Since 2019 FAAN has been acting as Trustee for syndicated mortgage investors who are still owed money more than five years after Fortress RDI collapsed in 2018.Fred Lum/Globe and Mail
Richmond Hill, Ont.-based real estate developer Sunrise Homes has defaulted on a court-ordered settlement to repay the millions of dollars it owes to lenders caught up in the collapse of Canada’s one-time largest syndicated mortgage company Fortress Real Developments Inc.
On May 8, 2023, Justice Peter J. Osborne endorsed a settlement agreement whereby a collection of Sunrise-related parties and companies – including Sunrise CEO Sajjan Hussain, COO Muzammil Kodwavi and their spouses – would repay to the court-ordered receiver, KSV Advisory, $10.5-million that it owed lenders.
The payment schedule in the order mandated Sunrise pay not less than $2-million every 60 days until the debt was discharged. The penalty for defaulting was that the court could enforce an earlier order requiring repayment of a larger sum of $14,510,545.24.
The Globe and Mail has learned Sunrise has since defaulted on that court order.
“Pursuant to this order we did receive a partial payment against the first payment, but since then they’ve been in default of the agreement,” said Naveed Manzoor, managing director at FAAN Advisors Group Inc. “We at FAAN are working very closely with the receiver to determine our next steps. … We are actively working on a strategy to ensure compliance with this order.”
Since 2019 FAAN has been acting as trustee for syndicated mortgage investors who are still owed money more than five years after Fortress RDI – which raised almost a billion dollars from thousands of individual investors – collapsed in 2018. In 2022, company co-founders Jawad Rathore and Vincent Petrozza were charged with fraud in relation to the investment scheme following a years-long investigation by the RCMP.
Among the Fortress-connected funds FAAN is seeking to recover were 10 mortgages worth about $95-million (borrowed from 2,900 individuals) that had been administered by Derek Sorrenti and the Sorrenti Law Professional Corp.
Sunrise borrowed $8-million from Sorrenti in 2015 (later increased to $9.8-million in 2016) to build a 52-unit townhouse project called Unionvillas under the corporate name Sunrise Acquisitions Hwy 7. In March, 2021 Sunrise informed FAAN it would not be able to repay the full amounts, though as FAAN wrote in a report “The borrower did not provide a plausible explanation for the sudden and marked decrease in the expected recovery.”
Over the course of 2022 receiver KSV Advisory attempted to glean information from auditors and Sunrise’s principals about where the money went, and according to its public filings, there’s evidence that millions of dollars were misappropriated.
In one exchange in a November, 2022 affidavit, Bennet Jones lawyer Joseph Blinick acting for KSV Advisory asked Mr. Kodwavi to explain why millions of dollars was transferred from the Unionvillas project to other Sunrise-owned development companies. “From time to time funds get transferred back and forth,” said Mr. Kodwavi. “Once they are needed, they come back. That’s very usual standard practice of the industry.” However in this case it appeared more than $5-million never came back to the Unionvillas project.
Forensic accountant Jeffrey Feldman of SLF Financial Services Inc. acknowledges that intercompany transfers do happen in real estate, though in his experience these are not just funds shuttling around but secured loans with documentation between companies, and in the Sunrise case none of those protections appear to have happened.
In another section of the affidavit Mr. Blinick presses Mr. Kodwavi to explain what looks like “cooked books”: “There is one entry on April 6, 2020 booked as a payment to Trans Power for $525,000 and when we look at the cheque we see that was actually a payment to you,” said Mr. Blinick.
Mr. Blinick said KSV Advisory identified ledger records that said $1.4-million was paid to Mr. Kodwavi while bank statements suggest $4.9-million was paid. Mr. Kodwavi declined to answer Mr. Blinick’s question about why ledger entries to multiple contractors were made for amounts that were later paid to him.
According to Mr. Feldman, that is far from industry practice.
“Different sets of books, recording payments to an individual as something other than that – that is not onside,” Mr. Feldman said. “What you’re describing is what I would describe as fraud, and we’ve seen that in all kinds of companies, this is not limited to real estate.”
Mr. Kodwavi and Mr. Hussain did not respond to requests for comment.
On Aug. 31, Mr. Hussain received an order in council appointment to serve on Ontario’s species at risk program advisory committee.
When The Globe raised questions about Mr. Hussain’s qualifications and financial background to newly appointed Environment Minister Andrea Khanjin, the ministry appeared to backpedal.
“Given the seriousness of these allegations, we will be revoking Mr. Hussein’s appointment,” said ministry spokesperson Gary S. Wheeler.
Mr. Manzoor stresses that this is not a simple financial dispute; the syndicated mortgage lenders FAAN is working for often invested their life savings into the Fortress/Sorrenti loans.
“Having dealt with this matter for five years it is really, really sad,” Mr. Manzoor said. “We’ve had people come to our office and say this is my last retirement savings and I need the money otherwise I’m eating canned tuna.
“The investors need to be repaid. It’s that simple.”