At Canadian Fraud News, we report on decisions issued by Canadian Courts related to fraud, that are not reported in the main stream media, and that contain legal issues the Canadian public and fraud recovery experts should be aware of. The following is one such story.

On September 14, 2017, the Ontario Superior Court of Justice in Toronto released its decision in in a civil case for purchasing stolen property. The Court held that Gabriel Kit Chun Fung, the owner of Plus One Solutions of Markham, Ontario, liable for knowing receipt, and ordered that Mr. Fung pay the owner of the property, Wescom Solutions Inc., over $5M in damages.

The Underlying Fraud Action against Minetto

The underlying facts of the fraud perpetrated against Wescom Solutions Inc. was reported in the civil action of Wescom v. Minetto, 2015 ONSC 5568.

On July 9, 2014, the plaintiff Wescom Solutions Inc. (“Wescom”) discovered that its trusted employee, the defendant Nadia Minetto (“Minetto”) had perpetrated a serious fraud against it.

The nature of the fraud was that Minetto, an accountant at Wescom, used her corporate AMEX card to purchase various iPhones and iPads from Apple, a supplier of Wescom, which she sold for cash to third parties including the defendant Gabriel Kit Chun Fung (“Fung”).

On July 17, 2014, Wescom obtained an order against Minetto on an ex-parte basis for, amongst other things, a Mareva injunction, an Anton Piller order and an order requiring Minetto to immediately attend an examination and disclose all her assets to Wescom.

On July 30, 2014, Minetto was cross-examined on an affidavit of assets pursuant to the ex parte order. Minetto only disclosed what she did with approximately $430,000.

On October 31, 2014, Wescom obtained judgment against Minetto based on her consent. Remarkably Minetto consented to a judgment in the amount of $6,831,834.17 plus interest.

As Wescom only recovered a fraction of its loss from Minetto, it continued its action against Fung.

The Knowing Receipt Action against Fung and Plus One Solutions

In November 2011 Minetto placed an ad on Kijiji offering an iPad for sale. Fung met Minetto in a parking lot at the Yorkdale Mall. Minetto sold Fung an iPad in its original package. Fung paid cash. The first iPad that Fung purchased from Minetto was inauspicious.

Over the next 32 months, however, Fung would go on to purchase 4,942 iPhones and 5,321 iPads from Minetto in increments of up to 10 or 20 pieces at a time. Minetto always insisted Fung pay her in cash. Fung paid 5.2 million dollars in cash to Minetto for those Apple products.

The legal question at trial was whether Fung knew, or was wilfully blind to, the fraudulent means by which Minetto was obtaining the Apple products he purchased from her at any time from 2011 to 2014.

The Agreed Facts

Fung, along with his businesses Plus One Solutions and GF International, entered into an agreement with Wescom to conduct a summary trial of the claims made against them. As part of the agreement, Wescom and Fun agreed to the following facts:

• Minetto was employed with Wescom as its accounting manager from June 9, 2008 until July 2014.
• Minetto began defrauding Wescom at some date prior to January 2011 through the fraudulent use of the company’s corporate AMEX Card.
• In January 2011, Minetto began purchasing new Apple products using the AMEX card, which she then sold for her own personal gain.
• Thereafter, Fung began buying Apple products from Minetto.
• Minetto would advise Fung of what Apple products she had access to and Fung would indicate how many he could buy.
• Minetto would then order these Apple products and notify Fung upon acquiring them.
• At all material times, Fung owned a store, Plus One Solutions, located in First Markham Place, 3255 Highway 7 East, Unit 155 B, Markham, Ontario.
• Plus One was a retail business that sold accessories, phones, and iPads. In addition, it provided services such as the unlocking of phones and repairs.
• Of the Apple products that Minetto supplied to Fung, approximately 10% to 15% were sold through Plus One. The remaining 85% to 90% of the Apple products were sold by Fung to offshore companies in Hong Kong, to local wholesalers, to other stores and to online purchases.
• Fung had a business relationship with Eric Yip. Yip assisted Fung with the sale of the Apple products through his network. (Yip, a named defendant in the action, is also known as Samson Man Chun Yip. There is no mention in the judgment that Wesco also moved for judgment against Yip at this time).
• Fung conducted a largely cash business at his store Plus One Solutions. Fung also paid Minetto for all of the transactions in cash.
• Fung and Yip rented a “virtual office space” at 15 Allstate Parkway, Markham. They used this address, in part, as a delivery location for the shipments of Apple products.
• From April 2013 to July 2014, 224 shipments were directed by Minetto to the Allstate Address totaling $3,124,361 worth of Apple products

Schedule 1 to the Agreement set out the dates between November 9, 2011, and July 9, 2014, on which Minetto purchased products by using a Wescom credit card from either the Apple online store or an Apple store that she would subsequently sell to Fung.

The total value of the Apple products acquired by Minetto through the fraudulent use of the Wescom credit card that she sold to Fung was $5,356,641.06.

Fung made 20% on the fraudulently obtained Apple products for a profit of $1,027,552.58.

Fung’s Evidence of How Business is Conducted in the Chinese Community

Plus One Solutions is located in First Markham Place. According to Fung’s evidence, 99%, if not 100%, of the businesses located at First Markham Place are owned or operated by Chinese people, and over 90% of the customer base of those businesses is of Chinese or Asian origin or ancestry.

Fung told the Court that it is not unusual for transactions, even those that are substantial in nature, to be carried out using cash at those businesses. According to Fung, tax is often not paid or collected on cash transactions within the Chinese community.

Fung also testified that the secondary market for the resale of handsets is primarily a cash business. Fung related his experience at First Markham Place and in reselling cellphones on the secondary market with his arrangement to purchase iPhones and iPads from Minetto for cash.

Fung further testified that it is “very common” that participants in the secondary market do not inquire into the source of the products that they obtain for resale. He stated that the source of the products is a “business trade secret”. It is for this reason that he did not ask Minetto how or where she obtained her products.

Fung justified his cash transactions with Minetto as a cultural norm in the Chinese community. He explained that it was a common business practice for him not to press his sellers about where they were getting their product from. In his line of work, “everyone is a middle man”. Fung reasoned that once a purchaser knows where the middle man is sourcing products to sell, the middle man is soon removed from the equation.

The Court’s Finding of Fung’s Willful Blindness

The Court held that there were sufficient circumstances for a reasonable and honest person to suspect during this period of time that the Apple products Fung was purchasing from Minetto were not legitimate.

The Court found as a fact that Fung made a conscious choice not to seek verification or further information about the source of the Apple products he was purchasing from Minetto. Rather, Fung chose to remain deliberately ignorant as to the source of those products.

The Court held that Fung’s suspicions should have been sufficiently aroused to ask Minetto to produce receipts in her name as proof of ownership for the Apple products that he was purchasing. Fung could have required Minetto to provide a letter of authorization from the source of the products. Fung could have stopped purchasing the Apple products altogether until he received satisfactory proof that those products had not been stolen or acquired through fraud.

The Court held that Fung’s evidence that buyers in the secondary market do not ask persons in the middle about the source of the products they are purchasing from is disingenuous in nature and not believable in view of all the other evidence.

The Court found that Fung’s explanation of how business is conducted in the Chinese community was irrelevant as Minetto is not a member of the community. The Court also found that there was no evidence to suggest that Minetto had told Fung that she was involved in the secondary market for electronic products.

The Court concluded its judgment by stating:

“As the saying goes, if something is too good to be true, it probably is. I find that on the balance of probabilities Mr. Fung knew, or chose not to make inquiries about whether, Ms. Minetto was selling Apple products to him that had been stolen or obtained through fraudulent means… Instead, he chose to remain deliberately ignorant as to that knowledge.”

For the full reasons for judgment, see >Wescom v. Minetto, 2017 ONSC 249, 2017 CarswellOnt 14895. It is not known as at the time of this press release whether Mr. Fung has appealed this decision.

Inquiries

For further information on this case, contact Canadian Fraud News Inc. at Devin@Canadianfraudnews.com .