Rob McCormickk and his wife say their dream of a comfortable retirement was shattered after they lost nearly $350,000 with Paramount Equity Financial Corporation.
McCormickk, 63, from Keswick, Ont., was told about the investment opportunity by a friend and said he was swayed by claims of “fixed stable returns” and a “no-loss guarantee.”
“It’s been devastating,” said McCormickk, who runs his own advertising company. The investment opportunity was so appealing he threw in another $100,000 belonging to his mother.
“We lost over 50 percent of our life savings. This was supposed to be our retirement money, and we were looking forward to retire in the next two to three years.
“Now we’ll never be able to retire.”
McCormickk is one of roughly 500 people who handed over $115 million to Paramount Equity starting in 2014 as part of an investment into second residential mortgages, according to filings from the Ontario Securities Commission (OSC). The fund was even promoted as a “high-returning annuity/GIC alternative,” according to the OSC.
Investors believed their money would be pooled and loaned to homeowners looking for a second residential mortgage. The investment would be secured against the property and generate returns of roughly 10 per cent, according to a Paramount term agreement.
However, investigators with the OSC allege that investors were misled and the money was actually put into higher-risk real estate developments. The OSC obtained a court order to have a receiver take control of the fund in 2017 because agents for the company were not registered to sell these types of securities.
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Now, a court-appointed receiver for Paramount Equity, which acts as an officer of the court on behalf of the creditors, is suing Toronto-area developer Enzo Mizzi and a number of companies linked to him for nearly $35 million for “losses suffered as a result of Mizzi’s oppressive and unfair conduct,” according to allegations in a lawsuit filed Dec. 5 by Grant Thornton Limited.
The lawsuit alleges Paramount lent a substantial amount of funds to speculative, undeveloped commercial projects that would take many years to produce regular income. Close to $50 million of those speculative loans went to companies linked to Mizzi.
$18.8 million allegedly advanced for ‘personal benefit’
The lawsuit alleges that nearly $18.8 million advanced by investors did not go to its stated purpose and instead was diverted to companies controlled by Mizzi for his “personal benefit.”
A separate claim was filed against a Toronto lawyer and his firm acting on behalf of Mizzi for $50 million for damages related to allegations of breach of fiduciary duty, according to the claim.
“Mizzi and companies owned and/or controlled by him misappropriated the substantial majority of the funds advanced,” the lawsuit alleges. “As a result of Mizzi’s conduct, the Paramount Group suffered losses on their loans to the Mizzi borrowers in the amount of $34.8 million.”
Mizzi owns several businesses across Ontario related to real estate development and construction, including Edgecon Construction and North44 Property Management. A public records search lists dozens of cases in which Mizzi or a company linked to him has been named in a legal action in Ontario.
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Mizzi has not yet filed a defence to the lawsuit and none of the allegations against Mizzi have been proven in court. His lawyer, Michael Simaan, told Global News that he and his client are unable to comment as they haven’t fully reviewed the claim.
“It’s too premature to be making any comment at this time,” Simaan said. He said Mizzi never dealt with any investors and only borrowed money from Paramount.
“Is someone alleging they spoke with him directly? I seriously doubt it,” he said.
Global News has spoken with a half-dozen investors who say they have had their lives upended by the Paramount financial collapse. Some took out second mortgages to invest, while others say they may have lost their life savings, one investor says they were forced to sell their house.
“I thought, ‘How can that happen when it’s only being invested in secondary mortgages?” said Michael White, a father of three young children from Waterloo, Ont., who invested $50,000.
OSC investigates
A 2017 affidavit from an OSC investigator alleges that investors were misled or “not told the facts” about the nature of their investment or the level of risk.
“Instead, approximately 70 per cent of the investor funds, or approximately $50 million, was used to invest in land and multi-residential development projects,” according to the affidavit. “Most of the multi-res development projects are related to entities controlled by one individual, Mr. Enzo Mizzi.
“This also increases risk due to concentration of investments related to one individual.”
Toronto real estate lawyer David Franklin said, for a time, the fund was working. But problems began when money was loaned to development projects, according to Franklin.
“They kept investing their money because the returns were there,” Franklin said. “Then all of a sudden a lot money was going into development mortgages.”
Franklin said investors had no idea their money was going into potentially higher risk real-estate projects.
“Residential mortgages are much safer,” he said. “With a development deal you don’t know what’s going to happen.”
The principals of Paramount received $2.8 million in brokerage fees and 50 per cent ownership interest in most of the developments, according to the court filing. The fund was put into receivership at the request of the OSC in 2017 over “illegal unregistered trading.”
Earlier this year, Grant Thornton filed a separate claim against Paramount executives and directors, which included Marc Ruttenberg, Brad Burdon, and Matthew Laverty. Laverty declined to comment, citing ongoing litigation, while Ruttenberg and Burdon did not respond to a request for comment. No statement of defence has been filed.
Melody Campagna from Keswick, Ont., first began investing in Paramount after learning about the fund through a business acquaintance at a Christmas party. She claims she is out $170,000.
The claims allege that in some cases, despite millions being advanced in loans, little to no construction work was performed on several development projects.
According to the lawsuit, one company controlled by Mizzi received nearly $22 million in loans from Paramount to renovate and develop a piece of land in north Toronto that houses the Toronto Plaza Hotel, owned by Virk Hospitality. The hotel had been used by the City of Toronto to shelter hundreds of refugees.
The city has signed at least $4 million in contracts with Alternative Living Solutions Inc. to house and feed those staying at the hotel near highways 401 and 400. Mizzi is the owner of both ALS and Virk, according to court documents.
When Grant Thornton was appointed receiver over the company it learned the property “was in a substantial state of disrepair and the renovations and development were barely, if at all, advanced,” the claim alleges.
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According to the claim, Grant Thornton sold the property this year at a loss of $14.2 million to investors.
In another case, the claim alleges $8.1 million was given to a company controlled by Mizzi to develop 1.8 acres of land in Cambridge, Ont., that consisted of a bowling alley and another small building.
When the receiver took over the property, the lawsuit claims the development had not progressed, there were environmental issues with the property and $1 million advanced by lenders was diverted to “another Mizzi-related company.”
The investors suffered a loss of $4.8 million on the property, according to the claim.
Alleged breach of fiduciary duty
Grant Thornton has also filed a $50-million lawsuit on Dec. 5 against Paramount’s lawyer, Barry Polisuk, a partner with Garfinkle Biderman LLP, and the law firm for alleged negligence and breach of fiduciary duty.
The claim alleges that although the defendants were aware Paramount’s investment objectives were in second residential mortgages, Polisuk and his firm prepared the documentation for the riskier developments controlled by Mizzi that the claim alleges, “contrary to the stated investment objectives.”
“The defendants advice was negligent and caused the plaintiffs losses,” the lawsuit claims.
The lawsuit alleges they were in a conflict of interest for failing to disclose their prior “pre-existing retainer” with Mizzi and for “preferring the interest of the Mizzi borrowers, and their own financial interest.
“In doing so, the defendants contributed to the failure of the Paramount Group and the loss of millions of dollars of innocent investor monies,” the lawsuit alleges.
None of the allegations against Polisuk and Garfinkle Biderman have been proven in court. A statement of defence has also not been filed.
“As the matter is before the courts, I am unable to comment,” Polisuk said in an email to Global News. In 2018, the Law Society of Ontario suspended Polisuk’s licence for one month after he was found to have acted in a conflict of interest in a 2010 transaction. The incident was not related to Paramount.
The claim also alleges Polisuk and his firm neglected to properly warn Paramount that it was in violation of Ontario securities legislation.
For McCormickk and other investors, they are hoping something will be recovered from the Paramount disaster.
“I’d like to recover all of the money that they took from my mom, and it would be nice if I could recover some more money for myself,” he said. “Because my wife and I are, like I said, there’s no retirement in our plan.”
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