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, 35, 38, and 39;

AND IN THE MATTER OF Harold the Mortgage Closer Inc.

AND IN THE MATTER OF Harold Gerstel.

AND IN THE MATTER OF Esther Gerstel Inc.

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

TO: Harold Gerstel

AND TO: Esther Gerstel Inc.

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

Harold Gerstel
Principal Broker

TAKE NOTICE THAT pursuant to sections 16 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 refuse to renew the mortgage broker licence issued to Harold Gerstel.

AND TAKE NOTICE THAT pursuant to sections 19 and 21 of the Act, and by delegated authority from the Chief Executive Officer, the Director is proposing to revoke the mortgage brokerage licence issued to Harold the Mortgage Closer Inc.

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 six administrative penalties of $10,000 each, in the total amount of $60,000, on Harold Gerstel for contravening section 2(3) of the Act by dealing in mortgages for remuneration outside his registered mortgage brokerage.

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 six administrative penalties of $25,000 each, in the total amount of $150,000, on Esther Gerstel Inc. for contravening section 4(2) of the Act by carrying on business as a mortgage lender without a mortgage brokerage licence and without being exempted from the requirement to have such a license;

AND TAKE NOTICE THAT pursuant to section 35 of the Act, and by delegated authority from the Chief Executive Officer, the Director is proposing to issue a permanent order against Esther Gerstel Inc. to cease and desist carrying on the business of mortgage lending through Harold Gerstel and/or Harold the Mortgage Closer Inc. and to cease and desist carrying on business as a mortgage lender without a mortgage brokerage licence or an exemption from the requirement to be licensed.

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), 35(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, 7^th 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”) has orchestrated a scheme under which he leveraged the credibility afforded to him and Harold the Mortgage Closer Inc. (“HTMC”) by virtue of being licensed under the Act to advertise to vulnerable consumers. Gerstel then diverted certain clients directly to Esther Gerstel Inc. (“EGI”), a private lender. Gerstel’s wife, Esther Gerstel, is the sole Director of EGI. Gerstel did so while purporting not to take the borrowers on as clients of HTMC. Gerstel then engaged with the very same clients as a representative of EGI and arranged mortgages for EGI. In doing so Gerstel traded in mortgages outside HTMC.
By carrying on business through Gerstel but not HTMC, EGI failed to carry on business solely through a mortgage brokerage or exempt person or entity. By orchestrating this scheme, Gerstel has contravened the Act and denied vulnerable clients the protections of the Act.
Gerstel also failed to cooperate with an investigation by the Chief Executive Officer of the Financial Services Regulatory Authority (collectively “FSRA”) by not attending to be interviewed as required by a summons issued by FSRA.

II. BACKGROUND

A. Licensees and Related Party

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.
Gerstel applied to renew his licence prior to March 31, 2023. In the Notice of Proposal, dated June 22, 2023 (the “First NOP”), FSRA proposed to refuse to renew Gerstel’s licence. Due to Gerstel’s Request for Hearing before the Financial Services Tribunal, his licence renewal application remains pending.
HTMC is licensed as a mortgage brokerage (licence # 12580) under the Act. HTMC applied to surrender its licence on January 27, 2024. The application is pending.
A FSRA compliance examination conducted in 2022 did not detect serious misconduct by HTMC. FSRA issued a warning letter to HTMC on January 23, 2023.
EGI is a corporation incorporated pursuant to the laws of Ontario. Gerstel’s wife, Esther Gerstel, is the sole director of EGI. Gerstel has signing authority over the EGI bank accounts.

B. Overview of Conduct

HTMC has advertised its mortgage brokering services to the public using online and television advertising. These advertisements encouraged prospective mortgage borrowers to contact HTMC. Such advertisements are only permitted for licensed brokers and brokerages.
Between 2016 and 2021, Gerstel referred six (6) borrowers to EGI without taking them on as clients of HTMC. The six borrowers were JA, MW, DG, MD, WJ, and MA (collectively, the “Borrowers”).
As these transactions were not processed through HTMC, the Borrowers were deprived of essential protections under the Act, such as the conflict of interest disclosure and the need for a suitability assessment.
Some of the Borrowers thought that Gerstel was acting as their broker. Gerstel often used HTMC contact information in dealing with the Borrowers and met with some of them at the HTMC premises.
Gerstel has a direct interest in EGI. Gerstel has signing authority over the EGI bank accounts and loaned funds through the corporation. The Borrowers confirmed that Gerstel was their sole point of contact with EGI.
Gerstel asserted that EGI mortgages were transacted through an exempt intermediary (a lawyer).
However, Gerstel directly negotiated the terms of the mortgages with the Borrowers. Gerstel also insisted, or encouraged, the Borrowers to use lawyers, real estate agents, and/or contractors of his choosing. Lawyers closed the mortgage transactions after Gerstel had collected information about the borrowers and their property, negotiated the mortgage terms, and presented these terms to the borrowers.
The EGI mortgages carried onerous fees and interest. Generally, EGI charged 22% interest, with funds withheld to pay the interest in advance. EGI also charged significant lender fees. The Borrowers’ total cost of borrowing was between 30% and 80% per year.
At the end of the EGI mortgage term, an HTMC mortgage agent sometimes sourced a new mortgage to discharge the EGI mortgage. These HTMC-brokered mortgages were substantially more favourable to the Borrowers than the EGI mortgages had been. Two Borrowers lost their homes after EGI exercised the power of sale to recover its interest, fees, and principal advanced.

C. JA

JA was a retiree looking to renovate her home to make it more accessible. She was referred to Gerstel by the contractor doing her renovations. Gerstel negotiated several mortgages from EGI directly with JA.
Gerstel spoke with JA over the phone, assessed JA for the purposes of mortgage lending, and proposed mortgage terms directly to JA.
Although the mortgage documents indicated that interest and lender fees were payable upon maturity, EGI withheld funds to prepay the interest and lender fee.
In six months, between March 2021 and August 2021, EGI registered four mortgages with principal totaling $1,120,000 against JA’s home, each with a term of one year or less. However, EGI advanced significantly less than the amount registered as principal in the mortgage charges. JA’s bank records indicated that she received only $573,760.
The effective annual interest rates of the EGI mortgages on JA’s home were between 51% and 56%.
JA could not repay the EGI mortgages. A power of sale was exercised. JA lost her modest home and was placed in a nursing home.
JA commenced a lawsuit against EGI, HTMC, and others. The Ontario Superior Court granted a Mareva injunction and ordered that the proceeds of the sale of JA’s home be held by the court until the lawsuit is resolved.
On May 30, 2022, JA filed a complaint with FSRA against Gerstel, HTMC, and EGI.
JA passed away in January 2023.

D. MW

MW renovated and resold condos. MW required funding to purchase and renovate the condos.
MW learned of Gerstel and HTMC through HTMC’s television advertisements. When MW approached Gerstel, Gerstel only offered mortgages from EGI. MW dealt directly with Gerstel on behalf of EGI.
Gerstel negotiated the terms of the EGI mortgages directly with MW.
Between March 2019 and August 2021, EGI registered eight mortgages on two properties owned by MW. The registered principal was over $3.6 million. The funds advanced to MW were less than $2.5 million.
The effective annual interest rates for the EGI mortgages on MW’s properties were between 50% and 64%.
Ultimately, MW was unable to repay the EGI mortgages. MW lost both properties through a power of sale, including his home which had been in his family for three generations.
MW filed a complaint with FSRA on September 8, 2022.

E. DG

DG learned of Gerstel and HTMC through HTMC’s television advertisements. DG was struggling with significant health issues and was not working at the time she entered into the EGI mortgages.
When DG reached out to him, Gerstel assessed the value of DG’s home and negotiated a series of EGI mortgages directly with DG.
Gerstel did not provide DG with written disclosure of his relationship with the lender, EGI. DG was not aware of EGI until she received the mortgage documentation.
Although mortgage documents indicated that interest and lender fees were payable upon the maturity date, EGI withheld interest and lender fees from the amounts advanced to DG under the mortgages.
Between February 2021 and January 2022, EGI registered five mortgages on DG’s home. In total, EGI registered mortgages with a principal amount of $230,000 on DG’s home. However, EGI only advanced $137,000 to DG.
The effective annual interest rates for the EGI mortgages on DG’s home were between 56% and 76%.
When the mortgages were not repaid on maturity, EGI commenced power of sale proceedings. These proceedings were not completed because DG was able to obtain a new mortgage to raise the funds needed to discharge the EGI mortgages. Ultimately, DG was forced to pay $310,618.10 to discharge the EGI mortgages in September 2022.

F. MD

MD discussed her upcoming mortgage renewal with Gerstel. Gerstel told MD that he could arrange a mortgage for her.
Gerstel negotiated the terms of the mortgages with MD.
MD was not aware of the lender’s identity, EGI, until she received the mortgage documentation.
Between May 2018 and November 2019, EGI registered four mortgages on MD’s homes. Under these four mortgages over time, the total principal registered was $1,539,000. However, EGI advanced only $1,220,500 to MD.
The effective annual interest rates for the EGI mortgages on MD’s home were between 30% and 75%.
Following maturity, MD was able to repay the EGI mortgages by securing a new mortgage at significantly more favourable terms through a different mortgage brokerage.

G. WJ

WJ learned of HTMC and Gerstel through HTMC’s television advertisements.
Gerstel negotiated the terms of an EGI mortgage directly with WJ. Gerstel also obtained information on behalf of the lender, including an appraisal.
Although mortgage documents indicated that interest and lender fees were due upon the maturity date, EGI withheld interest and lender fees from the amounts advanced to WJ under the mortgages.
On July 31, 2019, EGI registered a mortgage with a principal amount of $150,000 on WJ’s home. However, EGI only advanced $100,000.
The effective annual interest rate for the EGI mortgage on WJ’s home was 52%.

H. MA

MA had been laid off by her employer and had borrowed money from her friend to fulfill her short-term needs. MA visited Gerstel to raise funds. Gerstel told MA that she would not qualify for a regular mortgage, due to her situation.
Gerstel and an HTMC mortgage agent arranged for an appraisal of MA’s home. MA paid for the appraisal. However, MA was not provided with a copy of the appraisal report, despite asking Gerstel for it.
The mortgage lender was EGI. MA was not aware of the identity of the lender until she received the mortgage documentation at the lawyer’s office. Gerstel did not disclose his relationship with EGI.
In September 2016 and August 2017, EGI registered two mortgages with one-year terms on MA’s home. The total registered principal for these two mortgages was $61,000. However, EGI only advanced $42,000 to MA
The effective annual interest rates for the EGI mortgages on MA’s home were between 55% and 71%.
HTMC subsequently brokered a mortgage to discharge the EGI mortgages at a much lower interest rate.

I. Gerstel’s Failure to Cooperate with the FSRA Investigation

FSRA issued a Summons, dated February 5, 2024 (the “Summons”), to Gerstel pursuant to section 34 of the Act. The Summons was delivered to Gerstel on February 5, 2024.
The Summons required Gerstel to attend the FSRA office to be examined under oath. Multiple dates in February 2024 were offered to Gerstel to attend the FSRA office.
After Gerstel failed to indicate a preferred date by the deadline, FSRA staff confirmed that the examination under oath would proceed on February 15, 2024 at 9:00 AM (the “Examination”).
Gerstel did not attend the Examination as required by the Summons.

III. CONTRAVENTIONS OR FAILURES TO COMPLY WITH THE ACT

A. Gerstel Brokered Mortgages Outside his Brokerage

Under the Financial Services Regulatory Authority Act, 2016, FSRA’s statutory objects include providing for the protection of the public and maintaining public confidence in the financial services sectors that FSRA regulates.
Section 2(3) of the Act prohibits an individual from dealing in mortgages in Ontario for remuneration, whether direct or indirect, unless he has a mortgage broker’s or agent’s licence and is acting on behalf of a mortgage brokerage or is exempted from the requirement to have a licence.
Although he took the benefit of being a licensed mortgage broker, Gerstel was not acting on behalf of HTMC when he brokered the mortgages for EGI identified in this Notice of Proposal.
Gerstel received remuneration through his financial interest in the lender, EGI, whose bank accounts he had control of.
Section 2(1) of the Act defines dealing in mortgages to include providing information about a prospective borrower to a prospective mortgage lender, assessing a prospective borrower on behalf of a prospective mortgage lender, and negotiating or arranging a mortgage on behalf of another person or entity, or attempting to do so.
Acting on behalf of EGI, Gerstel collected information about the Borrowers, provided this information to the prospective lender EGI, assessed the Borrowers on behalf of EGI, and directly negotiated mortgage terms with the Borrowers, thereby dealing in mortgages.
As a licensee, Gerstel cannot rely on the simple referral exemption under section 6(4) of the Act. Even if Gerstel was not a licensee, his activities far exceed the limits of a simple referral under Ontario Regulation 407/07.
In addition, Gerstel cannot rely on the intermediary exemption as he engaged in this conduct directly and not through HTMC or an exempt person or entity, such as a lawyer under section 6(6) of the Act.
The Director is satisfied that Gerstel contravened section 2(3) of the Act by repeatedly dealing in mortgages outside his registered mortgage brokerage.

B. EGI Carried on Business as a Mortgage Lender

Section 4(2) of the Act prohibits an individual or entity from carrying on business as a mortgage lender in Ontario unless it has a mortgage brokerage licence or is exempt from the requirement to be licensed.
EGI carried on business as a mortgage lender in Ontario.
EGI is not licensed as a mortgage brokerage.
EGI asserted that it was exempt from the requirement to be licensed as a mortgage brokerage because it operated solely through an exempt intermediary, a lawyer, pursuant to section 15 of Ontario Regulation 407/07.
However, Gerstel solicited the Borrowers, gathered information about the Borrowers, assessed the Borrowers, and negotiated or arranged the mortgages with the Borrowers on behalf of EGI. Gerstel was not acting on behalf of his registered mortgage brokerage.
Therefore, EGI was not acting solely through a licensed mortgage brokerage or exempt intermediary, it was acting through Gerstel. The involvement of lawyers to close a mortgage transaction, after it has been assessed, negotiated, and arranged, does not permit EGI to act as a mortgage lender without a license under the Act.
The Director is satisfied that EGI contravened section 4(2) of the Act by carrying on business as a mortgage lender in Ontario without being licensed as a mortgage brokerage or exempt from the requirement to be licensed.

IV. GROUNDS FOR REFUSAL TO RENEW GERSTEL’S LICENCE

The Director continues to rely upon the grounds to refuse to renew Gerstel’s licence identified in the First NOP. The Director also relies on the following grounds.
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 sections 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 dealing in mortgages outside his registered mortgage brokerage, contrary to section 2(3) of the Act.
By engaging in the conduct described in this Notice of Proposal Gerstel has denied vulnerable clients the fundamental protections of the Act. This makes him unsuitable to be licensed.
Further, Gerstel facilitated EGI’s contravention of the Act.
As Gerstel is the principal broker of HTMC, he is subject to increased compliance obligations. The principal broker is responsible for the brokerage’s compliance with regulatory requirements. Section 2(1) of Ontario Regulation 410/07 requires Gerstel to take reasonable steps to ensure that HTMC and each broker and agent authorized to deal or trade in mortgages on its behalf comply with every requirement established under the Act. Given these compliance obligations, 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 licensed and that his licence renewal application should be refused.

V. GROUNDS FOR REVOCATION OF HTMC’S LICENCE

The Director continues to rely upon the grounds to revoke HTMC’s licence identified in the First NOP. The Director also relies on the following grounds.
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 contravened the Act by dealing in mortgages outside his registered mortgage brokerage, contrary to section 2(3) of the Act. Further, Gerstel has facilitated EGI’s contravention of the Act. EGI has carried on business as an unlicensed mortgage lender, contrary to section 4(2) of the Act.
Other than Gerstel, HTMC does not currently sponsor any agents or brokers.
The Director has concluded that HTMC is not suitable to be licensed and that its mortgage brokerage licence should be revoked.

VI. GROUNDS FOR IMPOSING ADMINISTRATIVE PENALTIES ON GERSTEL

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 six administrative penalties in the total amount of $60,000 should be imposed on Gerstel for dealing in mortgages outside his registered mortgage brokerage, contrary to section 2(3) of the Act.
These six administrative penalties relate to Gerstel’s transactions with the Borrowers, JA, MW, DG, MD, WJ, and MA.
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 has been licensed since 2011 and designated a principal broker since 2016 and was aware of his obligation to deal in mortgages solely through his mortgage brokerage.
Gerstel has instead engaged in a deliberate course of conduct designed to leverage his credibility, and that of HTMC, as licensees while denying the protections of Act to the Borrowers, some of whom are vulnerable. He has done so to the benefit of EGI and himself.
In respect of the second criterion, the Director has considered the serious harm that has resulted from Gerstel’s contraventions.
The public rightly expects the protections of the Act when their business is solicited by a FSRA licensee. Gerstel’s television advertising is permitted because he is a licensed mortgage broker. By acting outside the brokerage, Gerstel deprived the Borrowers of the protections afforded by the Act.
In particular, the Borrowers did not benefit from a written conflict of interest declaration, fully disclosing Gerstel’s relationship with the lender (EGI), as required by section 27 of Ontario Regulation 188/08. The Borrowers did not benefit from the suitability assessment required by section 24 of Ontario Regulation 188/08. The Borrowers did not benefit from the disclosure of material risks, as required by section 25 of Ontario Regulation 188/08.
The Borrowers entered into mortgages that they could not afford. The Borrowers paid onerous fees and interest. JA and MW lost their homes as a result.
In respect of the third criterion, the Director has considered Gerstel’s failure to mitigate loss or take remedial action. Gerstel has instead actively failed to comply with FSRA’s investigation and accepts no accountability for his conduct.
In respect of the fourth criterion, the Director is unable to quantify the precise economic benefit experienced by Gerstel due to his failure to cooperate with FSRA’s investigation. However, Gerstel has derived significant economic benefit through his relationship with EGI and Esther Gerstel. EGI has charged the Borrowers at least $2.15 million in fees and interest.
In respect of the fifth criterion, the alleged contraventions of the Act identified in the First NOP are the subject of an ongoing hearing before the Financial Services Tribunal. 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 against Gerstel is not punitive in nature, and the amount is consistent with one or both purposes of section 38 of the Act.

VII. GROUNDS FOR IMPOSING ADMINISTRATIVE PENALTIES ON EGI

The Director is satisfied that imposing administrative penalties on EGI under section 39 of the Act will satisfy one or both of the following purposes under section 38(1) of the Act.
The Director is satisfied that six administrative penalties in the total amount of $150,000 should be imposed on EGI for carrying on business as an unlicensed mortgage lender, contrary to section 4(2) of the Act.
These six administrative penalties relate to EGI’s transactions with JA, MW, DG, MD, WJ, and MA.
In determining the amount of the administrative penalties, the Director has considered the criteria required by section 3 of Ontario Regulation 192/08.
In respect of the first criterion, the Director has considered that the contraventions of the Act were intentional.
EGI’s contraventions were undertaken by Gerstel, an experienced licensee and principal broker. Gerstel was aware of the requirement to be licensed as a brokerage or to act through a licensed or exempt intermediary when carrying on business as a mortgage lender. EGI took advantage of HTMC’s advertising and Gerstel’s reputation to further its lending business.
In respect of the second criterion, the Director has considered the serious harm that has resulted from EGI’s contraventions. The Borrowers were deprived of the protections afforded by the Act, particularly the conflict of interest disclosure, the material risk disclosure, and the suitability assessment.
As discussed above, the Borrowers paid onerous fees and interest. JA and MW lost their homes.
In respect of the third criterion, the Director has considered EGI’s failure to mitigate loss or take remedial action.
In respect of the fourth criterion, the Director has considered the fact that EGI has charged the Borrowers at least $2.15 million in fees and interest.
In respect of the fifth criterion, 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 EGI.
The Director is satisfied, having regarded all the circumstances, that the proposed amount of the penalty against EGI is not punitive in nature, and the amount is consistent with one or both purposes of section 38 of the Act.

VIII. GROUNDS TO ISSUE A COMPLIANCE ORDER

The Director is of the opinion that EGI has pursued a course of conduct that contravenes or does not comply with a requirement established under the Act. The Director is of the opinion that the proposed order is necessary to remedy the situation.
EGI has carried on the business of mortgage lending without a mortgage brokerage licence or an exemption from the requirement to be licensed. In the transactions investigated by FSRA it is apparent that EGI, either exclusively or primarily, carried on its business through Gerstel who was not acting for HTMC and was not himself exempt.
EGI’s contraventions of the Act have been performed and facilitated by Gerstel.
Through his control of EGI and HTMC, Gerstel has intentionally circumvented the protections provided to the Borrowers by the Act.
To prevent these contraventions from continuing and to protect the public interest, EGI must be prohibited from carrying on business as a mortgage lender through HTMC and Gerstel. EGI is prohibited from carrying on business as a mortgage lender without a mortgage brokerage licence or an exemption from the requirement to be licensed.
Such further and other reasons as may come to my attention.

DATED at Toronto, Ontario, April 30, 2024

Original signed by

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.

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