Speaking out for the first time since the collapse of his realty empire, Rui Alves, cofounder of iPro Realty, says his family saw no benefit from the $10.5-million breach of his brokerage’s trust accounts and that the “suggestion that millions of dollars was diverted for our personal use is false.”
“We made serious mistakes in financial management and oversight,” said Alves in a lengthy written statement emailed to the Star. “We deeply regret the chaos our serious error in judgment and misguided attempts to save the company has caused to the industry, iPro agents, co-op brokerages and consumers.
“We failed everyone.”
Alves did not deny that funds from his brokerage’s trust accounts were withdrawn, but said iPro Realty isn’t the only brokerage dipping into trusts to pay its bills. Alves said he sent the statement against the advice of his lawyer.
“We acknowledge that this practice represents a vulnerability in the system,” said Alves. “It reflects an area where RECO should consider regulatory reform, phased in over time, rather than immediately, as that would cause the collapse of hundreds of brokerages.”
Alves’s business partner Fedele Colucci did not co-sign the statement.
“Given that Mr. Colucci has a matter before the Court, he won’t be commenting,” his lawyer Gabriel Gross-Stein told the Star in an email.
Alves attributed iPro Realty’s shortfall to the real estate downturn and repayment of high-interest loans, which financed the company’s expansion over the past decade.
“The suggestion that millions of dollars was diverted for our personal use is false,” Alves said to the Star, adding that iPro “grew too big, too fast” and “collapsed due to financial strain of being overburdened with high interest private debts.”
In the past decade, iPro grew from a modest brokerage in Georgetown, Ont., that employed fewer than 100 agents to one of Ontario’s largest realty companies, with more than 2,400 realtors in 17 offices across the Greater Toronto Area.
Colucci and Alves sold iPro Realty in July for $3 million after an investigation by the Real Estate Council of Ontario (RECO) found the men had “illegally disbursed” more than $10.5 million from trust accounts that held deposits and commissions. Earlier this week, RECO obtained a court order to freeze bank accounts and assets held by the men and their companies to trace the flow of money out of the trust accounts.
The regulator’s lawyer, Arthur Hamilton of Dentons Canada, described Colucci’s and Alves’s companies as their “alter egos.”
The companies subject to the freeze include: iPro Realty Ltd. (the registered brokerage, which was shuttered by RECO on Aug. 19), iPro Realty Inc., IP Holding Realty Ltd., Hippo Holdings Corp., Sutton Group Professional Real Estate Services Inc., Alco Motors Ltd., and Alco Rent-A-Car Ltd.
“RECO was fully aware of Hippo Holdings and iPro Realty Inc. as those companies were identified, as holding a majority ownership in iPro Realty Ltd,” Alves said. “This fact had been properly reported to RECO.”
In seeking the freeze order, RECO said Alves and Colucci “orchestrated and executed a trust scheme involving the systematic diversion, removal and misuse of consumer deposit and agent commissions held in trust on their behalf.”
A forensic accountant from a company called MNP was hired by Dentons to conduct a “limited review” of iPro’s financial transactions between January and August, and called the preliminary results “concerning” in an affidavit filed with Ontario’s Superior Court of Justice.
Three months after RECO’s investigation confirmed iPro’s shortfall, the regulator shuttered the brokerage on Aug. 19 and facilitated the transfer of its agents to iCloud Realty. It was part of a deal RECO struck with Alves and Colucci that allowed both to escape charges and fines.
After mounting public pressure and backlash over RECO’s handling of the scandal, the regulator hired Dentons Canada to conduct a forensic audit of iPro. The Ontario Provincial Police are also investigating.
Alves said the brokerage has “co-operated fully” with RECO.
“RECO’s public claim that the freeze was necessary ‘to prevent further misuse of funds’ is completely disingenuous,” Alves wrote. “RECO has had oversight of iPro’s accounts for months, including since the brokerage was first audited in May and daily since it ceased operations.”
According to hundreds of pages of affidavit and exhibits filed in Superior Court last week, in the final eight months of iPro Realty’s operations, Alves and Colucci diverted more than $30 million from trust accounts to its general account to pay themselves, their companies, investors and spouses.
“The largest category of transactions labelled by MNP as misappropriated ‘commingled trust funds’ arises from the long-standing practice of transferring commissions from the statutory trust account into the brokerage’s general account once a transaction closes,” Alves wrote.
“While RECO does not support this practice, it is not prohibited under current regulations. RECO is aware this practice is not uncommon in the industry,” he said.
RECO told the Star in an email that “as this matter is currently before the court, we are not in a position to provide further details.”
Ken McLachlan, co-owner of Re/Max Hallmark Realty, said money put in trust is “sacred” and there are limited legal ways to disburse it.
“Money that goes into the trust account, by default, has only a few options where it can go,” he said.
“Once we get confirmation of a transaction closing, we have the right to move it to the commission trust account to cover commissions. Anything over and above the amount of the commissions needs to be returned either to the buyer or the seller. For the brokerage to take it out of the trust account and move it to a different entity, it would be violating the Trust in Real Estate Services Act.”
Alves also defended payments to his and Colucci’s spouses, which were highlighted in MNP’s review.
Colucci’s spouse, Meli, a licensed real estate salesperson at iPro Realty, received $42,893, the MNP review showed.
“These payments represent legitimate commissions earned from three real estate transactions,” Alves said.
MNP also showed that $41,000 went to Alves’s own wife, Joselle Alves, a licensed broker and the “longest-serving manager” at iPro Realty, which represented a portion of her “management salary,” he added.
Alves said his family did not enrich themselves from the trust accounts, as they are still owed money themselves and have outstanding mortgages.
Joselle Alves has an outstanding mortgage of $1.2 million on a waterfront property in Simcoe County, which is noted in a separate lawsuit filed on Aug. 20 by seven iPro investors, including former iPro managers, who allege that misappropriated trust funds paid for “significant renovations” to the home.
Rui Alves said he does not own any property in his own name.
Colucci is also out $650,000 he lent to iPro, as well as Colucci’s sister who lost $800,000 and his niece who is owed $75,000, Alves said.
“These debts are now unrecoverable following iPro’s collapse,” Alves said.
“If the co-founders had millions of dollars hidden away as alleged, then clearly, they would have taken care of the shortfall months ago, to avoid this ongoing legal, public and possible criminal prosecution.”
