Pair fined $50K in mortgage fronting case regulator calls 'egregious'

B.C.'s Registrar of Mortgage brokers says he hopes hefty fines issued against a pair of B.C. men will send a message to the public about the dangers of licensed brokers "fronting" business for unlicensed partners.

In a decision issued last week, Dennis Percival Rego and ArvindShankarwere each fined $50,000 the maximum penalty allowed under the Mortgage Brokers Act.

Rego, who was a licensed submortgagebroker,was accused of filing misleading and false information in a series of mortgage-related documents for a client. He was also accused of taking direction from Shankar who was not licensed as a mortgage broker in relation to the submitting of mortgage applications.

"Penalties of $50,000 for the parties involved reflect the seriousness of misconduct," registrar Chris Carter said in an interview with the CBC.

"It also sends a compelling signalto the industry that fronting unregistered activity is treated seriously and won't be tolerated."

'Dishonest and fraudulent'

Carter says the issue of fronting is of particular concern to his office, especially given B.C.'s overheatedreal estate market and the implications for borrowers seeking money to finance multimillion-dollar homes.

One of the registrar'sdesignates,Cheryl Vickers, wrote the ruling.

She said Regoknew Shankar wasn't registered but "fronted for him in mortgage brokering activities and took direction from him in submitting mortgage applications."

"Mr. Regoengaged in conduct that was dishonest and fraudulent. He submitted contracts of sale to prospective lenders that he knew were fraudulent. He submitted numerous mortgage applications to lenders that he knew or ought to have known were misleading and that contained varying and unverified information."

Regocould not be reached for comment and didn't represent himself at the disciplinary proceedings.

Shankardisputed the allegations. He says he plans to appeal.

From cook to real estate investor

The investigation began in September 2014 when Regofiled a mortgage application for financing of $1.7 million on behalf of a client named JV in relation to the purchase of a home on 41st Avenue In Vancouver. The purported sale price was $2.6 million.

The next month, the credit union employee who handled the file got a call from asolicitor "advising that he was in possession of an assignment contract with respect to the (same) property for a much lower price."

The sale price on that document was allegedly$1.71 million. The solicitor said the contract was assignedto JV for $70,000.

The credit union employee contacted the head of the appraisal company who had completed an appraisal on the home, and thenrescinded the appraisal.

But according to the ruling, Regocontinued to submitthe same application to other lenders. He also allegedly kept Shankar advised through email.

"I find that Mr. Rego and Mr. Shankar were working together to try and arrange financing for JV, and that Mr. Regotook direction from Mr. Shankarin sending the application to various lenders," the decision says.

The ruling also details a series of seven mortgage applications allegedly filed by Rego for anotherclient. The man was given job titlesvarying from cook to real estate investor. And his assets jumped from nearly $200,000 to $6.4 million, depending on the document.

Specific activities 'not supported by the evidence'

Vickers found that Rego'sconduct "demonstrates a flagrant disregard for the regulatory scheme and for fostering public confidence in the mortgage business."

At the penalty hearing, Shankarargued that he shouldn't be fined for something he didn't do. The evidence failed to establish a number of allegations against him namely that he"actually solicited mortgage business, negotiated fees with borrowers or discussed mortgage commitments with borrowers."

But Vickers said that while she "found that some of the specific activities alleged to have been engaged in were not supported by the evidence, (she)found the allegation that he had breached the Act by conducting business as a submortgagebroker while unregistered was made out."

She said his conduct was "egregious and posed a significant threat to the public interest and the public's confidence in the mortgage industry."

Carter says he's made a point of telling the mortgage industry to keep unlicensed players out.

He called on the public to check the Financial Institutions Commission's website to make sure the brokers they're dealing with are registered to carry out business in B.C.