The iPro timeline: Audit details RECO culture issues, deviation from ‘standard process’

The trust fund fraud’s approach to it has been as studied and investigated as the trust fund fraud itself Real Estate Council of Ontario (RECO).

A new one report by Dentons Canada LLP, on behalf of RECO, offers an image of how things went wrong, with former clerk Joseph Richer at the center.

Secrets and a culture problem

Dentons found that RECO’s culture and structures failed to support accountability or consumer protection mandates.

The report finds that Richer’s decision to address the $10 million iPro trust deficit solely through an undertaking agreement was a major departure from RECO’s established enforcement practices. The deal he ultimately made caused the iPro co-founders to lose their real estate licenses, but these did not include any fines or charges.

“The Registrar deviated from RECO’s standard process in responding to the shortfall in iPro’s trust accounts and did not initiate a formal investigation. Instead, the Registrar attempted to implement an unusual resolution that he explained was an attempt to prioritize financial recovery through the sale of iPro’s assets and goodwill,” the report said.

The report found that RECO’s response to the iPro cases was largely attributed to the “unilateral and sheltered decision-making” of an “authorized registrar.”

Broad discretionary powers, combined with a lack of policy and documentation, allowed Richer to act unilaterally and without meaningful investigation, the report said. Nearly three months passed before Richer informed the board of the trust deficit.

Richer described as ‘intimidating’; Staff are discouraged from raising concerns

The report calls Richer “experienced, strong-willed, intimidating and protective of his authority,” adding that this had the effect of discouraging people from challenging him or raising their concerns to senior management or the board.

The report shows that this culture led to Richer entering into the engagement agreement with iPro’s principals without adequate visibility from the board of directors or senior management.

Safeguards against conflicts of interest, whistleblowing channels and internal governance processes proved to be inadequate.

The Ontario government is is considering taking control about RECO after reviewing the report’s findings.

RECO has announced that it accepts the recommendations from the report.

How it unfolded

The following is a timeline of events according to the report written by Dentons LLP. The report was sent to Minister Stephen Crawford two weeks before it was made public on November 13.

April 2 – RECO informs iPro about an inspection, scheduled for April 30.

April 16 – iPro requests a postponement of the inspection and it is moved to April 20.

May 13 – iPro co-founder Fedele Colucci emails RECO requesting cancellation of the scheduled inspection due to the impending sale of iPro to another brokerage. RECO responds and informs Colucci that the inspection will take place as planned.

May 19 – RECO receives two letters from Colucci’s lawyer. The first letter, addressed to Richer and a member of RECO’s inspection team, requests a postponement of the audit “pending urgent negotiations on a legal issue with RECO.”

The second letter, addressed to an attorney from RECO’s legal team, discloses a $6.5 million deficit in iPro’s trust account, and a further $3.5 million deficit in iPro’s provision funds.

The letter further states that iPro has received a purchase offer from “Ms. Terry,” who has offered to purchase iPro’s assets for $10.5 million.

The Dentons report does not list Terry’s full name, but Joan Terry was identified by The star as director of record of iCloud Realty.

The letter from Colucci’s attorney was forwarded to Richer, who upon receipt replied, “This would be a good step toward getting a promise to resign and never reapply.”

On the same day, Richer informs the CEO, Brenda Buchanan, that he is dealing with a case involving a former RECO board member named Rui (Alves).

May 22 – RECO completes the on-site inspection of iPro.

May 23-27 – RECO receives the following anonymous complaint and is referred by the inspection team to Richer, his team and RECO’s legal team: “I would like to highlight an important incident involving Rui and Fidelle [sic]. We are fully aware that they have breached Ipro Realty’s trust fund, and it is critical that this matter is addressed.”

May 28 – Richer attends the last meeting of the former RECO board and does not mention iPro in his oral or written report.

The next day, a new RECO board meets for the first time during the annual general meeting.

June 5-11 – A personal meeting takes place at RECO’s office between Richer and his team members, RECO’s legal team, Colucci and his lawyer and Alves. Two days later, RECO’s inspection team presents the results of the inspection at iPro to members of RECO’s regulatory department and process team.

June 12 – July 22 – RECO receives a letter from Terry, in which she explains that she is aware of the trust account problem at iPro. Days later, RECO hears from iPro that the sales agreement between iPro and Terry may not go through. On July 2, iPro informs RECO of a possible deal with another broker to acquire iPro, but that deal ultimately falls through, and iPro informs RECO that Terry is now willing to pay only $3 million to acquire iPro’s assets.

On July 22the Deputy Registrar will hold a kick-off meeting to discuss the upcoming settlement of iPro activities. iCloud submits its new brokerage application and supporting documents to RECO.

July 29 – A meeting of RECO’s audit, risk and insurance committee takes place, but iPro is not discussed.

August 8 – The commitment agreement is signed between RECO and iPro. On the same day, iCloud is registered as a broker with RECO.

August 10-13 – Richer made a phone call to the chairman and CEO to inform them that a commitment agreement had been reached.

This is the first time that the chairman has taken note of the situation with iPro. The chairman understands from Richer that he wants to inform the RECO board at the same time as the public is informed.

The CEO sends an email to RECO’s board about the commitment agreement, the circumstances that gave rise to it and the transaction between iPro and iCloud. It is the first time that the board has taken note of the situation.

RECO informs the ministry’s employees about the circumstances the same day.

August 14 – RECO publishes a press release on its website in which it informs about the agreement with iPro to terminate its brokerage.

iPro publishes its announcement about the closure and transfer of activities to iCloud, and also sends an invitation to its brokers for a special meeting; the invitation states that “Fedele & Rui are (semi) retiring after almost 45 incredible years.”

The meeting, held the same day, informed participants that iPro has been sold to a “wealthy private financier” and will be rebranded as iCloud.

The same day, RECO informs the fraud unit of the Peel Regional Police that it wishes to report serious allegations of fraud regarding iPro.

August 19 – iPro’s registration with RECO will be terminated, as will the registration of Alves and Colucci.

August 20 – RECO resumes its presence at the iPro location to inspect and collect documents.

August 22 – Rijker departs from RECO.

August 24 – An order request to freeze iPro’s accounts is delivered by RECO to iPro’s bank,

August 25 – RECO places a freezing order on iPro’s accounts.