a borrower, contrary to subsection 11(2) of O. Reg. 188/08; and
  2. $5,000 for failing to disclose material risks of a mortgage to a lender, contrary to subsection 25(1) of O. Reg. 188/08.

In determining the amount of the administrative penalties, the Director has considered the following criteria as required by section 3 of Ontario Regulation 192/08:
1. The degree to which the contravention or failure was intentional, reckless or negligent.
2. The extent of the harm or potential harm to others resulting from the contravention or failure.
3. The extent to which the person or entity tried to mitigate any loss or take other remedial action.
4. 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.
5. 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 Iskin and Streamline’s actions were negligent. Iskin and Streamline made a series of assumptions regarding the transaction, including that JC’s identity had been verified and that the lenders had received the Form 1, but took no independent steps to confirm their assumptions. These assumptions were not reasonable, particularly given that the Mortgage was referred to Streamline by an unlicensed individual, Iskin engaged in no due diligence and relied entirely on BS for information about JC and the Toronto Property, and Iskin failed to meet with the lenders. Iskin is an experienced broker who has been licensed for more than 10 years and he failed to exercise the required level of care or discharge his obligations under the Act.

In respect of the second criterion, the Director is satisfied that Iskin and Streamline’s activities caused significant harm. As a result of their failures to exercise due diligence, a fraudulent mortgage of $467,500 was registered on JC’s home without his knowledge or consent. The lenders were reimbursed by title insurance, which suffered a loss of nearly half a million dollars.

In respect of the third criterion, the Director is unaware of any efforts by Iskin or Streamline to mitigate any loss or take other remedial action.

In respect of the fourth criterion, as a result of Iskin and Streamline’s failure to comply with the Act, they received fees of $9,350.

In respect of the fifth criterion, the Director is unaware of any further contraventions or failures to comply in the preceding five years by Iskin or Streamline.

The Director is satisfied, having regarded all the circumstances, that the proposed amounts of the administrative penalties are not punitive in nature, and the amounts are consistent with one or both purposes of section 38 of the Act.

VI. GROUNDS TO ISSUE COMPLIANCE ORDER

Subsection 35(1) of the Act states that a compliance order may be imposed if the Director is of the opinion that:
1. a person or entity is committing any act or pursuing any course of conduct that contravenes or does not comply with a requirement established under this Act;
2. a person or entity is committing any act or pursuing any course of conduct that might reasonably be expected to result in a state of affairs that would contravene or not comply with a requirement established under this Act; or
3. a person or entity has committed any act or pursued any course of conduct that contravenes or does not comply with a requirement established under this Act.

The Director is of the opinion that Streamline committed an act or pursued a course of conduct that contravenes the Act. The Director is of the opinion that the proposed order is necessary to remedy the situation.

Streamline failed to verify the identity of JC and failed to disclose the material risks of a mortgage to a lender. As a result, title insurance suffered a loss of almost half a million dollars. These failures occurred despite the existence of the P&P Manual.

There is substantial risk that if Streamline’s failures are not corrected, Streamline will again fail to comply with the Act and further fraudulent mortgages will be put in place. This would harm the integrity of the industry and reduce public confidence.

The requirements to verify identity and disclose material risks are essential to the integrity of the Act and its regime which operates to protect the public from fraudulent and dishonest activity through its regulations.

Iskin is the principal broker of Streamline and is obliged to take reasonable steps to ensure that Streamline and each broker and agent authorized to deal or trade in mortgages on its behalf complies with every requirement under the Act, and to determine whether Streamline’s policies and procedures are reasonably designed to ensure this occurs. However, Iskin’s omissions caused Streamline to fail to meet its regulatory obligations and he failed to follow the relevant policies and procedures. Accordingly, the Director is reasonably of the opinion that a compliance order is necessary to ensure that Streamline addresses the issues that led to the contraventions identified in this Notice of Proposal.

Accordingly, the Director proposes to issue a compliance order requiring Streamline to retain an independent consultant, approved in advance by the Director, to:
1. Within 60 days, review and update its policies, procedures and practices regarding identity verification, disclosure of material risks and all other obligations to lenders and borrowers as set out in Ontario Regulation 188/08;
2. Within 120 days, train all sponsored brokers and agents on the updated policies, procedures, and practices; and
3. Provide a written report to the Director with respect to the completion of items (i) and (ii).

Such further and other reasons as may come to my attention.

DATED at Toronto, Ontario, March 9, 2023

Original signed by

Elissa Sinha
Director, Litigation & Enforcement
By delegated authority from the Chief Executive Officer

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