Summary of Closing Arguments- Fortress Criminal Trial
April 1-2, 2025
Crown Prosecution's Closing Argument
The prosecution began by restating the charges against the defendants, emphasizing the seriousness of the allegations. The crown had originally 2 charges brought against the defendants- Fraud and Secret Commissions on 4 development projects, however narrowed down the charges to Fraud, on only 2 projects- Collier and Sky City.
The Crown counsel Vallery Bayly highlighted the 3 elements of fraud. Deceit, Dishonesty & Deprivation.
1. Deceit
This was done via promotional material falsehoods. The language used in marketing materials to describe opinion of value by using the terms “as is” values. The Loan to Value ( LTV) was described as being based on current value and not future value, and marked as being secured.
The Prosecutor shows promotional power point presentation , “What is LTV?” The slide states “proper evaluations are essential.” Nowhere does it say LTV was based on Future evaluations.
The Prosecutor later showed a pamphlet, which is what the witness received. “What is an appraisal?” Why are evaluations so important?” The pamphlet goes on to explain the why an LTV matters. The Prosecutor then moved to Disclosure documents.
In the appraisal section of the FSCO investor disclosure firm, the form shows an appraisal of $21 Million. But this was Mr Felice’s opinion of value, when the project would be built out.
The line where it says “project value” is left blank. LTV section states appraised as is $21 Million, and LTV is 85%. Projected value is left blank.
In the Law Society disclosure form, point #9 indicates “I am satisfied that current value is $21 Million, LTV 85%.
In the Memorandum of Understanding (note that the mom & pop SML investors did not receive this document, as it was only provided to accredited investors) the evaluation is listed as $21 million. LTV listed as 85%. However even in these documents there was deceitful language.
Investors testified of security & LTV, and the importance of LTV as it gave security to their investment.
Prosecution argued that forms had to be filled honestly, and pointed out that Fortress could have disclosed the values or added accurate language. The nature of the opinion of values were dishonest throughout the documents. The crown is not saying the opinion of value should not be used, but it should be used honestly.
The crown added that it is not fine to tell mom & pop investors that funds are secure when that is not true.
Crown stated that this should not be a “buyer beware” situation.
2. Dishonesty - Dishonest act- Failure to disclose "As Is" Value.
The appraisals were available at the time the investors invested in the SMLs. There is strong evidence that Petrozza had the appraisal as at Aug 16, 2013, and an additional accredited appraisal done Aug 26, 2013 which was given to Rathore and Petrozza of $11 million also not disclosed to investors.
There as an email chain where they discussed the Collier appraisal of $6.9 million July 24, 2012 . It is a proven fact that Rathore and Petrozza knew the appraisals were vastly lower than that of Mr Felice & Mr Cheung’s evaluations.
The prosecution added that the defence will argue that Rathore & Petrozza had to keep appraisals confidential and away from investors. However, a contractual confidential clause does not negate fraud, and it was not on the investors to request appraisals.
3. Deprivation. The prosecution cited the Theroux fraud case. (The judge in this case held that all that was required for a conviction was a dishonest act which had as a consequence that someone was deprived of something; the fact that Théroux honestly believed that the residences would be built, and that the deposits would not be lost, was no defence to the crime. )
The prosecution continued that there is evidence of Rathore and Petrozza’s knowledge of what the investors were being told.
For example, the prosecutor refers to the Sky City training video where Petrozza gives training to the brokers. Petrozza reminds agents of suitability, “Know your client” and “make sure your client fully understands”, but yet does not disclose appraisals. He knew what was in the disclosure forms, and what was NOT in the disclosure forms.
In an email chain between Rathore & Petrozza July 4-6 2012- Petrozza asked for an appraisal to Jeff Cheung - Subject line is Appraisal. They discuss the $6.9 appraisal. Petrozza knows $6.9 million figure will be a problem and not sufficient. They discuss the Felice evaluation and say “Felice for the win!”
Other evidence from the Sky City documents, and similar email chains. Email between Petrozza and another Fortress employee - Fortress employee Mr Cercosta states “ I don’t even know why we paid or wasted time “ … Petrozza replies “I said get me an appraisal or evaluation of $9.4 million or better! “ Cercosta replies “It’s an insulting joke”, Petrozza replies “ Agreed, but we get what we need to get to the end goal”.
Prosecution added there is evidence of one of the witnesses speaking directly to Rathore and Petrozza about the LTV.
The evaluators Felice and Cheung did not believe their opinions of values would be passed on to mom and pop investors. On April 2013, Felice called and discussed this with Petrozza and later stopped all communication with Fortress.
Counsel stated they were dishonest. They needed to know deprivation could occur. They knew LTV was central to them promoting SMLs. They were dishonest to market these investments as secure when they were not. Their dishonesty was intentional and they were personally involved in marketing.
Defense's Closing Argument
Defense Counsel Scott Fenton began by stating that the RCMP started investigating Fortress in 2016 and executed multiple search warrants in 2018. They discarded to fraud on 4 projects however Crown abandoned 2 projects which left Sky City and Collier. Note that the judge has previously stated that Fraud only needs to be proven on 1 project for a conviction.
He continued by saying that Fortress had over 80 projects, and that many were successful. (Fact Check: Note that this is not accurate. Out of the 80 projects, 18 exited with no payout at all to investors (total loss of over $240 Million; 28 projects exited with partial payouts to investors with losses of $180 Million) The total amount of investor funds never repaid to date is over $400 Million. While some projects were successful, some were also discontinued, some projects were sold to another developer.)
The Defence argued that:
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The brokers had a legal duty under the act that their clients understood risks, and that they understood opinion of value, and that it was not the responsibility of Rathore & Petrozza. (Fact check- Petrozza was actually a licensed broker while also a controlling principal of Fortress and had a duty of care to the investors).
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Centro/BDMC were investor facing, whereas Fortress was developer facing.
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That Fortress operated a successful business (Fact Check- while some projects were successful, many projects failed to repay investors, a total of $400 million).
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In the case of Collier, that the initial developer Mady went bankrupt and that is the “Elephant in the room” (Fact Check- the project was later bought out by Fortress)
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Numerous documents were signed by investors
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Brokers were responsible for explaining terms and conditions to SML investors.
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Independant Legal Advice (ILA) was provided to investors. (Fact Check: the ILA was arranged and paid for by Fortress)
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All documents were conveyed to investors via brokerages.
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The documents that Rathore & Petrozza showed the importance of brokers to disclose information to investors. (Defense shows an email with Petrozza and Rathore stating the importance of ILA training, and that one would arrange a webinar and a checklist- and how this email shows a pro-compliance of Rathore and Petrozza.)
Defence continued that the documents stated : “Principals will receive further fees based on the profitability and success of the project” And continued that the brokers had a legal fiduciary duty.”
To which the judge asked “Were the fees payable whether the project was successful or not? If they were not profitable and not completed do they have to pay the money back?”
The defence replied “ Well investors could have asked”
The judge responded” I’m asking you.” He added: “ It was calculated assuming it will be profitable?”
Defence responded “ It’s not a fee based on profitability”.’’
He added” Anyone was free to ask” - Note that the courtroom erupted in laughter from the viewers.
The Defence continued to focus on the risks, and that these investments were not a guaranteed return, and that it was made very clear how risky it was to investor. The Defence refers to “Declaration 10” that explains fees, how investors will only get net investment over in above fees but not guaranteed. There was addendum to declaration 10 that with schedule C2 that states that Fortress will make money before completion of the project. Investors were fully informed of the risks and fees payable in advance of the project completion. (Fact Check- SML investors did not receive this document, this document may have been provided to accredited investors but mom & pop investors).
The judge asked if the money was being used for their own purposes, the document is not clear even to the judge. The Defence responded that the document was not hidden, investors had the right to ask about it .
Day 2 of Closing Arguments
The Defense Gerald Chan continued with their closing arguments.
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Opinions of value were fully disclosed to investors
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Opinions of value were independent
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Fortress was not required to disclose the other valuations/ appraisals in its possession-and in fact was prohibited from doing so
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Crowns cases are distinguishable (ie. this case differs from a precedent case, and therefore, the precedent's legal reasoning or holding does not apply to the this case due to materially different facts.)
The Defence restated that Fortress was developer facing, not investor facing and argued that the brokers dealt with the investors, and had the duty to disclose to investors per regulations- however that regulation was not applicable to Fortress.
The Judge stated: “Brokers don’t immunize Fortress from responsibility”.
The Defence continued that brokers had all the information. Opinions of value were fully disclosed; opinions of value were independent; the value was based on legally permissible methodologies; and Fortress was not required to disclose any other valuations. He added that investors had the broker and Independant Legal advice (ILA) counsel to guide them. (Fact Check: In 2017 The law society later issued a warning to lawyers regarding providing ILAs for syndicated mortgages due to the Fortress losses and undisclosed risks ). The Defense provided investor witnesses as examples of how they could have asked to discuss with the broker, lawyer and financial advisor, and how another investor did not ask for more time to review the documents.
Next the Defense moved to address Opinions of Value, and how the future value with the capitalization rate. The judge asked several questions to understand how this rate was arrived at.
The judge asked “To what amount can I use my general knowledge of accounting in this case? He adds that an investor would review Fortress with knowledge of residential mortgages, so could he also consider such knowledge?
The Defense responded he was “not sure, I’ll reserve comment, need to use what is in the case”.
The Defense and Judge go back and forth with the Defense explaining there are different methodologies to calculate current property value.
The Judge asked “Isn’t plain meaning of current market value, is what somebody would pay for something today?He attempts to compare to current value of a car, today, and market is market place.
The Defence responded that the developer may pay high for land anticipating value of future completed project, and that there is no evidence from experts on which evaluation method is the right one.
The Judge adds, “Rezoning can change land value, future development can change market value. To take a charge on land, isn’t current value if the project does not go ahead. That isn’t in the stated evaluations. If it’s a material fact, isn’t it the value of the land today, in the event the developer party defaults?”
The Defence responds that the duty to report is different, assessments were for the loan to value disclosures. Argues current market value was the assessment.
The Judge adds, “If a buyer agrees on a big house and then discovers it’s a $500 Canadian Tire shack, isn’t that material and not what the investor agrees to?” The Defence responds: “will get to that. ” Then then head for a break.
The Defense goes back to the brokers’ role, and how brokers provided the investors with all the assessment information, it was not a secret to brokers, and reiterated the legal duty is on the brokers. He added that Fortress provided brokers all the assessment information.
The Defence continued and said that the judge cannot rely on common judgment regarding valuation and suggests that property valuation is a murky area.
The Judge stated- "that land is usually a stable value short of a market collapse or discovery of contaminants, see “as is” as fairly stable value, not speculative."
The Defence went back to positioning Fortress as sourcing investments and dealing with developers and how investors should be reviewing documents and asking questions.
Concerning the evaluation by Felice, the Defense stated that Felice was unclear about investors receiving the assessment information. Felice expressed concern to his management and his management told him not to worry.
As per the email chains on the evaluation, he argued that the emails do not support undue interference in valuation information. Cheung’s initial land value was low, after back and forth with Vince and project documentation, moved to higher valuation. The 3rd email regarding the 9.5M Sky City valuation was to satisfy some mortgage legal requirement.
The Defense added that there is nothing wrong with a developer facing firm to also have a focus on the end goal and working with regulated parties and using independent assessments using legitimate methodology. He then brought up the principal broker Anderson, who was the only broker to testify. The defense pointed out how the Email describes Legacy’s assessment approach and how Anderson agreed to the valuation being used.
The Defense ended the day’s arguments by stating that investments were not risk-free, and that this case cannot be deemed as fraud.