Interim Compliance Order to Cease And Desist Unlicensed Activity Against Capstone Financial Solutions and Jeff Watson

Regarding the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c.29, in particular sections 2, 3, 11, and 35.

 

And Regarding Capstone Financial Solutions and Jeff Watson

 

Interim Compliance Order to Cease And Desist Unlicensed Activity

 

and

 

Notice Of Proposal To Impose Compliance Order to Cease And Desist Unlicensed Activity

To:

Capstone Financial Solutions

And to:

Jeff Watson
 
Subsection 35(2) of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (the “Act”) provides that the Superintendent of Financial Services (the “Superintendent”) may order a person or entity to cease committing an act or cease pursuing a course of conduct identified by the Superintendent or to perform such acts as, in the Superintendent’s opinion, are necessary to remedy the situation. 
 
Subsection 35(3) of the Act provides that where the Superintendent proposes to make a compliance order, the Superintendent shall give written notice of the proposal to the licensee, including the reasons for the proposal.
 
Subsection 35(7) of the Act provides that, if in the Superintendent’s opinion, the interests of the public may be adversely affected by any delay in making an order as a result of the steps required by section 35, the Superintendent may, without notice, make an interim order and may do so before or after giving the notice required by subsection 35(3).
 

Interim Compliance Order to Cease And Desist Unlicensed Activity

 
It is ordered that that pursuant to sections 2, 3, 11 and 35 of the Act, and for the reasons described below, Capstone Financial Solutions and Jeff Watson:
 
  1. Immediately cease soliciting persons or entities to borrow or lend money on the security of real property in Ontario, or holding himself or itself out as doing so;
  2. Immediately cease providing information about a prospective borrower to a prospective mortgage lender or holding himself or itself out as doing so, in respect of real property in Ontario;
  3. Immediately cease negotiating or arranging a mortgage in respect of real property in Ontario on behalf of another person or entity, or attempting or holding himself or herself out as doing so;
  4. Immediately cease accepting any fees or funds in connection with the solicitation, negotiation, or arrangement of a mortgage in respect of real property in Ontario;
  5. Immediately cease using a description that might reasonably be expected to lead to the belief that he or it is a mortgage brokerage in respect of real property in Ontario;
  6. Immediately cease advertising as a mortgage brokerage or as associated with a mortgage brokerage in Ontario;
  7. Immediately cease making any claims or representations in relation to mortgages that are false or misleading.
Take notice that this Interim Order takes effect immediately and will remain in effect until the expiry of the period for requesting a hearing in respect of the Superintendent’s Notice of Proposal set out below (15 days after the Notice is given, or deemed to have been delivered).
 
And take notice that pursuant to subsections 48(4) and 49(1) and (2) of the Act, every person who fails to comply with an order made under this Act is guilty of an offence and every individual convicted of an offence under the Act is liable to a fine of not more than $100,000.00 or imprisonment for a term of not more than a year or both a fine and imprisonment.  Every corporation convicted of an offence under the Act is liable to a fine of not more than $200,000.00.
 
Pursuant to subsection 48(5) of the Act, every director or officer of a corporation that commits an offence under this Act who directed, authorized, assented to, acquiesced in or participated in the commission of the offence, or who failed to take reasonable care to prevent the corporation from committing the offence, is guilty of an offence, whether or not the corporation is prosecuted or convicted.
 
Subsection 48(6) provides that every partner of a partnership and every individual who is a member of the directing body of an entity, other than a person or partnership, who directed, authorized, assented to, acquiesced in or participated in the commission of an actor omission by the partnership or entity which, if committed by a person, would be an offence under the Act, is guilty of an offence.
 

Notice Of Proposal To Impose Compliance Order To Cease And Desist Unlicensed Activity

 
Take Notice That pursuant to sections 2, 3, 11 and 35 of the Act and for the reasons described below, the Superintendent is proposing to order Capstone Financial Solutions and Jeff Watson to:
 
  1. Immediately cease soliciting persons or entities to borrow or lend money on the security of real property in Ontario, or holding himself or itself out as doing so;
  2. Immediately cease providing information about a prospective borrower to a prospective mortgage lender or holding himself or itself out as doing so, in respect of real property in Ontario;
  3. Immediately cease negotiating or arranging a mortgage in respect of real property in Ontario on behalf of another person or entity, or attempting or holding himself or herself out as doing so;
  4. Immediately cease accepting any fees or funds in connection with the solicitation, negotiation, or arrangement of a mortgage in respect of real property in Ontario;
  5. Immediately cease using a description that might reasonably be expected to lead to the belief that he or it is a mortgage brokerage in respect of real property in Ontario;
  6. Immediately cease advertising as a mortgage brokerage or as associated with a mortgage brokerage in Ontario;
  7. Immediately cease making any claims or representations in relation to mortgages that are false or misleading.
 
And Take Notice That pursuant to subsection 35(3) of the Act, a hearing before the Financial Services Tribunal about this proposal may be requested by completing the enclosed Request for Hearing (Form 1) and submitting it to the Tribunal within 15 days after the Notice is received. A copy of that form is included with this notice. Additional copies can be obtained by visiting the Tribunal’s website at www.fstontario.ca [New Window].
 
If a written request for a hearing is made within 15 days, subsections 35(4) and 35(5) of the Act provide that the Tribunal shall hold a hearing and decide whether or not to direct the Superintendent to carry out this proposal, with or without changes, or substitute its opinion for that of the Superintendent, and the Tribunal may impose such conditions as it considers appropriate in the circumstances. If a hearing before the Tribunal is requested, the Superintendent may extend the interim compliance order until the proposal is finally determined.
 
If no written request for a hearing is made within 15 days after this Notice is received, Take Notice That the Superintendent will carry out the proposal to make the compliance order as set out above.
 
Completed Request for Hearing Forms must be received by the Tribunal within 15 days after this notice is given. They may be mailed, faxed or delivered:

To:              

 
Financial Services Tribunal
5160 Yonge Street, Box 85
14th Floor
Toronto ON  M2N 6L9
 
Attention:  Registrar                                        Fax: 416-226-7750
 

And To:

 
Superintendent of Financial Services
Regulatory Discipline Officer
Licensing and Market Conduct Division
5160 Yonge Street, Box 85
Toronto ON  M2N 6L9                                       Fax: 416-590-7070
 
The hearing before the Tribunal will proceed in accordance with the Rules of Practice and Procedure for Proceedings Before the Financial Services Tribunal made under the authority of the Statutory Powers Procedure Act, R.S.O. 1990, c. S. 22. Those Rules are available at the website of the Tribunal: www.fstontario.ca [New Window]. Alternatively, a copy can be obtained by telephoning the Registrar of the Tribunal at 416-590-7294, or toll free at 1-800-668-0128 ext. 7294.
 
At a hearing, your character, conduct and/or competence may be in issue.  You may be furnished with further and or other particulars, including further or other grounds, to support this proposal.
 

Reasons For Interim Compliance Order and Proposal For Permanent Compliance Order

Unlicensed Activity

 
  1. Section 2(2) of the Act prohibits any person or entity from carrying on the business of dealing in mortgages in Ontario unless he, she or it has a brokerage licence or is exempted from the requirement to have such a licence.  No exemptions apply in this case.
  2. Section 2(1) of the Act defines “dealing in mortgages” to include the following activities:
    a. Soliciting another person or entity to borrow or lend money on the security of real property;
    b. 
    Providing information about a prospective borrower to a prospective mortgage lender;
    c. Negotiating or arranging a mortgage on behalf of another person or entity, or attempting to do so.
  1. Section 3(2) of the Act prohibits any person or entity from carrying on the business of trading in mortgages in Ontario unless he, she or it has a brokerage licences or is exempted from the requirement to have such a licence. No exemptions apply in this case.
  2. Section 3(1) of the Act defines "trading in mortgages" to include the following activities:
    a. Soliciting another person or entity to buy, sell or exchange mortgages;
    b. Buying, selling or exchanging mortgages on behalf of another person or entity;
    c. Buying, selling or exchanging mortgages on the person’s or entity’s own behalf.
  1. Section 11 of the Act prohibits any person or entity from using in Ontario a description that might reasonably be expected to lead to the belief that he, she or it is a mortgage brokerage unless he, she or it is licensed as a mortgage brokerage.
  2. Jeff Watson ("Watson") is the principal of Capstone Financial Solutions ("Capstone"), a corporation incorporated in Ontario with its head office in London, Ontario.  Watson resides in London, Ontario. Neither Watson nor Capstone has ever held a mortgage brokerage, broker or agent licence under the Act. 
  3. From at least October, 2013 to date, Watson has represented himself and Capstone as being or as carrying on the business of a mortgage broker, brokerage or agent to persons or entities in Ontario. 
  4. As described above, Watson/Capstone are holding themselves out as being in the business of dealing or trading in mortgages in Ontario.  Neither Watson nor Capstone holds a licence under the Act, and they are therefore committing an act, or pursuing courses of conduct, that contravene the Act and are an offence under the Act.
  5. Watson/Capstone have provided false or deceptive information or documents when dealing in mortgages in Ontario, including using a description that might reasonably be expected to lead to the belief that Capstone is a mortgage brokerage.
  6. Watson/Capstone have placed advertisements at various times from 2013 to date in various media, as set out below, intended to solicit lenders for syndicated mortgages:
    a. Booth and signs at the Women’s Lifestyle Show 2015 in London, Ontario in March, 2015;
    b. Booth and signs at the London Spring Home Garden Show in London, Ontario in April, 2015;
    c. Signs at high traffic areas in London, Ontario;
    d. Capstone website and the websites of Capstone affiliates;
    e. Unsolicited mass emailing to University of Western Ontario email accounts;
    f.  YouTube videos;
    g. Capstone’s Facebook page;
    h. Print advertisements in Business London and London Community News publications.
  1. Watson/Capstone have made false or misleading claims in some of the advertisements set out in paragraph 10 herein about the security or rates of return of syndicated mortgages.

Adverse Effect on the Public Interest

  1. The purpose of the Act is to regulate the mortgage brokering industry in order to ensure that minimum standards are met and the public is protected from illegal, unethical or negligent conduct.
  2. The continued solicitation of syndicated mortgage investors by Watson/Capstone using advertising material that contains false and misleading claims about the security of rates of return related to syndicated mortgages in contravention of the Act is a risk to the public and undermines the public’s confidence in the mortgage brokering industry.
  3. For all of the above reasons, and such further and other reasons as may come to his attention, the Superintendent is of the opinion that a delay in the issuance of a compliance order may adversely affect the public interest.
 
DATED at Toronto, Ontario, July 23, 2015.
 
 
Original Signed by Michael Doi delegate for
 
 
Brian Mills
Superintendent of Financial Services