Dr. Stanley Bernstein has made his fortune by founding a line of hugely successful health and diet clinics, with ads over the years featuring taglines such as “Medically supervised weight loss. Guaranteed.”
Unfortunately, the $110-million the Toronto physician and entrepreneur invested in various commercial real estate projects with his neighbours did not come with such strong assurances.
Where some of Dr. Bernstein’s investment eventually ended up — including $2.1-million that an Ontario Superior Court judge termed a “theft” — is at the centre of a thorny legal battle between Dr. Bernstein and two business partners from his Bridle Path neighbourhood, the wealthiest area in Canada.
http://www.drbdiet.com
The prominent medical doctor and entrepreneur has taken legal action against Norma Walton and Ronauld Walton, co-founders of Toronto-based Rose and Thistle Group, after discovering additional mortgages worth $6-million were taken out on two of their 31 joint investment properties without Dr. Bernstein’s knowledge over the summer, according to provincial court documents.
“My correspondence and dealings with Ms. Walton have done nothing to reduce my concerns, more particularly her refusal to tell us the whereabouts of the $6-million of the mortgage proceeds,” Dr. Bernstein said in his affidavit on Oct. 1.
It was this discovery that prompted the physician in October to submit an application to Ontario Superior Court for an investigation into their business dealings. The probe, which began Oct. 4, found that millions of dollars were funnelled outside of their joint corporations — including more than $260,000 for renovations on the Waltons’ mansion on Park Lane Circle, documents show.
The investigation, ordered through a section of the Ontario Business Corporation Act, also showed that $2.1-million of the total $6-million of mortgages on 1450 Don Mills Road (the headquarters of the National Post newspaper, purchased by Rose and Thistle in September 2012) and 1500 Don Mills Road taken without Dr. Bernstein’s permission were “diverted” outside the business, wrote Justice Frank Newbould in his endorsement to the Ontario Superior Court on Nov. 1.
“Ms. Walton admits that $2.1-million was ‘diverted.’... She offers excuses that do not justify what she did. What happened here, not to put too fine a point on it, was theft,” he wrote.
On Nov. 1, the judge appointed Schonfeld Inc., which acted as the inspector in the initial probe, as receiver/manager, giving the consultancy control of their 31 joint corporations until further order of the court.
Ms. Walton and Rose and Thistle said they “strongly disagree” with Justice Newbould’s decision and are appealing.
“Rose and Thistle has been in business with Dr. Bernstein for five years,” according to a statement e-mailed to the National Post. “Rose and Thistle regrets this situation and we hope to resolve the litigation to both parties’ satisfaction soon.”
What happened here, not to put too fine a point on it, was theft
Lawyers for Mr. Bernstein and his holding company, DBDC Spadina Ltd., and for the consultancy Schonfeld Inc., declined to comment.
Dr. Bernstein, now in his seventies, is perhaps the most successful diet doctor in Canada. The Bernstein regimen involves vitamin-B injections and an ultra low-calorie diet of roughly 850 calories per day. The diet has drawn the ire of critics who claim that the rapid weight loss it produces is dangerous. But Dr. Bernstein’s clients often sing the praises of their weight transformations, and with more than 60 clinics across Canada and about half a million patients (paying more than $1,100 for an 8-week program), he certainly would have had a lot of money to put into investments.
Why he decided to invest tens of millions with the Waltons and their relatively unknown Rose and Thistle Group is unclear.
Dr. Bernstein met the Waltons in 2008 when he was approached to act as a mortgagor, through one of his companies, for a property in Toronto owned by the Waltons and another investor, he said in his Oct. 1 affidavit.
The doctor acted as the lender and mortgagee for roughly eight mortgages on commercial real estate properties for the Waltons, either through Rose and Thistle or through other corporations, between 2008 and 2010, according to court documents.
Rose and Thistle Group, in addition to a real estate acquisition and property management arm, has many subsidiaries in a variety of different fields, including a commercial television and film production complex called Film Port Studio and the Urban Amish Interiors furniture company.
Peter J. Thompson/National Post
Dr. Bernstein and the Waltons, both lawyers, may have run in the same circles. Dr. Bernstein’s mansion on Post Road, owned by a trust in his name according to land registry documents, lies just over a kilometre away from the Waltons’ home on Park Circle. The Waltons purchased the two-storey home for $10.5 million in June 2012, according to land registry documents.
In September 2010, Mr. Bernstein jointly invested with the Waltons in a property on Spadina Avenue, according to the doctor’s affidavit. That relationship eventually grew to 31 commercial real estate projects over the next three years, with both parties signing on as 50% shareholders of each corporation established for each property.
Dr. Bernstein became a key investor and partner — of the 57 projects listed in Rose and Thistle’s real estate portfolio on their website, the physician had involvement in at least 25 of them, based on court documents.
This year, Dr. Bernstein “became increasingly concerned” about how their joint projects were managed, and “the lack of information provided to me,” he said in his affidavit.
He called on James Reitan, his company’s director of accounting and finance, to look into his investments with the Waltons. Mr. Reitan discovered that additional $3-million mortgages had been taken on both 1450 Don Mills Road and 1500 Don Mills Road on July 31 and Aug. 1 of this year, according to the court documents.
After several terse emails between the doctor, Mr. Reitan and Ms. Walton, Dr. Bernstein resorted to legal action, and an investigation into the matter was ordered on Oct. 4.
Ms. Walton was well aware that this was wrong
Just over $3.3-million of the mortgage proceeds were transferred to 28 of their 31 jointly-owned real estate corporations, Justice Newbould wrote. The balance was used for other purposes, including roughly $460,000 that was deposited into Ms. Walton's personal account and $154,000 transferred electronically to Plexor Plastics Corp., Rose and Thistle’s injection moulding business, Justice Newbould added.
Ms. Walton said in an Oct. 31 affidavit that the mortgages on the two Don Mills properties “should not have been done without Dr. Bernstein’s consent.”
However, she said she arranged for the mortgage against 1450 Don Mills because Dr. Bernstein needed a repayment of $2-million of equity by July 31 “to facilitate a personal purchase he was making, and I wanted to ensure I had it available,” the Oct. 31 affidavit says. Ms. Walton says it was to purchase a house for his son, according to an email included in the court documents.
As well, most of Dr. Bernstein’s $1.48-million equity contributions towards a commercial project called Tisdale Mews, for 35 townhomes near Victoria Park and Eglinton Avenue, went outside the business, according to Justice Newbould’s endorsement.
Invoices from Tisdale Mews’ bank account showed that more than a quarter million dollars was used for work done at 44 Park Lane Circle, the Waltons’ personal residence in the Bridle Path area of Toronto, the judge wrote.
Ms. Walton said in her affidavit that the roughly $268,000 was used to pay renovation costs on her residence, but that Rose and Thistle funded 100% of the purchases before any cheques were sent out of the Tisdale Mews account.
But the overall balance on the available bank statements for the Tisdale Mews’ project totalled $96,989.91 “indicating that most, if not all, Dr. Bernstein’s money went elsewhere,” Justice Newbould wrote.
The investigation also showed that the Waltons were not contributing their share of equity investments, as outlined in their agreements, according to court documents.
From the moment of the appointment, “Ms. Walton took various steps to hinder the Inspector,” Justice Newbould wrote in his endorsement. This included a procedure where Rose and Thistle employees could not provide information to the inspector without Ms. Walton vetting it, and some invoices relating to a period between January 2012 and August 2013 being inputted after the fact, the judge wrote.
Justice Newbould wrote that the “co-mingling of accounts” and the “cash sweep” into the Rose and Thistle accounts was “unfairly prejudicial” to Dr. Bernstein.
“$2.1-million was improperly taken from the proceeds of the $6-million mortgages that never had Dr. Bernstein’s approval, $400,000 of which was taken by Ms. Walton into her personal bank account,” the judge wrote. “Ms. Walton was well aware that this was wrong. She is a lawyer and the agreements were drawn in her office.”
The Waltons have since formally called for Justice Newbould to delete his reference to “theft” in his endorsement and challenged the appointment of a receiver/manager, according to court documents.
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