June 7, 2017 – Announcement
April 7, 2017 – Announcement
To the Unitholders of the Silverfern Secured Mortgage Fund (Fund)
We write to advise you of important developments regarding the Fund and to notify you of an upcoming meeting of unitholders to be scheduled shortly.
As of March 9, 2017, we decided to temporarily suspend redemptions in the Fund until certain issues are resolved, for the reasons set out below. We have also given a voluntary undertaking to that effect to Staff of the Ontario Securities Commission (Staff). We intend to continue monthly distributions to unitholders.
In addition, we have provided a voluntary undertaking to Staff not to carry out the following activities:
· soliciting, trading or otherwise accepting further investments in the Fund;
· entering into transactions outside the ordinary course of business;
· paying fees to certain affiliated companies;
· making loan investments into multi-residential development projects; and
· making investments in second residential mortgages with loan to value ratios of over 85%, and investing more than 50% of the mortgage portfolio in higher ratio residential mortgages.
We also wish to advise unitholders that on November 11, 2016, the Fund was approached by Staff. In our discussions with Staff, we acknowledged that the units in the Fund should have been sold to investors through a registered individual under the Securities Act (Ontario).
We have been fully cooperating with Staff’s review of the activities of the Fund. In the course of that process, Staff raised a number of concerns, some of which are set out below.
As you may know, the Fund has taken the opportunity to make significant investments in multi-residential development projects. An issue has arisen with the way in which the Fund has recognized revenues from these multi-residential project loans. Certain “buy-down rate” amounts deducted from advances made to borrowers were treated as fees earned by the Fund, but are in fact properly characterized as deposits.
In addition to the secured mortgage loans made by the Fund, companies affiliated with the Fund were issued shares in the multi-residential projects. Our intention in taking this equity position is to maintain better oversight into these projects, to ensure that economic potential of these projects would ultimately benefit unitholders, and to allow us to step in when necessary to take over the projects to protect your investment. However, we recognize that the manner in which these shares are held should be restructured to better reflect this intention and to make clear that unitholders’ investments are protected by this equity position.
We have and are continuing to cooperate fully with Staff. We are committed to protecting your investments and we are in the process of developing measures to address the concerns identified above, including executing amendments to the agreements with the multi-residential project borrowers so that the buy-down rate amounts can be properly recognized as revenue. It is expected that these amendments should be completed in the next 30 days.
As well, we intend to update the Fund’s offering memorandum to provide unitholders with all the information needed to be fully informed about this aspect of the Fund’s activities. We also expect to restructure certain aspects of the Fund’s activities, including its interest in the equity identified above.
Given these important developments, we intend to call a meeting of unitholders on a date to be scheduled. We will provide an update on our progress at that time and we expect to propose measures to address the above issues and to strengthen the structure and governance of the Fund.
Please do not hesitate to contact Warren Aarons, Director – Investors Relations, at (905) 201-2282, extension 423 if you have any questions or concerns.
Brad Burdon, Matthew Laverty and Marc Ruttenberg
Trustees of the Silverfern Secured Mortgage Fund