Property buyers who are out $15 million in deposit money are eyeing the Law Society of Upper Canada’s compensation fund as the civil lawsuits proliferate amid lawyer Meerai Cho’s arrest on fraud charges last week.
Cho is facing 75 charges related to fraud over $5,000, possession of property obtained by fraud, and breach of trust. She says she transferred the purchasers’ deposit funds, which she was holding in trust, to her client, who was the developer of a North York building. She claims she transferred the money to Joseph Lee through an honest mistake due to her inexperience. Police released Cho on a promise to appear in court on Oct. 2 shortly after her arrest on Tuesday.
Meanwhile, purchasers who are out thousands of dollars are looking at ways to get their money back. Although police had heard from about 25 complainants as of last week, they believe there are as many as 141 victims.
Lawyer Mark Ross is representing five purchasers who paid $700,000 in deposit fees for five commercial units in the Centrium development on Yonge Street, a mixed use project that included residential, retail, and hotel components. Ross got a court order for the payment of the money but notes “the bank says there are $1,700 left in that [trust] account.”
Cho has declared bankruptcy, which creates a hurdle for proceedings directly against her. But Ross says he’s looking at other avenues to recover his clients’ money.
“I can tell you one of those things is the law society compensation fund,” he says, noting each of his five clients had bought a unit. The law society’s compensation fund has a cap of $150,000, an amount that could cover many purchasers’ deposits.
With Cho declaring bankruptcy, “any judgment we have against [her] is probably extremely limited,” says Ross.
“I don’t know if she has the [$15 million] to repay all of these purchasers. In fact, I highly doubt it. So you got to go for other avenues because she personally doesn’t have that money.”
Ross says he believes the money is in Korea, where Lee reportedly resides. He adds he’ll continue the civil action against “Cho and those around her,” although he declined to disclose who those other people are.
“There are other people involved in how this unfolded. I really can’t comment on that,” he says.
With several civil actions underway in the matter and about 40 others threatened, part of the concern for lawyers representing the purchasers is the likelihood of recovery for everyone.
“We’re going after a limited pie, and of course it’s a concern,” says Ross.
Purchasers who bought residential units are also turning to Tarion Warranty Corp., which administers the Ontario New Home Warranties Plan Act.
“Part of that warranty includes deposit protection on homes and condo units,” says Amy Lewis, senior manager of stakeholder relations at Tarion.
The protection covers a maximum of $20,000, according to Lewis, who says Centrium purchasers who placed a deposit on condo units should contact Tarion’s office to make a claim.
Lawyer Jonathan Keslassy of Garfin Zeidenberg LLP says that’s part of his plan to recover another purchaser’s deposit fees. After the Tarion coverage, his client will still have a balance of $64,000, he says.
“We’re going to approach it in one of two ways. One is make a claim to the law society compensation fund or make a claim against Meerai Cho with negligence,” he says.
Keslassy notes he’s hoping to recover some of his client’s money through Cho’s LawPRO coverage.
“There’s always a concern when your client has to chase the funds that they put in, but we’re dealing with LawPRO on the other side and they’re more than capable of dealing with this type of case,” he says.
For its part, LawPRO says its insurance policy covers lawyers and not their clients. Each lawyer’s coverage has a limit of $1 million per claim, says Duncan Gosnell, executive vice president and secretary at LawPRO.
Under LawPRO’s policy, a claim doesn’t represent every individual client’s loss. Instead, it refers to the “single or related error(s), omission(s) or negligent act(s) in the performance of or failure to perform professional services.”
Gosnell says he can’t say whether Cho has made a claim.
Cho’s law society hearing on a motion for an interlocutory suspension took place on Aug. 26, just a couple of hours after her arrest. Her lawyer, Bill Trudell, requested an adjournment of the hearing but offered to consent to an order suspending Cho’s licence in the interim.
Trudell told the panel, chaired by Laura Donaldson, that Cho was willing to suspend her practice and co-operate fully with the law society.
“She feels that it’s difficult for ongoing clients to be presented by her” given the attention the case has received, said Trudell, who added Cho has arranged for other counsel to take care of ongoing client matters she had been working on.
Law society counsel Ian Godfrey agreed to the order, noting the interim suspension would still protect the public interest. Cho reserves the right to make an application to set aside the order at a later date “if she sees fit,” according to the panel.
Many purchasers attended the hearing, prompting the law society to move the proceeding to a larger hearing room to accommodate the crowd.
Ross says the law society could have moved to hold the hearing sooner given the nature of the complaints.
“They’ve certainly been sitting for 2-1/2 months with serious allegations of misappropriation of trust funds,” he says. “In fact, in my court application, she admitted she misappropriated the trust funds. And that was an affidavit that the law society certainly saw by July 15 and she still practised another month after [that].”
While the allegations against Cho haven’t been proven in court, Ross says it’s possible it was a big mistake. “I’ve seen nothing to suggest she pocketed this money,” he says. “It is possible that this was gross incompetence, I mean the grossest of incompetence.”
At a news conference announcing the criminal charges last week, police cast doubt on Cho’s story. “We don’t have the foundation for that right now,” said Det.-Const. Chris Devereux of Cho’s suggestions she mistakenly had transferred the deposits to the developer before the building was complete and the transactions had closed.
“Given the amount of money, I would suggest there’s something else involved,” said Devereux. While Cho has said in her law society responses that she transferred the money to Lee, Devereux said there’s no evidence of that so far. “Criminally, again for us, it’s just a basic paper trail,” he said.
“The purpose of the trust account is to hold the money in trust,” he added.
For more, see "Lawyer under fire after $15M in condo deposits goes missing," "Boosting public protection," and "Meerai Cho affair a cautionary tale about condo deposits."