The Now Penetrable Fortress: Six-Year Investigation Leads To Fraud Charges Against Founders

It might have taken six years but the Royal Canadian Mounted Police (RCMP) investigation of Fortress Real Developments is finally heading to court. The federal law enforcement arm has officially charged the real estate firm’s founders related to fraudulent acts in its syndicated mortgage investment scheme.

The Mounties charged Fortress founders and executives Jawad Rathore and Vince Petrozza with a count of fraud and secret commissions each under the criminal code.

The investigation dubbed Project Dynasty, led by RCMP’s Integrated Market Enforcement Team, started in October 2016 after the police received a public complaint involving the Ontario-based brokerage’s dealings.

“In particular, allegations were received that the company was fraudulently obtaining investments in a syndicated mortgage investment scheme,” the federal agency said in a statement.

Both Rathore and Petrozza have claimed innocence through their lawyers.

“This was a flawed investigation dogged by tunnel vision from the outset. There is no reasonable prospect of a conviction,” said Rathore’s counsel. “We look forward to establishing Mr. Rathore’s innocence.”

Petrozza took to Twitter his plans to “vigorously defend” himself against the charges. His lawyer claimed that the firm’s COO cooperated with the police throughout the investigation, hence his surprise and disappointment once the charges were announced.

“We are confident that when the evidence is revealed, it will show that there was no fraud and no secrecy. Mr. Petrozza is innocent of the charges and we look forward to his day in court,” said Petrozza’s lawyer.

Scheme or bad luck?

At the crux of the investigation is the burden to prove that Fortress misrepresented the financial prospect of its real estate projects to its investors. The company decided to fund its developments through what it calls a syndicated mortgage investment — which basically amounts to using a property as collateral to take loans from multiple small private lenders.

RCMP alleges that Rathore and Petrozza “engaged in fraud by orchestrating an ongoing scheme whereby they did not disclose the various risks to brokers and investors.” Through this, the firm was able to raise around $920 million from more than 14,000 retail investors, most of whom are private individuals.

The catch: the firm exited most of the projects mid-way, including the 45-storey SkyCity Centre condo project, touted to be Winnipeg’s tallest building. Arguably one of the company’s biggest projects, the property was used as collateral to secure loans from 649 private lenders.

Source: FAAN Mortgage Administrators

As the property development was behind schedule, deposits were returned to early condo buyers. Soon, the main lender 11615467 Canada Ltd. foreclosed the property as Fortress wasn’t able to repay its debt. It was then sold for less than the amount needed to settle the outstanding $11.1 million priority debt. No amount was left to repay the SkyCity-collateralized debts taken with the retail investors.

Variations of these situations mar the other Fortress development projects that were shelved. Acting on a public complaint, the RCMP would soon conduct a raid on the firm’s offices and would find what it alleges to be documents proving that the real estate brokerage inflated the property values.

The police described a document seized from the search valuing SkyCity “as is” at $5.9 million. But investor documents also recovered showed that the property was estimated at $18 million in 2013 up to $37.5 million in 2017.

“There is a serious risk of detriment to the financial and real estate markets as the result of the above noted actions,” wrote RCMP Const. Martin Williamson in the search warrant report.

“Opinions of value”

For its part, Fortress is pointing fingers at everyone else but themselves.

“All investors were fully advised in writing of the assumptions and methodologies used by respected industry valuators in the development-based ‘opinions of value’ for the projects as opposed to bare ‘as is’ appraisals as incorrectly alleged by the RCMP,” wrote Fortress’s lawyer at the time of the raid in 2018.

The fraud charges filed by RCMP against Fortress founders aren’t the first ones that took the real estate firm to court. The company has so far been successful to defend itself against multiple lawsuits that arose from retail lenders in its various properties.

In August 2017, an Ontario Superior Court dismissed claims against Rathore and Petrozza from four proposed class actions on the basis of lack of legal standing. The case was appealed by the proponents but the Court of Appeal sided with the firm’s founders based on a legal technicality.

“While one of the Statements of Claim did allege misrepresentations by the individual respondents, there was no specific pleading of negligent or fraudulent misrepresentation, nor that the appellant relied on the misrepresentation to his detriment, nor that the representations were being made personally (by the individual directors and officers) rather than on behalf of Fortress,” the court decision read.

Fortress also distances itself from the actual syndicated mortgage process, maintaining that it is only party to the debt agreements as a development consultant. In short, there are third parties who actually sell the investment to retail lenders.

“Fortress has never dealt with the public directly or sold any investments to them,” the firm asserted.

This has particularly played well in another case involving Fortress’s Brampton Property development project, in which it had a development consulting agreement with land developer Emerald Castle Developments. The latter entered into a loan agreement with Building & Development Mortgages Canada, which in turn raised the $21.2 million loan amount from retail lenders.

One of the 453 retail lenders for the property, Dr. Michael Pizzuto, claims he was apprised through promotional materials that should Emeral default on its loan, it “would find a solution… to recover the investor monies.” However, he further stated that investors were not notified of Emerald’s interpretation of this as “the investors would lose most of their investment, the debt would be extinguished, they would lose their security, Emerald would be released from its obligations, and would be entitled to keep the Brampton Property.”

The judge deemed that the retail investors were adequately informed of the risks of the mortgage undertaking.

“Dr. Pizzuto’s own evidence includes copies of documents that he received that warned him that “Investments in syndicated mortgages are speculative and involve a high degree of risk,” and “The development of a project may not be completed within the anticipated time frame, or at all, which in turn could delay payment to participants or put payment at risk,” the court decision read.

Fortress claims this court decision as another stride to prove that the firm is not concealing anything from its investors.

“Our portfolio has successfully generated 40+ exits for over half a billion dollars. Certain projects have had challenges that were largely due to adverse market conditions or the insolvency of the original developer/borrower. But disclosures were always in the agreements,” the company further tweeted in March 2021.

It maintained that “gaging suitability was the responsibility of provincially licensed third parties,” and never under the purview of Fortress.

Fortress, in a website manifest back in September 2020, claimed that out of the $912 million raised from syndicated mortgage loans, around $478 million of it was already paid back.

“So far in 2020, seven Fortress projects have completed payouts to investors in the range of 95% to 119% of their initial investment for a total return $97.65 million,” the company said.

It summarized that out of its 82 projects, “52 have successfully discharged investors.” And out of these 52 completed projects, “80% (4 out of 5) have resulted in payout to investors between 80% to 150% of their original invested amount.”

“In the few instances where projects failed and some investors lost money,  the very same syndicate mortgage structures were used, with all the same disclosures by the independent mortgage brokers (Fortress was not a broker), as the successful projects,” the company surmised.

Defrauding the retail investors is expected to be the main contention in the upcoming court battle, set to start on August 3 at a Toronto court. Rathore and Petrozza are both scheduled to appear.


Information for this briefing was found via CBC, The Globe and Mail, and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

2 thoughts on “The Now Penetrable Fortress: Six-Year Investigation Leads To Fraud Charges Against Founders

  • June 23, 2022 9:13 AM at 9:13 am
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