Ontario’s real estate watchdog failed to follow its own procedures in the majority of its most serious trust account misconduct cases over the past five years, a Toronto Star investigation has found.
According to an audit commissioned by the Real Estate Council of Ontario (RECO), when trust account money is misappropriated, the regulator’s “standard process” is to swiftly issue an order to suspend the registrations of the brokerage and its broker of record, freeze the company’s bank accounts and move to revoke the real estate licences of involved brokers.
The audit, performed by Dentons Canada, noted that the regulator’s former registrar deviated from that approach in its response to the iPro Realty scandal, when he cut a controversial deal with the company’s co-founders.
But the Star’s comprehensive analysis of RECO’s disciplinary actions over the past five years reveals a troubling pattern of weak and opaque enforcement actions leading up to iPro as well.
The Star identified 30 registrants — brokers and brokerages — who committed a range of trust-related infractions, including “unintentional” fund withdrawals, failure to reconcile trust records and misappropriation for personal use.
Nearly half of those registrants ultimately lost their licences in the wake of trust misconduct, signalling the infraction was serious, yet RECO moved to swiftly suspend licences in only six of 14 cases. RECO froze the accounts of just four of seven brokerages.
While the law requires that RECO publish disciplinary information about its registrants online, it doesn’t stipulate the level of detail required. The Star found RECO’s disciplinary summaries fail to adequately describe the seriousness of the infractions, making it impossible for the public to determine whether appropriate penalties have been levied. RECO is legally required to publish disciplinary actions for at least five years.
In a 10-page response to the Star’s findings, RECO says its enforcement actions have been appropriate. It disputed the number of cases, saying that the 30 registrants identified by the Star represented only 18 distinct cases.
When the Star requested additional disciplinary information for registrants to determine whether appropriate action was taken, RECO responded that the material was already available online. However, RECO has since added additional disciplinary information to its website, with some details being posted online just as this story was going to press.
This week, the province is expected to announce whether it will follow through on repeated threats to take control of the watchdog in the wake of the iPro controversy, which saw RECO cut a deal with the owners of one of Ontario’s largest realty companies to avoid charges and fines after they disclosed a $10-million shortfall in May.
The deal allowed the owners and the 2,400 agents they employed to operate for another three months — transacting more than $700 million in home sales — before the regulator alerted the public in August. A month later, a preliminary review of the company’s books by a forensic accountant hired by RECO found iPro co-founders Rui Alves and Fedele Colucci diverted more than $30 million in trust money to accounts that paid themselves, their other companies, their family members and investors.
Many in the industry say they have lost faith in the regulator’s ability to detect and punish trust account infractions, noting that for years, such cases have been handled outside of the public view and that penalties have not been levied in a consistent and transparent manner.
In a letter to the Ministry of Public and Business Service Delivery and Procurement, which oversees RECO, leaders from Ontario’s nine largest real estate associations, including Elechia Barry-Sproule, president of the Toronto Regional Real Estate Board, urged the government to put the provincial ombudsman’s office in charge of RECO.
“The iPro case,” they wrote, “is part of a troubling pattern which has highlighted the need for enhanced transparency and accountability at Ontario’s real estate regulator to improve public confidence and ensure professional integrity.”
The Star launched its investigation by creating a database tracking more than 400 enforcement actions taken by the regulator against registrants, which can include brokerages, individual brokers and salespeople who are registered to trade in real estate. The disciplinary summaries were then cross-referenced against lists RECO keeps of registrants who were suspended, had their licence revoked, or were provincially convicted under the Provincial Offences Act.
The process identified 30 registrants who were subject to an array of enforcement measures in response to trust misconduct.
While RECO is empowered to immediately suspend registrations and freeze the accounts of brokerages that misappropriate trust money, the Star’s analysis shows it did so less than half the time.
Of seven brokerages that ultimately lost their registrations following trust misconduct, only three — or 43 per cent — were subject to immediate freeze and suspensions orders.
RECO said an additional brokerage was also subject to a suspension and freeze order, but this information was not in the public record.
When presented with the Star’s findings, RECO’s interim registrar Lisa Key said the majority of the trust misconduct cases identified by the Star are minor and “fall well short of the threshold of egregious behaviour where funds are intentionally removed from trust and disbursed for personal gain,” and that RECO does act in an “appropriate” and “proportionate” manner, even when the action is considered “minor.”
Key said “only six” of the trust-related enforcement actions in the past two years included “evidence that funds were diverted for personal gain.”
When asked why RECO did not take immediate action toward all 14 realtors and brokerages that lost their licences in the wake of trust misconduct, Key said “no blanket assessment can be applied by a regulator to a range of potential scenarios.”
However, an audit of RECO’s response to the iPro scandal commissioned by RECO itself found that the regulator’s staff had “an unclear understanding or clarity regarding the meaning of RECO’s consumer protection mandate.”
The Dentons audit also stated it “learned that RECO’s standard process when RECO learns of potential misappropriation of trust funds at a brokerage is the imposition of a freeze order, a suspension order, and a proposal to revoke registration.”
Of the 14 brokers and brokerages that lost their licences in the wake of trust misconduct, eight had their registrations revoked while six, including iPro and its co-founders, were allowed to voluntarily resign.
RECO told the Star it can only directly issue freeze orders for a brokerage’s bank account and not a broker’s. In the iPro case, RECO launched a legal action to freeze the assets of brokers Colucci and Alves through the Ontario Superior Court of Justice.
Reio Realty, based in Niagara Falls, had its accounts frozen by RECO on April 30, 2019, after an inspection revealed financial “irregularities.” RECO told the Star it issued a suspension order against the brokerage but the Star found no public record of this move.
However, RECO allowed the broker of record at Reio to keep his registration for nearly three years before it proposed to revoke his licence for “alleged misappropriation of funds from clients, dishonesty, providing false statements on an application for registration and non-compliance with obligations related to the provision of paperwork pertaining to trades in real estate.” The revocation was formalized in December 2022.
It’s unclear why it took three years to revoke the broker of record’s licence and RECO has not disclosed exactly what the broker did or how much money he allegedly took from clients.
None of RECO’s disciplinary summaries for registrants involved in trust misconduct disclose the financial impact, or the amount of money missing in trust.
That’s cause for concern, said Brandon Reay, an Ottawa realtor who writes about industry governance.
“If we don’t know what’s gone missing, and the scope of those damages, that’s really, really concerning from a public protection standpoint,” he said, adding that consumers are not able to make informed decisions if they don’t have the full story of bad actors in the industry.
The Star also identified six cases that involved brokers of record failing to prepare or provide monthly trust reconciliations.
Reconciliations ensure the flow of money in and out of trust accounts is accurate and are required by law.
RECO’s website describes improper, incomplete or non-compliant trust account reconciliations as a red flag that can result in “serious consequences, including regulatory penalties and potential harm to consumer trust.”
But RECO, in a written response to the Star, described the offences as “minor infractions” in the same category as “simple bookkeeping errors; incorrect charges of bank fees to the trust account and failure to remit unclaimed trust monies.”
Wendy Embleton, a broker who was based in Kemptville, Ont., failed to produce 17 months of trust reconciliation statements — from January 2022 to May 2023.
RECO suspended Embleton’s licence but did not freeze her accounts, issue a fine, or seek to revoke her licence.
Key said Embleton’s violation was a minor one and that the broker and her company, Exit By Design, failed to produce “the required information/materials by inspectors and was not a trust account issue.”
Embleton did not respond to the Star’s request for comment.
In reviewing RECO’s enforcement actions and deterrents imposed to prevent future misconduct, the Star also examined fines levied against registrants.
Only half of the 30 brokers and brokerages in the Star’s database were fined for their misconduct with the amount ranging from $3,000 to $60,000. The median fine amount was $15,000.
RECO told the Star it has little control over the penalty, as fines are determined by either the Ontario Court of Justice or RECO’s discipline committee, which bases its decisions on past cases.
The Trust in Real Estate Act, passed by the provincial government in 2022, establishes maximum fines that can be imposed for contraventions of the legislation, Key said. Realtors may face fines up to $50,000 per offence and brokerages as much as $100,000.
Reay, the Ottawa broker, is concerned by the inconsistency in enforcement actions.
“We have regulations that describe what RECO can do … but they never prescribe how or when those powers have to be used,” he says. “And so there’s nothing to automatically trigger one penalty over another. We don’t get timelines, and there’s no mandated sequence of events. And so we get a tool box, but not a playbook … which has led to major inconsistency like what we’re seeing here right now.”
Neil Gill, a partner at a Toronto real estate litigation firm, said he struggles to counsel clients as there is no consistency in enforcement to establish a standard of procedure.
“It’s very difficult … because that information isn’t available,” Gill said.
Meanwhile, insurance claims for missing consumer deposits have escalated in recent years.
RECO’s annual report organizes these claims by the number of “occurrences,” which it defines as “an event, or related sequence of events, which can lead to one or more claims.” The number of occurrences in 2024 increased to 14 from 10 in 2022.
RECO says these cases include brokerage insolvency or misappropriation of funds and “social engineering fraud,” meaning a fraudster manipulates a consumer to redirect deposit funds.
Alternative Risk Services, an insurance company contracted by RECO to manage its professional liability insurance program, told the Star it could not provide any details about the value of claims it has received and processed over the past five years related to trust misconduct.
The company said it is still processing claims related to iPro.
“Our investigation on the commission side is still underway,” insurance broker Ryan Durrell told the Star in an email. “RECO has committed to an update on the status of this matter by the end of the month.”
The regulator told the Star that since 2024, “it has worked to improve the clarity of information on its public register, providing more consistent and relevant information to help consumers to make informed decisions when choosing a real estate agent,” Key said.
Cathy Polan, president of the Ontario Real Estate Association, calls trust misconduct “particularly egregious … as offenders are basically stealing the hard-earned dollars of buyers and sellers.”
Polan, whose group advocates for more than 110,000 licensed realtors in the province, told the Star in a statement the regulator needs to focus on its core responsibilities “like enforcement and discipline so that this does not happen again.”
“What has happened this year with iPro Realty Ltd. is unacceptable,” she said, adding it “has shaken the real estate sector to the core.”
