Week 1 (Oct 28-Nov2)

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On the first day of the trial, the prosecution provided their opening statements.

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​The prosecution alleges Rathore and Petrozza :

• Deceived the public by misrepresenting the true land value 

• Obtained opinions of values and represented them as actual appraisals to the brokers and investors; where the value of the property was substantially less than the Opinion of Value

• Rathore and Petrozza kept a large portion of the investors’ money for themselves, and investors were not made aware of this. 

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The defence opening remarks:

• The advance payments were disclosed to the public

• The opinions of value were given to the investors

• Rathore & Petrozza did not act alone, they had office staff.

• Fortress had law firms like Norton Rose; Gowlings for tax opinions;

• Fortress worked with a well known custodian Olympia Trust to hold the investors’ money 

• Many developments were successful

• A failed project is not an indicator of fraud.

• Clients are pleading not guilty of fraud and secret commissions and the defence wants them acquitted of all charges. 

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​​The following are not official court transcripts,  they are observations and summaries of the questions and testimonies.

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Investor Witness 1

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The first witness of the week was a retired  female investor who invested $50,000 in Collier with her husband (in cash) and $70,000 with her registered funds in Harmony Village Sheppard. She worked in IT but also as a real estate agent part-time. She was invited to a Fortress presentation in Barrie for the Collier Centre project. She said that Rathore and other Fortress staff presented at this event. The presentation went over the real estate market, the highlights of the Collier development, and as well as information on the builder, Mady, who was well known and reputable. Guests were told how the process worked with an SML, that it was low risk, the Loan to Value ratio “LTV”, the interest of 8%, possible profit sharing at the end, and the investment being a 2 year term.  

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The prosecution showed the presentation to the court on a large screen where it read “The Investors get their money before developers get theirs”. 

Once her Collier investment was finalized, the investor recalled receiving interest payments, and she then decided to invest in a second project, Harmony Village. She only received interest payments for Collier until January 2015. Eventually, she was notified that the project went into receivership. She never received any further interest, and did not receive her principal back. It is important to note here that the Collier Project still, to this day remains an empty lot. (Harmony Village went into receivership and the investors of that project received 70% repayment once the land was sold.) 

The prosecution showed the witness an email exchange regarding an Opinion of Value.  The email was from Cushman & Wakefield, where they were advising  Fortress that it was understood by both parties that the evaluation they were proving for the Collier project was not a formal value. The witness commented that at the presentation she attended, the figure that was provided was referred to as an  « appraisal », not Opinion of Value.

The prosecution went through the SML loan documentation and the witness admitted she did not pay attention to details. The prosecution also pointed out a page in the documentation that referred to an “appraisal” of the property, and in another paragraph referring to the “as is” value at $21 million.  The prosecution asked if she understood what this meant, to which she replied “just the land”.  She also believed the LTV was 85%. They then went through an appraisal report dated June 2012. This is a month or so prior to Cushman Wakefield Opinion of Value. The land value was a mere $7.5 million. The witness was unaware this appraisal existed.  The Prosecution went through the Fee Disclosure overview, a  document that listed  how the money ( SML) was being used. legal fee (paid by borrower),  mortgage brokerage fee (Centro/BDMC). It listed lawyers, Centro, and brokers. Fortress was not listed. 

The defence focused on the aspect that the witness did not pay attention to what she was signing. Now keep in mind, all the presentations and flyers she has seen about Fortress SMLs promoted the SML investment as being low risk, name on title, 8% annual interest etc). 

The defence asked if her understanding was that the SML was safe? The witness said yes, based on the appraisal value she was given. The defence asked if it was the broker who made her feel at ease? The witness said yes, but it was because of appraisal value making the investment feel safe. 

The defence reviewed the FSCO (financial regulator’s form.) The form stated that “brokers, agents or related parties may receive a percentage of profits and may be paid in advance of project completion.” The defence asked “you don’t recall asking how much Fortress would get paid? ” She replied no.  

Principal Broker- FDS

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The following day, the witness was the Principal Broker for the brokerage FDS. His role was to oversee compliance at FDS. He was also responsible for the brokers, reviewing documentation, training, verifying and validating information. Petrozza’s role as COO of Fortress was to provide the brokerages (FDS, FMP, FFM) with the paperwork and documents associated with the SML, and he would also do compliance videos for brokers. Rathore would deal with the project/development side of things. 

The prosecution then played a webinar regarding the Sky City project in Winnipeg.  Jawad presented first, and walked through all of the attributes about the project, the location, how the media has covered this project, etc. 

Petrozza takes his turn and goes over the SML portion. He reviews the Project Fact Sheet. The evaluation is provided by Global Legacy,  with a $18 million evaluation, and a face value up to $35 million. The LTV is 85% with 8% annual interest, paid monthly. He goes over the risk factors- (a non-liquid investment, funds are locked in for the term, real estate has its own risks, delays and overruns). He then talks about the SML money being used for soft costs, marketing, sales centre. He adds that they never go over the property value, and stresses that the investment is secured against the land. He says that it is important for the broker to go over disclosures with investors, and advises the brokers not to scare the investors, but to do a good job of going through the disclosures, risks and that it’s important to get legal advice.  

The prosecution then went through an email to Fortress staff regarding an appraisal. The email is dated August 2013.  The appraisal for Sky City  is listed as $5.9 million. He asked the witness if this appraisal was disclosed to clients, and the witness said no. The prosecution asked the witness if he had known of the actual appraisal would that have changed his mind? The witness replied that it would have been a huge red flag and would have made the investment RRSP non-eligible. The Prosecution went back to the appraisal emails, where the author states the residual value would be $11 million ( based on hypothetical conditions and extraordinary assumptions) to which Petrozza’s email reply to the other Fortress staff is that the appraisal is a joke of an appraisal, and to focus on the end goal. 

The prosecution then talked about the regulator, FSCO, and showed the court an email from the witness to Rathore, Petrozza, Ildina Galati (past president of Centro), and other staff. The email pertains to FSCO’s market & conduct compliance. The witness explains that FSCO wants to know who is getting paid and by whom. He suggests to the group that he make a presentation to FSCO. Petrozza responds that he doesn’t know if he would volunteer to do a presentation. The witness responds to Petrozza that he wants the regulator to understand what they are doing and that it is crystal clear. 

He also added that it was the role of Centro/BDMC to obtain and verify the appraisals. (Note that Petrozza was a licensed broker for Centro; while also being COO of Fortress). The appraisals and evaluations were then provided by Centro to the brokerages.

The witness was also asked whether he was aware how Rathore & Petrozza were getting paid - the witness responded that he understood they were paid a portion of profits, upon project completion. He said that if Rathore and Petrozza were taking a % of the SML funds and paying themselves, it should have been disclosed to investors. 

The witness advised that all templates and documentation they received was provided to them by Centro (BDMC) and Fortress. This included the project specs, evaluation, LTV, SML advantages, etc.  

The defence argued that as principal broker, he was responsible to assess compliance/risks, that he seemed to be on board with the Opinion of Value, and that it was his and the brokers’ responsibility to go over the loan documents risks to the clients.

Investor Witness 2​

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On Wednesday, the Prosecution called another female investor as witness. In 2012 she invested $80,000 in Collier. She invested in several other Fortress projects, and this investment was her retirement savings. She felt assured that the SML investments were safe and fully secured against the land, based on the information presented to her by Fortress, Centro, and the broker. 

The defence also went through the investor’s package that she signed, highlighting the fine print which indicated that Fortress would get paid prior to project completion and after with profits. The witness says yes she signed but it wasn't made clear to her. The defence was focussed on all the disclosures she signed and pressed that the broker had a duty to explain the risks to her.

Next the Prosecution called another FDS employee, who was the President of the brokerage. He was asked if he knew how Rathore and Petrozza were paid, and the witness understood that Fortress received 50/50 commission at the end of the project with the developer they partnered with.

The prosecution asked the witness whether he remembered the kind of vehicles Rathore and Petrozza drove?

The Defence objected- they felt it was not relevant, however the judge allowed the question. The witness replied that he recalled an Aston Martin, a Ferrari California, a Porsche Panerama, and a Porsche GT3.

The Prosecution showed the witness an appraisal. This was the first time he saw it, and said it was not given to him nor the investors. Fortress and Centro had supplied him with the evaluation for Collier, which was over $21 Million. However, in reality, the actual appraisal was only $7.5 million. 
 

Opinion of Value- Cushman & Wakefield

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The last witness of the week was a Sr VP of Cushman & Wakefield. Petrozza, who is his cousin, approached him in 2012 to provide the Opinion of Value for the Collier project.  The witness has his masters in Economics. The witness explained to the prosecution that the Opinion of Value he provided to Fortress was meant for internal purposes only. It was not meant to be used as an actual appraisal, and not meant to be used in any promotional material to the general public. Once he learned this figure was used in brochures to the public, he cut ties with Fortress. The defence asked the witness if his letter to Fortress indicated that it was to be used for internal purposes only? The witness replied that the investors, as he understood, were the purchasers of the land. He maintained that he did not intend for the Opinion of Value to be shared with the general public. ​

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Week 2 (Nov 4-5 - no court Nov 6, 7, 8)

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Investor Witness 3

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The first witness of the week was a woman who invested in Sky City and several other projects. The investor met both Rathore and Petrozza.   Initially, a couple of the projects paid off.  She referred other people to invest as well, however they now they no longer speak to her. The prosecution went through her documentation. The investor said she was told it was a low risk investment. 

The defence went through the investor’s package that she signed, highlighting all the fine print which indicates that Fortress will get paid prior to project completion and after with profits. The witness replied yes she signed, but it was not made clear to her. The witness faulted herself for not understanding what she was signing, calling herself “stupid”. The defence maintained the onus was on the investor, as she signed the documents and had the opportunity to ask questions.  

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Opinions of Value- Global Legacy

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The next witness was a managing partner of Global Legacy. Legacy provides Opinions of Value for clients like Fortress. The witness stated to the prosecution that he is not accredited to provide appraisals, however  he does have an MBA, lots of education in business, and real estate, etc. The witness did not know that "mom & pop” investors would receive his opinions of value. The opinions of value were all based on the information that Fortress supplied to Global Legacy. It was his job to evaluate the information provided by Fortress. He expected it would be used internally, not with the investors.

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The defence went into a lengthy presentation that focused on how the Opinion of Value increased over the years and was looking to justify how their  Opinions of Value increased. The defence ignored addressing appraisals. 

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Investor Witness 4

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The 3rd witness of the week was a male investor who invested $100,000 Harmony and $80,000 in Colliers. In total he invested in 8 projects, totalling $900,000 in Fortress SMLs. This witness told the prosecution that he had attended a total of 3 sales presentations. Both Rathore and Patrozza spoke in all 3 presentations and then they spoke to people individually. Moreover, the witness spoke directly to the principals over the phone.

The witness felt the security of the investment was the loan to value ratio, and that he would be on the deed of the property. He did not feel his SML investments were risky. He understood that the Opinion of Value and appraisal meant the same thing, and thought his money was being used for the purchase of the land and soft costs as per Petrozza and Rathore.   

During cross-examination the lawyer went through documents that he signed. The witness made it clear that he never had documents to review before signing. He understood that Fortress oversaw all facets of every project with the developers.  The defence again focused on the risks of investing in syndicated mortgages.  The witness explained he attended the defendant’s office a few times and talked to Rathore about any potential risks; he was made to feel that Colliers was a safe investment.  

The last witness of the week was an investor who required an interpreter in Mandarin. He and his wife invested in the Collier project. He first saw an ad in a Chinese newspaper, and later attended a presentation at a Cineplex theatre, where Rathore and Petrozza were in attendance. He recalled that Rathore spoke to the audience, where 100-200 people were in attendance. Rathore spoke about the success of other projects. The witness thought his money was being used for the project.

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The witness recalled having a lawyer explain the documents via video, but he and his wife felt the lawyer who spoke to them did not represent them because they didn’t pay a fee for his advice. They were mainly focused on the interest rate on his investment and that their name would be on the land title. The witness admitted he and his wife went through the documents very quickly with little to no review. They felt the risk was very low based on what was presented in the theatre about successful Fortress projects. They did not see the risk document and their broker did not explain it. The term “risk” never came up. It was never explained by anyone. Their 3rd ranking mortgage was not understood. Upon signing the investors never understood how and what Fortress would get paid. They never received the letter from the lawyers office about the Opinion of Value for $ 21.8 million. The investors were impressed by the presentation, and did not understand or read the documents. 

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VOSMI's reaction to the Defence statements and questioning:

It is apparent that strategy of the defence is to distance Fortress from the SML portion of the business, putting the onus on the brokers that were responsible to disclose the risks, to know their client, and for the investors to have read all of the disclosures of risks prior to signing. Keep in mind that Petrozza is COO of Fortress, but was also a licensed broker for Centro brokerage. 

The prosecution is clearly demonstrating  that the investors, and even the FDS brokerage President and Principal Broker were unaware of upfront payment Fortress took from the SML’s, a whopping 35%.  

The prosecution also shows a pattern where Fortress failed to disclose the actual appraisal values to the brokers and to the investors. Both evaluators maintained their Opinions of Value were for internal purposes only, and not to be shared to the public. 

Nov 12-15