The Ontario government will intervene in an “extensive review” of its real estate watchdog after it cut a deal with a GTA brokerage responsible for an unprecedented financial breach that allowed iPro Realty’s co-founders to escape charges and fines, the Star has learned.
“The (Ministry of Public and Business Service Delivery and Procurement) will be intervening in the review process of RECO,” Liam Maloney, press secretary and issues manager for Minister Stephen Crawford, told the Star. Details of the government’s intervention are expected to arrive in the form of a ministerial letter next week.
Legal experts told the Star that the Ford government has the power to take control of the Real Estate Council of Ontario (RECO) if it wants to.
“The minister has the right to and the power to take this over,” said Mark Morris, a real-estate lawyer and former policy adviser to Ontario’s Attorney General. “RECO effectively aided and abetted in the fraud by allowing the perpetrators of the fraud to preserve the asset values.”
The regulator’s investigation of iPro Realty determined in May that longtime realtors Rui Alves, a former RECO board member, and partner Fedele Colucci “illegally disbursed” $10.5 million from the brokerage’s consumer deposit and commission trust accounts. It then worked with the men to set up the transfer of 2,400 employees in 17 offices across Greater Toronto to a new company called iCloud, a move that has left agents and consumers screaming for accountability.
Alves and Colucci have not responded to requests for comment.
“There is no basis or reason for RECO to have transferred these people to any company at all,” said Morris, “particularly given how badly this one appears to smell on its face because the people who own this company were affiliated with iPro previously.”
RECO said it has told Peel Regional Police about its probe but spokespersons for the Peel force and the Ontario Provincial Police, which investigates cases of complex financial fraud, confirmed to the Star that they have received no formal request from RECO or the provincial government to investigate the matter.
On Wednesday, 10 former iPro agents who automatically transferred to the iCloud agency as a result of the regulator’s deal took to RECO’s head office near Islington Avenue and Bloor Street West demanding a meeting with its CEO.
They hadn’t been paid in months for some deals, they told the Star. One agent said they were awaiting $150,000 in commissions. Write a letter, a receptionist advised, noting Brenda Buchanan, appointed RECO’s chief executive in July, was out of office.
“They’re not telling us anything,” one of the agents said. “We pay $500 a year to our insurer (RECO) and they can’t give us any answers.”
On Thursday afternoon, Buchanan, in an email to the Star, said “RECO’s focus is on protecting the public, safeguarding the interests of registrants, and restoring trust in the system.”
In the last week, RECO announced the sudden departure of its longtime registrar Joseph Richer, froze iPro’s accounts, and hired Dentons Canada to conduct a “comprehensive audit into the iPro matter,” including a review the agreement undertaken by Richer and iPro. Dentons will also advise RECO’s board on legal options under the Trust in Real Estate Services Act (TRESA) to “ensure greater oversight and governance going forward.” Dentons will deliver an interim report to RECO’s board by Sept. 30 and a final report by Oct. 30. The report’s recommendations will be made public.
RECO has also hired Teneo, an international company that specializes in crisis management, the Star confirmed.
The company’s website says it “provides strategic counsel and tactical execution to the leaders of large and complex businesses on navigating volatile political landscapes.”
“They’re doing this in the hopes that they will convince both the public, but also their political masters that they are treating this seriously such that fundamental reform does not need to be had,” Morris said.
Morris said the public needs a clear answer from RECO and the government on the audit’s scope.
“Will the audit actually answer the fundamental question of rot at RECO?” Morris said.
RECO oversees more than 110,000 real-estate agents and brokerages, and is supposed to administer and enforce the law that regulates trading in real estate in Ontario. It’s one of 12 agencies in the province created by government with a unique “consumer protection” mandate.
The ministry charges RECO roughly half a million dollars annually in oversight fees.
The regulator and the Ministry of Public and Business Service Delivery and Procurement were both criticized in a 2022 Auditor General’s report that found they were failing to effectively protect consumers.
The Auditor General’s report found RECO had no formal policies and procedures to guide its investigations. RECO also had no guidelines to help members of its discipline committee determine the appropriate penalties for registrants who violated its Code of Ethics. In 10 of 15 cases reviewed by the Auditor General’s office, the fine levied against registrants who breached the code was lower than the commission earned in the related real-estate transaction.
Last December, the Auditor General’s office issued an updated report that found RECO had followed through on many recommendations but noted the ministry has made “little or no progress” on improving its oversight obligations.
The Auditor General advised the ministry to closely monitor RECO’s operations, which include inspections, investigations, and disciplinary action of brokerages and realtors.
This single incident, Morris said, should be enough to prompt reform.
“This is more than an isolated brokerage scandal,” said Brandon Reay, an Ottawa broker who writes about the industry’s governance for trade publications. “It’s the direct result of a governance failure at RECO. More than $10 million in trust funds disappeared, leaving thousands of agents and consumers exposed, and the regulator opted not to immediately act, but to manage a wind-down and contain optics.”
RECO’s removal of its longtime registrar Richer on Aug. 22 “is performative at best,” said Reay, adding “the system that allowed this to happen remains intact.”
Karen Somerville, cofounder of Canadians For Properly Built Homes, told the Star that the government’s decision to off-load its public responsibilities to RECO “is not working sufficiently to protect Ontario’s consumers.”
Reay agrees.
“RECO is funded by industry fees and governed by a board that includes industry insiders. The regulator is asked to protect consumers, but the design makes it accountable to the very sector it oversees,” he said.
“We end up with a culture of capture, where we get reactive inspections, compensation limits that lag behind the scale of risk, conflicts of interest abound and disciplinary actions are often lenient and can be absorbed as the cost of doing business.”
B.C. moved to dismantle its self-regulation model in 2016 amid widespread public and government concerns about misconduct in its real estate industry and a lack of effective deterrence. BC Financial Services Authority now regulates the sector.
“If Ontario wants to protect the public and restore trust in real estate,” Reay said, “it has to confront the reality that RECO’s governance design is broken. Until that structure changes meaningfully, we can expects more failures of oversight, more losses, and more erosion of confidence in our institutions.”
