The province is poised to “assume control” of Ontario’s real estate watchdog in roughly two weeks “to prevent serious harm to the public” unless the regulator can provide a compelling alternative, according to a ministry letter obtained by the Star.
The letter, sent Thursday afternoon to the board chair of the Real Estate Council of Ontario (RECO) is the government’s formal response to its review of a long-awaited investigative report into the regulator’s mishandling of the iPro Realty scandal.
The investigative report, produced by Dentons Canada, identified “significant issues with RECO’s practices, processes and procedures, and raises serious questions about RECO’s organizational culture,” Minister Stephen Crawford wrote in a letter addressed to RECO chair Katie Steinfeld.
“These factors contributed to deficiencies in RECO’s response to the iPro matter and created an environment in which the real estate sector has lost confidence in its regulator,” wrote Crawford, whose Ministry of Public and Business Service Delivery and Procurement oversees RECO.
“Ultimately, the Dentons report raises concerns about RECO’s ability to restore public confidence in the real estate services sector and to protect consumers during one of the largest purchases of their lives. Given the severity of these concerns, I find it appropriate and necessary to consider appointing an administrator to assume control of and responsibility for RECO, to prevent serious harm to the public and consumers’ interests, and to restore confidence in the organization.”
Crawford invited RECO’s board to respond to his letter within 15 days.
“I will make my final decision regarding the appointment of an administrator after reviewing the board’s response, if any,” Crawford said.
Brandon Reay, an Ottawa realtor who writes about industry governance, says a government takeover is long overdue.
“What are they expecting RECO to come out with?” said Reay, after learning of the province’s response. “RECO made big promises after the Auditor General’s 2022 report, which was heavily critical of the organization’s processes and they didn’t deliver. RECO hasn’t made the changes necessary.”
Crawford’s letter also instructs RECO, which commissioned the Dentons report, to publicly release the findings and recommendations by Nov. 14. The government received the final report on Oct. 30.
The audit reviewed RECO’s handling of the iPro scandal, which saw more than $10 million in agent commissions and consumer deposits “illegally disbursed” from the brokerage’s trust accounts.
It also reviewed how RECO can improve “oversight and governance,” following an outcry from agents, homebuyers and brokerages across Ontario after the regulator struck a deal with iPro co-founders Fedele Colucci and Rui Alves that allowed them to voluntarily terminate their realty licences and avoid charges and fines.
Earlier this fall, Crawford warned RECO’s board he would not hesitate to assume control of the regulator if he is “not satisfied with the conduct or the findings” of the sweeping audit.
“As outlined in both letters addressed to the board of directors at RECO, our government expects all agencies to uphold the highest standards to ensure public confidence in their operations,” Crawford’s press secretary Liam Maloney told the Star. “It is obvious from the Dentons report that RECO fell short of this.”
In response, Maloney added, “We are taking decisive action to restore public confidence and strengthen consumer protection and transparency in Ontario‘s real estate sector.”
RECO has faced intense public backlash for its actions in the iPro case, which allowed the brokerage to continue operating and conducting more than $700 million in transactions for three months after it discovered the $10.5-million shortfall in May, which RECO said is the largest trust account shortfall it has investigated.
The regulator told the Star its former registrar, Joseph Richer, had struck a deal with iPro co-founders Colucci and Alves. Alves served on RECO’s board of directors from 2019 to 2023. The deal allowed iPro’s founders to “voluntarily terminate” their realty registrations and escape charges and fines. Richer left his post at the regulator in August.
On Sept. 11, RECO sought its own emergency injunction from Ontario’s Superior Court to freeze the assets of iPro and its principals, alleging the brokerage’s co-founders and seven of their companies orchestrated a “trust scheme,” which involved “the systemic diversion, removal and misuse” of trust money.
The proceeding requested a court order to allow RECO to trace the flow of trust funds that were “diverted” and return them to the trust accounts. About 10 days later, a Superior Court judge granted the order.
Dentons represents RECO in the ongoing court case against iPro.
Alves previously told the Star iPro Realty’s shortfall was due to the real estate downturn and repayment of high-interest loans, which financed the company’s expansion over the past decade. While he acknowledged the brokerage’s failures and misjudgments, he maintained that his family did not benefit from the financial breach.
Mark Morris, a real-estate lawyer and former policy adviser to Ontario’s attorney general, says the ministry’s response is more substantial than he expected.
“They had an easy way out,” he says. “They could have appointed an ombudsman; give consumers someone to complain to.”
“We’ll have to see what happens in 15 days to definitively see how serious the government is.”
