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Breaking Fraud Cases from Canadian Courts
At Canadian Fraud News, we report on decisions issued by Canadian Courts related to fraud, that are not reported in the mainstream media, and that contain legal issues the Canadian public and fraud recovery experts should be aware of. The following is one such story.
On December 4, 2017, the Ontario Superior Court in Brampton released a decision in a civil fraud case which it described as “complex and extensive” which involved the creation of fraudulent invoices involving numerous persons and numerous companies, and the extensive flow of funds, often cash.
The context of the decision was a motion where a defendant, Frank Zito, a former employee of Enbridge moved for summary judgment, alleging that he was the victim of identity fraud and that he should not have to stand trial. The Court rejected his request.
In this article, we explain the nature of the fraud, and why the Court rejected Mr. Zito’s request that the case is dismissed against him.
The Fraud Scheme Itself
To understand this story, you may need to read up on an industry known as factoring. Factoring is defined as the business of purchasing and collecting account receivables in exchange for payment, often in cash, at a discounted price. It is a business version of cash advance services.
It is also described as short-term financing of accounts receivables. There are four main types of factoring: (1) maturity factoring, (2) finance factoring, (3) discount factoring, and (4) undisclosed factoring. For further information, see http://www.businessdictionary.com/definition/factoring.html
The Court described this scheme as follows. To perpetrate this fraud, a payee (person receiving funds who was in on the fraud) would enter into an agreement with Trade Capital to factor certain invoices expected to be received from a recognized payor (entity paying funds such as Enbridge).
Often, a copy of a fictitious service agreement between the recognized payor (such as Enbridge) and the fraudulent payee would be provided to Trade Capital to establish a fictitious ongoing arrangement between the payor and payee pursuant to which the fictitious invoices would be generated. While appearing to be executed by the recognized invoice payor (Enbridge), the fictitious service agreement was in reality executed by one of the persons involved in the fraud.
Next, an agreement would be entered into between Trade Capital and the recognized invoice payor (Enbridge) providing that the recognized invoice payor would pay Trade Capital the face amount of the factored invoices. This agreement was also signed by one of the perpetrators of the fraud rather than the recognized invoice payor.
The perpetrators of the fraud would then produce fraudulent invoices from the recognized invoice payor to the fraudulent invoice payee and present them to Trade Capital for payment. On some occasions, Trade Capital would seek confirmation from the recognized invoice payor that the specified fraudulent invoices were valid and outstanding.
This confirmation would be provided by someone involved in the fraud, either a fraudster working for the payor or at least from someone who appeared to be the invoice payor. Trade Capital would pay the fraudulent invoice payee a portion of the invoice and look to the recognized invoice payor for payment of the invoice.
The involvement of someone on the inside of the invoice payor or someone who appeared to be authorized within the invoice payor’s company was essential for this fraud to work. Mr. Zito was the employee at Enbridge who the plaintiff Trade Capital alleged facilitated the fraud.
In 2011 the fraudulent scheme involving Trade Capital began. There were numerous fraudulent invoice payees, fraudulent invoices and numerous individuals involved in perpetrating this fraud against Trade Capital. Some of the individuals and companies involved in this fraud included:
Marc D’Aoust; and
Virtucall Inc., Virtucall International LLC (”Virtucall”).
Mr. Cook and Mr. D’Aoust admitted to participating or orchestrating this fraudulent scheme and using, in some cases, Virtucall as an invoice payee.
In September 2013, the fraudulent scheme began to unwind. Trade Capital became concerned certain invoices were fraudulent. Within a short time, the fraudulent nature of the factored invoices was uncovered. The amount allegedly defrauded from Trade Capital was approximately $5,000,000 CDN and $1,500,000 USD.
In late 2013, Trade Capital obtained various court orders regarding this fraudulent scheme. It was learned that Trade Capital’s payment of the fraudulent invoices was paid to a number of fraudulent payees and eventually disbursed to some of the personal and corporate Defendants.
The Summary Judgment Motion
The central issue at the summary judgment motion was whether Mr. Zito the inside person at Enbridge to facilitate the fraud or did some fraudster use Mr. Zito’s stolen identity through a phoney email address to perpetrate the fraud on Trade Capital.
The reasons are long and complicated. A review of the case is worthwhile. In a nutshell, the Court held that whether Mr. Zito created a fake blackberry email address was not determinative of the motion. There was evidence that Mr. Zito was aware of the blackberry email address, which he alleged was not his, and there was evidence that Trade Capital emailed Mr. Zito at his Enbridge email address advising him of dealings with company Virtucall.
Most critical to the decision was the failure of Mr. Zito to lead evidence as to why made a loan or investment with Virtucall. Based on this, and other evidence, the Court held that it was not possible to make a fair and just determination as to whether Mr. Zito was a victim of identity fraud, or whether his receipt of some of the monies from the fraudsters connects him to this complex fraud involving Virtucall and Trade Capital.
Full Reasons for Judgment
The take away from this story is that obtaining summary judgment in fraud cases is often not feasible when there is conflicting evidence as to who was involved, and who benefited from the fraud.
For the full reasons for judgment, see Trade Capital ats Cook, et al, 2017 ONSC 7157.
For further information on this case or any other fraud recovery inquiry, contact Canadian Fraud News Inc. at [email protected] .
Read our latest breaking court decision here.