The regulatory hearing into an alleged fraud run by the Paramount Group, which sold pooled mortgage products until it was shut down in 2017, will proceed despite the COVID-19 pandemic that has stalled most official government proceedings.
A panel of the Ontario Securities Commission, which put Paramount into receivership in 2017, ruled this week that it will allow OSC lawyers to argue the rest of their case against the group of companies, and the executives that ran them, through written submissions. An in-person hearing into Paramount commenced earlier in March, and was supposed to continue this week until the OSC cancelled such hearings because of the viral outbreak.
The OSC’s three-person panel concluded that continuing using written evidence is “consistent with the public interest in bringing the merits hearing to a timely and appropriate conclusion.”
A “merits hearing” is the OSC’s process for testing evidence.
The OSC said it expects to broaden the use of written hearings. All parties with OSC hearings scheduled between now and April 30 are being asked by the commission about proceeding in writing or through teleconference, said Kristen Rose, the OSC’s manager of public affairs.
Between 2014 and 2016, more than 500 investors pumped $78-million into two funds offered by the Paramount Group of companies, which includes Paramount Equity Financial Corp. The funds were promoted as low-risk investments in second mortgages on residential homes, when, in fact, they were used to fund highly speculative development projects that faltered, OSC lawyers have alleged. Paramount also failed to register with the commission and file a prospectus, the OSC says.
The court-appointed receiver for Paramount, Grant Thornton Ltd., has been able to recover about $36.5-million from the investments in those two funds, according to the receiver’s most recent court filing.
The fraud hearing against Paramount started on March 10, and although the OSC is taking action against three of the company’s former executives, none appeared at the hearing.
Two of those executives, former senior vice-presidents Matthew Laverty and Brad Burdon, have since supplied written submissions to the OSC panel, arguing there is no urgency to the case and that because of the pandemic it should be adjourned to a later date. That option was rejected by the panel.
In its ruling, the panel said it considered whether it could proceed by teleconference, but concluded there were too many potential problems, including participants speaking over each other and ensuring access to exhibits.
The panel said proceeding through written submission is permissible in any proceeding, whether or not there is a pandemic. OSC lawyers have until April 13 to deliver their written submissions – including affidavits from a proposed expert witness, as well as staff – to Paramount and the former executives. The panel said it will have an opportunity to cross-examine those witnesses if it chooses. “If cross-examination is to take place, appropriate arrangements can be made to do so by video conference,” the panel ruled.
Greg McArthur