Breaking Fraud Cases from the Canadian Courts August 2019 – No 2
At Canadian Fraud News, we review the decisions as they are released by Canadian Courts and then publish those we believe are of interest to private sector civil fraud recovery lawyers and investigators as well as public law enforcement, security regulators, and victims of fraud. The cases we report on are generally not published in the mainstream media. We also report on significant events taking place in the fraud recovery community.
Fraud Conferences and Events
Returning for the 8th edition, the C5 Fraud, Asset Tracing & Recovery Conference is being held in Miami this October 28 – 29, 2019. For further information, see ACI.
Breaking Cases
In this newsletter, we review a Mareva set aside motion, an unjust enrichment action for recovery of criminal interest paid in a Ponzi scheme, an immigration fraud case, a small claims fraud appeal, and a criminal fraud sentencing for credit fraud. For the reasons set out below, we are of the view that all of these cases are relevant to fraud victims, and investigators and lawyers in the fraud recovery field. These are our stories.
Otal v. Azure Foods Inc., 2019 BCSC 1510 / Judgment: August 30, 2019 / Docket: New Westminster
Counsel: G. Badh, for Plaintiffs / Motion to Set Aside Mareva – Elevated Costs for Dishonesty
The plaintiffs asserted that the defendants misled the Court when they brought an application to vary a Mareva injunction obtained by the Plaintiffs. At the Variation Application of the defendants, they sought to lift a cap that the $50,000 cap on legal fees. The motion was dismissed. As a result of the Defendants’ dishonesty in their Variation Application motion process, the plaintiffs sought an order that the court institute contempt proceedings ex mero motu as the dishonesty involved statements made by counsel to the Court. The Plaintiffs also sought elevated costs for each aspect of the motion where the Defendants engaged in dishonesty. The Court held that the Court is entitled to rely on the honesty of counsel, that some statements of counsel were not honest, but that since counsel relied on statements of his clients, the Defendants, that it the Defendants who should pay elevated costs. The motion for contempt ex mero motu (contempt proceedings initiated by the Court) was dismissed.
A copy of the decision can be found below:
Doyle Salewski Inc. v. Scott, 2019 ONSC 5108 / Judgment: August 30, 2019 / Docket: Ottawa
Bankruptcy trustee brings fraud actions to recover from recipients of criminal interest rate payments
Doyle Salewski Inc., as the trustee in bankruptcy of Golden Oaks Enterprises Inc. and Jean-Claude Lacasse, sought judgment against defendants in seventeen separate Superior Court and Small Claims actions. Golden Oaks Enterprises Inc. (”Golden Oaks”) was founded by Jean-Claude Lacasse and operated in Ottawa between 2009 and 2013. It was a vehicle for two businesses. Jean-Claude Lacasse perpetrated a Ponzi scheme through Golden Oaks. Lacasse advertised Golden Oaks widely as a business that allowed individuals who did not qualify for a mortgage to buy a home. The company’s operating name was “Rent2Own Canada”. Its core operations ostensibly focused on buying houses that were undervalued, fixing them up, and renting them to prospective buyers. Tenants would make a down payment and pay a slightly inflated rent, in return for a non-binding option to purchase the property three or five years later.
Lacasse promoted Golden Oaks as an altruistic enterprise widening the path to homeownership. In the words of a company brochure, it was “Making Dreams Come True … One Family at a Time!”. Less publicly, Golden Oaks was promoted as a means to turn a quick profit. Individuals were invited to loan Golden Oaks money to fund its operations. They were described as investors but were actually short-term lenders. In return for their advance of funds for few weeks or months, they got a promissory note entitling them to interest at a rate far greater than they could get otherwise. From 2009 to May 2013, the company issued 504 promissory notes to 153 investors. New investors were persuaded to make loans by early investors, who were paid commissions for each loan made by a lender whom they recruited. Initially, the promissory notes offered rates of interest that were merely attractive.
As Golden Oaks’ financial situation worsened, however, the company issued more and more notes at effective annual interest rates in excess of 60%, and therefore above the criminal rate of interest under the Criminal Code, R.S.C., 1985, c. C-46. Whatever Lacasse’s original intentions may have been when he founded Golden Oaks, it became a classic Ponzi scheme. The Rent2Own scheme was never viable. Despite Lacasse’s powers of persuasion and promises of high returns, the well eventually ran dry. In July 2013, the scheme collapsed. Golden Oaks and Lacasse went into receivership and, a few weeks later, made assignments in bankruptcy. Doyle Salewski was appointed first as receiver and manager, then as trustee.
Doyle Salewski spent many months combing through Golden Oaks’ records, such as they were. The company had no proper accounting system. Records of many agreements and transactions were not recorded. Many large payments were made in cash. Golden Oaks and Lacasse maintained seventeen bank accounts at five different banking institutions. During its investigation, Doyle Salewski reviewed approximately 10,000 transactions. It found that Golden Oaks and Lacasse had given different investors unregistered assignments in connection with the same properties to secure debt far in excess of the properties’ value.
In 2015, Doyle Salewski, in its capacity as Trustee of the Estates of Golden Oaks and Lacasse, began over eighty separate legal actions against various creditors. This included seventeen lawsuits against individuals and companies who received payments from Golden Oaks in 2012 and 2013, including but not limited to commission payments and interest on promissory notes. These actions were consolidated and heard together. The overarching theory of these seventeen actions is that, as a Ponzi scheme, Golden Oaks was, by definition, insolvent and was used to further a fraud. It never had enough money to fund its operations or pay what it owed to legitimate creditors. The commission payments, usurious interest payments, or other transfers to the defendants deprived these creditors of their share of the company’s remaining equity.
The Trustee’s claims fell into two broad categories. First, it made statutory claims seeking repayment of alleged preferential payments and transfers at undervalue under sections 95 and 96 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”). Second, it made unjust enrichment claims. The Trustee argued that there was no juristic reason for the payments that flowed to the defendants, which enriched them at Golden Oaks’ expense. The interest rates on their loans were usurious and therefore illegal. Commissions were paid for the sale of promissory notes, contrary to the Securities Act, R.S.O. 1990, c. S.5. The Trustee contended that these payments should be set aside. The seventeen actions were heard together in a summary trial.
Held: some preference claims were granted. The unjust enrichment claims for recovery of usurious interest against most of the defendants were granted. This is a long and complex decision.
A copy of the decision can be found below:
Canada (Minister of Public Safety) and Alika, 2019 CarswellNat 4736 / Judgment: August 1, 2019
Applicant for Immigration was a Nigerian member of Black Axe, an organized fraud crime organization
This was a record of reasons for a decision made under the provisions of the Immigration and Refugee Protection Act (IRPA) concerning Peter Chukwudi Alika following an admissibility hearing. He is a citizen of Nigeria and was a permanent resident of Canada. The test in finding a person inadmissible under s.37 of the IRPA has two parts. The first part is to establish that there exists an organized crime group. In this case, that group is the Neo Black Movement (NBM) / Black Axe (BA). Mr. Alika did not contest that the NBM is an organized crime group. The evidence with respect to the activities of the NBM is rife with criminality. The second part of the test is that Mr. Alika is a member of the NBM. Mr. Alika denied that he is a member of the NBM. He challenges that the report authored by Detective Constable Trotter is incomplete, sloppy, and not credible, that is should be afforded no weight. The Court found the testimony for Detective Constable Trotter to be credible and trustworthy. He explained his work with the Toronto Police Services Financial Crimes Unit. His focus was on mass marketing fraud. Detective Trotter did not seek out the NBM or Mr. Alika. Rather it was the investigations of the Financial Crimes Unit that led Detective Trotter to the NBM/BA. Detective Trotter collaborated with law enforcement agencies in Canada, the USA, Nigeria, the UK, and Interpol. He advised how in the early days of his investigations, before the NBM knew it was being watched, the Financial Crimes Unit secured a lot of open-source information from the internet, social media, Facebook, and YouTube. Mr. Alika was found to be a member of NBM/BA. He was denied citizenship as a Canadian.
A copy of the decision can be found below:
R. v. Abdulahi-Sabet, 2019 BCSC 1538 / Judgment: August 9, 2019 / Docket: Vancouver
Counsel: J. Whiting, for Crown / Criminal Fraud Sentencing Where Loss Partially Recovered
For the purposes of a plea and for sentencing, there was an agreed statement of facts. The indictment listed ten victims. In each case, the accused Abdulahi-Sabet applied for vehicle financing using false information and false documentation including false paycheques/stubs, false information relating to property ownership, a false 2015 Canada Revenue Agency Notice of Assessment indicating that his annual income had been $227,650, a false employment verification letter and he falsely stated that he owned a residence valued at $4.9 million. The total value of the brand new items was $715,756.67. Everything was recovered. A loss of $142,933.26 was sustained when items were sold. The Court ordered a sentence of eight months incarceration of eight months as a result of a guilty plea, remorse, and that all of the property has been recovered, albeit at a loss. Restitution was ordered in the amount of $35,607.09 with a period of time to pay of seven years. A sample of DNA be taken was also ordered.
A copy of the decision can be found below:
Burns v. Allied Realty Ltd. et al, 2019 NBQB 173 / Judgment: August 6, 2019 / Docket: New Brunswick
Unfounded allegations of fraud – in Small Claims Court, costs are capped at $500
This was an appeal from a decision of an adjudicator in the Small Claims Court. The case is a painful reminder of those inefficiencies of the Small Claims Court. This so-called appeal consumed a full two days and should never have been brought. And, the Court is powerless to award realistic costs for unfounded allegations of fraud. Legislative changes are sorely needed. The Court found that none of the claims have been proven. Indeed, the Court finds all the claims were “brought unreasonably”. The unsubstantiated allegation of fraud was particularly egregious. An unfounded allegation of fraud is “particularly blameworthy” and will normally attract solicitor-client costs, as can also an unmeritorious appeal. If the Court had a legal avenue open, it would unhesitatingly order the appellants to pay the full lawyers fees incurred by the respondents on this appeal, i.e. solicitor and client costs. Instead, the Court is restricted to the costs permitted by the legislation, which in the circumstances here is patently unfair to the respondents. The appellants are jointly and severally liable to forthwith pay the respondents costs of $500.00.
A full copy of the decision can be found below:
Sponsor
The research and cost to produce this newsletter are sponsored by the civil fraud recovery law firm Investigation Counsel PC. At Canadian Fraud News, we welcome receiving cases from lawyers and others involved in the fraud recovery industry who feel their cases should be published as well as sponsorship or assistance in creating this publication.
