Winnipeg property owners who worked with a now-dissolved property management company more than a decade ago are getting reimbursed nearly $150,000 after a provincial agency finds the company defrauded them by misappropriating their funds.
The Manitoba Securities Commission decided last Wednesday that Lead Property Management committed “numerous fraudulent acts” and “deceptive dealings” with the 106 property owners it worked for between September 2010 and September 2011. The probe by the commission began in 2011.
The company, which was dissolved in August 2012 and was registered under Manitoba’s Real Estate Brokers Act, used trust money to cover Lead’s payroll and operating costs, and failed to deposit rent and security deposit funds to its trust accounts with the property owners on numerous occasions, according to an April 17 decision by the provincial agency.
The commission decided that the property owners are collectively entitled to about $148,000 — to be paid mostly out of a fund created to reimburse people defrauded by Manitoba Real Estate Association members. The association represents more than 2,800 real estate professionals in the province.
Lead was a member of the association at the time, the decision says.
The rest of the money — just under $40,000 — is to be paid out of what’s left in Lead’s frozen trust accounts.
The commission held its first hearing on the allegations against Lead in 2015. However, a lawyer switch, changes to those taking part in the hearing, and the replacement of the legislation the allegations were based on delayed the commission’s final decision to this April.
Funds not deposited
Lead was registered to provide property management services between August 2008 to 2012, and to act on behalf of the Winnipeg property owners it worked for.
It held two bank accounts for property owners, one for tenants’ rent and another for their security deposits, but the decision says Lead didn’t properly designate those two accounts as trust fund accounts, even though the funds in them were considered trust money under the province’s Real Estate Brokers Act (REBA).
The decision says there were many occasions where Lead failed to deposit rent and security deposit funds into the two accounts.
And while only certain expenses could be taken out of the rental payment accounts, including operating expenses for the properties such as maintenance and repair costs, the decision also says Lead used the trust money to cover its payroll and operating costs.
In one instance, three payments of $19,000 from a property owner were deposited into the company’s operating bank account, and only one of those payments appeared to have been transferred back into the rental payment accounts — leaving nearly $14,000 in Lead’s bank account.
On another occasion, “an internal Lead document authorized the transfer of approximately $5,070 from the [rental payment account] on June 15, 2011, to cover the payroll of Lead staff,” the decision says.
By September 2011,only $24,000 remained in the rental payment account when there should have been at least $81,000, according to the decision.
Forensic accounting expert called in
The commission started looking into Lead after the death in October 2010 of Kevin Dell, one of its two shareholders , who was registered as the company’s “authorized official” under the Real Estate Brokers Act.
Lead was managed by the company’s accountant after Dell’s death, since the other shareholder, Sharon Conway, wasn’t qualified to be registered as an authorized official.
Lead’s internal emails disclosed that the accountant and Conway were aware that Lead was not meeting REBA’s requirements and the property management agreements.
In 2012, the commission asked an expert in forensic accounting to look over Lead’s records. He talked to Lead’s staff, and reviewed its accounting information, communication with property owners and bank documents before preparing a report on his findings, which he completed in 2014.
That expert testified in a 2015 hearing, as well as one of the property owners who worked with Lead.
The decision says the expert found out Lead used a company called Delcon Developments ��— which was incorporated by Lead’s now-deceased shareholder in 2010 and operated out of Lead’s offices — to bill property owners invoices that had upcharges (charges additional to the usual or basic price) of up to 20 per cent.
Lead also transferred trust money from the security deposit account to Delcon’s operating account, which appeared to provide construction services at some of the properties. There were also “many incidents of Lead making payments to Delcon … for work not performed on the properties,” the decision says.
As with the rental payment account, the security deposit account also had less funds than it should have by September 2011 — about $61,000 less.
The expert found another company, called Achievers, was listed on Lead documents as a company that completed work on some of the properties, but there was “no evidence that this entity actually existed, or that the amounts charged to the property owners were for services or work actually performed,” the decision says.
An individual listed on Lead documents received transfers he wasn’t entitled on numerous occasions, including a payment of more than $23,000 from the company’s shareholder, and a payment of about $40,000 that he used for repairs on his own properties, the decision adds.
The commission is to pay property owners once it receives funds from the real estate association’s fund and Lead’s frozen bank accounts.