Flamboyant ex-convict at centre of pizza battle

Lorn Austin has been called a racketeer, wheeler-dealer, cocaine-crazed megalomaniac and one of Florida’s most prolific white-collar criminals in a career spanning opulent boardrooms and cramped prison cells.

The Toronto Star
May 2, 1993

Flamboyant ex-convict at centre of pizza battle
Kevin Donovan and Dale Brazao

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A flamboyant con man with a string of bankruptcies to his name is running Pizza Pizza Ltd., the fast-food giant suspected by franchise owners of mismanaging trust accounts worth millions of dollars, a Toronto Star investigation shows.

Lorn Austin has been called a racketeer, wheeler-dealer, cocaine-crazed megalomaniac and one of Florida’s most prolific white-collar criminals in a career spanning opulent boardrooms and cramped prison cells.

But since his parole from prison in 1989, Austin has been calling the shots at long-time friend Michael Overs’ pizza company, a Canadian success story now mired in lawsuits from franchise owners alleging mismanagement and unfair business practices.

When Austin was sent to prison in Florida in 1986, he boasted his accusers would never meet a better con man, and suggested his talents be put to work fighting crime.

“I am referring to all types of frauds, bust-outs, check kiting, illegal advertising, misrepresentation of all types,” Austin said in a letter to the state attorney.

“I am a walking, living, breathing example of how to do them all,” he wrote.

Today, 43-year -old Austin is Pizza Pizza’s executive vice-president, a whirlwind of schemes, dreams and ideas.

So if you are one of the millions who regularly dial 967-11 11, you’ve been getting more than just cheese and pepperoni with your pizza.

You’ve been getting the Austin touch, a controversial business style that reaches every part of Pizza Pizza, from the accounting department to coupons, even to the boxes that hold the steaming hot pizza pies.

The recent activities involving the pizza-franchising giant are taking place in what industry critics say is a regulatory vacuum. Franchising is the Wild West of the business world, an industry where the side with the toughest lawyers and strongest contract wins.

Troubled pizza firm managed by man with criminal past
Fast-food chain in lawsuit battle with franchisees who want account of their trust funds

As far back as 1971, an Ontario government report recommended legislation to safeguard those who invest their life savings in franchises, but that proposal went nowhere. Yet other jurisdictions, such as Alberta, have tighter laws to regulate franchises, including a requirement that officers and directors must disclose business-related criminal records.

A three-month investigation by The Star has found the following:

  • Lorn Austin – who has been convicted of fraud several times, who was convicted of racketeering and who owed at least $6 million from various bankruptcies and court judgments in Canada and the United States – helps oversee Pizza Pizza bank accounts that hold millions of dollars in trust funds for franchisees of the 250 store company.

“…all types of frauds, bust-outs, check kiting, illegal advertising, misrepresentation of all types…I am a walking, living, breathing example of how to do them all.”
- Lorn Austin, in a letter to a Florida state attorney

  • After Austin was petitioned into bankruptcy by a creditor in Toronto in August, he told federal authorities it was his first time. But federal records show Austin was personally bankrupt in 1973. Though bankrupt, he rents a home for $9,000 a month, has $1,700 a month car payments and pays $750 telephone and cable costs.
  • Even though Pizza Pizza has annual sales of $125 million, the company is in a financial struggle brought on not only by the recession and tough competition, but by failed expansion bids, poor business decisions and millions of dollars in legal fees and payouts.
  • Pizza Pizza’s accounting system has been in a shambles for several years, with expenses often incorrectly charged to franchisee trust accounts on the orders of senior executives.
  • Pizza Pizza has violated its own contract by refusing for the last few years to show franchisees how it spends more that $14 million in yearly advertising, rent and delivery dollars deducted weekly from storeowner bank accounts and held in trust by Pizza Pizza.
  • * *

In this, the 25th anniversary of Pizza Pizza, anger and distrust permeate the fabric of the company known for quick delivery and a unique telephone number.

Owner Michael Overs, Austin and a cadre of their right-hand men are fighting a pitched battle against a band of franchisees who have formed an association to question why a company with such a high cash flow could be so consistently strapped for money.

Threats fly from both sides. Fights have broken out, with fists and pizza paddles as weapons. Both factions spy on the other. Franchisees follow head-office executives home to find out where they live. Pizza Pizza executives try to discourage storeowners from challenging the company and attending franchisee association meetings.

Punishment includes fines and temporary termination of their financial lifelines, the telephone order service that sends the business.

For outsiders, it is difficult to understand how anyone could become so emotional over the relatively simple task of making and selling pizza.

Franchisees argue they have invested life savings and taken out huge loans, only to find in the past few years they are taking home next to nothing after Pizza Pizza withdraws from their bank accounts a growing number of charges they consider unfair.

Pizza Pizza executives are angered by people they consider ungrateful malcontents who would be nowhere without the help of the giant company. They say franchisees should stop complaining and work harder.

Pasquale “Pat” Finelli, a top executive says: “It hurts a lot to hear some of the shit people say about you, after the things you’ve done for them.”

Dominating this morass are Overs and Austin, two men as different as a fine restaurant and a takeout pizza joint.

“Michael Overs eats carrot sticks and celery, Lorn Austin eats hot dogs and pizza slices,” says a former employee at head office.

Neither man has, in the past few days, granted requests by The Star to be interviewed.

Finelli, one of Pizza Pizza’s vice-presidents, said there is a reason his company does not usually respond to requests for interviews.

“My biggest problem is we’ve got a very good company and we’re Number One and I want to stay Number One,” Finelli said.

“And why we don’t counteract any of these stories and tell the truth is I don’t want it becoming a love story, a saga. Because any publicity, good or bad, does not help sales. And that’s why everybody has laid low.”

Overs today is an aristocratic, reclusive character.

He is many things: a gardener, collector of fine art, world traveler and storyteller – his favourite tale being the “school of hard knocks” story about the tough, early days of the company.

In l967, at age 29, Overs built his first Pizza Pizza store at Wellesley and Parliament Sts. Today there are 250 around Ontario, plus one in Costa Rica.

Overs has an eccentric side. Nobody with a beard is allowed to work at head office because Overs does not trust people who obscure their faces, friends say,

Current and past executives say Overs considers himself one of the deans of North American business. He often begins his day by reading newspapers and magazines to see what the people he calls peers – presidents of countries like the United States or huge companies like American Express – are saying about the economy and other issues.

“I remember he joked about being God in meetings, referring to his position of power over everyone at Pizza Pizza,” a former executive said.

But Overs has always needed a strong front man to handle the daily operations of the chain.

Between 1978 and 1987, he found that in John Gillespie, an idea man credited with much of the expansion of Pizza Pizza. But the Gillespie-Overs relationship exploded in a mass of lawsuits that ended with Overs paying Gillespie $4 million to regain control of his own company.

For two years, Overs struggled in a wilderness of franchise agreements and petty conflicts, running a business of which he had grown tired, say friends who requested anonymity for this story.

By 1989, Pizza Pizza was on the verge of bankruptcy, partly because of disastrous losses in the Montreal market, according to testimony by company franchise director Sebastien Fuschini in a recent lawsuit.

Then Michael Overs got a call from an old friend and Pizza Pizza’s roller-coaster ride with Lorn Austin began.

Franchisees and the people at head office got the impression that Austin was a sharp businessman whom Overs had just met. Executive material with a terrific track record, they were told – just the man to take Pizza Pizza into the 1990s and beyond, regenerating the company and protecting the average $200,000 investment that each franchisee has in his or her store.

In reality, Austin’s past was checkered by fraud and bankruptcy. And 1989 was not the first time Michael Overs met Lorn Austin, known at various times as Lawrence, Lawren, Lorn, Loren, Len and Larry, and Austin and Austen. Records show Austin also has three different birth dates, July 29, 1947, July 29, 1949 and July 22, 1949, the latter apparently the correct one.

A big bear of a man, who can be smooth and charming or gruff and arrogant, the Toronto-born Austin dropped out of school in Grade 8. In later years he would boast to a U.S. prosecutor that his “prolific activities” had given him a knowledge of law “more comprehensive than most attorneys.”

Back in 1974, 25-year-old former used-car dealer Lawrence Bernard Austin was operating a company called Transworld Financing on Bathurst Street in North York.

Austin was just one year out of a personal bankruptcy that left 29 creditors owed $26,555. The trustee in his bankruptcy concluded: “Mr. Austin participated in various ventures of an apparently dubious nature … he brought on his bankruptcy by unjustifiable extravagance in living.”

When Austin ran a newspaper ad billing himself as a franchise consultant, Overs was the first person through the door of his Bathurst St. office in North York.

“My understanding is that Michael Overs answered the ad, then started quizzing Lorn, who finally admitted he knew nothing about the franchise business but was a quick study,” said Austin associate Joel Rutenberg.

“(Austin) was one of the most prolific white-collar criminals I have prosecuted in my career.”
- Kent Neal, assistant state attorney and chief of the economic crime unit in Broward County, Fla.

At the time, all of the Pizza Pizza stores were owned by Overs. Austin sold several franchises, teaching his new business associate how to expand with the help of investors’ money, says former Overs partner John Dymont.

A few years later, when the fledgling pizza chain was struggling for cash, Austin loaned Overs about $20,000, money Pizza Pizza desperately needed, according to a former employee.

Meanwhile, Austin was spreading out in all directions, running a variety of schemes and ventures.

He assumed control of a small newspaper called The View from North York. Austin’s inaugural edition as published called him “one of Canada’s youngest and energetic entrepreneurs … with years of experience in business and administration.”

Just over a month later, the newspaper folded.

Austin turned to credit-card and lottery schemes, attracting the attention of detectives from the Metro Toronto police force and the Royal Canadian Mounted Police.

In one, he and a partner ran the “High-Rise Club,” convincing about 300 tenants in St. James Town to debit their credit cards with a $100 fee payable to the club. In return, members were to get reduced prices for fast food, dry cleaning and upholstery work.

Detectives who charged Austin and his partner with fraud say club members got nothing for their $100.

Austin’s partner was convicted, and charges were dropped against Austin. He was convicted of another scheme in 1977, fined $1,000 and ordered to pay $14,560 restitution.

Austin landed in hot water again when he bought hundreds of Loto Canada tickets and split them into 10,000 shares each. He sold those to distributors, who would in turn sell them to retail stores to hand out free with each purchase. Though Austin and his partner were charged with running an illegal lottery, they were acquitted.

By the late 1970s, Austin was embroiled in a number of lawsuits, including one involving a mortgage deal in Yorkville and a Romanian prince.

Prince Monyo Mihailescu-Nasturel sued Austin and some of his associates over a deal he claimed cost him his Yorkville building and a roomful of artwork.

“I lose everything, even my underwear,” the prince claimed in the lawsuit. He blamed his predicament on Austin and one of his numbered companies which he called “men of straw, without substance.”

When several other mortgage deals went sour, including one involving the Toronto-Dominion Bank, Austin’s lawyer used an unusual tactic. He attacked Austin’s abilities as a money manager, suggesting Austin couldn’t really be blamed because he was a wealthy man who paid no attention to such a minuscule sum in 1979 as $147,000.

“Let me suggest something to you,” Austin’s lawyer said, while cross-examining the bank manager. “Would it be fair to say (Austin) was a bit of a wheeler-dealer. A high-flier type… that in the Austin family sums of money that might seem large to most of us might not seem so large to them?”

The tactic failed and the judge ordered Austin to pay. However, Austin left the country before the judgment could be enforced.

Austin’s biggest financial fiasco in Canada came in 1980, with Media Corp. and Creative Media Consultants, two Toronto marketing companies that purchased blocks of advertising space on cash register bills and on radio and television, then resold them to advertisers.

Along the way, Austin, chairman and sole shareholder, rapidly expanded to other deals. One of his schemes, which went nowhere, was to sell four Boeing 747 airplanes for $65 million each. Another failed venture was The Bridal Show Inc., Austin’s aborted plan to sell wedding dress shops as franchises.

When the dust settled, Austin and his wife Sybil were in Florida with a yacht they did not own, while more than 200 creditors screamed for $2 million in unpaid debts.

All that was left behind from his bizarre ventures were a small warehouse of roller skates in Winnipeg and a room full of worthless African plant food in Toronto.

The causes of this bankruptcy: “mismanagement and poor business judgment,” according to trustee Albert Lando’s report of Austin’s activities.

Though Austin claimed his companies never made money, he admitted on the marketing companies’ bankruptcy statement to a yearly salary of $180,000, plus a $104,000 dividend paid to him as sole shareholder.

By 1981, Austin was selling timeshare properties in Miami, defrauding hundreds of people of money through their credit cards, and selling near-worthless gems as if they were true diamonds, according to court records of his criminal convictions there.

He was also developing a cocaine habit.

A medical report on Austin as part of his criminal case described heavy cocaine use from 1981 to 1983, combined with drinking binges, manic depression with an “inordinate drive toward power,” which the doctor diagnosed as megalomania.

“The whole system is in disarray and has been for several years…So it’s hit and miss.”
- A source familiar with Pizza Pizza accounting practices.

Put this all together, Dr. Jules Trop of Mount Sinai Hospital in Miami Beach said, and the effect would be “like pouring gasoline on a burning fire.”

“(This) would produce the type of an individual whose megalomania, whose grandiosity and whose poor judgment would be extremely aggravated by the use of the cocaine,” Trop said.

While living in a $1 million lakeside home in Hollywood, Fla., Austin threw lavish parties for his new friends in the exclusive community.

In what his lawyer called a “cocaine stupor,” Austin pledged $100,000 to New York’s Yeshiva University at a dinner at which he and former Florida governor Reubin O’Donovan Askew received the Albert Einstein Distinguished Achievement Award.

At the time, Austin did not have the cash, so he stole most of it from his time-share customers to pay the pledge, according to defence lawyer Joel Hirschhorn’s submission at one of Austin’s trials.

“Because of his cocaine megalomania (he) went out and, in essence, robbed Peter to pay Paul with this money,” Hirschhorn said.

Around the same time, in 1982, Austin announced plans to build a $70 million film studio to produce syndicated television shows.

Among Florida law enforcement officials, Austin is legendary.

“He was one of the most prolific white-collar criminals I have prosecuted in my career,” Kent Neal, assistant state attorney and chief of the economic crime unit in Broward County, Fla., told The Star.

Carl Muscarello, retired chief investigator for American Express in south Florida, went after Austin for $337,000 in fraudulent charges on gems sold through a telemarketing scheme, and $52,224 on credit card fraud.

“This guy was such a good con artist, he could probably take the eyes out of your head and convince you that you could see better without them,” Muscarello said in an interview.

Austin was the mastermind behind what Neal said was then the largest fraud in south Florida’s history. The scam, which operated between 1980 and 1984, ended in the arrest of 43 people. Eight Canadians, including Austin, were charged for their part in a scheme to sell nearly worthless gems to investors as high-grade jewels.

A co-accused in the gem scam was Harold Arviv, who had earlier been sentenced to four years in prison for the 1980 bombing of Arviv’s, his Bloor St. disco in Toronto. Arviv received a three-year suspended sentence and court costs.

Diamonds, rubies and sapphires were sold through “boiler room” operations – cramped offices where telephone salespeople called thousands of homes, peddling low-grade stones as investments.

The gems were bought in Southeast Asia for $10 to $15, shipped to Canada and then funneled through grading laboratories in New York.

Fraudulent appraisals assessed the value at up to 10 times their actual worth. Some customers were even billed for stones they never received.

But the big losers were banks stuck with credit-card debits for inferior gems for which customers refused to pay.

Austin was ordered to serve eight years for concurrent sentences totaling more than 20 years.

Among the charges for which he was convicted were racketeering, credit-card fraud, grand theft and organized fraud in connection with a $4 million scam to sell phony gems. He was also ordered to pay fines and restitution of more than $840,000.

He was also convicted in a cheque-kiting scheme – writing bad cheque on several accounts – in which Citibank of New York lost $1 million, and a time-share condominium fraud that led to a court order to pay $165,000 in restitution.

As a final attempt to stay out of prison, Austin tried to convince the state attorney and a judge to let him go free and work for the state of Florida as an anti-crime crusader – warning little old ladies about con men like himself.

“The jail system is not designed to rehabilitate people like me,” Austin wrote in a 1986 letter to Broward County assistant state attorney Kent Neal.

“How about the rip-offs occurring in the medical plans, the automobile industry and home repairs, all previous business of mine … coupon fraud comes to mind,” Austin continued.

His proposal included a slick, nine-minute video and a monthly newsletter that would include a “Fraud Of The Month” column he’d pen himself.

But it didn’t wash.

After a 40-minute plea in court, Judge Miette Burnstein was unimpressed. She said simply, “Motion to mitigate denied, “ and walked back to her chambers.

Austin marched off to begin serving his prison sentence. Had he not been jailed, the U.S. justice department would have deported him because he was staying in the country illegally.

In the final words of that 1986 letter, Austin writes: “I am willing to forsake lavish living, big cars, fancy vacations and big expenses… if we can settle our problems both criminal and civil.”

  • * *

When returning from the airport after one of his many Pizza Pizza trips to Europe or the Far East, Lorn Austin parks his $120,000 Mercedes coupe in any of three garages in his $9,000-a-month rented home near Bayview Ave. and Highway 401.

Though still on parole until 1994 for the Florida fraud convictions, Austin appears to have a free hand at Pizza Pizza.

“What kind of marketing representative goes around kicking families out of their stores?”
- Someone who recently worked as a Pizza Pizza area representative

It doesn’t seem to matter that he went bankrupt once again last August, owing $2.5 million to lawyer Charles Chaiton from a 12-year-old debt, and $1.3 million in unpaid taxes to Revenue Canada.

A revenue Canada source told The Star they are investigating the case to see whether Austin has “assets offshore.”

On his bankruptcy documents, Austin states that he makes $6,000 a month at Pizza Pizza, but has expenses of $12,301 a month.

Asked by the government examiner whether he has ever been bankrupt before, Austin answered “no” and “not to my knowledge” his official statement shows.

Austin also stated that he has “not carried on a business since 1984.” However, since 1989 Austin has carried on several businesses through his company Edlor Holdings, registered to his wife.

It is a federal offence not to make full disclosure on a bankruptcy statement.

In recent interviews, senior Pizza Pizza executives Mark Girard and Pat Finelli confirmed to The Star that Austin has authority over much of the Pizzas Pizza operation. Girard, who is the company’s controller, also confirmed that Austin has control over what Pizza Pizza calls “pools,” trust accounts that hold shared payments for company-wide advertising and rent.

One former employee who worked under Austin to The Star: “You don’t spend $10 without Lorn Austin’s approval.”

In addition, some Pizza Pizza employees receive part of their pay through a numbered company registered to Lorn Austin.

The Star has interviewed a dozen former and current head office employees with knowledge of the accounting and expenditures of Pizza Pizza during the past four years.

One person with intimate knowledge of the accounting practices under Austin’s control said: “The whole system is in disarray and has been for several years since the person who developed the computerized system left without giving us any instructions. So it’s hit and miss.”

“Invariably, certain expenses that should have been charged consistently to the same account would suddenly be charged to another account. Perhaps if there were funds in the advertising pool it would go through that and if there weren’t it would be put through somewhere else.”

The source’s information is backed up by two sets of statements Pizza Pizza has released over the past few months for the advertising, rent and delivery pools. The statements differ by as much as $200,000 for the same entry.

“The thing is,” the source said, ”There really aren’t any actual bank accounts for the pools, although there should be. All a pool is, is a bookkeeping entry.”

Another person who worked at a senior level said Austin has such as cavalier approach to the accounting system that he has had Pizza Pizza pay the credit card balances of some of his family members. The source said Austin routinely ordered monthly balances of $700 to $1,000 paid.

What the people interviewed focused on most was the erratic approach to business dealings that the company has taken in the past few years.

For example, one source explained that Pizza Pizza deducts about 1 percent of gross sales from a storeowner’s bank account every week – which adds up to as much as $8,000 a year. That money is to be held in trust for local marketing, like draws or giveaways.

“You know what Lorn Austin does? If the store doesn’t use that money up at the end of the fiscal year, Lorn Austin says: “Too bad, he’s lost that money, reset his balance to zero.”

A former marketing executive told The Star: “It’s like everything is done on a whim, flying by the seat of their pants.”

The accounting department was also ordered last year to charge to the advertising account the salaries of Pizza Pizza’s area representatives, the “enforcers”, who patrol stores, issue fines and sometimes terminate contracts, said a source who recently worked as an area representative.

“Lorn stressed that we should start calling ourselves ‘marketing reps’ so it would look good for the accountants. Hell, what kind of marketing representative goes around kicking families out of their stores?” the source said.

Franchisees have also complained that the amounts deducted from their bank accounts for rent have zoomed up in recent years.

For example, most franchisees’ contracts signed in the past four years allow Pizza Pizza to deduct between 5 ½ and 8 percent of their weekly sales and put it into a “rent pool,” from which the company pays store rents. But those fees have jumped to 10 percent in the past year, despite what the signed contracts say.

Pizza Pizza executive Pat Finelli said he does not see a problem.

“Hey, maybe the communication was bad. It didn’t go from 60 to 10… It went from 5 1/2 (percent) to 7 (percent) to 10 (percent),” Finelli said in an interview.

The Star has also found evidence of wasted money and mismanagement in several schemes.

One of them came about as a result of Austin’s call to Overs in 1989 to discuss returning to Pizza Pizza. Austin suggested Overs could make money by delivering flyers, newspapers and coupons on top of each box of pizza, Austin associate Joel Rutenberg said.

“Pizza Pizza had money they didn’t know what to do with, you know. They were blowing money left and right.”
- Vic Spence, co-owner of a printing company bought by Pizza Pizza

Austin stepped out of prison on parole March 15, 1989. Provincial corporation records show Boxtop Distributors Ltd. was formed by Austin’s wife Sybil on Aug. 15, 1989.

Sybil Austin, his second wife, figures prominently in Austin’s business life. The American-born mother of three of his children is the director of several companies Austin has run in the past few years.

Their first house after Austin was paroled in 1989 was on Old Forest Hill Rd. in Toronto.

Within a few months, Austin had set himself up as a publisher of a local alternative newspaper, Metropolis, through Edlow Holdings, registered to Austin’s wife. Austin planned to distribute Metropolis with each pizza box and brought Rutenberg, an associate from Florida, up to run the tabloid.

But within a few months, the newspaper was dead, with what Rutenberg estimates as a loss of “several hundred thousand dollars.”

Some of the lucrative ads for the paper, the phone-sex placements, were killed at Overs’ request. The newspaper editors and reporters also lost artistic control to Austin.

“The editor would say, “I want Celine Dion on the front cover’ and Lorn would say, ‘Who’s that? I’m putting Clint Eastwood on the cover,’” Rutenberg said. Editor Richard Rotman and other former employees recall a “reign of psychological terror by these pizza Nazis who were running our paper.”

Another business which failed after Austin came to the helm was Spence and McCartney, a successful, 29-year old printing business in Etobicoke. Pizza Pizza purchased it in 1988 from owners Vic Spence and Jack McCartney, who had made it their life’s work.

Spence told The Star that Pizza Pizza had a grand scheme to save money by printing it s coupons and flyers there. But they brought people in with literally no experience in the printing business.

“Pizza Pizza had money they didn’t know what to do with, you know. They were blowing money left and right,” Spence said.

A year later, the company was gone.

“This was my company I ran for 29 years, no problem, no embarrassment. Our credit was 100 per cent, we paid our bills on time and everyone had the highest regard for us. They took over, they couldn’t pay their bills, they fell behind, because they didn’t know what they were doing,” Spence said.

Amid all these problems, including the financial bloodletting the company took in Montreal, Austin and Overs have been jetting off to Korea, Hong Kong, Hungary and Russia trying to expand into the international market. But each attempt has bailed except Costa Rica, where Pizza Pizza now has a sit-down restaurant in an old mansion.

Meanwhile, Austin’s hold on the operations of Pizza Pizza grows stronger each year. In a missive last year “from the Desk of Lorn Austin,” in Pizza Pizza’s newsletter, he eloquently predicts that successful companies will be those who invest in developing tastier pizzas and better training for delivery drivers.

There is just one problem with Austin’s column.

It was lifted almost word-for word from a column the month before in the U.S. magazine Pizza Today, written by a famous pizza consultant with 30 years in the business.


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