$16M fraud an inside job, federal bank says in suit

There is no evidence in any of the documents of payments to the BDC’s Kirchner. His lawyer said that Kirchner didn’t have authority to approve loans and he has asked police to investigate others at the bank. A BDC spokesperson said its internal investigation has not “pointed to anyone else at BDC colluding with Mr. Kirchner.”

The Toronto Star
November 26, 2010

$16M fraud an inside job, federal bank says in suit
Senior official conspired with outsiders to scam money for lavish parties and travel, BCDC alleges
Diana Zlomislic and Kevin Donovan

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Paul Kirchner was fired after federal officials found he had approved fraudulent small business loans worth more than $1 million. The Star found Kirchner at his home in Peterborough. Diana Zlomislic/DALE BRAZAO/TORONTO STAR

A senior government bank official was part of a conspiracy that saw $16 million in loan money ripped off by a group of Toronto-area fraud artists, according to allegations filed in court.

Trips to the French Riviera, tax havens in the Caribbean and partying in Toronto were just a few of the stops on a spending spree that began in the Scarborough offices of the Business Development Bank of Canada (BDC).

One trip taken by people loaned money for a company that turned out to be bogus racked up nearly $20,000 in charges at the exclusive Amanyara Hotel in the Turks and Caicos.

This is the second example the Star has uncovered in its ongoing probe of lax control over federal loan money intended to kickstart small businesses. Previously we reported how $4 million was partied away on booze and hookers. The key figure was Toronto businessman David Scenna and Scenna is involved here, too.

In this more recent case, senior BDC loans officer Paul Kirchner was a “vital cog” in a scam that saw at least 35 separate loans from the Crown corporation approved in a whirlwind of rubber stamping from 2006 to 2008. The loans were all bogus, according to a statement of claim the BDC has filed in civil court in an attempt to recoup money from Kirchner.

The federal bank alleges Kirchner was part of a conspiracy that included accountants and mortgage brokers. Companies were invented, with fake financials, in a fraud on a Crown corporation that boasts it works hard to “accelerate entrepreneurs’ success.”

The RCMP is investigating.

Kirchner was fired last year and the bank alleges he was receiving kickbacks. Visited in Peterborough where he is now senior accounts manager for the Kawartha Credit Union, Kirchner said he could not discuss the case.

Fired banker calls BDC ‘crazy place’

He described the federal bank as a “crazy place” and said “there’s a lot of messed up things happening there.”

Kirchner’s lawyer wants the RCMP to widen its investigation to include other senior members of the BDC. Symon Zucker said his client denies receiving kickbacks. His client is cooperating with federal police and bank investigators, Zucker said. The RCMP would not comment on the case.

The Canadian government has several programs to help small businesses. In the Star’s previous story we reported on Industry Canada’s federal small business loan program offered through chartered banks. The government guarantees 85 per cent of the loan. When loans go into default, taxpayer money refunds the bank and the Star found banks have little incentive to ensure loan money was being put to good use.

The Kirchner loans came directly from the Business Development Bank of Canada, a Crown corporation which gets its money from government coffers and funds borrowed on the financial markets.

Here’s what happened, according to the BDC.

Kirchner, 34, worked out of the BDC branch office near Markham Rd. and Highway 401. As senior manager of commercial loan accounts his job was to lend money, meet with borrowers, conduct due diligence on loan applications and present loan applications to the federal bank’s credit department. Typically, borrowers receive money if they need new equipment. Kirchner was supposed to verify equipment existed.

According to a lawsuit filed against Kirchner by BDC, Kirchner “fraudulently conspired and colluded with various other parties.”

“Kirchner became a vital cog in the systematic defrauding of the bank through the procurement and processing of multiple, bogus loans.”

Kirchner and others cooked up shell companies and fake invoices, plus fake photos of equipment. The bank alleges Kirchner received “secret commissions or cash kickbacks” and cash was spread liberally among others involved in the scheme.

The 35 loans range in value from $50,000 to $1.05 million.

The Star followed the money trail and found David Scenna — from the earlier government scam — was involved in some of the loans Kirchner assembled.

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Businessman David Scenna, who has been implicated in two fraudulent government loan schemes, lived the high life in Toronto over the past decade. Scenna is pictured here in 2005 at a charity ball in Toronto.

According to a relative of Scenna’s, David Scenna began approaching people in 2006 saying he would pay a “signing bonus” to anyone who would take out a loan. The relative agreed to be interviewed on condition that he not be named in this story. The relative provided documents to back up his claims.

To get the ball rolling, the relative was told by Scenna to obtain a personal credit report. It showed a good history.

“This is amazing!” Scenna told the relative, an out-of-work tradesman at the time.

A few weeks passed and Scenna called up the relative and gave him the plan. The company that would get a $600,000 loan was Mono Papers, a shell company incorporated in the relative’s name.

Scenna drove the relative to the BDC’s Scarborough office. He told him to go upstairs and ask to see the officials who handle the loans. He gave him the minute book for the fictitious company and some advice.

“If anybody asks you any questions just say your company is Mono Papers,” the relative recalled.

Scenna stayed in the car, saying it was better that nobody upstairs know he had driven him. Hands clammy, the relative went upstairs, met with Kirchner and another bank official. The relative signed the documents without looking at them.

Returning to the car, Scenna drove the relative a few blocks to the office of a lawyer whose job was to conduct minor checks before the BDC loan money was disbursed.

People who receive BDC money must have accounts at chartered banks, so Scenna next took his relative to four banks to sign documents. The relative also set up lines of credit, VISA and AMEX cards in the name of Mono Papers.

In its court documents, the BDC explains that loan money is typically used to pay suppliers of equipment needed in the business. The BDC alleges dummy companies were set up to invoice the BDC and money was paid to the companies.

Within a few weeks, fake equipment invoices went out and the BDC loan money flowed.

Once money was transferred by BDC, the relative said Scenna directed him to sign numerous blank cheques and make large cash withdrawals, directing a series of people to pick up the money at each bank.

The first was a direction to ask a bank to release $50,000 cash and the relative designated a person to pick up the money. The money was taken in a white envelope — twenties and hundreds — to a Woodbridge office building where two people acting as mortgage brokers (who received their own $1 million loan and seem to be involved in other bogus loans) operated.

The relative pocketed $30,000 himself as a signing bonus, and later gave Scenna $20,000.

The relative said he used the money to pay expenses for his young family. He did not record the cash on his income tax filings.

What happened next pushed the relative into bankruptcy.

According to documents provided by the relative, credit cards linked to the fictitious Mono Papers account were used by the mortgage brokers to travel the world. The credit card bills were sent to the relative’s home and the Star has viewed copies of the bills.

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Among the charges: European trips, including visits to France and Italy. On one day alone, September 27, 2008, the VISA statement shows flights on Air France, a $3,700 hotel charge in Florence, and a $2,344 Gucci purchase. The next day, it was off to Paris and a $2,900 charge at the Plaza Athénée, a five-star hotel with Louis XVI décor “scented with the unique fragrance of amber.” Oh, and dinner at the Buddha-Bar ($1,300).

Other trips included jaunts to Managua, Nicaragua and journeys to the Turks and Caicos islands, well known for its coral reefs and banking secrecy. On one of those trips, over New Year’s 2009, somebody (the statements don’t say who) charged a $19,000, two-week stay at the Amanyara Hotel.

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Locally, people using the Mono Papers credit cards ate steak and drank wine at La Castile and Harbour Sixty, two popular Toronto restaurants; partied at Muzik nightclub at Exhibition Place ($1,497), shopped for clothes at Yorkdale’s Miss Sixty ($1,406) and purchased a lot of gasoline at Shell and Sunoco.

There is no evidence in any of the documents of payments to the BDC’s Kirchner. His lawyer said that Kirchner didn’t have authority to approve loans and he has asked police to investigate others at the bank. A BDC spokesperson said its internal investigation has not “pointed to anyone else at BDC colluding with Mr. Kirchner.”

Two of the Woodbridge mortgage brokers the relative said were involved—other people being sued by the BDC have also implicated them — are former clothier Varooj Mehrabian and former floor installer Liubo Giurgevich. The men have cleaned out their office and a clothing store they were affiliated with. They could not be reached for comment.

A BDC spokesman said the massive fraud was discovered in early 2009.

“The subsequent investigation undertaken by BDC revealed that (Kirchner) had conspired and colluded with external parties to defraud BDC. As a result, Kirchner was terminated for cause in May 2009,” a spokesman said in a written statement.

The relative who said he was a dupe of David Scenna was sued by the BDC and ordered by the courts to pay back the $600,000 loan plus interest.

Meanwhile, Scenna and 12 others who were part of the earlier small business loan scheme are scheduled to appear Friday in Brampton court. They were charged with fraud this summer by the RCMP.

Kevin Donovan can be reached at (416) 869-4425 or ac.ratseht|navonodk#ac.ratseht|navonodk

http://www.thestar.com/news/investigations/government/article/897071--how-toronto-fraud-artists-ripped-off-16-million-in-federal-loans#article


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