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 16, 19, 21, 38, and 39;

AND IN THE MATTER OF Harold the Mortgage Closer Inc.

AND IN THE MATTER OF Harold Gerstel.

NOTICE OF PROPOSAL TO REVOKE LICENCE, TO REFUSE TO RENEW LICENCE,
AND TO IMPOSE ADMINISTRATIVE PENALTIES

TO:
Harold the Mortgage Closer Inc.
3016 Bathurst Street Toronto, ON M6B 3B6

Harold Gerstel Principal Broker

AND TO: Harold Gerstel

TAKE NOTICE THAT pursuant to sections 19 and 21 of the Act, and by delegated authority from the Chief Executive Officer of the Financial Services Regulatory Authority of Ontario (the “Chief Executive Officer”), the Director, Litigation and Enforcement (the “Director”) is proposing to revoke the mortgage brokerage licence issued to Harold the Mortgage Closer Inc. (“HTMC”).

AND TAKE NOTICE THAT pursuant to sections 16 and 21 of the Act, and by delegated authority from the Chief Executive Officer, the Director is proposing to refuse to renew the mortgage broker licence issued to Harold Gerstel (“Gerstel”).

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 $70,000 on Gerstel as follows:

$50,000 for failing to cooperate with the Chief Executive Officer’s investigation, contrary to sections 30(6), 34(2), and 44(2) of the Act, and

$20,000 for providing false or misleading information to the Chief Executive Officer, contrary to section 45 of the Act.

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 21(2), 21(3), 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, Ontario
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

Harold Gerstel (“Gerstel”) and Harold the Mortgage Closer (“HTMC”) have failed to cooperate with an investigation by the Chief Executive Officer of the Financial Services Regulatory Authority (collectively “FSRA”). In particular, they have failed to fully comply with an inquiry letter and summons issued by FSRA. Gerstel also provided false information on his licence renewals as a mortgage broker.

The Director proposes to revoke the mortgage brokerage licence issued to HTMC and to refuse the mortgage broker licence renewal application of Gerstel.

Additionally, the Director proposes to impose two administrative penalties in the total amount of $70,000 on Gerstel.

II. BACKGROUND

A. Licensees

HTMC is licensed as a mortgage brokerage (licence # 12580) under the Act.

Gerstel is licensed as a mortgage broker (licence # M11000452) under the Act. Gerstel is the principal broker of HTMC. Gerstel is the sole officer and director of HTMC.

B. Gerstel Failed to Fully Respond to Regulatory Inquiry

FSRA began investigating HTMC and Gerstel following media reports alleging misconduct by Gerstel. The media reports alleged that, together with a contractor, Gerstel engaged in a $1.5 million mortgage/renovation fraud targetting an elderly homeowner, J.A.

On March 13, 2023, FSRA issued an inquiry letter to Gerstel pursuant to section 30 of the Act (the “Inquiry Letter”). The Inquiry Letter required Gerstel to respond to a list of questions by March 28, 2023.

On March 13, 2023, FSRA delivered the Inquiry Letter to Gerstel via email to the email address on record for Gerstel. On March 16, 2023, FSRA also delivered the Inquiry Letter to legal counsel representing Gerstel via email. Legal counsel for Gerstel acknowledged receipt of the Inquiry Letter on March 16, 2023.

Gerstel provided only a partial response to the Inquiry Letter in a series of communications to FSRA.

Further, many of Gerstel’s responses were incomplete and vague.

For instance, one question required Gerstel to: “Provide a complete list of all legal proceedings in which you, the Brokerage, or any employees, agents or brokers have been a party.”

In response, on March 28, 2023, Gerstel wrote: “[J.A.] sued the brokerage. I don't believe anyone else sued the brokerage.”

On April 5, 2023, FSRA staff emailed Gerstel to reiterate that he must provide a complete list of all legal proceedings where Gerstel or the brokerage have been a party.

Gerstel did not provide a list of all the legal proceedings in which he has been a party. FSRA determined that Gerstel has been a party in 14 separate civil proceedings in Ontario, which were not disclosed in response to the Inquiry Letter.

Counsel for FSRA wrote to counsel for Gerstel and HTMC on April 10, 11, 13, 27, May 10, 29, and June 13, 2023, to follow-up on the extensive list of outstanding and incomplete responses to the Inquiry Letter.

While some further information was provided, such as additional bank records, the bulk of the outstanding and incomplete responses were not resolved. Counsel for Gerstel and HTMC took the position that there was no obligation on them to provide any further responses. This included refusing to identify legal proceedings in which Gerstel was a party.

Gerstel withheld information relevant to the Inquiry Letter.

C. Gerstel Failed to Attend as Required by Summons

On April 27, 2023, counsel for FSRA advised counsel for Gerstel and HTMC that FSRA would be issuing a summons to interview Gerstel during the week of May 8, 2023. They were asked to advise, by May 1, 2023, if Gerstel had a preference as to the date. No response was received regarding the date of the interview.

In furtherance of its investigation into Gerstel and HTMC, FSRA issued a summons, dated May 4, 2023 (the “Summons”), to Gerstel pursuant to section 34 of the Act. The Summons was delivered to Gerstel and his legal counsel via email on May 4, 2023.

The Summons required Gerstel to attend at the FSRA offices to be examined under oath.

To accommodate Gerstel, the Summons provided him with the option to select one of two dates to attend at the FSRA offices: Thursday, May 11, 2023 at 9:30 AM, or Monday, May 15, 2023 at 1:00 PM.

The Summons required Gerstel to select his preferred date by May 8, 2023.

Gerstel failed to indicate a preferred date by May 8, 2023. In correspondence on May 8, 2023, legal counsel for Gerstel asserted that his clients have not carried on business in the mortgage sector since March 1, 2023 and suggested further discussions among counsel.

As Gerstel failed to indicate a preferred date, FSRA scheduled the examination under oath for the later date of Monday, May 15, 2023 at 1:00 PM (the “Examination”).

On Tuesday, May 9, 2023, FSRA informed Gerstel and his legal counsel via email of the date of the Examination pursuant to the Summons.

On Friday, May 12, 2023 at 4:16 PM, legal counsel for Gerstel delivered a letter to FSRA via email advising that “Mr. Gerstel is attending a family event out of town. He will not be able to attend on May 15, 2023. I will attend on May 15, 2023 on behalf of our client Harold Gerstel and make a statement on the record on his behalf.”

Neither Gerstel nor his legal counsel suggested an alternative date on which Gerstel would be available.

Gerstel failed to attend the Examination as required by the Summons.

Legal counsel for Gerstel attended and made a statement that Gerstel was willing to cooperate, and to be interviewed by Zoom, when certain conditions were met.

Gerstel has not subsequently proposed any dates to be interviewed.

D. Gerstel Made False Statements in his Licence Renewal Applications

In each licence renewal application, Gerstel was asked: “Have you ever been declared bankrupt or made a voluntary assignment in bankruptcy, or are you currently an undischarged bankrupt or are you currently a defendant in any civil proceeding or are there any unsatisfied judgements imposed by a civil court in Canada or elsewhere, against you personally?” [emphasis added]

Gerstel responded “No” to this question in each of his licence renewal applications.

Gerstel swore that he had truthfully answered the questions posed in each annual renewal application. The renewal applications contained the following warning:
Providing false or misleading information in this application/declaration and/or any attachment is an offence under the MBLAA, and doing so may be sufficient grounds to reject the application/declaration, revoke or refuse to renew a licence or, if you are an officer/director/partner, result in refusal of the brokerage or administrator licence applied for, or result in your prosecution. By clicking the "Confirmed" button below, you swear that you have truthfully answered all questions contained within this electronic application and consent to the Collection, Use and Disclosure by FSRA of this information.
However, Gerstel was a defendant in five separate civil proceedings which were not disclosed on his most recent, or numerous former licence renewal applications.

E. The Courts Have Questioned Gerstel’s Honesty, Integrity, and Law-Abiding Nature

Gerstel’s failure to disclose litigation against him is particularly problematic given the concerns raised by the Court with respect to his honesty, integrity, and law- abiding nature.

In litigation¹ related to Gerstel’s cash-for-gold business, Gerstel gave testimony under oath. In its judgment, the Court found that Gerstel “was not credible or reliable” and often “admitted to not being truthful or accurate.”²

In a lawsuit claiming Gerstel took advantage of a person with mental illness (“K.D.”) to profit from the sale of K.D.’s home, Gerstel attempted to remove K.D.’s litigation trustee. In dismissing Gerstel’s motion, the Court held that it appeared that Gerstel had manipulated K.D. and that siding with Gerstel would be to “double down on the manipulation”.³

The Courts have found that Gerstel has attempted to manipulate the judicial process and has given untruthful testimony under oath. These are serious considerations for a licence renewal application and grounds to refuse to renew a licence.

III. CONTRAVENTIONS OR FAILURES TO COMPLY WITH THE ACT

A. Gerstel Failed to Cooperate with the FSRA Investigation

Section 30(1) of the Act authorizes FSRA to make inquiries and conduct examinations of the business and activities of licencees to ensure they are in compliance. There are no conditions precedent to the exercise of this discretion.

Section 30(6) of the Act requires a person to whom a section 30 inquiry is directed to answer questions, produce documents or records, and provide assistance to FSRA in the manner and within the period specified by FSRA.

FSRA issued the Inquiry Letter to Gerstel pursuant to section 30 of the Act. As a licensee, Gerstel was required to provide the answers and documents required in Appendix A to the Inquiry Letter.

Gerstel provided incomplete responses to the Inquiry Letter. Gerstel’s responses were misleading due to these omissions.

Section 44(2) of the Act prohibits a person from withholding information that is relevant to an inquiry under section 30.

Gerstel intentionally withheld information that was relevant to the Inquiry Letter. In particular, Gerstel failed to provide the full details of referrals he had made. He also failed to provide a complete list of the litigation in which he has been a party.

Section 34(2) of the Act allows FSRA to issue a summons requiring a person to give information on oath that is relevant to determining compliance with the Act. There is no authority under section 34 for the recipient of a summons to impose conditions before attending.

Gerstel failed to attend to be examined under oath as required by the Summons, despite FSRA’s efforts to conduct the Examination at a mutually convenient time.

The Director is satisfied that Gerstel contravened sections 30(6), 34(2), and 44(2) of the Act by failing to cooperate with FSRA’s investigation.

B. Gerstel Provided False Information to FSRA

Section 45 of the Act prohibits a person from giving false or misleading information to FSRA.

Gerstel provided false or misleading information to FSRA by failing to disclose the civil litigation in which he is a party in response to the Inquiry Letter.

Gerstel also provided false or misleading information to FSRA by answering “No.” in response to a question in his licence renewal application which required him to disclose civil litigation in which he is a defendant.

The Director is satisfied that Gerstel contravened section 45 of the Act by providing false or misleading information to FSRA.

IV. GROUNDS FOR REFUSAL TO RENEW GERSTEL’S LICENCE

Section 16(4) of the Act states that FSRA shall renew the licence of an applicant who satisfies the prescribed requirements for renewal of the licence unless FSRA believes, on the reasonable grounds, that the applicant is not suitable to be licensed having regard to such circumstances as may be prescribed and such other matters as FSRA considers appropriate.

Section 10 of Ontario Regulation 409/07 under the Act, provides that in determining whether an individual is not suitable to be licensed as a mortgage broker or agent, FSRA is required by subsections 14(1) and 16(4) of the Act to have regard to the following prescribed circumstances:
1. Whether the individual’s past conduct affords reasonable grounds for belief that he or she will not deal or trade in mortgages in accordance with the law and with integrity and honesty.
2. Whether the individual is carrying on activities that contravene or will contravene the Act or the regulations if he or she is licensed.
3. Whether the individual has made a false statement or has provided false information to the Chief Executive Officer with respect to the application for the licence.

Gerstel is not suitable to be licensed because he has contravened the Act by failing to cooperate with FSRA’s investigation and by providing false information to FSRA, contrary to sections 30(6), 34, 44(2), and 45 of the Act.

Further, Gerstel is not suitable to be licensed because he has repeatedly provided false information to FSRA with respect to the application for renewal of the licence.

By failing to cooperate with FSRA and providing false information, Gerstel has obstructed FSRA’s investigation, placing the public at increased risk.

Finally, Gerstel’s past conduct, as determined by the Courts, affords reasonable grounds for the belief that he will not deal or trade in mortgages in accordance with the law and with integrity and honesty.

As Gerstel is the principal broker of HTMC, he is subject to increased compliance obligations. As a result, there is no reasonable means to address the suitability concerns other than licence revocation.

The Director has concluded that Gerstel is not suitable to be licenced and that his licence renewal application should be refused.

V. GROUNDS FOR REVOCATION OF THE CORPORATE LICENCE

Section 19(1) of the Act states that FSRA may, by order, revoke a licence in any of the circumstances in which FSRA is authorized to suspend a licence.

According to section 18(1) of the Act, such circumstances are:
1. if the licensee ceases to satisfy the prescribed requirements for issuance or renewal, as the case may be, of the licence;
2. if the Chief Executive Officer believes, on reasonable grounds, that the licensee is no longer suitable to be licensed having regard to the circumstances, if any, prescribed for the purposes of subsection 14(1) or 16(4), as the case may be, and such other matters as the Chief Executive Officer considers appropriate;
3. if the licensee contravenes or fails to comply with a requirement established under this Act; or
4. in such other circumstances as may be prescribed.

For a corporate licensee, section 1(2) of Ontario Regulation 408/07 directs FSRA to consider “[w]hether the past conduct of any director or officer of the corporation affords reasonable grounds for belief that the business of the corporation will not be carried on in accordance with the law and with integrity and honesty.”

As the principal broker, officer, and only director of HTMC, Gerstel is the sole directing mind of the corporation.

HTMC is not suitable to be licensed because the past conduct of Gerstel affords reasonable grounds for belief that the business of the corporation will not be carried on in accordance with the law and with integrity and honesty. Gerstel has failed to cooperate with FSRA’s investigation and has provided false or misleading information to FSRA in contravention of the Act.

The Director has concluded that HTMC is not suitable to be licensed, that it has contravened the Act, and that its mortgage brokerage licence should be revoked.

VI. GROUNDS FOR IMPOSING ADMINISTRATIVE PENALTIES

The Director is satisfied that imposing administrative penalties on Gerstel 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 two administrative penalties in the total amount of $70,000 should be imposed on Gerstel for failing to cooperate with FSRA’s investigation, contrary to sections 30(6), 34(2), and 44(2) of the Act and for providing false information to FSRA, contrary to section 45 of the Act.

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 has considered that the contraventions of the Act were intentional.

Gerstel was aware of his obligation to fully respond to the Inquiry Letter. Gerstel was also aware of his obligation to attend under the Summons to be interviewed. He was given the opportunity to select one of two dates. When he failed to do so he was still given the chance to attend. Gerstel was similarly aware of the litigation to which he has been a party.

Gerstel intentionally chose to withhold relevant information in response to the Inquiry Letter. Gerstel intentionally failed to cooperate with FSRA investigation.

Gerstel intentionally chose to withhold relevant information when completing licence renewal applications for over a decade.

In respect of the second criterion, the Director has considered the serious harm that can result from Gerstel’s contraventions.

The cooperation of licensees with FSRA’s investigations is essential for the effective regulation of the mortgage brokering sector. By failing to cooperate, Gerstel has obstructed FSRA’s investigation, placing the public at increased risk.

Similarly, FSRA relies on the full and frank disclosure of licensees in their regulatory filings. FSRA uses information provided by licensees to assess their continued suitability to be licensed. By providing misleading information to FSRA, Gerstel undermined FSRA’s regulatory effectiveness and placed the public at risk.

In respect of the third criterion, the Director has considered Gerstel’s failure to mitigate loss or take remedial action.

Gerstel has not provided full and frank disclosure in response to FSRA’s regulatory inquiries and has not attempted to reschedule an examination under oath.

Instead, through counsel, Gerstel asserts that he is willing to cooperate; however, he asserts that FSRA should fulfill certain conditions before he will attend for an examination or provide additional information.

Licensees may not dictate the terms under which they will provide information to their regulator.

In respect of the fourth criterion, the Director has considered that Gerstel has benefited from the delay in the assessment of his suitability to be licensed due to his provision of false information to FSRA and his failure to cooperate with FSRA’s investigation. Gerstel has benefited from the ability to solicit prospective mortgage borrowers through his website and other advertisements. These advertisements facilitated mortgage lending through his brokerage and through referrals to related companies.

In respect of the fifth criterion, as the investigation cannot be completed without cooperation, the Director is not aware of 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 Gerstel.

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

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

DATED at Toronto, Ontario, June 22, 2023.

Original signed by

Elissa Sinha
Director, Litigation and Enforcement

By delegated authority from the Chief Executive Officer

¹ Multiple related proceedings were heard together: CV-11-00430602-0000, CV-11-00436825-00, CV-12- 00447394-0000, CV-13-00474051-0000, CV-13-00476452-0000, and CV-13-00483531-0000.

² Konstan v Berkovits, 2023 ONSC 497 at para 16.

³ Divitaris v. Gerstel, 2021 ONSC 1309 at paras 5-6 (affirmed 2022 ONCA 605).

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