IN THE MATTER OF THE REAL ESTATE SERVICES ACT. S.B.C. 2004, c. 42 as amended AND IN THE MATTER OF ROGER BRUCE SCHOEN DECISION REGARDING LIABILITY

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1 IN THE MATTER OF THE REAL ESTATE SERVICES ACT S.B.C. 2004, c. 42 as amended AND IN THE MATTER OF ROGER BRUCE SCHOEN DECISION REGARDING LIABILITY DATE AND PLACE OF HEARING: March 3, 2017 Office of the Real Estate Council Vancouver DISCIPLINE HEARING COMMITTEE: Counsel for the Real Estate Council Robert D. Holmes, Q.C. (Chair) Gerry Martin John Daly Jean P. Whittow, Q.C. No one appearing for, Respondent INTRODUCTION 1. The hearing in this matter was conducted pursuant to section 42 of the Real Estate Services Act ( RESA ) to consider whether the conduct of contravened the RESA, regulations made under the RESA, or rules made by the Real Estate Council ( Rules ). For ease of reference, the Real Estate Council will be referred to herein as the REC and this Discipline Hearing Committee as the Committee. PRELIMINARY MATTERS 2. Mr. Schoen did not attend the hearing. He was duly served with the Notice of Discipline Hearing (Exhibit 5). An Affidavit of Personal Service was presented to the Committee at the hearing showing that Mr. Schoen was served October 26, 2016 (Exhibit 1). Mr. Schoen responded to that by writing s to Ms. Whittow, Q.C., REC legal counsel, asking for a postponement of the originally scheduled hearing date. Ms. Whittow agreed to that and sent Mr. Schoen a letter dated November 9, 2016 by setting out the new hearing date of March 3, 2017 (Exhibit 3). Mr. Schoen engaged in further exchanges with Ms. Whittow. 3. On February 24, 2017, as the hearing date approached, Mr. Schoen sent Ms. Whittow an . It attached a notice marked without prejudice, but the contents do not include an offer of settlement or fall within any other category for

2 Page 2 of 31 which privilege from being put in evidence could exist. This followed a practice he used on other communications and the same point applies to those as well. In the case of the February 24, 2017 notice, its contents state that it is an official notice to all concerned. Ms. Whittow presented a copy of the and letter to the Committee and the Committee received it in evidence (Exhibit 2). 4. Mr. Schoen sets out in the February 24, 2017 notice that he was going to decline to attend this hearing. He set out several bases for that. 5. One of the bases for choosing to do that apparently rests on Mr. Schoen s erroneous view that the Committee has prejudged the matter. The Committee has not prejudged anything. 6. Mr. Schoen also contends that the hearing should have occurred on or before November 2, 2015 and asserts that since it had not, the Committee is without jurisdiction. The basis for that comment is somewhat obscure, but appears to relate to Supreme Court of Canada rulings in relation to a speedy trial in criminal matters. Mr. Schoen refers to section 11(b) ( tried within a reasonable time ) and (d) ( presumed innocent until proven guilty according to law in a fair and public hearing by an independent and impartial tribunal ) of the Charter of Rights and Freedoms. Those are, as the opening phrase of section 11 sets out, applicable to persons charged with an offence. 7. The provisions of section 11 of the Charter are not applicable to professional disciplinary proceedings such as these. See para. 88 of Blencoe v. British Columbia (Human Rights Commission) 2000 SCC 44 (Bastarache, J., for the majority), where he says this about section 11 of the Charter: The qualifier to this right is that it applies to individuals who have been charged with an offence. The s. 11(b) right therefore has no application in civil or administrative proceedings. This Court has often cautioned against the direct application of criminal justice standards in the administrative law area. We should not blur concepts which under our Charter are clearly distinct. The s. 11(b) guarantee of a right to an accused person to be tried within a reasonable time cannot be imported into s. 7. There is no analogous provision to s. 11(b) which applies to administrative proceedings, nor is there a constitutional right outside the criminal context to be tried within a reasonable time. 8. It is true that Bastarache, J., addressed as well whether section 7 of the Charter or principles of fundamental justice at common law could apply so as to preclude an administrative hearing on grounds of abuse of process where delay occurred. At para. 101, he said that to get to that point there must be proof of significant prejudice which results from an unacceptable delay. The standard required examination of whether delay impairs a party's ability to answer the complaint against him or her, because, for example, memories have faded, essential witnesses

3 Page 3 of 31 have died or are unavailable, or evidence has been lost (para. 102). Similarly, to halt proceedings based on an allegation of inordinate delay, there must be actual prejudice of such magnitude that the public s sense of decency and fairness is affected (para. 133). 9. None of those factors exist here. There is nothing to preclude the Committee from holding the hearing it did and making this decision. There has not been delay and there has not been evidence presented to this Committee on which a finding could be made that Mr. Schoen s ability to present a case and answer the points made against him in the Notice of Discipline Hearing has been prejudiced. Mr. Schoen has had a full and fair opportunity on multiple occasions, including the hearing itself, to present evidence to answer the points made against him and he has chosen not to do so. 10. In brief, in May 2014 the REC audit staff attended on the brokerage involved in this matter (Tumbler Ridge Realty (2013) Ltd., located in Tumbler Ridge, B.C.) and found things in disarray. Proceedings were undertaken before the REC to freeze property and in court for appointment of a receiver (May 26, 2014) and to claim funds inappropriately taken and not accounted for. Those proceedings, and the receivership, took some time. The lack of records and lack of organization that existed with this brokerage were responsible for that. Also, working through the complex accounting and other issues involved, including dealing with the many clients of the brokerage who had funds held in trust, the shortage that existed and the claims and distribution of funds all took time. It was not until February 2015 that the principals of the brokerage ( ) paid money to the receiver to deal with the shortage. The receivership continued until funds were distributed (Ex. 8 and Ex. 6, Tab 9, Affidavit of Ms. Holst, Ex. H ) and a discharge order pronounced by the court in June Thereafter, the Notice of Hearing in this matter was signed January 28, 2016 and served October 26, This is simply not a case of delay as Mr. Schoen suggests. In any event, it would be incorrect to include the investigation and other proceedings prior to the Notice of Discipline Hearing in the evaluation of delay. In the criminal law context, delay is measured from the time a charge is laid. The equivalent here would be the Notice of Discipline Hearing. There has been no delay occasioned by the REC in that. 12. Also, Mr. Schoen has not pointed to any prejudice at all in making a defence. It is important to keep in mind that the issues raised in this matter concern whether Mr. Schoen fulfilled his duties as managing broker, including ensuring that the business of the brokerage was properly supervised and conducted and applicable standards of record keeping and administration of trust funds were met. Those are all matters within his direct knowledge. His choice not to respond to questions and not to participate in this hearing is telling against his assertions that it would be unfair for this hearing to proceed.

4 Page 4 of Next, Mr. Schoen appears to say that given that his license as a managing broker ended in May 2014, further proceedings before the REC may not be taken. That, too, is incorrect. RESA provides in section 34 that the REC s jurisdiction continues with regard to former licensees. For purposes of disciplinary matters, the definition of licensee in RESA is extended by section 34 and includes a former licensee in relation to matters that occurred while the person was a licensee. ISSUES 14. The Notice of Discipline Hearing served on Mr. Schoen sets out the matters raised against him as follows: In your capacity as managing broker for Tumbler Ridge Realty (2013) Ltd. dba Re/Max Tumbler Ridge Realty, you committed professional misconduct within the meaning of section 35(1)(a) of RESA when: 1. contrary to sections 6(2) and 25 of the RESA, and sections 3-1(1)(a), (b),and (c), 3-1(3), 8-1, 8-3, 8-6 and 8-10 of the Rules, you failed to: (a) (b) (c) (d) (e) (f) fulfill your responsibilities as managing broker for the performance of the duties imposed on the brokerage by its licence; ensure that the business of the brokerage was carried out competently and in accordance with RESA, regulations made under RESA, the Rules and bylaws; have control and conduct of the brokerage s business; be actively engaged in the management of the brokerage; ensure that the brokerage maintained and retained proper books and records, trust accounts, records and ledgers, appropriate and timely reconciliations, proper rental property management records, and more particularly, with respect to clients and.; ensure that there was an adequate level of supervision for representatives, employees and others who performed duties on behalf of the brokerage, and more particularly, permitted an unlicensed person to provide real estate services to ; and (g) ensure that rental funds were deposited into bank account in accordance with his written instructions. 2. contrary to section 30(1) of the RESA, you permitted the brokerage to withdraw monies from each of s and trust accounts, for expenditures and/or management fees, contrary to each of the

5 Page 5 of 31 clients instructions, and/or without each of the client s written authorization. 15. Counsel for the REC fairly and properly advised during the hearing that the last part of para. 1(f) of the Notice of Discipline Hearing was not being pressed, given the evidence that was put forward did not support such a finding, and so the underlined phrase and more particularly, with respect to clients and. is deemed to have been deleted therefrom. 16. Similarly, with respect to para. 2 of the Notice of Discipline Hearing, counsel for the REC acknowledged that: (a) The evidence presented demonstrated that monies were withdrawn without proper or any documentation from the trust accounts of the brokerage Mr. Schoen was licensed to serve; (b) A trust shortage of more than $80,000 existed at the start of the REC investigations into this matter; (c) The principals of the brokerage (who were not licensees) paid a sum to the receiver of the brokerage covering that shortfall, and litigation against them was resolved thereby; (d) There was no direct evidence that Mr. Schoen received any of those monies inappropriately withdrawn from the brokerage s trust accounts; and (e) In any event, given the pooled nature of the trust accounts and the inadequate record keeping, it was not possible to determine whether any of the inappropriately withdrawn monies were taken from. or trust accounts. 17. As such, the Committee determined that it would dismiss para. 2 of the Notice of Discipline Hearing. 18. Finally, during argument, REC counsel submitted that it was open to the Committee to find that, in addition to professional misconduct, Mr. Schoen had also committed conduct unbecoming a licensee. Counsel submitted that where professional misconduct is found, REC Disciplinary Committees usually do not make a further finding of conduct unbecoming, although finding both has happened in at least one decision of the Financial Services Tribunal that was mentioned (Re Parsons, No RSA-002(d)). 19. The Notice of Discipline Hearing does not expressly mention conduct unbecoming as one of the matters to be addressed at the hearing. Its express terms refer to section 35(1)(a) of RESA, which states that professional misconduct exists where a

6 Page 6 of 31 licensee contravenes this Act, the regulations or the rules. There is no express mention of section 35(2) of RESA in the Notice of Discipline Hearing. 20. The Committee acknowledges that in many instances professional misconduct may also be characterized as conduct unbecoming a licensee, and vice versa. But given the language used in the Notice of Discipline Hearing, in this case the Committee will not embark on an evaluation of whether Mr. Schoen s conduct also amounts to conduct unbecoming and will focus instead on what the Notice of Discipline Hearing clearly sets out and of which he has had clear notice. SUMMARY OF COMMITTEE S DECISION ON LIABILITY 21. The Committee s Decision on Liability is that, after deleting the last phrase from para. 1(f) and all of para. 2, and adjusting the language of para. 1(b) to eliminate references to regulations and bylaws, the matters remaining from the Notice of Discipline Hearing are all proven. The Respondent Mr. Schoen is liable for having committed professional misconduct within the meaning of section 35(1)(a) of RESA. The basis for that finding will be set out in the balance of these reasons. 22. The Committee directs that a copy of this Decision be ed and a hard copy mailed to Mr. Schoen and that the matter of what penalty will be imposed will be decided after the REC counsel and Mr. Schoen have had the opportunity to present any further evidence and submissions, in writing. STANDARD AND BURDEN OF PROOF 23. The standard of proof here is the balance of probabilities applicable in civil matters. That said, professional discipline is a serious matter both for the professional whose conduct is in question and for the public. Evidence must be examined carefully and must be sufficiently clear, convincing and cogent to meet that test. Thus, in F.H. v. McDougall, [2008] 3 S.C.R. 41 at para. 40 of that case, the court ruled: [40] Like the House of Lords, I think it is time to say, once and for all in Canada, that there is only one civil standard of proof at common law and that is proof on a balance of probabilities. Of course, context is all important and a judge should not be unmindful, where appropriate, of inherent probabilities or improbabilities or the seriousness of the allegations or consequences. However, these considerations do not change the standard of proof [45] To suggest that depending upon the seriousness, the evidence in the civil case must be scrutinized with greater care implies that in less serious cases, the evidence need not be scrutinized with such care. I think it is inappropriate to say that there are legally recognized different levels of scrutiny of the evidence

7 Page 7 of 31 depending upon the seriousness of the case. There is only one legal rule and that is that in all cases, evidence must be scrutinized with care by the trial judge. [46] Similarly, evidence must always be sufficiently clear, convincing and cogent to satisfy the balance of probabilities test. (emphasis added) 24. The burden of proof is on the REC. It must provide evidence of each allegation of material fact required to establish that the matters raised in the Notice of Discipline Hearing have been proven. That applies whether the respondent attends or not and whether the respondent provides any evidence or not. 25. There is a further evidentiary matter that the Committee noted during the hearing. The rules of evidence generally preclude hearsay, but certain exceptions exist and are recognized by the law. For example, evidence of what someone else said may be tendered for the purpose of showing that is what they said, but may not be admissible for purposes of proving the truth of that statement. Evidence that a party said something may, however, be used as an admission against them. In the course of the hearing, evidence of what Mr. Schoen said was introduced. That is admissible as an exception to the hearsay rule. Evidence was also introduced concerning what the principals, employees and clients of the brokerage said. The Committee is mindful that there are limits to the use that such evidence may properly be given. To the extent that such statements indicate how the brokerage s business and affairs were being conducted, they are properly admissible. PROCEEDINGS 26. The evidence presented at this hearing consisted of 10 exhibits, which included two Books of Documents (Exhibits 6 and 9), as well as other exhibits. Two witnesses were called to give evidence on behalf of the Council: Lisa Holst (REC Director of Accounting and Audit) and Janet Murray (REC Compliance Officer). As noted above, Mr. Schoen did not attend the hearing and no one appeared on his behalf to call or give evidence. As a matter of law, he is taken to dispute the allegations in the Notice of Discipline Hearing and put the Council to strict proof thereof. 27. The Committee found that both Ms. Holst and Ms. Murray were careful and thoughtful witnesses. They presented the information and documents that they had found in the course of their investigation in an organized and detailed manner. They related it to the accounting and business practice standards that the REC requires. It was clear that dealing with a brokerage in such a state of disarray, and principals and a managing broker who demonstrated repeatedly such lack of cooperation and care in meeting their responsibilities, was frustrating. But it is important to note that neither allowed the investigation itself to be frustrated. The Committee found their evidence helpful and accepts it as credible.

8 Page 8 of 31 Lisa Holst s Evidence 28. Ms. Holst is the Director of Accounting and Audit for REC. She qualified as a Chartered Accountant and, with the recent amalgamation of accounting professions, now holds a Chartered Professional Accountant designation. Part of her responsibilities involve conducting or supervising audits and inspections. To do that, she has made herself familiar with RESA and the Rules. She has worked with the REC since Ms. Holst reviewed the documents and evidence set out in Exhibit 6 a Book of Documents. Tabs 6 and 9 of Exhibit 6 have affidavits that Ms. Holst swore for use in proceedings in the Supreme Court of British Columbia against the brokerage and its principals (Action No. S ) and in the matter of a claims made against the Real Estate Special Compensation Fund Corporation (RECFC) by the estate of a deceased trust claimant who alleged that money was owing and unpaid by the brokerage. Ms. Holst testified that the evidence she gave in those affidavits was true and adopted it for her evidence before the Committee. The affidavit used in the court proceedings was sworn May 23, The one for use in the RECFC proceedings was sworn April 1, By way of background, Ms. Holst set out that the predecessor to the brokerage was known as Tumbler Ridge Realty Ltd. dba Re/Max Tumbler Ridge Realty and was licensed as a brokerage on Februrary 11, Its assets were bought by Tumbler Ridge Realty (2013) Ltd. in March 2013 ( TRR ). A copy of the purchase agreement was put in evidence (Ex. 10). was the owner of TRR, perhaps together with His spouse, acted as office manager. Neither were or had ever been licensed. 31. At the time of the purchase, there were several licensees working with TRR. Within a few months, that had fallen to two. What is notable from that is that Mr. Schoen, when asked his knowledge of TRR following the events of May 2014, said there was only one. 32. Around the end of April 2014, the REC received public complaints from clients that TRR had failed to pay over, or account for monies owed to them (Ex. 9, Tabs 1 and 5). Also, there were outstanding matters arising from REC requests made to the brokerage for information, including some from an inspection done in July 2013 and some from the failure of TRR to file its annual report with the REC. Those matters raised a sufficient level of concern with the REC audit staff that Ms. Holst, the Director of Accounting and Audit, was involved. 33. Ms. Holst called Mr. Schoen by telephone on May 1, 2014 (see Tab 2, Ex. 6, page 3). He said he did not know when the annual report was due and when the year end of the brokerage was. She reminded him that the fiscal year end was December 31 and that the annual report was due at the end of April. She noted that she had

9 Page 9 of 31 spoken earlier in the day with and had similarly been deflected with respect to the annual report. Ms. Holst reminded Mr. Schoen that it was his responsibility as managing broker to ensure that the annual report was filed with the REC in a timely way. 34. Mr. Schoen explained to Ms. Holst that by mutual agreement with. he was given 60 days notice of termination of his contract with TRR. He hoped to have everything tied up by the end of May. When asked whether TRR had plans for a new managing broker, Mr. Schoen advised Ms. Holst that he understood it was likely TRR would be wound up instead, given the local economy. When asked whether he had received any calls from clients about not getting financial information, he said he had not. 35. Mr. Schoen s apparent lack of knowledge about elementary matters pertaining to TRR and his comments about it being in the process of being wound up imminently heightened the concerns Ms. Holst had. 36. From May 7-9, 2014, Ms. Holst, Janet Murray and Michelle Chai (the REC audit team ) attended at the brokerage s offices in Tumbler Ridge, B.C. TRR had been told previously that Ms. Chai would be attending on May 7, 2014, but not the others. That aspect was thus a surprise audit of the books and records of TRR, although the brokerage knew that Ms. Chai was going to be attending then, seeking certain financial information and that the managing broker s attendance was required. It is, of course, within the legitimate authority of the REC to have its audit staff conduct inspections and audits on such a basis. 37. Mr. Schoen was not present at the May 7, 2014 meeting, notwithstanding that his attendance had been required. Instead, Ms. Holst and her two colleagues met with and, the two principals of the brokerage. Neither of the principals were licensed. They had bought the assets of the brokerage business the year before. They had arranged for Mr. Schoen, who resided in White Rock, B.C., to be managing broker. He had commenced that role around July 31, 2013 and was still licensed as the managing broker for this brokerage at the time of the audit inspection visit. 38. Mr. Schoen appears to have worked in the real estate industry in several different roles over the years. His licensing history with the REC was put in evidence (Ex. 6, Tab 1). He was a representative, licensed in trading and rental matters, from He was an associate broker in trading and rental matters from He became a managing broker and served in that role from He returned to being an associate broker in trading and rental matters from From 2004 to 2014, aside from a few periods when he was not licensed, he served as managing broker to several different firms. By the time of the events in question here, he had been licensed in one capacity or another for 25 years.

10 Page 10 of Mr. Schoen did not cease being managing broker of TRR until the brokerage s license was suspended on May 9, 2014 (see Suspension Order Under Section 45 and Order to Freeze Property Under Section 46, Ex. 6, Tab 9, Affidavit of Ms. Holst, Ex. A ). The effect of that suspension was that his licence was suspended as well. 40. Mr. Schoen refused or failed to meet with REC staff when requested and both before and after the suspension, provided only grudging and limited assistance with the REC investigation of the brokerage s books and records. 41. While Ms. Holst and the audit team were present at TRR, they asked and for the books and records, so as to perform their inspection and audit work. Ms. Holst asked specifically for the bank statements and reconciliations previously requested. initially responded that he thought Mr. Schoen had provided those. Ms. Holst told him that although some reconciliations had been provided by Mr. Schoen, no bank statements were and, in any event, the reconciliations were not complete. 42. was asked who the accountant for TRR was. He gave the name of, an accountant in Ft. St. John. He explained that had delivered a box of records to the accountant, but they had been lost. She had then re-sent the information via . When asked to produce the , made a note to do so, but did not follow through. said the accountant had most of the information needed to provide the annual report, but because TRR was having computer problems, would have to take that to him in Ft. St. John. When pressed as to when that would be, declined to give a commitment. 43. When asked how many rental units they were managing, said it was about 103. advised they were going to wind up their business and pass their rental business along to Royal LePage. He hoped to shut things down by May 23 and said all the rental management contracts were assignable. 44. When asked who had signing authority on bank accounts, advised that he, and Mr. Schoen were the three who had that authority. The REC audit team detected very few cheques signed by Mr. Schoen in the course of their work. 45. The audit team noted the complaints received by the REC about money due to landlords not being paid out by TRR in a timely way or when requested. 46. put the REC audit team in an office that was supposedly for use by Mr. Schoen. It did not appear to be occupied and lacked documents and other items that would indicate that it was much in use. The REC audit team waited for books and records to be produced. Unfortunately, nothing coherent resulted as a response.

11 Page 11 of 31 brought in dribs and drabs of documents. She said some records were on the computer, but access to those was problematic. When pressed for the bank statements, left the room for a considerable period of time and returned with only some of them. She then said she had not reconciled bank statements since June and left the room, seemingly to get more of the books and records, and were gone for a lengthy period of time. Eventually, the REC audit team went out to find them. They located them outside the building and down the street. was in tears. said she felt she was being interrogated and was upset. Ms. Murray advised that they should tell the truth as lack of information and responses to questions raised red flags. 48. advised that she did not have hard copies of all of the bank statements, but they could be accessed online. After more back and forth, advised she could not access the bank information online. Together, Ms. Murray and walked over to the bank to get the statements. The credit union assisted in accessing account information by re-setting her password. and Ms. Murray returned to the TRR office, but again said she could not access the bank statements online from her computer there. Faced with this further run-around, Ms. Murray asked that she get a hard copy from the bank by the next morning. 49. was asked to provide hard copies of the s she had supposedly sent to the accountant with the financial information that had been lost. She printed off some s, but none had attachments with the financial information. Ms. Holst then called the accountant to discuss what was happening with preparation of the annual report. 50. On May 8, 2014, the REC audit team attended the TRR offices again.. was present, but he advised that would not be attending. said he did not have access to the information about TRR, as kept it on her computer. The computer was at the TRR offices, but when was asked to provide access to what was on them, he said he would try, but did not accomplish that. 51. Ms. Murray and went to the credit union to get copies of the account statements for the four accounts that the REC audit team had identified. Finally, there was some progress as the credit union supplied the statements. On analyzing them, however, the rental trust account showed discrepancies in that the balances carried forward did not match those of the brokerage account statement copies for February and March While the format and credit union logos were the same, the amounts shown on what TRR had previously supplied to the REC and what the credit union set out differed.

12 Page 12 of 31 For example, for account the statement TRR had previously shown to the REC said there was $210, on deposit, but the credit union said there was only $91, as at March 31, Other discrepancies were noted. It appeared to the REC audit team that the account statements TRR had previously produced had been fabricated and contained inaccurate information. 53. Another matter of serious concern noted by the REC audit team was that TRR had no backup documentation justifying transfers from trust to TRR s operating account. In numerous instances, it appeared that when the operating account went into overdraft, funds were transferred from trust to cover the shortfall. 54. When asked about these, said that without Mr. Schoen and assistance, he was unable to provide an explanation. 55. An exit interview was arranged for May 9, The REC audit team and were present at TRR. Mr. Schoen attended by telephone. Ms. Holst set out the purpose of their visit that week, the fact that they had not been provided full and complete information, and that, to the contrary, their requests for books, records and information had been given partial answers, misleading answers or no answers at all. She advised that she found the responses insufficient and characterized the state of play of the records to be non-existent. Ms. Holst asked Mr. Schoen to advise what he knew of that. 56. Mr. Schoen told her that he wasn t an accountant or an expert. Ms. Holst asked when he had last looked at the records. Mr. Schoen said had sent him something the day before. When asked to identify that, he described it as a ledger, but couldn t explain what it was. He then asked Ms. Holst, what are you getting at? 57. Ms. Holst asked when he last attended the TRR offices. Instead of answering, Mr. Schoen asked why that was relevant. He said he could check his records on his phone, but never provided an answer. Mr. Schoen went on to recite what was on the document he said had sent him. It was described as a trading account. Ms. Holst asked if he had confirmed the information on it against the bank statements. He advised, No, I only looked at the reconciliation. 58. The nature of the ledger he was talking about was never firmly established. Mr. Schoen said he wasn t sure if it was a trading account or a rental one. When asked if he had seen a rental list for TRR, he said he could not say he had. 59. Ms. Holst asked Mr. Schoen what financial information he reviewed and he responded ledgers. She asked how many trust accounts TRR had and he said one. He was told there were three that the REC audit team had identified.

13 Page 13 of Ms. Holst told Mr. Schoen that the books and records of TRR were incomplete and that he did not appear to be aware of what was going on. She added that he did not appear to be in active charge of the brokerage. Mr. Schoen disagreed. 61. When asked if he was aware of complaints from clients, Mr. Schoen said he knew of one, but didn t have details at hand. He asserted that he did not appreciate being questioned or the tone of the conversation. 62. Ms. Holst referenced the complaint of who had requested his money back from TRR, approximately $85,000, and had not been paid. Mr. Schoen said he didn t know anything about that. said that TRR was holding the money because had wanted to do renovations. Ms. Murray noted that while that had previously been the plan, had requested his funds and had not received them. said he was unaware of that. Ms. Murray noted that she had seen and taken a copy of an exchange with and (who worked in the TRR office) that she had found on desk (see Ex. 9, Tab 6). had no explanation why the money had not been paid to, notwithstanding that the request had been made at the beginning of March Ms. Murray set out the nature of the second complaint that the REC had received concerning TRR. It was from. The complainant had produced documents showing that acknowledged owing it $12,000. Mr. Schoen said that no funds were owed to those owners. When questioned on his statement, Mr. Schoen said had told him so. did not confirm saying that to Mr. Schoen, but stated that the amount owing was lower. 64. There had been a suggestion that Mr. Schoen had faced medical issues which had prevented him from attending TRR s offices. When asked about that, Mr. Schoen refused to explain, citing personal privacy and his age. Ms. Holst noted that he had refused to attend any meeting with the REC. 65. Ms. Holst asked Mr. Schoen what he knew about the TRR accountant not having provided the annual report filing, which was overdue. Mr. Schoen s response was a confusing stream of thoughts, ranging from saying that he had just woken up, was sick and had others in his family on his mind, to saying that he had called the accountant three times, never got through and thought the accountant was avoiding him. Ms. Holst said she had gotten through to the accountant, who said TRR had not provided him with missing information. was asked again if he had given the accountant the information required and he said he had not. When asked if he had told Mr. Schoen that he had done so, he acknowledged he had told Mr. Schoen it was all done. 66. Concerns about the disarray of TRR, including its failure to produce books, records and information, the apparent fabrication of some account statements, the failure of

14 Page 14 of 31 its principals and managing broker to cooperate and be forthcoming with the REC and the risks to the parties that had complained, to other clients of TRR and to the public, resulted in the REC, pursuant to section 45 of RESA, suspending TRR s licence and freezing its financial accounts on May 9, Ms. Holst and the audit team re-attended the brokerage offices again on May 14, Part of the reason for that was to seize what books and records were present, as well as electronic records on computers. Ms. Holst noticed that a number of e- transfer bank documents previously seen by her in office were no longer there. To the best of her knowledge, the only people who had access to the brokerage were,, (a licensee) and the officer manager of a sublease tenant known as. 68. As noted above, the REC s records had indicated that the brokerage had accounts with the, which was nearby the brokerage s offices in Tumbler Ridge, B.C. As a result of the REC audit team s investigations of the brokerage s books and records, another account at the was identified. Although the existence of that account was detected by the REC audit team, no records were available at the brokerage detailing any transactions at the. 69. Ms. Holst tried to assess whether TRR was a viable business. From the brokerage s general trust account records, Ms. Holst determined that close to $2 million in rental income had been deposited from April 1, 2013 to May 8, She estimated that $197, would have been earned for management fees on that if the industry standard rate of 10% of revenue was applied. She noted that that rate was confirmed by information from the landlords who contacted the REC. The brokerage earned revenue of $21, from the subtenant, plus a security deposit of $1, and deposited this to its operating account. The total revenue of the brokerage for that period, thus, was estimated by Ms. Holst to be $218, Against that, she noted that there were total disbursements from the operating account of $447, That meant that there had been about $228, more disbursements from the operating account than attributable revenue. That was not indicative of a viable business. Even though that calculation did not account for real estate commissions that may have been earned from real estate trades, given that the business of this brokerage was mostly one of managing rental properties, Ms. Holst regarded it as unlikely that would account for the difference. 70. She noted next that there was a total of $314, in transfers to the operating account from the four other accounts that the brokerage maintained, three of which were trust accounts. Given the estimate of $197, as management fees that could potentially be considered appropriate withdrawals from trust (had there been proper records kept), that did not explain why the sum taken from the brokerage s general trust account and deposited to its operating account exceeded that figure by approximately $101,

15 Page 15 of Ms. Holst s view, as an accounting and audit professional, was that the brokerage was using trust funds to cover disbursements made from its operating account. 72. Ms. Holst provided a breakdown of the $447, in disbursements made from the operating account. It showed payments of $45,000 to and $53, for an American Express credit card and line of credit in the name of. It also showed $8, for ATM withdrawals, including some made at casinos, for which there was no supporting documentation. There were also disbursements for EMT transfers totaling $60,823.33, for which there was no supporting documentation. 73. advised Ms. Holst that Mr. Schoen was paid $3,000 per month for his services as managing broker. However, there was no record of those payments in the review of the credit union account statements. That said, as noted below, Mr. Schoen advised Ms. Murray that he had been paid by EMT. 74. On May 22, 2014, the REC sent notices to all of the clients of TRR who had been identified from information gathered to that point that TRR had been suspended and that they should provide information about their claims. On May 26, 2014, the REC applied to the court to have a receiver appointed. Thereafter, REC audit staff and the receiver worked together to try to assess who was owed money and in what amounts. In some cases (e.g., it was impossible to establish that, given the absence of appropriate records and inconsistent stories. The accounting demonstrated that there was a trust shortage of approximately $80,000. and made arrangements to pay that to the receiver and the litigation against them was settled. Those funds, together with the funds that had been frozen by the REC Order of May 9, 2014, were used to pay out approximately $240,000 in claims. The report of Manning & Associates dated May 12, 2015 filed with the court sets out in detail the precise accounting and the allocation to claimants (Ex. 8). 75. Along the way, the REC experienced legal, accounting and receiver s fees and related expenses totaling more than $140,000, none of which has been recovered. 76. When asked by the panel whether she had ever seen the books and records of a brokerage in the state she found those of TRR, Ms. Holst said she had not. Janet Murray s Evidence 77. Ms. Murray has been a compliance officer with the REC for 3 ½ years and has investigated many complaints. She previously worked for 25 years in the real property management business, and has been licensed as a managing broker (for rental and strata). She has worked both in the Lower Mainland and Interior of B.C.

16 Page 16 of Ms. Murray reviewed the complaints made to the REC by. (Ex. 9, Tabs 1-4), given file reference number , and (Ex. 9, Tab 5-6), given file reference number She noted that in addition to those two complaint files, an investigation of a more general nature was opened and given file reference number Mr. Schoen was given notice of each of these and provided written responses, the substance of which may be summarized thus: (a) June 11, 2014 letter relating to File # (Ex. 9, Tab 7) in which Ms. Murray asked a series of questions about Mr. Schoen s role as managing broker with TRR, including requests for documents; (b) June 20, 2014 letter from Mr. Schoen responding thereto demanding, pursuant to the Freedom of Information and Privacy Act, (sic) that the REC provide copies of complaints files relating to the complaints of and, other investigation records relating to him, information pertaining to a cheque allegedly made by in favor of her former place of work, an explanation of what the REC had found in its audit of TRR concerning that cheque, and any funds that may have been deemed missing during the recent audit, if there was any, and if so, at what dates were those monies originally withdrawn from the trust accounts and who signed for them. He concluded that until he had the information and documents he demanded, he was not able to accurately reply to Ms. Murray s letter. He did not supply any of the requested documents. (c) June 26, 2014 letter relating to File # (Ex. 9, Tab 9) from Ms. Murray to Mr. Schoen advising that under section 2-19 of the Rules, he was obliged to respond promptly to any inquiry from the REC and had not yet done so. Ms. Murray noted (on page 2) that as part of its inquiry the REC was concerned whether Mr. Schoen had met his obligations as managing broker to be in control of the brokerages business, supervising licensees and being actively engaged in management. (d) July 14, 2014 letter from Mr. Schoen to Ms. Murray and the REC (Ex. 9, Tab 11) in which he stated that he started working for TRR as managing broker on August 1, 2014, was reimbursed for my services by EMT payment of $3000/mth ( ), physically attended TRR s office on more than one occasion, maintained control and conduct of the brokerage business by telling those involved that he needed to know everything you are doing in relation to Real Estate and requiring them to correspond with him on all matters pertaining to the operation of the brokerage and asserting that for the most part they did exactly that, there were three trust accounts all together in ONE report, that all the reports he had reviewed and signed off were in the records that the REC took from the Brokerage, that there were 7 complaints

17 Page 17 of 31 he dealt with either under my direction or personally and that he had not spoken with any clients after the suspension. Finally, he asserted he had 496 s about TRR s business and had countless phone calls and texts and responded to those as well as my attendance at the brokerage. He concluded by saying (incorrectly) again that all this was done for a real estate office with only ONE Realtor. He did not provide any of the 496 s or other documents. (e) August 27, 2014 letter relating to File # (Ex. 9, Tab 12) and August 29, 2014 letter relating to File # (Ex. 9, Tab 13) -- Mr. Schoen responded to both of these by a letter dated September 17, 2014 (Ex. 9, Tab 14) in which he stated that many of the question you have asked have already been answered in my previous response to your file # dated July 14, He added that he categorically denied wrongdoing and asserted the complaints were frivolous, egregious, inflammatory, scandalous and superstitious and therefore should not be given any credence. He acknowledged never having communicated with either complainant in any manner whatsoever. He concluded saying he was appalled that they have made these claims. 80. Ms. Murray obtained a copy of Mr. Schoen s Employment Agreement made July 31, 2013 (Ex. 9, Tab 15) that provided that Mr. Schoen had a great deal of experience in the business of real estate trading and rental property management. He was engaged to provide such duties as are customarily performed by one holding the position of managing broker in other, same, or similar businesses or enterprises as that engaged in by the company. He agreed that he would at all times faithfully, industriously, and to the best of his ability, experience and talents, perform all of the duties that may be required of and from him. He was to do so at the Tumbler Ridge office of TRR and at such other place or places as the company shall in good faith require For that, Mr. Schoen was to be paid $3,000 a month, plus expenses. The contract expressly provides that B.C. law is to apply to the interpretation of its provisions. 81. Ms. Murray was asked by the Committee about her experience with managing brokers generally. She said that most recognized the importance of providing full and complete responses to REC requests for documents and information. She was asked how the dealings with Mr. Schoen compared with that. She said that she had found him to be disrespectful and difficult to deal with. He was ungovernable, even when referred to the RESA and the Rules and asked direct and pointed questions. She added that she has never been to a brokerage that was in such a poor state of organization and record-keeping as this one.

18 Page 18 of 31 Submissions REC Submissions 82. Ms. Whittow presented submissions on behalf of the REC. Some are noted in the heading Preliminary Matters above. With regard to the balance of matters remaining from the Notice of Discipline Hearing, Ms. Whittow submitted that the case against Mr. Schoen was clear and was proven. He had obligations as a managing broker and had failed to perform them. 83. Ms. Whittow noted that a managing broker plays a critical role in ensuring compliance by the related brokerage and licensees with the legislative regime under the RESA. RESA provides: 6(2) A managing broker licensed in relation to a brokerage acts for the brokerage for all purposes under this Act, and is responsible for (a) the exercise of the rights conferred on the brokerage by its licence, (b) the performance of the duties imposed on the brokerage by its licence, and (c) the control and conduct of the brokerage's real estate business, including supervision of the associate brokers and representatives who are licensed in relation to the brokerage. 84. Section 25 of RESA provides that A brokerage must maintain proper books, accounts and other records in accordance with the rules, and must keep these records in British Columbia. 85. These requirements are further particularized in the Rules: 3-1 (1) Supervision A managing broker must (a) be actively engaged in the management of their related brokerage, (b) ensure that the business of the brokerage is carried out competently and in accordance with the Act, regulations, rules and bylaws, and (c) ensure that there is an adequate level of supervision for related associate brokers and representatives and for employees and others who perform duties on behalf of the brokerage.

19 Page 19 of 31 (3) Accounts and records A managing broker must (a) ensure the trust accounts and records of the brokerage are maintained in accordance with the Act, regulations, rules and bylaws, and (b) ensure proper management and control of documents and other records related to licensing and regulatory requirements. 8-1 (1) A brokerage must prepare and retain such financial records in connection with its business as are necessary to ensure the appropriate and timely accounting of all transactions relating to real estate services provided by the brokerage and its related licensees. (2) The records required under subsection (1) must show and readily distinguish the following: (a) the amount of money held or received by the brokerage on its own behalf; (b) the amount of money paid by the brokerage on its own behalf; (c) the amount of money held or received on behalf of each other person including, if applicable, an indication of whether it was held or received on behalf of the person as a principal or as a licensee; (d) the amount of money paid to or on behalf of each other person including, if applicable, an indication of whether it was paid to the person as a principal or as a licensee; (e) the total amount of money held or received for or on behalf of other persons; (f) the total amount of money paid to or on behalf of other persons. 8-3 In addition to the records referred to in section 8-2 [trust account and general account records] of these rules, for each pooled trust account maintained by a brokerage, the brokerage must prepare and retain the following records: (a) separate trust ledgers as follows: (i) in respect of money held or received on account of trades in real estate a separate trust ledger for each trade in real

20 Page 20 of 31 estate showing all amounts received and disbursed in relation to the trade and any unexpended balance in relation to the trade; (ii) in respect of money held or received on account of rental property management services a separate trust ledger for each principal showing all amounts received and disbursed in relation to the principal and any unexpended balance in relation to that principal; (iii) in respect of money held or received on account of strata management services a separate trust ledger for each principal showing all amounts received and disbursed in relation to the principal and any unexpended balance in relation to that principal; (iv) in respect of money held or received on account of remuneration for real estate services a separate trust ledger for each licensee or other intended recipient showing all amounts received and disbursed in relation to the recipient and any unexpended balance in relation to the recipient; (b) a monthly trust liability and asset reconciliation, (i) for money held by the brokerage as a stakeholder under section 28 [circumstances in which brokerage holds money as stakeholder] of the Act, listing each trade in real estate in relation to which the brokerage holds the trust money, and the amount being held in relation to each trade, (ii) for money that is not held by the brokerage as a stakeholder, listing every person for which the brokerage holds trust money, and the amount being held for each person, and (iii) reconciling the money held in the trust account to the unexpended balances in the trust ledgers for the account, prepared in a timely fashion and, in any case, no later than 5 weeks after the end of the month being reconciled. 8-6 (1) A brokerage must retain the following records with respect to its rental property management services: (a) the tenancy agreements or other contracts for the rental of the real estate;