Court orders receivership of real estate entities following alleged misuse of investor funds

Overview

The Ontario Securities Commission (“OSC”) obtained an order under section 129 of the Securities Act, R.S.O. 1990, c. S.5, appointing Doane Grant Thornton LLP (“Grant Thornton”) as receiver and manager over all assets and properties of the entities operating under the “Cacoeli” name.

Justice Steele found that the OSC had established serious concerns regarding the unauthorized diversion of investor funds, in breach of the governing Limited Partnership Agreements (“LPAs”) and project-specific marketing materials provided to investors.

Background

The respondents included Cacoeli Asset Management Inc. (“CAM”), Cacoeli Capital Inc., and several limited and general partnerships involved in the acquisition and management of residential real estate in Ontario. Since 2015, they had raised approximately $13 million from 53 investors through subscription agreements and marketing materials that linked each investment to a specific property.

In December 2023, following a complaint by CAM’s former CFO, the OSC launched an investigation into several projects, including Holborn-Chicopee, Heiman LP, Linnwood-Lowther LP, and YS High Yield LP. The OSC alleged that funds raised for one project were improperly used to finance other unrelated projects, without proper disclosure or investor consent.

Prior to seeking a receivership, the OSC had obtained a February 14, 2025 court order appointing Grant Thornton as Monitor over the respondents’ assets. However, OSC later argued that full receivership was necessary to protect investors and ensure compliance with regulatory obligations.

Parties’ Submissions

The OSC submitted that the respondents had diverted investor funds in a manner inconsistent with the LPAs and the offering materials. It argued that this conduct raised serious concerns under section 129 of the Securities Act and justified the appointment of a receiver over all respondent entities and assets.

In response, the respondents maintained that the general partners acted within the scope of their authority under the LPAs. They relied on sections 3.2.2.9, 3.2.2.13, and 3.2.2.14, which they argued permitted borrowing against partnership assets, reinvestment in other projects, and transactions with affiliated entities. They also asserted that, in some cases, investors were eventually given an interest in the new projects and that financial disclosures reflected these arrangements.

Additionally, certain secured creditors, including Vault Capital and Clifton Blake, requested that the Court exclude specific properties from the scope of the receivership on the grounds that those assets were unrelated to the alleged misconduct.

Evidentiary Issues

Justice Steele addressed the applicable threshold for relief under section 129, relying on prior cases including OSC v. Sbaraglia and OSC v. Sextant Strategic Opportunities Hedge Fund LP. The judgment confirmed that the standard is whether there are serious concerns about potential breaches of the Securities Act, not whether a strong prima facie case has been established.

The Court also considered whether the OSC could rely on transcripts of investor interviews obtained during its investigation. It concluded that while the transcripts are admissible for non-hearsay purposes, they could not be used to prove the truth of their contents. Although the OSC referred to section 17(6) of the Securities Act, Justice Steele held that it did not override evidentiary rules.

Court’s Findings

The Court concluded that the OSC had met the statutory threshold under section 129 of the Securities Act and that the circumstances warranted the appointment of a receiver. Justice Steele rejected the respondents' interpretation of their authority under the LPAs, finding it inconsistent with the express terms of the agreements, which limited each partnership to the ownership and management of a specific property. While the LPAs granted broad powers to general partners, those powers were to be exercised in furtherance of the specific business projects, not to support unrelated ventures.

The marketing materials, the Court found, emphasized the project-specific nature of each investment. Even though some investors were ultimately allocated interest in new projects, these transfers occurred without adequate disclosure or proper authorization. Such diversions violated the LPAs and frustrated the expectations of investors.

Scope of the Receivership

The Court declined to exempt any properties from the scope of the receivership order. While some secured creditors argued that their collateral was unrelated to the alleged misconduct, the Court agreed with the OSC and with CMLS, a first mortgagee, that a full receivership was necessary to maintain centralized oversight and avoid a “free for all” among the mortgagees.

Grant Thornton, in its role as the Monitor, advised that no conclusive evidence had been provided to demonstrate that any of the properties were unconnected to the alleged misconduct. The Court accepted this position and approved a framework in which the receiver would apply available net cash flow to mortgage payments and notify secured creditors if full payment could not be made.

Conclusion

The Court granted the OSC’s application and appointed Grant Thornton as receiver and manager over all respondent entities and assets. In doing so, it confirmed that serious concerns regarding non-disclosure and fund diversion may warrant the exercise of receivership under section 129 of the Securities Act, even over assets certain creditors sought to exclude.

This decision underscores the OSC’s authority to seek interim relief where investor protection is at risk and illustrates the Court’s willingness to impose receivership powers in response to potential regulatory breaches.