Three GTA law firms put into receivership after accusations of mishandling millions in real estate funds

Three law firms in the Greater Toronto Area have been put into receivership after being accused of mishandling millions in client funds during real estate transactions – allegations that an Ontario Superior Court justice warned could be just “the tip of an iceberg.”

Justice Sean Dunphy issued an order last week appointing accounting firm Doane Grant Thornton LLP as the receiver to take control of Simran Law Professional Corp. of Brampton, Ont., and JP Mann Law Firm Professional Corp. of Mississauga.

In his ruling, Justice Dunphy said the mishandling of legal trust accounts during real estate transactions has been occurring “with distressing regularity,” and that “if left unaddressed, represents an exceptionally grave attack on the profession of law at large and the integrity of our civil legal system.”

In a separate ruling on Friday, Justice Dunphy also issued an order to put RSG Law – the firm founded by former Liberal MP Rajvinder Grewal – under the control of receiver AlixPartners Advisory Inc. The firm has been facing mounting civil lawsuits alleging it was at the centre of a series of frauds against its own clients and their lenders.

Mr. Grewal or RSG Law are named in more than 30 civil cases, many involving allegations of trust-account manipulation or mortgage fraud.

“I shall refrain from using more superlatives to describe the shocking scope of the fraud that has been laid in front of me in relation to the operation of that firm’s trust account,” Justice Dunphy wrote in Friday’s court order. The allegations of fraud have not been proven in court.

Mr. Grewal has not been suspended from working, but has agreed not to practice law while he awaits a disciplinary hearing at Ontario’s Law Society Tribunal.

Judge criticizes Law Society of Ontario’s handling of alleged real estate trust fund misconduct

A rash of similar cases where lawyers allegedly violated their client’s trust and misappropriated their money have ignited a debate in the legal profession about how to ensure clients and the public are protected.

“Lawyers themselves need to raise the bar, that’s why we’re self-regulated,” said Joseph Berljawsky, managing partner of Property Law Firm CB LLP, one of the largest real estate law firms in the country.

In his decision involving Simran Law, Justice Dunphy said there were 25 occasions since February where lawyer Simranjyot Kaur represented sellers in a real estate deal, while lawyer Jagpal Mann of JP Mann Law Firm acted for the purchasers. More than $18-million in mortgage funds from a variety of smaller lenders were paid into the lawyers’ trust accounts, intended for paying out mortgages held by some of the country’s largest banks.

Instead, the money went missing.

“This is NOT a ‘one off’ case of records having been inadequately maintained or sloppy ledger-keeping,” Justice Dunphy wrote. “Not one of the mortgages was in fact discharged with the mortgage advance proceeds. Solicitors’ undertakings to discharge the mortgages were not honoured … None of the funds have been returned or accounted for.”

The application for a receiver to be appointed was brought by the title insurer in each of the transactions, FCT Insurance Company Ltd.

FCT was also the title insurer in three civil cases where lenders sought to recover mishandled trust funds from Brampton lawyer Anil K. Sharma. In an Oct. 14 court order on those matters, Justice Dunphy issued a sharp rebuke to the Law Society of Ontario’s handling of real estate fraud by lawyers.

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In Mr. Sharma’s cases, almost $5-million was allegedly misappropriated in a similar manner to other recent cases: Mortgage funds were taken into his legal trust fund, but were not remitted to the intended recipients.

In his order for Mr. Sharma’s case, Justice Dunphy wrote he was “shouting into the wind” about the seriousness of recent alleged frauds and the need for swifter action from the law society’s regulators or from any authority.

The law society hasn’t made any public announcements about professional sanctions against Mr. Sharma, Ms. Kaur or Mr. Mann. None of those lawyers responded to requests for comment.

Mr. Grewal’s lawyer, Simon Bieber of Adair Goldblatt Bieber LLP, said his client “sold his shares in RSG Law in 2023 and has not been in control of the trust account since then.”

In a statement, the law society said it had obtained a court order freezing Mr. Sharma’s trust account and could not comment on its investigations. However, the society said it “has been involved in the receivership applications and as part of the receiverships is taking steps to safeguard the solicitor-client privilege of all clients.”

Mr. Berljawsky has been pushing a series of reforms at the law society that would make trust-account abuse and mortgage fraud more difficult to commit – or at least would lead to speedier discovery.

Requiring a second professional’s signature (though not in the case of sole practitioners) for any trust-account transaction is a start, according to Mr. Berljawsky. But he said a more meaningful and pro-active step would be to make law firms send monthly reconciliation reports of their trust funds to the law society that could be checked against their bank account balances.

In his view, the current system places too much trust in lawyers to make the right decisions, effectively creating an honour system and not a regulatory one. Mr. Berljawsky is warning that lawyers could find themselves cut out of the lucrative real estate market entirely if reforms can’t restore the trust of the public and of financial institutions.

“We need to come together … to make sure residential conveyancing is safer and better, or rightfully, we will lose our role in the process,” he said.