By Brian Madigan LL.B.
There was indeed an economic turndown in 2008/2009 in real estate in the Greater Toronto Area.
One real estate broker found a rather interesting and novel approach to lower income and steady expenses. He just stole the money. David Seto was the broker of record for a brokerage which he owned. He employed about 125 agents.
The trick was actually rather simple. It was not a sophisticated plan. If money came into his brokerage, he took it, whether it be deposits on real estate transactions or commissions due to his agents.
Just in case, you happen to think that he might have run a little short of cash, let’s look at the rules. Under the Real Estate and Business Brokers Act, Seto was to maintain three separate accounts:
1) a trust account for deposits,
2) a trust account for commissions, and
3) a general account to pay his bills.
So, when a deposit came in, he put it in his general account because he was short of cash. And, when money came in for commissions he put it in his general account because he was short of cash.
On 22 February 2010, Seto pleaded guilty to eight counts of breach of trust during the period July 2007 to April 2008. Actually, did I just say “July 2007”. Hey, there’s something wrong here! That market in the Spring of 2007 was very hot, and the money flows in June and July. So, he should have been flush with cash, unless, of course he just wanted to take people’s money.
Seto’s plea for leniency was based upon:
• The economic downturn
• He re-invested the money in the business
• He didn’t run off to a foreign country with the money
• He had emotional stress since his wife had cancer
• He had emotional stress because he had to place a mortgage on his house
• He was sorry
Seto stole about $500,000 which includes about $135,000 in consumer deposits.
All consumers are entitled to their deposits out of the consumer deposit insurance fund. They have already received their money. The agents are entitled to their commissions out of a similar insurance program, however, many of those claims are still outstanding. It’s easy to prove that Seto stole the money, now that he has made the admission in court, but proving the insurance claim is more difficult.
The Court decided:
• David Seto should be committed to jail for one year, and
• Seto’s company should pay a $200,000 fine
It is important for real estate agents, brokers and sales representatives to deal with a reputable real estate broker. Just remember, this mess has been going on for three years.
Brian Madigan LL.B., Real Estate Broker, is an author and commentator on real estate, finances and the law related to real estate
www.OntarioRealEstateSource.com
