Ontario landlords hand over control of real estate empire after allegation of ‘misappropriated’ investor funds

An Ontario Superior Court justice has ordered four landlords to hand over control of their real estate empire after it was alleged they spent millions of dollars of investors’ money on a lavish lifestyle, let rental properties fall into ruin and continued borrowing funds as their business failed.

The order, signed last week by Justice Peter Osborne, transfers power of the 11 corporations based in the Hamilton area to KSV Advisory — a court-appointed monitor already given special powers to investigate the business.

The corporations have been under bankruptcy protection — shielding them from dozens of lawsuits — since January.

But, through an investigation this spring, KSV alleged the landlords “diverted, misused or misappropriated funds that were borrowed from investors,” according to the accounting firm’s report.

Lawyers for KSV and hundreds of investors, who are owed around $144 million, said at a hearing last week they’d only support an extension of bankruptcy protection if KSV was allowed to take control.

“What we have here is a complete loss of confidence in management,” noted Osborne at the hearing.

The landlords — former YTV actor Robby Clark, Hamilton real estate agent Dylan Suitor and Burlington business owners Aruba Butt and Ryan Molony — have disputed KSV’s findings, arguing they’ve not been given enough time to respond to lengthy requests for documents.

Their lawyer, Joseph Blinick, said at the hearing that while they’ve been under intense financial scrutiny, they’ve also worked hard to renovate their properties to sell and recoup investors’ funds.

“The manner in which the applicants have been portrayed is exceptionally unfair and it ignores all the good they have done,” said Blinick.

They agreed to hand over keys to hundreds of rental properties to KSV, Osborne wrote in his order.

KSV is now in charge of managing the business, including overseeing all lease agreements, renovations and property sales.

Clark’s company SID Developments, not among the corporations with bankruptcy protection, will continue to manage 27 properties and their renovations, the court order says.

The terms of the order are almost the same as the landlords pitched earlier in June, noted spokesperson Steven D’Amico on behalf of Clark, Suitor, Butt and Molony, in a statement to CBC Hamilton on Tuesday.

“Given the false perceptions created by the monitor’s deeply inaccurate report, this agreement is the best outcome to ensure value for the creditors,” D’Amico said.

Missing documents

In recent years, the landlords had borrowed tens of millions of dollars from investors in the form of first and second mortgages and unsecured promissory notes, largely facilitated by a Hamilton mortgage broker.

The money was supposed to be used to buy Ontario properties to fix up and then rent out or sell at a higher price.

Instead, millions of dollars were transferred to the landlords’ unrelated corporations and personal bank accounts and used for “extravagant” expenses like private jets, luxury vacation homes, nightclub and strip club bills, a private chef, among other things, KSV’s report said.

Up until they filed for bankruptcy protection in January, the landlords, through their corporations, continued to borrow money just to make interest payments and renewed loans without disclosing their financial situation to investors, the report said.

KSV said, in a motion filed with the court in June, their findings are despite not being provided with some documents from the landlords. These documents include:

• Bank and credit card statements for accounts where investor money was transferred.

• Explanations for why money was transferred to Butt’s cleaning business and Clark’s lawn care business — neither of which investors had agreed to invest in.

• Records to show the commission Suitor’s real estate business Elevation Realty Network made when buying or selling properties with investors’ money.

• Lists of all corporations the landlords’ are tied to.

• Confirmation if Molony used company money to pay for his spouse to attend “company retreats.”

• End-of-week financial reports from 2021 onwards.

• Value appraisals of properties that had been renovated.

Investors claim ‘serious financial damage’

Three investors filed affidavits with the court, telling their version of events for the first time. They all said they no longer want or trust the landlords to be in charge of the business.

Sofia Pino from Newmarket, Ont., loaned money for first mortgages for eight properties in Timmins, Kirkland Lake and Sault Ste. Marie in 2021. Pino is now acting as a representative for other secured lenders in the court proceedings.

Pino said, in her affidavit, the contracts she signed with the landlords stipulated they wouldn’t take out any other loans against the properties without getting her consent.

However, Butt’s corporation did take out a second mortgage on one of the properties. Pino said she wasn’t informed until it came to light in the bankruptcy proceedings.

“We have no confidence whatsoever in the principals to act in the best interests of the investors,” Pino said.

“We believe that the principals will continue to take every opportunity to act in their own self-interest, which has caused and will continue extensive despair and serious financial damage to investors.”

Blinick, the landlords’ lawyer, said at the hearing last week his clients have successfully flipped hundreds of properties and the examples highlighted in KSV’s report — such as not informing an investor their property had burnt down — aren’t reflective of their overall business practices.

The landlords also argue in court filings that they were never in direct contact with investors.

They say Hamilton-based mortgage brokerage, the Windrose Group, and related company, The Lion’s Group, run by Claire Drage, was responsible for communicating any issues with properties, and if more loans were being taken out.

Andrew Adams, a police officer who lives in Halton Hills, Ont., lent the landlords over half a million dollars for three properties, he said in an affidavit.

As more information was coming out about the landlords’ business practices, Adams asked a family member to check on one of the houses in Sault Ste. Marie in May. He was under the impression some of his $200,000 had been used for renovations, he said.

What that family member found was a vacant lot.

The property had sat vacant for months and experienced two fires, leading to the city demolishing it last summer, said Adams.

If not for his family member, “I would have remained unaware of the true circumstances surrounding the property,” he said.

Now the property is worth less than half of what he invested, or about $60,000, he said.

Paul Searle, in Burlington, Ont., acts as power of attorney for his mother, who loaned the landlords $200,000 for a property in Timmins, he wrote in his affidavit.

He recently made similar discoveries as the other lenders — a fire destroyed the property last year and the city demolished it, Searle said. He was never informed by the landlords, either.

The landlords’ bankruptcy protection has been extended to July 31.