ONTARIO COURT OF JUSTICE

DATE: August 13, 2014

COURT FILE No.: Halton 3308/10

Citation: R. v. Adams, 2014 ONCJ 746

BETWEEN:

HER MAJESTY THE QUEEN

— AND —

Herbert ADAMS

Before Justice R.J. LeDressay

Heard on September 16, 17, 18, 19, 23, 24, 25, 26, 30, October 1, 2, 3, 7, 8, 9, 10, 21, 22, 23, 24, December 6, 9, 16, 17, 18, 19, 24, 2013 January 2, and April 11, 2014

Reasons for Judgment released on August 13, 2014

Arish Khoorshed .................................................................................... Counsel for the Crown

Andrew Furgiuele...................................................... Counsel for the accused Herbert Adams

LeDRESSAY J.:

Index to Judgment:

Index: Page 1

Charges: Page 3

Overview:

A: Background and Share Structure of Majestic Supply Company and Suncastle Developments Incorporated: Page 4

Overview:

B: Majestic – The Business: Page 7

The Issues: Page 19

The Evidence: Page 20

A. Crown Evidence: Page 20

1. Steven Bishop: Page 20

2. Other Persons Involved in the Business of Majestic: Page 37

i. Noel Shahnazarian: Page 37

ii. Carlo Toscano: Page 51

iii. Paul Socholotiuk: Page 66

iv. Homeric Arvanitis: Page 71

v. Dale Hicks: Page 75

vi. Tom Yaworski: Page 80

3. The Investors: Page 84

i. John Lynch: Page 84

ii. Laurene Rogers: Page 91

iii. Harold Elke: Page 101

iv. Jeff Hinchey: Page 103

v. Gordon Russell: Page 104

vi. Douglas Paul: Page 108

vii. Glen Boles: Page 114

viii. Reginald Rudko: Page 116

ix. Mark Bilocerkowec: Page 121

x. Tom Minnett: Page 126

4. Expert Evidence: Page 129

i. Paul De Souza: Page 129

B. Defence Evidence: Page 144

i. Herbert Adams: Page 144

ii. John Dow: Page 196

iii. Thomas Brown: Page 205

iv. William Stark: Page 220

v. Daniel Le Blanc: Page 222

The Law: Page 227

Onus: Page 227

Reasonable Doubt: Page 227

Assessment of the Evidence: Page 228

R. v. W.(D.): Page 229

The Legal Framework of Fraud: Page 231

The Dishonest Act: Page 232

Deprivation and the Requirement for a Nexus between the Dishonest Act

And Deprivation: Page 233

Crown Position: Page 235

Defence Position: Page 236

Analysis: Page 236

Conclusion: Page 271

Charges:

1The accused, Herbert Adams, is charged with four criminal offences. They are as follows:

2Count # 1: Between the 1^st^ day of February 2006 and the 31^st^ day of May 2008, both dates inclusive, at the City of Burlington, and/or elsewhere in the Province of Ontario, that he did by deceit, falsehood or other fraudulent means, defraud the public namely: the shareholders of Majestic Supply Co. Inc. of a sum of money exceeding $5000 contrary to Section 380(1) (a) of the Criminal Code.

3Count # 2: Between the 9^th^ day of November 2006 and the 14^th^ day of May 2007, both dates inclusive, at the City of Burlington, and/or elsewhere in the Province of Ontario, that he did by deceit, falsehood or other fraudulent means, defraud John and Claudia Lynch of a sum of money exceeding $5000 contrary to Section 380(1) (a) of the Criminal Code.

4Count # 3: Between the 1^st^ day of February 2006 and the 25^th^ day of October 2007, both dates inclusive, at the City of Burlington, and/or elsewhere in the Province of Ontario, that he did by deceit, falsehood or other fraudulent means, defraud Laurene Rogers of a sum of money exceeding $5000 contrary to Section 380(1) (a) of the Criminal Code.

5Count # 4: on or about the 4^th^ day of April 2007 at the City of Burlington, and/or elsewhere in the Province of Ontario, that he did by deceit, falsehood or other fraudulent means, defraud Harold Elke of a sum of money exceeding $5000 contrary to Section 380(1) (a) of the Criminal Code.

Overview:

A. Background and Share Structure of Majestic Supply Company and Suncastle Developments Incorporated:

6All of these charges relate to allegations that the accused, Adams, defrauded various shareholders of Majestic Supply Company Inc.

7However, there are two companies that are involved in this unfortunate saga which resulted in very significant monetary losses to a number of investors. Those companies are Suncastle Developments Incorporated (“Suncastle”) and Majestic Supply Company Inc. (“Majestic”). These two companies had separate corporate structures, but both were founded by Adams, both operated out of the same premises at the relevant time, both seemed to be engaged in attempting to develop the same technologies and Suncastle owned a significant portion of Majestic shares. Their stories are therefore inextricably linked.

8Exhibit #112 is an agreed statement of fact. It details the corporate structure of these two companies.

9Suncastle was incorporated on February 22, 1983 initially under the name of Judith E. Ellis Sales Limited. The name was changed to Suncastle Developments Incorporated on December the 6^th^, 1988. Adams, was noted as the secretary and Mary Kricfalusi was the president. Suncastle’s offices were located at 4450 Mainway in Burlington. In 2003, Adams controlled Suncastle, which to this point had essentially been dormant, although according to Adams, Suncastle had accrued significant capital losses. Adams testified that he retained 20% ownership in Suncastle.

10On May 2^nd^, 2003 Adams purchased 1562497 Ontario Incorporated. This corporation had previously been a shelf corporation operating under the name of Majestic. This new corporation, after amalgamation, ultimately became known as

Majestic Supply Company Inc. It is this company that is the principle subject matter of the charges before the court. Majestic’s offices were also at the same premises where Suncastle was located at 4450 Mainway Drive, Burlington. A number of employees worked at this location but it was often indiscernible which employee was working for which company.

11After 1562497 Ontario Inc. was purchased by Adams it originally had only had a small number of shares. As of June 28^th^, 2005 this corporation only had 1,000 shares in existence. Adams owned 450 of those shares.

12According to a draft distribution agreement dated August 10^th^, 2005 Suncastle was to be the company that would develop various ink and printing technology. Majestic was to be a sole distributor with the responsibility to market, sell and distribute Suncastle’s products.

13On October the 3^rd^, 2005 an additional 99,000 Majestic shares were issued to Adams at a cost of $99.00 leaving him with 99,450 shares out of the 100,000 shares in existence.

14On October the 6^th^, 2005 the existing shares of Majestic were split 75:1 resulting in Adams holding 7,458,750 shares out of an existing 7,500,000 shares. At this point the share capital of the company was $109.00. It is obvious then that these shares then had a negligible value considering the share capital of the company. It is also obvious that Adams had the overwhelming control of this company at this time.

15On December the 1^st^, 2005 Adams disbursed all of the shares held in Majestic that were in his name to others as set out in the December the 1^st^, 2005 resolution of the sole director. 600,000 shares were transferred to Ken Asselstine, Adams’ brother, and 2,250,000 shares were transferred to Thomas Brown. The shares transferred to Mr. Asselstine and Mr. Brown were held in trust for Adams, however there were no longer any shares held in Adams’ own name as of this date.

16From January 2006 to the end of March 2006, 1562497 Ontario Inc. (operating as Majestic) issued and sold further shares to investors.

17On April 1^st^, 2006 Adams filed articles of amalgamation and amalgamated 1562497 Ontario Inc. with Decorative Impressions Inc. forming the new Majestic Supply Company. Adams was listed as one of the three directors of the company whose offices were located at 4450 Mainway in Burlington.

18When 1562497 Ontario Inc. amalgamated with Decorative Impressions on April 1^st^, 2006, Decorative Impressions had 1,000,000 shares outstanding. Those shares and all existing shares in 1562497 Ontario Inc. were re-issued as shares to the new Majestic Supply Company on a 1:1 basis. Schedule “F” in Exhibit #112 provides the complete list of shares that were issued at the opening of Majestic Supply Company on April the 1^st^, 2006. There were a total of 9,710,000 shares and the company’s share capital was $249,909.00. According to Schedule “F”, Adams held 700,000 shares in Majestic Supply Company in addition to a significant number of shares assigned to Thomas Brown and Ken Asselstine that were being held for Adams in trust.

19Adams resigned from Majestic’s Board of Directors in November 2006. He remained influential as a consultant to Majestic and as being a substantial shareholder of Majestic stock. An issue at this trial is whether Adams was the directing mind and will of Majestic particularly after he resigned from Majestic’s Board of Directors in November 2006. There is no issue that Adams was the directing mind and will of Suncastle the entire relevant time period.

20From April 1^st^, 2006 until Majestic collapsed and came under investigation in the spring of 2008, a number of investors acquired shares in Majestic through primary purchases from the Majestic treasury, through secondary purchases or through loan conversion agreements.

21During this time the number of shares of Majestic in existence had grown by 4,920,619 shares to a total of 13,420,619 shares. The share increase had occurred through the issuance of additional shares, some for cash, some in exchange for services rendered and some for a comparatively small amount of cash consideration presumably in view of services rendered to the company. The total share capital in Majestic as of the spring of 2008 was $2,160,142.00.

22Over this same time period many investors were sold shares out of the holdings of existing Majestic shareholders. There were 98 transactions in which 3,933,040 shares were sold from the holdings of existing shareholders. Those share sales did not result in any increase in Majestic’s share capital as the money from the purchases went to the existing shareholders who had sold the shares. There is a chart as part of Exhibit #112 entitled “Secondary Sales and Transfers in the Majestic Stock” which sets out the secondary sales from each of six significant existing shareholders to numerous investors.

23Adams and Suncastle (Adams owned 20% of this company) and CGS (owned by Adams) all divested themselves of Majestic shares during this time.

24In spring 2008 Majestic Supply Company ceased operations as the company was insolvent. The shareholders lost all of the money they had invested.

Overview:

B. Majestic - The Business

25The following is an overview of Majestic’s business operations. It necessarily demands some conclusions which are based on the evidence heard at trial. More comprehensive credibility assessments will be completed during the course of the judgment.

26According to the Adams evidence he envisioned Majestic as being an industry leader in environmentally safe products with innovative technologies for sale. Adams testified that after a number of conversations with Noel Shahnazarian that he had become aware that the environmental laws were changing and that the large print industry was looking for alternative solutions. In particular, the accused became interested in a new ink product that was a water-based product but which had the same qualities as the solvent-based inks without the deleterious environmental effects that were related to the solvent-based inks. The large print industry relates to signs and other products that are printed on large format printers and which are generally used outdoors. The accused testified that he wanted Majestic to take advantage of this shifting landscape in this industry to focus on environmentally safe printing supplies and possibly do research and development in the printing field. The accused testified that he hoped that Majestic would be able to take advantage of multiple revenue streams.

27Adams subsequently met Carlo Toscano through Noel Shahnazarian. Toscano was knowledgeable and trained to service multiple printers as he was a national technical specialist for Hewlett Packard which was the market leader in large format printing at the time. Toscano was also an inkjet printer specialist and worked with Staedtler, which was an established company based in Germany that produced ink and related products and at its North American affiliate CGS. Toscano had worked for and trained with Staedtler and understood their products particularly a revolutionary new ink Staedtler had developed known as Lumo color. According to the accused, Toscano suggested purchasing this ink from Staedtler and then using a private label to sell the ink in North America.

28Lumo color ink entered the market in 2001. It was a water-based ink designed to replace solvent inks in large format printing, including outdoor applications. However the ink did not work without a proper heating application to get the ink to adhere to the media. A heating source was required to complete the printing process with the lumo color ink. According to Toscano’s evidence he estimated that a retrofit to turn a solvent printer into one that could print using lumo color ink was in the range of $40,000 to $50,000. According to Toscano there were no system integrators in North America that could do what Staedtler required in order to make the lumo color work. Toscano did testify that he sold a retrofitted system to TACA printing company based in Vancouver but he was unsure if they ever ordered lumo color ink. Several companies in Europe had developed a viable solution as did a company in Japan.

29Toscano ultimately accepted the accused’s offer to work at Majestic and this included an ownership stake in Majestic.

30In 2005 Adams and Toscano wanted to establish a formal relationship between Suncastle and Staedtler. Therefore, Toscano was sent to Germany with a contract he received from the Suncastle’s lawyer Thomas Brown in the hope that Toscano could persuade Staedtler to agree to the contract. Toscano testified that he met with Dieter Steudtner, the International Sales Ink Manager at Staedtler. He stated that Steudtner liked the idea of partnering with Suncastle but refused to enter into a contract because Suncastle had not purchased enough ink from Staedtler. Suncastle needed to prove itself first.

31Toscano testified that when he relayed this information to the accused that the accused was furious that a contract was not arranged between Suncastle and Staedtler.

32The accused, however, testified that when Toscano returned he told the accused that Staedtler was excited about the potential partnership and that an executed contract would arrive in 3-4 weeks. This contract, according to the accused, would give Suncastle the right to distribute Staedtler’s water-based and pigment-based inks on a private label basis as well as the right to distribute lumo color ink on a private-label basis. Adams also said that Toscano produced a contract from Staedtler with an electronic signature. Toscano denied this. The lawyer Thomas Brown initially testified that the contract, which is Exhibit #105, was the contract he believed had been produced by Toscano but the date of that contract in August 2006 was well after Toscano left Majestic so his evidence is not helpful in resolving this factual disagreement.

33It should be noted that the evidence is not clear as to whose evidence is correct about this issue. What has been established is that Suncastle was purchasing some limited quantities of ink from Staedtler during this time. There were, however, only two formal contracts produced at the trial. They are Exhibits #103 and #105 which were dated December 15, 2005 and August 15, 2006 respectively. Both agreements are between Staedtler and Suncastle. The first is a non-disclosure agreement. The second is a contract for Suncastle to purchase ink from Staedtler with very limited exclusivity as the exclusivity is limited to Suncastle’s private label. In addition, lumo color ink is not included in this contract. These contracts were entered into only after Toscano had left Majestic.

34Shortly after this, in 2005, Toscano and Adams had a falling out and Toscano left the company. Not unexpectedly, Toscano and Adams disagreed regarding the reason for this falling out. Adams claimed that it was because Toscano had misled them about the Staedtler contract. Toscano claimed it was because Adams refused to take the company public.

35Toscano further claimed that he had been successful in creating the heating system to make lumo color ink work properly. However Adams maintained that when Toscano left he ransacked the premises and damaged two of the three printers. In addition, when Toscano left Adams testified that Toscano’s heating solution for the lumo color ink did not work. Toscano denied these allegations.

36Whether Toscano is being truthful or not regarding his evidence about the lumo color heating system working satisfactorily when he was with Majestic it is clear that Majestic did not have access to this technology after Toscano left Majestic so that it could be utilized in order for Majestic to make a profit on this revolutionary Lumo color Ink.

37It has also been clearly established that after Toscano left Majestic, neither Majestic nor Suncastle had solved or would be able to solve the vexing problem of how to properly heat the lumo color ink to make it market-ready.

38For example, as a result of Toscano leaving Majestic, Adams hired Paul Socholotiuk who was also not successful in developing the heating device to be used with lumo color ink. After a further short period of time Carlo Fascio was also hired by Adams to perfect the heating device for the lumo color ink but he too was not successful in this regard, notwithstanding Fascio’s repeated promises that he could get the job done.

39After Toscano left Majestic, Adams also asked Noel Shahnazarian to reach out to Staedtler to re-engage in contract discussions. This eventually resulted in the contract which is Exhibit #103 being agreed to by Staedtler and Suncastle. This agreement is dated December 20, 2005. The agreement clearly states that it is a confidentiality or non-disclosure agreement only.

40Notwithstanding the clear language of the contract Noel Shahnazarian, Thomas Brown and Adams all claimed that they believed that Suncastle had exclusive private label rights to lumo color ink. It is hard to understand how supposedly competent business persons could so radically misunderstand the clear wording of this contract.

41The accused claimed that he knew of no other company importing Lumo color, notwithstanding Thomas Brown’s assertion that the contract which is Exhibit #103 from December 2005 related to the parties maintaining confidentiality for their dealings because Staedtler already had an exclusive supplier for their brands in North America. Adams also claimed that he believed that Suncastle was in this advantageous position because of Staedtler’s commitment to giving Suncastle technical support, including software, diagrams converting the printers, and correspondence. Finally, the accused claimed that he relied on Shahnazarian and Brown in concluding that Suncastle had exclusivity with respect to lumo color ink. Adams stated that Suncastle would never have spent the time and money it did if they did not have exclusivity.

42On August 15, 2006 Suncastle and Staedtler entered into a further agreement regarding Suncastle purchasing inks from Staedtler. None of the inks being purchased from Staedtler in this contract were the lumo color ink previously referred to. The exclusivity clause was limited to Suncastle purchasing these inks from Staedtler, and private labeling the inks for resale. The only commitment made by Staedtler was to not sell these same inks under Suncastle’s private label. Otherwise Staedtler was free to sell the same inks to anyone else so that person or company could resell those same inks using their own private label. In addition, for the agreement to remain in force Suncastle was required to meet certain quota demands in favour of Staedtler. This contract was clearly heavily weighted in Staedtler’s favour. It is perplexing in the extreme that this contract would lead anyone to believe that Suncastle had exclusive rights to lumo color ink or that Staedtler was being very supportive of Suncastle. It would appear that Staedtler would have been happy to deal with Suncastle if Suncastle ever properly developed the heating system required to make lumo color ink work but Suncastle never did get to that point.

43It is important to note that Adams claimed he believed that Suncastle had exclusive rights to lumo color ink right up until the time of this trial. Yet Adams also claimed that he did not tell investors about this obviously crucial piece of business information in order to persuade them to invest in Majestic or to purchase his own shares of Majestic. Based on the best and most reliable evidence, which is the contracts themselves which are Exhibits #103 and #105, it makes no sense for Adams or anyone else at Suncastle to have the belief that Suncastle had exclusive contractual rights to lumo color ink. The plain reading of these contracts refute Adams claim to exclusivity regarding lumo color ink. Adams further claim regarding his belief in exclusivity due to Staedtler’s support regarding the heating process shows that Staedtler wanted to work towards perfecting the heating process in order to develop their own market for lumo color ink and thus make it profitable for themselves but it does not support any concept of exclusivity with Suncastle as the contracts clearly demonstrate.

44As Mr. De Souza stated at page 53 of the October 10^th^ transcript, “any Joe Blow from the public could enter into a similar transaction very easily.” On the following page he notes that, “if it’s available to the public then there is no business there.” This was the de facto situation regarding Majestic and Suncastle at this time.

45It should be noted that it makes even less sense for Adams to have kept this exclusivity belief to himself when as even he points in his evidence that Majestic “was desperate for money.” I find that Adams was well aware that they had not obtained exclusivity for the lumo color ink with Staedtler but that he tried to persuade investors to commit based on this incorrect information.

46At paragraph 41 of the accused’s submissions it is noted that “as 2006 progressed, Majestic required capital”. As Adams noted in his evidence, Majestic was “desperate for money”. It should be noted therefore that the question arises as to why Majestic needed money at this point if there was no product to bring to market and considering Majestic’s stated purpose of marketing, selling and distributing Suncastle’s products.

47This was also the time when the Bishop and Fascio era began at Majestic.

48Steven Bishop testified that in the early months of 2006 he was working for a different company when he was approached by a person named Julio Ramirez. Ramirez told Bishop about a company in Burlington that had invented an ink that would revolutionize the industry. However, Ramirez told Bishop that this company was now broke due to the research and development costs to invent the new ink and so they were looking for venture capitalists to assist them.

49According to Bishop’s evidence, Adams told him and others in his presence, that the souken ink had been created by Noel Shahnazarian, who had ‘by fluke” created a polymer additive which had given Staedtler’ s ink the properties of solvent inks. Second, Adams told him, and others in his presence, that the research and development on the ink technology was complete, and that the product was ready to go to market, subject only to finances to market and produce it; third, Adams told him, and others in his presence, that Suncastle/Majestic were the exclusive owners of this ink technology, and that no one else had it; fourth, Adams told him, and other investors, that the posters on the wall, including the large posters of Britney Spears and Jennifer Aniston, had been printed with souken ink. Finally, at Adams’ direction, he sold shares in Majestic to investors, passing on the understandings that he had obtained from Adams.

50Adams, in his evidence denied that he told Bishop these things alleged by Bishop in his evidence.

51Nevertheless, Bishop began to approach investors regarding Majestic and he was quite successful in selling both Majestic treasury shares and also in completing some secondary share sales of existing Majestic stock from existing shareholders, like Adams, to new investors. Bishop was paid by the combination of salary and commission regarding the new investors he brought in.

52In November 2006 Adams resigned from Majestic’s board of directors and Bishop was put on the board of directors at Adams insistence to ensure that the company ran properly. Subsequently Adams entered into a consulting agreement with Majestic.

53It should be noted that the evidence conflicts regarding whether Adams continued as the directing mind and will of Majestic after he resigned from the board of directors, but the evidence ultimately reveals that Adams continued to have de facto control of Majestic even though legal control rested with the board of directors.

54What is clear is that solicitation of investors for Majestic continued and Adams divested himself of a considerable number of his personal shares in Majestic through secondary sales.

55In early 2007 the heating device problem was still not solved by Socholotiuk but Socholotiuk had met Carlo Fascio. Fascio was an engineer who claimed he could get the heating device to work. However, the heating device problem was never corrected.

56Majestic’s focus now shifted. According to Adams, while Fascio was working on the heating element, Majestic suffered through a sales crisis when a batch of their cartridges did not work on a large order to a company in Florida. Fascio purportedly looked at the D5 cartridge and announced that it was defective. He made modifications to it but the retrofit did not work. He then announced that he came up with a new cartridge that could fit HP machines and would not infringe any patents. However, the new cartridge never worked.

57There was also an attempt made by Fascio to develop a filling line for the cartridges and printers but this concept also failed to materialize in a workable fashion.

58In early 2008, Majestic failed. It had become insolvent and the company closed the doors at the Mainway location after moving its belongings to Fascio’s premises.

59As noted previously, the stated intention was for Suncastle to be the company that would develop various ink and printing technology while Majestic was to be a sole distributor with the responsibility to market, sell and distribute Suncastle’s products.

60However, Mr. De Souza, the forensic accountant from the Ontario Security Commission (“OSC”), noted the following at page 58 of the transcript of October 10, 2013. (Emphasis added)

Q. And what about the fact that, that the whole business of Majestic seemed to be to distribute the products of Suncastle?

A. That’s the information I picked up from the files in my early investigation, that it was set up to be a marketing arm to sell a product of Suncastle, et cetera. I never actually saw that happen. As far as the little—what I saw was, constantly, that either or both companies were in a kind of research and development, trying to find a product for the market. There wasn’t anything in terms of—there wasn’t really a product in place, an agreement in place, and Majestic was ready to exploit that and market the particular product. It was very much in a rudimentary development stage and I couldn’t quite make the distinction between the two companies. I, I couldn’t for certain say who was responsible to be doing the R and—the research and development and who wasn’t. I think the financial statements at the end of the period were corrected at certain financial year-ends to, to transfer research and development into the appropriate company’s books, but during the intermittent period, before the transfer was made, either or both companies were responsible to research and carry out certain related expenditures.

61In addition, at page 68 of the same transcript he noted the following. (Emphasis added)

Q. Okay. All right. Let’s talk then about secondary share sales in the context of Majestic and Suncastle, but, really, Majestic shares. You—in your, in your investigation of this and in your review of the materials I take it you understand the stated purposes of these two companies, is that right? What was your understanding of the, basically, the raison d’être of, of Majestic and Suncastle?

A. My initial understanding was that Majestic was going to be marketing a technology and a product which it was going to obtain through a licensing agreement from Suncastle and this was ready to go, so I thought there was some arrangement and it was going to exploit the — under the terms of the agreement — the sale of ink. I didn’t see that over the course of the two-to-three year financial history of the company and looking at the, at the books and records, and what I then saw is just, there afterwards, research and development into ink containers — I forget the exact — cartridges that were trying to be developed and getting them to function properly, and then there was indications of a heating process to cure the ink that was going to be employed, so the initial set-up of the company, which was going to be marketing of product, I didn’t see that any product actually existed. So my understanding was the company — both Majestic and Suncastle — and I was never, in practical terms, I couldn’t make a distinction between the two as to who was responsible to develop the particular product. I did notice in the financial statements — and, again, I’m gleaning the information and taking the information as read and, and being correct — I, I see the Suncastle financial statements reflecting research and developing costs, so even if these were incurred sometimes by Majestic, they were re-charged to Suncastle, so Suncastle looked after some of the research of the company, of, of whatever it was doing, and Majestic was financing, in large part, some of the costs and expenditures relating to the research and development that was being carried out by Suncastle. So there were expenses and income flowing between the two companies through the inter-company accounts, and the accountant, at the end of the fiscal period, would make certain adjustments by re-charging either or both of the companies, getting the expenses in the right time-frame, and then drawing up the financial statements for the years 2006, 2007, for both of the companies, and, for Suncastle, financial statements for March 2008, but Majestic doesn’t have financial statements for March 31, 2008, so you have two years of financial statements and three years of financial statements for Suncastle, and I’m basically, for the purposes of my review, I took the information, verbatim, from these financial statements and corroborated that information with the general ledger, which is the primary source of, of record-keeping kept by the company.

62The evidence of Mr. DeSouza also indicates that Suncastle and Majestic were not operating at arm’s-length. At Pages 57 and 58 of the October 10, 2013 transcript he notes the following. (Emphasis added)

Q. Okay. And I will be purporting to, or planning to, to return to that. One of the conclusions I’d like to talk about is the links and whether these companies operated “…at arm’s length”, was a phrase that was used. So what does that phrase mean, “At arm’s length”?

A. Basically, that’s independence, independence, no conflicts of interest between the two entities, and that would be at arm’s length, so, in other words, independent entities or independent persons.

Q. And did you find that these two entities were operating at arm’s length from one another?

A. That was, that was not my understanding, and, again, it’s derived from what I saw from the files and information already accumulated at that point in time and based on both the companies operating from the same premises and….

Q. Okay. So one, one feature was that they operated in the same premise. What other features placed them— or linked them?

A. Well, there was common shareholding; I mean, Suncastle owned shares of Majestic, quite a large chunk, so there was an interest between the two companies, so they were not, to that extent, not totally independent; there was commonality in, in the shareholding. I think Mr. Adams was also, at a point in time, a director of Majestic and also of Suncastle so there was common directorships, at least for a period of time.

Q. Does it matter that Mr. Adams was the founder of both companies?

A. Well, that definitely shows that, yes, if you—I mean, I think the creation of both companies, at the inception, definitely Mr. Adams was involved at some point in time. I think, from a legal perspective — when I say, “legal perspective”, it’s board of directors — Mr. Adams got out of the directorship from Majestic, but certainly the creation of the companies was by the same founder so that definitely is a commonality and, and showed the relationship between the two companies.

63Therefore, while the accused had hoped that Majestic would be in a position to take advantage of multiple revenue streams this did not materialize. The evidence revealed some re-sales of D5 cartridges that had been purchased from a company in Korea, and refilled with Staedtler ink but it was revealed that there was a major problem with one of the main purchasers of the refilled cartridges in Florida. The problem was so significant that Majestic, through Carlo Fascio, attempted to redesign the entire cartridge but did not do so successfully. The evidence also revealed a relatively minor printing contract for Walmart. The retrofit heating system for lumo color ink was never perfected. The new cartridges and filling lines promised by Fascio never became available. Some evidence suggested that Majestic had developed a coating product referred to as souken coating. However, the accused, Mr. Adams, clearly stipulated that no such product ever existed.

64There was also conflicting evidence regarding who tried to develop the canvas stretching machine. Toscano, Daniel LeBlanc and Tony Yaworski all gave different evidence regarding who designed and produced this device. The accused verified LeBlanc’s version of events. However, the evidence is such that the truth of who was responsible for producing this device cannot be determined with any degree of certainty. In the end what is clear is that the stretching machine never reached the stage of being marketable such that it could provide a revenue stream to either Suncastle or Majestic.

65All Suncastle and Majestic really had were some ideas without the technical knowledge or capacity to bring them about in the marketplace.

66The only relevant contracts were only a confidentiality agreement between Staedtler and Suncastle from December 2005 and an agreement between Staedtler and Suncastle, from August 2006, to purchase ink, but not including lumo color ink. This latter agreement had a very limited exclusivity agreement regarding Suncastle’s reselling this ink under their own private label. These agreements may have become important to Majestic if a marketable product was successfully developed by Suncastle that Majestic could then bring to the marketplace but in and of themselves they were of very minimal value. Any other company, including Staedtler, could sell the same inks that Suncastle had access to from Staedtler under that other company’s own private label.

67At page 59 of the transcript of October 10, 2013 Mr. De Souza, the forensic accountant from the OSC, noted that Majestic essentially did not have a product in place. He further noted the following at page 98 of the same transcript:

So I did not see a business process in place. There were no sales throughout the period that I looked at; the financial statements reflect no business operations except there’s a modest sale of ink that has taken place, and I believe this was ink bought from Europe or somewhere, but this is very modest by comparison to the expenses. So, basically, there wasn’t any, any operation that the company, the company had at that point in time.

68Also at page 68 of the October 21, 2013 transcript Mr. De Souza noted this. (Emphasis added)

A. Then what we also covered, or I, I testified, was that the books and records in the operations that I saw over the two-to-three years in reconciling the, the share capital of the company and looking at the financial statements, I did not see any operations in terms of the sale of any product or whatever, so there was pretty much no revenue on both sides and just end costs, generally, and the costs being what is reflected in the financial statements.

69The evidence in this case clearly establishes that without any viable product to bring to the marketplace Majestic was doomed to fail as a business. The ideas they had could have been profitable if they had actually worked and been available in a timely manner but no one at this company had anywhere near the technical knowledge required to invent the systems the company envisioned. Vision, without knowledge and expertise to implement it, is worthless. It was only a matter of time before the money ran out and the new investors dried up such that Majestic went bankrupt. That is precisely what happened in early 2008. All of the investors lost all of the money they invested in Majestic.

The Issues:

70The main issue in this trial is the credibility and reliability of witnesses. The resolution of this issue and the resultant findings of fact will be largely determinative of the ultimate issue of whether the Crown has proven the offences charged beyond a reasonable doubt.

71Once findings of fact have been made the application of the law to the facts is relatively straightforward.

72It is therefore essential to review in detail all the evidence heard at this trial so that the credibility and reliability assessment of the various witnesses can be fully examined and compared. Credibility and reliability can only be adequately assessed when the detailed evidence is reviewed to determine consistencies and / or inconsistencies and to assess the likelihood of certain events and the probability of those events being in accord with common sense and the totality of the evidence in the case. A thorough review of the evidence also demonstrates the consistent themes that reoccur time and again in the evidence concerning the misrepresentations made by the accused to various persons over time.

73There is a full analysis section later on in this judgment but there are also comments made during the rendition of the facts, usually prefaced by the comment, “It should be noted that,” which are also being taken into consideration in the ultimate determination of credibility and the findings of fact made in this case.

The Evidence:

A. Crown Evidence:

1. Steven Bishop:

74Steven Bishop was the Crown’s first witness. Bishop’s evidence is potentially very significant as much of his evidence relates directly to the inner workings of these two companies and to the degree of participation and control that was exerted by the accused, Adams, over the two companies during the relevant time period. It is also potentially critical evidence as it relates to the representations that were made to the investors and the source of that information. Bishop’s credibility has been questioned by the accused and it is a major issue at this trial. His evidence will therefore be set out in some detail.

75Bishop testified that in the early months of 2006 he was working for a different company when he was approached by someone by the name of Julio Ramirez. Mr. Ramirez told Bishop about a company in Burlington that had invented an ink that would revolutionize the industry. However, this company was now broke due to the research and development costs to invent the new ink and so the company was looking for venture capitalists to assist them.

76Bishop testified that it seemed a natural fit as Bishop knew someone by the name of David Prentiss who owned a venture capital firm. Bishop understood that . Prentiss’ job was to raise capital and that Prentiss represented a corporation that had a lot of money to invest. Bishop spoke to Prentiss about the information he had received from Ramirez and Prentiss asked Bishop to look into this company.

77Therefore, in February or March, 2006 Bishop went to look into this company referred to him as “Majestic”. Majestic’s offices were located on Mainway Drive in Burlington. The people at this first meeting were Bishop, Ramirez, the accused, Danny Chilleli, Bill Stankiewicz, Thomas Brown, Robert Dash and Robert Biegerl.

78Bishop believed that the accused, Adams, was the owner of Majestic because everyone at the meeting seemed to defer to Adams. Adams sat in the most prominent seat in the room. Dash was introduced as president of the company and he spoke briefly. Dash then introduced Chilleli who spoke of the technical aspect of the process and then Adams took over the meeting and was in control for the remainder of the meeting.

79Bishop described Adams as a good presenter. According to Bishop, Adams explained that Majestic had an ink product knows as “souken” ink that was going to revolutionize the industry. In addition Majestic had developed a cartridge to introduce the ink to large format printers.

80Adams explained that up to this time the ink used in large format printers for outdoor products was a solvent-based ink that had VOCs, which are volatile organic compounds. VOC’s are harmful to both the environment and to the people using the ink in the workplace. Adams explained that souken ink would replace the solvent-based inks and yet perform identically to solvent-based ink or better.

81Bishop described the degree of excitement in the room as palpable. According to Bishop, Adams went on to explain that the marketplace was ruled by Hewlett Packard and that they were a natural target to go after as the souken ink and the cartridges that had been developed would fit Hewlett Packard (hereafter referred to as HP) printers and could be obtained at a much lower cost by a consumer than if the consumer purchased replacement products directly from HP. Adams pulled out a number of documents demonstrating how large the market was for large print format inks and that only a small percentage of the market share would be required to make millions.

82According to Bishop, Adams held up a cartridge in his hand that was the approximate size of a brick. Adams explained that there were six different colours that could be used in the cartridges and that souken ink along with these cartridges could replace the ink cartridges being sold by Hewlett Packard. Adams went on to explain that HP usually sold the printers and then had essentially a monopoly on products and services for the HP printers.

83Adams went on to speak of the advantages of souken ink, indicating that it had been invented by a chemist through a fluke. The chemist’s name was Noel Shahnazarian. Adams explained that originally HP had obtained ink from a German company called Staedtler and that Staedtler produced inks in common use in the industry known as lumo color, but that Shahnazarian had added a polymer to lumo color that resulted in zero VOCs and it had all the properties of solvent-based inks. Adams explained that the ink and the cartridges were ready to go. They had been tested and were ready for the market.

84The problem was that the company was now broke and that’s why funds were being solicited. As Adams was talking he indicated he was highly motivated to invent this product because he had suffered from exposure to solvent-based inks including suffering from cancer. Adams went on to say he had spent every penny he had to develop this product and he indicated that he had spent in excess of $800,000.

85The company Suncastle was then introduced. Bishop was told that Mary Kricfalusi was the president of Suncastle. The accused, Adams, was also involved in that company. Suncastle was a company that purportedly developed products and Suncastle had given Majestic the first right of refusal to distribute any Suncastle product that was developed.

86According to Bishop, Adams when on to explain that $5,000,000 was required for the purposes of marketing and inventory regarding the ink and the D5 cartridges. Adams did not say the money was required for any research and development. Adams indicated that the product was now market ready, fully tested and ready to go. Adams went on to say that the German company Staedtler was making the souken ink for them at that time.

87Adams also showed Bishop the machines to be used to fill the cartridges.

88Bishop was then taken on a tour of the facilities and was shown a giant poster of Britney Spears which was hung on the wall. It was in brilliant colours and the accused said, “That’s souken ink”.

89Bishop was shown a room where the accused said that was where they did all of their testing and there were a number of printers in that room. According to Bishop, someone, Adams or another one of the people at the meeting, showed Bishop how the D5 cartridge went into the HP printers. It was explained that a printer makes money based on the speed of the printer and therefore an endless supply of ink really helped to lower the time to complete a job and thereby increased the profit margin. As a result of this meeting Bishop said to Adams that he would pass the information on to David Prentiss and he left the facility.

90According to Bishop he did pass this information on to Prentiss and a subsequent meeting was arranged in April or May of 2006 with Prentiss being present. Bishop, Prentiss, Noel Shahnazarian, the accused, Thomas Brown, Biegerl, Dash, Chilleli, and Stankiewicz were at this meeting. Introductions were made all around and the accused then explained that Shahnazarian though chance had come up with some additive/polymer that made water-based ink applicable to solvent-based applications. The accused explained that Suncastle and Majestic were two companies that were essentially joined at the hip and that there was an agreement in place that Majestic had first rights of refusal to all products produced by Suncastle. It was explained that Suncastle had been in existence for a longer period time, had a history of research and development along with stable management and therefore it was a more viable company to form a relationship with the German company, Staedtler.

91Prentiss asked for financial information on the company and was told that they were not complete at the time but that they were not a pretty picture in any case as the company was broke. During the presentation, Exhibit #1 was placed on the table as the business forecast for the company, apparently produced by a local accounting firm. There’s nothing in this document regarding the debt owed by Majestic.

92There was a discussion at the meeting about marketability and market size. In addition, there was a discussion about the possibility that once HP found out about D5 cartridges and the ink that HP would likely try to buy the company at a substantial price.

93There was a further report provided showing the profit HP made from ink products which seem to substantiate what everyone had been told at the meeting.

94It was indicated that this new technology was finished and ready to go. According to Bishop, the accused, Adams, was specifically asked what stage the product was at and he said it was ready to go, that investment money was needed for inventory, staffing and marketing. Bishop testified that those may not have been the exact words said by Adams, but that Adams had left no doubt about those aspects of the company during the meeting.

95Bishop walked out to the car with Prentiss, and Prentiss that this was a company that could be very profitable in the future. Bishop told that to Adams by telephone later that night. Bishop did not hear from Prentiss for about a week so he called him. Prentiss indicated he needed the due diligence binder which is essentially everything about a corporation and a forecast for the future. That was prepared by Thomas Brown, the lawyer, some 100 pages or so, and given to Prentiss. There were regular calls from the accused over the next two months asking what decision had been made in terms of Prentiss investing in the company. Finally Prentiss said he did not want to deal with the accused because he had called too much. Bishop called the accused the next day and told him Prentiss was not going to invest.

96According to Bishop, he met with Adams and told him that he could get the company up and running with a cash flow and that $5,000,000 was not required all at once. At that point, according to Bishop, Adams asked Bishop to work for him. Bishop initially resisted those efforts but Adams was particularly persistent including arranging to have work finished at Bishop’s daughter’s home in order to free up Bishop to work for him.

97As such, Bishop signed a commission agreement which is Exhibit #2. Bishop understood that his role was to raise capital for Suncastle and Majestic through direct contact with his contacts and that he was also to mentor Rob Dash as to how to manage the company. The accused told Bishop that the method of investment would be a promissory loan and conversion agreement and that the money, as a result, would go to Majestic.

98Bishop was provided with a brochure for Majestic which is some 10 to 12 pages in length which has been made Exhibit #3. It should be noted that this was later referred to as the Power Point Presentation. According to Bishop this document was provided to him by the accused, Adams.

99At a meeting shortly thereafter the accused insisted that Bishop be on Majestic’s board of directors. Bishop was made vice president of Majestic in September 2006. This was ratified at the Majestic shareholder meeting in November of 2006 which coincided with Adams resigning from the board of directors. In late November or early December 2006 there was a discussion about rebranding the company. New business cards were produced that indicated that Bishop was the CFO of the company. According to Bishop, the accused, Adams, said to him, “Congratulations, you’re the new CFO.”

100Bishop testified that he had started to approach investors as of September 2006. The accused gave these instructions to Bishop. According to Bishop, Adams told him:

You know how to sell, this is what we have got and this is what we need. I want people to invest. If they want to invest on a guaranteed basis they can do that. It won’t take long get the company up and running. Give them the option to further invest if they like.

101According to Bishop, Adams was more concerned about getting investment money in than whether the shares being purchased by investors were primary share sales from Majestic’s treasury or secondary shares from existing shareholders.

102When Adams talked about, “this is what we have got,” Adams was referring to souken ink which had zero VOCs and so was environmentally friendly. Adams indicated that they owned and had developed that product. It was also commonly discussed that no one else in the world had this particular product. This ink worked in conjunction with the D5 cartridge. In addition, the accused indicated that the filling station was also an invention completed by Suncastle.

103Bishop described a meeting with a businessman from Alberta by the name of Kevin Loman. He said Loman was the president of Essin Capital and Loman had invited him, in February of 2007, to attend their annual general meeting to talk about mutual funds and how to generate sales. At that meeting Bishop talked about Majestic as an example of a small company that had discovered a special polymer and was going to be very lucrative. Subsequently Bishop went to dinner with Kevin Loman and Dr. Elke (this is the complainant in count # 4). The next day Loman and Elke both indicated that they were interested in investing in Majestic.

104In early 2007 they began to become aware of problems with the D5 cartridge in that the machine would initially run fine but then the printing head would burn out. As a result a person by the name of Carlo Fascio came into the picture. He was an engineer experienced in printing who was hired by Suncastle and the accused to correct the problem regarding the cartridge. Fascio determined the cartridge could not do what it was described to do. Bishop testified that by the time this was discovered the majority of investing had already occurred. There was a shareholder meeting in May or June of 2007 in Burlington where the shareholders were told that the company had a problem with the D5 cartridge that would bankrupt it if it had not been solved, but that Mr. Fascio had solved the problem and they were therefore continuing to enter into contracts with Mr. Fascio to build the cartridges and filling machine.

105As an aside it should be noted that Fascio never produced either a workable cartridge to replace the D5, nor did he produce a workable filling line. It is unclear why the shareholders, in 2007, were told that Fascio had solved the problem when his work never came to fruition before Majestic went bankrupt in early 2008.

106According to Bishop’s evidence investors were often taken on a tour of the facilities. Bishop would often take them on those tours and the accused, Adams, would often assist with those tours. Adams would indicate that the ink product they had developed was going to set the world on fire and that it was environmentally sound. Adams also mentioned that Majestic did significant business with Walmart. Adams would always point to the Britney Spears poster and say, “that’s souken ink.” According to Bishop’s evidence, the conclusion that everyone drew was that souken ink would do what it was purported to do.

107It should be noted that a number of investors testified that Adams told them essentially the same thing regarding these posters.

108Bishop testified that investors were told that their money was needed for marketing, inventory and manufacturing of a fully developed ink product, the D5 ink cartridge and the continuous delivery system. The money being solicited therefore should have gone into Majestic treasury. Bishop further indicated that investment money was intermingled and went back and forth through loan agreements and other mechanisms between Suncastle and Majestic.

109Bishop testified that it was the accused, Adams, who established where the investors’ money was to go. Adams would supply the required banking information and Bishop would give this to the investor. Therefore, some cheques were payable to Suncastle and some payable to Majestic and some payable directly to the accused, Adams. If shares came directly from Majestic’s treasury the cheque was to Majestic, if Suncastle was selling Majestic shares the cheque went to Suncastle. If Suncastle shares were sold the cheque went to the accused.

110Exhibit #4 is a document known as the Majestic business plan. According to Bishop, there was more than one version of this business plan but that the original had come from the accused, Adams, and that Robert Dash had copies. Bishop testified that this business plan was in existence since the end of 2005 and was periodically updated but that the updates related to changes in the company structure regarding the people who were part of the company structure. The essential business information in the business plan itself did not change. Bishop did not know specifically who authored the business plan, but indicated that it was inconceivable that the accused would not have had a hand in the development of the business plan that is Exhibit # 4. The witness went on to indicate that he had discussed the business plan with Adams, not on a page by page basis but more regarding, this is what we’re doing or where we’re going, what people were involved and what their responsibilities were, regarding the ink and the delivery systems. According to Bishop this was part of the everyday speech used by Adams and that Adams often said the same things that were in the business plan.

111Bishop indicated that the money received from investors went to pay for salaries, rent, supplies, advertising and some commissions but that the vast majority of the funds received went to the accused, Adams. The money was used by the accused to reduce his and Mary Kricfalusi’s debt and sometimes the accused gave money to the company but the company then incurred a further debt obligation to the accused. Bishop testified that it was slightly different each and every time regarding the flow of money in and out of the company but that the accused was running the whole thing. He indicated that Adams was vice president of Suncastle and Suncastle was a substantial shareholder of Majestic. Suncastle had 577,119 Majestic shares.

112Bishop testified that there were numerous occasions when Majestic did not have sufficient money to keep operating and he was always requesting more money from Adams. Adams would list the things that he was doing for the company like hiring Mr. Fascio, the legal bills and developing the filling line. Adams would point out that Majestic wasn’t selling any product. Adams took the position that Majestic was responsible for Majestic’s success but there was no product, no ink and the cartridges didn’t work like Adams had claimed they would. According to Bishop it was therefore inevitable that Majestic would fail if money for Majestic shares was going to Suncastle, as Majestic needed cash to get over the hump until the delivery system being developed by Mr. Fascio was in place. Bishop specifically asked Adams where the money was and Adams chronicled the list of things that were previously detailed, i.e., Fascio, legal bills etc. Adams also indicated that money was going to Suncastle with respect to the ink and the cartridge, and it was critical to Majestic that Suncastle develop product that would do what they said it would do. Bishop was concerned that they were telling investors that the money being invested was going to Majestic and yet some Majestic shares sold were owned by existing shareholders. This meant that the money raised from these secondary sales was going to the existing shareholders who were selling their shares and not to Majestic’s treasury.

113According to Bishop, he confronted the accused and then told the accountants and legal counsel to not provide any further information to the accused regarding Majestic as it was clear to him that what was going on was offside.

114It should be noted that this appears to be the beginning of the split between Bishop and Adams. It also represents the point when de facto control of Majestic went from Adams to the group that had actual legal control, which was Majestic’s board of directors.

115Bishop testified that he received a telephone call from Adams indicating that the Adams would loan $12,000 to $15,000 to Majestic personally to get over the hump. Subsequently Bishop received a telephone call from Robert Dash indicating that Adams was coming in with the money. Bishop immediately sent an email to Dash saying, “Don’t do it”. Bishop and Dash met with Adams outside the building and told Adams they couldn’t take any money from him, if it was not aboveboard. The accused said, “Either take my money or the place will be closed”. Bishop said the accused then threatened to kill him and that he had therefore filed a report with the Halton Regional Police Service. There was a discussion concerning the shareholders. According to Bishop Adams had said not to worry about the shareholders that Adams would personally guarantee everything.

116Bishop had invested $50,000 in Majestic. He got this back while at the company. He was also paid $38,000 over two years but he was owed $175,000 and was not paid this.

117Bishop testified that he first realized Majestic was not getting money from investors in February 2008 and he became aware the secondary sales were not going to the benefit of Majestic. He therefore approached Dale Hicks and called the accountant. Both said they could not discuss the matter with him because of their connection with Suncastle. According to Bishop, Tom Brown, the lawyer, wanted Bishop to sign new Majestic shares to go to CBK Enterprises to be sold by them to people that Bishop knew wanted to acquire Majestic shares. Bishop testified that he signed these documents because the share transactions had taken place but then he went back to the office and called the Halton Regional Police Service.

118At the Ontario Security Commission hearing regarding these companies Bishop was implicated and readily acknowledged his involvement. The Ontario Security Commission found that Bishop had breached a number of regulations but that he was also the whistleblower regarding Majestic’s breaches of the Ontario Securities Act.

119In cross-examination it was established that Bishop had worked in the financial services industry since the early 1980s. He worked initially at the Investors Group and in 1995 to 1996 left that company to work for the Berkshire Group. Bishop acknowledged that he left the Berkshire Group when the Ontario Securities Commission conducted an investigation and found that he had taken management fees while not a chartered financial planner. Bishop was sanctioned and the Ontario Securities Commission would not renew his licence.

120Bishop testified that in 2006 he had stopped working except for being an occasional consultant on large case insurance policies. He indicated he had no debts, no criminal charges and no financial concerns. He accepted the accused’s offer to work for him because it seemed lucrative. At one point he did have shares in both Suncastle and Majestic. He testified that his primary role was to raise money for the company and that his secondary role was to mentor Robert Dash as Robert Dash did not have practical business experience.

121According to Bishop, during the meeting with the accused that David Prentiss had attended Prentiss had asked specific and pointed questions regarding how the ink and the cartridge worked. After the meeting David Prentiss had told Bishop that it was potentially lucrative company worth in the range of $200,000,000 dollars.

122Bishop agreed that he was the contact person for the vast majority of investors. Bishop admitted that he was not registered to sell securities but that his advice from the lawyer, Tom Brown and the accused was that he did not need a licence. It did not occur to him that because of the trouble he’d previously been in with the Ontario Security Commission that he should look into this further. Bishop said that he had accepted the advice of Tom Brown who he believed was a lawyer with experience in securities law. He indicated that the accused also told him that he had dealt with numerous companies in the same way and if it became an issue then they would advise him.

123It should be noted that both Brown and Adams deny this. Even if said to Bishop he was experienced enough in the financial services industry that it would be unlikely that he did not know that this was something serious enough, particularly in light of his previous problems with the Ontario Security Commission, that full confirmation of the legality of this should have been obtained before proceeding. This must be considered in assessing Bishop’s credibility.

124Bishop indicated that he knew the difference between accredited and non-accredited investors. He initially indicated in evidence the he did not sell types of shares based on whether the investor was accredited investor or not. He indicated that the delineation was that it was $25,000 minimum to invest in Majestic shares from the treasury and small or secondary sales, not out of treasury, were purchases of Suncastle shares or shares of Majestic owned by Suncastle. Bishop was then cross-examined regarding the statement he provided in 2010 to the Ontario Securities Commission wherein he clearly indicated that accredited investors only bought shares directly from Majestic’s treasury and non-accredited shares bought Majestic shares from Suncastle.

125In the same statement Bishop testified that it was lawyer, Tom Brown and Mary Kricfalusi who said that Bishop did not need a licence. Bishop did not mention in that statement that the accused had also told him that he didn’t need a licence.

126It should be noted that it is an inescapable inference that Bishop recognized a profitable enterprise for himself and he was prepared to ignore the Ontario Security Commission requirements to ensure that he was a part of it.

127Bishop agreed that he received the title of CFO but he maintained that this was because they changed the logo and the business cards. He agreed however that he did hold himself out as CFO while selling shares and this resulted in him having signing authority on cheques. He did not know that the CFO was responsible for financial record keeping or manage the company’s financial risk.

128Bishop testified that Adams had left Majestic’s board of directors in November of 2006 and that Adams did not have signing authority after that time.

129Bishop was shown Exhibit #8 which indicates that between April 1, 2007 and March 19, 2009 that the expense to sales ratio was some 7 to 1. He was unaware that the biggest sale during this period of time was in fact to Walmart in the amount of approximately $36,000. He admitted that he did nothing to change the expense to sales ratio; that he did not tell investors about this ratio and he did not make a report to shareholders regarding this ratio. He admitted that he never looked at the general ledger or financial statements for the company, and in fact, he had never looked at a financial document of Majestic’s until the company folded. He had further admitted that he didn’t know how many shareholders Majestic had and that he did not do anything regarding sales as the product itself needed to be changed. He maintained that he told the accused repeatedly that he needed the product to be provided that the accused had promised.

130Bishop further admitted that he and Robert Dash had signing authority on cheques and that the accused did not.

131Bishop was shown a document, Exhibit #8 which is the Majestic cheque detail document. It shows that on August 9, 2007 Deluca Roofing was given a cheque for $7844 and this was for work Deluca had done on his daughter’s roof. He indicated that he had signed this cheque but that the accused had told him that Deluca was coming by for payment that day and for Bishop to make sure the cheque was signed. The accused further indicated that he would put the money back in the account that day. The witness indicated that the flow of the books was that they would call it whatever they needed to call it as the books were being produced. Therefore he did not question the accused on this.

132Bishop testified that he had told both the accused and Mr. Brown that he had been sanctioned by the OSC on the first day he worked for them.

133It should be noted that this too is very unlikely since it goes against Bishop’s interests in this perceived lucrative situation.

134Bishop also confirmed that at the time he was living a comfortable life with no debts. He indicated the only debt he really had was a mortgage on his property on Jefferson Avenue in St. Catharines. He said that he was not aware at the time that Canada Revenue Agency (CRA) had a significant lien on his property. He only became aware of that when Adams handed out copies of the lien to shareholders. The lien is for $182,619, reportedly for unpaid taxes, although he is still undergoing the appeal process. He indicated that he was aware of tax issues for 2004 and 2005 but that appeal process is still ongoing. When asked why he had said that he had no debt at the time, he maintained that it was because there was no final determination that the taxes were owed by him.

135It should be noted that this explanation is pure nonsense.

136Bishop acknowledged Exhibit #10 which is a letter dated June 18, 2009 to Suncastle indicating that he owed $289,053.88 to CRA . He said he did not receive a copy of this but was told of it by the accused. He indicated that this debt to CRA was his voluntary declaration of income from his clients that had resulted in the Ontario Securities Commission sanction.

137Bishop was shown Exhibit #12 which is a Majestic PowerPoint presentation. He agreed that it did not say that Majestic invented an ink.

138Bishop was also shown two sales brochures which have been made Exhibit #13 A and B, which refer to “German engineered inks” and he further agreed that the brochures did not it indicate that Majestic had invented a new ink.

139Bishop indicated that he knew Carlo Fascio. Bishop had initially been introduced to Fascio by Adams. Bishop indicated that when he was introduced to Fascio, that Fascio had already been there for three to four days to correct the problem being encountered with the new cartridges and float system. He believed it was late 2006 or early 2007. Bishop understood that Fascio was an engineer who was fully employed but that Fascio also had a consulting business regarding specific products. Bishop indicated that Fascio had a facility at his residence where he did most of his work so their paths crossed on occasion but did not have a real relationship with him. Bishop indicated that it was several months before his relationship with Fascio grew and late in 2007 they worked together on a common objective which was to have the new cartridges replace the D5 cartridges that Suncastle obtained from a Korean company and provided to Majestic and to develop the filling system to work with the cartridges. Bishop asked Fascio several times if he had perfected the cartridge and filling system. Fascio’s response was that they were working on it.

140Bishop testified that the cartridges being returned to Majestic from Majestic’s customers lead him to believe that there was a problem with the cartridges and it wasn’t just an installation problem. He testified that he was advised that the D5 cartridge was faulty on many levels. Essentially it fit into the HP machines but there were flow problems with the ink which caused the printer heads to burn out. There were two problems. First, the cartridge didn’t work plus there were potential patent problems but Fascio believed that both problems could be overcome.

141Bishop didn’t know what Fascio had agreed to produce, but he was aware that Fascio was also working on filling line system to feed the ink into the large format printers and to monitor that process. The filling system would link in with a computer system in order to track orders and instruct the machines. If accomplished, this would result in a fast flow operation with minimal employee attendance. On several occasions, Fascio announced that progress had been made with respect to the cartridge and filling line and then Adams would put another demand on what he wanted the machines to do, so acrimony began to develop between Fascio and Adams.

142At the fall 2007 annual general meeting at the Holiday Inn Fascio explained how a properly working system would flow once equipped with the new cartridge and filling lines. There was constant discussion within the company regarding how lucrative the cartridge and filling system could be and that there was a tremendous revenue potential if developed properly.

143Fascio and Adams continued to disagree in that Adams would question Fascio about why the work was not done, or the accused wanted it to be bigger, better and cheaper. Finally, according to Bishop, Adams told Fascio to “Just make the damn thing. You may be an engineer but you don’t know anything about printing.” This resulted in a very large argument between the two men. Fascio claimed that he had redesigned the product and as a result he wanted a royalty for it because he had designed it on his own time. Bishop testified that Adams threw Carlo Fascio out and stated that, “I’m not paying that mother – f’er a single penny”.

144At one point in cross-examination Bishop was shown an email from February 2008 reportedly from Staedtler indicating that Staedtler was optimistic regarding Majestic’s approach. He did not recall being shown this email by the accused. That email was subsequently made Exhibit #104. It was suggested to Bishop that once he and Fascio had seen this email that they decided to set up shop together but this suggestion was denied.

145Bishop denied that he had created the story regarding a miracle ink to divert attention from what he and Carlo Fascio were doing after Majestic folded. He maintained that the company’s position was that this was a German engineered ink that was modified by the accused’s chemist, Noel Shahnazarian. However, Bishop admitted that there were no promotional materials that talked about the modification of the ink. Bishop agreed as well that the business plan did not talk about modifications to the ink. Bishop specifically disagreed with the suggestion that the Adams had never claimed that his company had a miracle ink.

146Bishop indicated that he knew the witness, John Lynch (complainant in Count # 2). Bishop testified that he and John Lynch were directors of Majestic and that Bishop had been a financial advisor to Mr. Lynch. He admitted that they had driven to the courthouse together and that they had talked about the case at great length as they were both directors of Majestic.

147In re-examination Bishop was shown an email dated April 18, 2007 which is Exhibit # 30. This email was with respect to the ordering of new business cards and Majestic changing its logo and design. When Bishop was asked what he was to be called for the new business card he noted that the email confirms what he expected to be, which was not the CFO of the company.

2. Other Persons Involved in the Business of Majestic

(i) Noel Shahnazarian:

148Noel Shahnazarian was a Crown witness. Shahnazarian has a bachelor of science with a major in chemistry and a marketing degree. He initially worked 16 years for a company called Canada Colours & Chemicals. In late 2000, early 2001 he started his own business called Northspec Chemical Corporation.

149Shahnazarian first met the accused when Adams was in charge of a company called Juma. Shahnazarian was looking to market a fabric that was being sold by a Korean company. This fabric was invented by the Korean company and Shahnazarian had no role in inventing it. The Juma name came up as a company that might be interested so Shahnazarian approached them and ended up meeting with the accused. According to Shahnazarian, the fabric purportedly had outdoor durability like solvent-based inks when printed on with water-based inks. Shahnazarian believed that he first met with Adams sometime in 2002 or 2003. Two or three months later there was a follow up meeting with Adams. Adams told Shahnazarian that he thought the product was good and that they could market it. Adams was continuing to evaluate the fabric however and he therefore asked Shahnazarian for more samples. As a result Shahnazarian invested some of his own money, a couple of thousand dollars, and he gave Adams 2½ rolls of the fabric for Adams to use in testing. Discussions continued with Adams.

150Shahnazarian subsequently met with John Vinsentin who had a printing company. Shahnazarian was introduced to Vinsentin by the people at Juma. They had some discussions about starting a company to take this fabric to market. It would be a joining of Northspec, Juma and Vinsentin’s printing company. The new company was formed to bring this fabric to market in Canada. Shahnazarian’s partner from Northspec did not want to join in this new venture but Shahnazarian had decided to continue as he had $70,000 - $80,000 already invested in this fabric. The new company started out as a numbered company and then ultimately was called Majestic.

151Shahnazarian was shown Exhibit #84 which is the shareholder’s register and his recollection was that it was himself, Adams, Vinsentin and Tom Brown that were the initial shareholders.

152Shahnazarian was intending for the new company to buy the $70,000 – $80,000 worth of inventory and resell it. However, it turned out that Shahnazarian was stuck with this fabric for some eight or nine years. Majestic did a lot of testing of the fabric with the printing company but no one would commit to buying the fabric from him. Shahnazarian eventually gave up asking and ultimately lost touch with both Adams and Vinsentin and did not contact them for about two years while he continued to try and sell the fabric by himself.

153In 2005 Adams called Shahnazarian again. He testified that Adams told him that Adams again wanted to try and bring the fabric to market. They hired a new lawyer Kusmirek, who was going to help out as opposed to Tom Brown. The plan was to bring in new shareholders to buy the fabric from Shahnazarian and to bring it to market.

154Shahnazarian’s role was to import this fabric. It was going to be marketed as an art reproduction fabric and hopefully sold. It was being marketed as using water-based ink but with some resistance and outdoor durability. They were hoping to sell it to hotels and offices. Shahnazarian was made president in the newly re-structured Majestic. Majestic at this time was solely about the fabric that Shahnazarian had purchased from the Korean company.

155Shahnazarian testified that he met Carlo Toscano through a friend and that he had first met Toscano at the Staedtler office. Toscano was in charge of Staedtler digital printing and selling Staedtler inks in Canada. Toscano was purportedly impressed with the Korean fabric. He indicated that he would talk to the people in Germany and he bought a roll of the fabric. Ultimately Staedtler shut down the digital printing part of their operations in Canada and a company called CGS took over which is the marketing arm of Staedtler. Toscano moved to the United States after that for a number of months and but then ultimately came back to CGS in Canada.

156After Shahnazarian informed Adams about Toscano, Adams also wanted to talk to Toscano because Adams understood that Toscano was experienced in working with large format printing machines. The accused had some old water-based printers that weren’t working and he wanted them fixed in order to test the Korean fabric. Therefore a meeting was set up with Adams, Toscano, and Shahnazarian. A few months after that Shahnazarian saw Toscano in the Juma office fixing the printers and tests were being done on the Korean fabrics.

157Shahnazarian indicated that Carlo Toscano introduced Staedtler ink to Majestic. Staedtler reportedly had an ink that had zero VOCs, and had outside durability. It was a water-based ink but had the endurance properties of a solvent-based ink. Staedtler called this ink lumo color ink.

158Shahnazarian was clear that neither he nor anyone else at Majestic had a role in making this ink. It was just Staedtler who made this ink.

159It should be noted that this evidence along with all of the other evidence at this trial clearly established that no one at Suncastle or Majestic had anything to do with the creation of this ink which supposedly had these revolutionary qualities. Thus, if it is also established that the accused represented to Bishop and/or to investors that his company had created the ink or had adjusted the ink’s qualities as a result of the addition of a polymer or some other chemical addition that would be a clear misrepresentation.

160Majestic opened its premises in Burlington and printers were brought in. According to Shahnazarian Toscano looked after the printers and initially there was a good relationship between Adams, Toscano and Toscano’s brother, Marco Toscano. However, one day in the fall of 2005 Shahnazarian came to the premises and found both doors closed and the two Toscano brothers were gone. Apparently the relationship with Adams had fallen apart. Shahnazarian was not sure exactly what happened as he was not involved on a day-to-day basis.

161Shahnazarian indicated that Adams was the main guy looking after everything at the company.

162It should be noted that this is more evidence that Adams was the directing mind and will of the company at this time.

163After Toscano left there was no one left at the company who had any printing experience or who knew how to maintain the large format printers. Shahnazarian was told by the various parties at the company, like Adams, Kricfalusi, Chilleli, and Dash that the two Toscano brothers had damaged the printer when they left.

164Adams wanted Shahnazarian to contact Staedtler to see if they could still get ink from them like Toscano had previously been supplying. Thomas Brown testified that ink was ordered from Staedtler in June 2005 which is a time period when Toscano was still with the company.

165It should be noted that this evidence indicates that Staedtler was supplying some ink to Suncastle in the summer of 2005 apparently on an ad hoc basis as the only actual contracts between Suncastle and Staedtler are Exhibit # 103 from December 2005 and Exhibit # 105 from August 2006. The importance of this is that Toscano’s credibility regarding whether he returned from Germany with a contract is not diminished by the emails referred to by Thomas Brown in his evidence.

166Shahnazarian therefore made efforts to bring the Staedtler contract to Majestic without Toscano. At this point Majestic had the Korean fabric and Staedtler ink.

167Shahnazarian was clear that no coatings were ever developed at Majestic or Suncastle and he noted that, besides Toscano and himself, no one else that was with the companies had a science background or was remotely capable of developing a coating.

168Shahnazarian contacted Staedtler and spoke with a person by the name of Dieter to see if Toscano had a contract with Staedtler and to see if it could be transferred to Majestic. Staedtler denied that there was in fact any contract but Staedtler indicated they were still interested in dealing with Majestic in taking Staedtler ink to market. Shahnazarian knew at this time that the lumo color ink needed a heating system adapted to the printers to get both adhesion and durability.

169Shahnazarian testified that it was mostly the accused that was financing Majestic and getting it done. He admitted to becoming president but did not recall who asked him to take over that responsibility.

170Shahnazarian testified that he did not know where the money was coming from to support the people that were working at Suncastle and Majestic. He didn’t know what the investors were being told. This witness indicated that the accused, Kricfalusi, and Dash had signing authority and that he did not sign any cheques. Shahnazarian resigned because he did not feel comfortable not knowing the company’s finances and not really knowing what was going on in that regard. This was in early 2006, sometime in either March or April.

171Exhibit #87 is a Majestic resolution where Shahnazarian started on the board of directors. It is dated May 1, 2005. Shahnazarian maintained that he was only sporadically at Majestic. Shahnazarian testified that at one point a number of documents were signed by him that had different dates but he hadn’t really read the documents because he felt there was just no money in the company. His only interest was really trying to get his $70,000 - $80,000 back, as that is what he invested in the Korean fabric. Even when Shahnazarian was the named president of Majestic he indicated that he would report to Adams and he testified that Majestic was basically run by Adams and that Tom Brown was his lawyer.

172It should be noted that this is an example of Adams maintaining de facto control of Majestic while placing people under his control, like Shahnazarian, in legal positions of power.

173With respect to the heating device for the printers, Shahnazarian knew the two Toscano brothers were working on it with Chilleli. He saw some printing after the fact but didn’t know if it was with solvent or water-based ink. After the Toscano brothers left Chilleli was trying to replicate what Carlo Toscano had done, but he was an electrician not a printing guy and he didn’t have much success. According to Shahnazarian, Chilleli ended up damaging a printer from too much heat. Adams was present and knew that they weren’t able to replicate the results Toscano claimed to have achieved with the heating device

174Shahnazarian saw a number of business plans be he didn’t know who produced them. He indicated that he saw the accused’s name on business plans but he didn’t think the accused wrote the business plan as he didn’t believe there accused had the ability to write those.

175The witness was shown Exhibit #89 which is the Suncastle business plan dated August 5, 2005.

176It should be noted that Adams was always the directing mind and will of Suncastle. From the evidence concerning Adams degree of interest and control it is an inescapable inference that Adams knew the contents of this business plan.

177Shahnazarian indicated that there were a number of inaccuracies in this business plan.

178First, the business plan reads: “The Suncastle Group has signed an alliance with German based ink manufacturer Staedtler to develop proprietary inks for both the desktop and large format printers.” Shahnazarian testified that this was not consistent with his understanding of what was going on at the time.

179Second, the business plan reads: “The Suncastle Group has developed an innovated water-based coating which when applied, rendered the coated material waterproof, stain resistant, scratch resistant and extends the life of the product to which the coating was applied.” Shahnazarian testified that this was not consistent with his understanding of what was going on at the time.

180Third, the business plan reads:

The Suncastle Group will announce the product launch of aqua colour, a water-based in 100 percent environmentally friendly ink within the fourth quarter of this year. This revolutionary ink is water-based, however it has the same, if not better properties when compared to solvent or screen printing inks. These inks must be used in conjunction with our proprietary printing solution, which is only available through the Suncastle Group.

Shahnazarian testified that this reference was regarding lumo color ink. Shahnazarian further testified that this “proprietary printing solution” was not market ready.

181Shahnazarian indicated that there was an A and B part to printing with the lumo color ink. The A part was having the ink and they had that. The B part was being able to heat it up so that it performed outdoors like people expected. They didn’t have the B part. Apparently some other companies did and the accused was aware of this.

182It should be noted that they may have had access to some lumo color ink but they had no ongoing contract or exclusivity rights to this lumo color ink. Anyone could purchase it from Staedtler.

183Fourth, the business plan reads that the proprietary printing solution is “only available through the Suncastle Group.” Shahnazarian testified that he was aware that other companies had the ability to print with this ink and that Adams was also aware of this fact as Shahnazarian had discussed it with Adams.

184Fifth, the business plan reads: “The Suncastle Group has developed inks that can adhere to over 50 percent more medias than the OEM inks.” Shahnazarian testified that they had never developed any inks.

185Sixth, the business plan reads: “Technical background on UV curable clear OPV coatings developed by the Suncastle Group.” Shahnazarian testified that Suncastle never had this type of coating available to them.

186It should be noted that the importance of this evidence is that it is corroborative of Bishop’s evidence and the investor’s evidence regarding what Adams had told them.

187Shahnazarian was clear that he did not have anything to do with developing what he called “lumo ink”. He was clear that it was not true that he had invented the ink. He indicated that he never added a polymer to the ink. He had thought about doing that and told the people at Suncastle/Majestic that he had some success in his own lab but that did not necessarily mean success in actual jobs. He had tried several additives with the ink. He further indicated that the term “polymer” was really a misnomer that it should be called an additive. He also indicated that while he was doing some tests on lumo color that they were under contract with Staedtler that if they modified it, Staedtler owned the technology. Shahnazarian confirmed that it was lumo color that was being presented as souken ink. Shahnazarian was clear that it was not true that he had a hand in developing the ink and he did not tell the accused that he had invented the ink.

188Shahnazarian indicated that he was not aware of what the shareholders were being told about the ink. He didn’t attend any shareholders meetings. He did recall being introduced to shareholders as the technical person involved with the ink, but his real role was to liaise with Staedtler.

189This witness was present for the negotiations with Staedtler for lumo color to be called souken ink. The witness indicated that he believed that they had exclusive rights in North America to sell the ink. He was shown Exhibit #90, which is also Exhibit # 105, which is the Staedtler contract with Suncastle dated August 2006. Clause 3, indicates that Suncastle could resell this ink under private label as souken ink but the exclusivity was really only with respect to the name, souken ink.

190Shahnazarian indicated that there were posters on the wall at Majestic showroom. Paul Socholotiuk and Toscano had done the printing of these posters but he did not know if the posters were in fact done in souken ink. At first Shahnazarian testified that from time to time he had probably heard Adams tell people that the posters were printed with souken ink. Later, Shahnazarian indicated that he didn’t recall who the accused had said this to.

191It should be noted that this evidence also corroborates Bishop and the investors.

192In cross-examination Shahnazarian confirmed that in 2005 Carlo Toscano was doing modifications to the printers attempting to use different heating elements to make the lumo color ink work. Toscano was working on at least two or three printers. Shahnazarian indicated that he was not really involved in the heat modification project that Toscano was spearheading but after Toscano would produce something, Shahnazarian would test it. Shahnazarian indicated that he never got the sense from Toscano that Toscano had perfected the heating system and Shahnazarian never got the sense that the heating system was ready to go.

193Shahnazarian said that they did find an email in which Toscano was saying that they were getting some results with the ink. Shahnazarian, therefore, sent an email to Dieter at Staedtler and in mid-October 2005 Shahnazarian called Dieter at Staedtler. Staedtler was ready to move ahead and work with them. Staedtler said that there was no contract between Majestic and Staedtler at that time and no contract with Carlo Toscano. In 2005 they went to Germany and entered into Exhibit #103 is a contract between Staedtler and Suncastle which is a confidentiality agreement.

194Shahnazarian indicated that he became the liaison between Suncastle and Staedtler as he was the only one that had sufficient technical knowledge. He further indicated that before they went to Germany in December of 2005 they brought in some lumo color ink and they worked with Danny Chilleli to try and get the heater system working, but they were not successful. Chilleli was trying to replicate Toscano’s work but was unable to do so. Shahnazarian indicated that when they went to Germany Staedtler did not have a system perfected either, so they were interested in working with companies to develop a heater and bring the ink to market.

195It should be noted that this evidence was later contradicted by Toscano’s evidence that Europe was about three years ahead of the North American market and that a heating system for the ink had been developed in Europe but it was fairly expensive to implement.

196They ended up reaching an agreement with Staedtler to sell lumo color ink in North America, but they were told they had to find another name for it as lumo color was their trademark and it was an experimental ink for them. Staedtler also was concerned about potential liability because Suncastle’s plan was to alter other companies’ printers to use the lumo color ink. Suncastle had exclusive rights to sell lumo color in North America. Exhibit #90 is the contract which is dated August 2006.

197Shahnazarian was also read portions of Exhibit #90 and he indicated that he understood that Suncastle had exclusive rights to rebrand and sell lumo color ink.

198It should be noted that Exhibit #90 gives Suncastle the exclusive right to sell other Staedtler inks under a name of Suncastle’s choosing. This contract does not include lumo color ink. The contract also leaves it open for Staedtler to sell these inks to other companies, which appears to be exactly what, in fact, they did do. According to the lawyer, Thomas Brown, this was the reason for the December 2005 confidentiality agreement between Staedtler and Suncastle which was that Staedtler did not want a company to which they had previously sold ink to be aware that they were also doing business with Suncastle.

199Shahnazarian indicated that a few months later after their visit to Germany that the Staedtler representative, Dieter, was in Canada and spent a day at their facility. He apparently was shown the heaters that they were working on and Dieter apparently said, “You’re on the right track. At least you know what needed to be done.”

200It should be noted that this comment by the Staedtler representative makes little sense. Neither Socholotiuk or Chilleli were able to replicate Toscano’s work, which itself was probably not successful notwithstanding Toscano’s claims, and so other than knowing that they had to heat the ink, they had come nowhere close to developing a heating system that would allow lumo color to match the properties of the solvent inks.

201In re-examination, Shahnazarian admitted that after Dieter had come from Germany and looked at their heating device, Dieter’s comment clearly indicated that they were not in a position to retrofit customers’ printers. It is therefore, puzzling why the Staedtler representative would think that they were anywhere near being on the right track unless it was just to hedge their bet on the off chance that Suncastle/Majestic stumbled upon a workable solution for the lumo color ink. In mid to late 2006 Bishop came on the scene. Shahnazarian understood that Bishop was to take over Majestic and gets sales and marketing going so that the product could be taken to market.

202Shahnazarian was asked a number of questions regarding the accused, Adams, pointing to Shahnazarian and saying, “This is the man that added the polymer to create souken ink”. Shahnazarian did not recall that. Shahnazarian did not recall the accused ever saying that Shahnazarian had created souken ink. He did not recall the accused pointing to posters and saying it was done with souken ink. He did not recall the tour with Steve Bishop at all. Shahnazarian indicated that he never held himself out as the inventor as souken ink. As far as he knew, the accused never held him out as the inventor of souken ink.

203It should be noted that an admission by Shahnazarian about these aspects of the case would be a significant admission by Shahnazarian against his own interests. It would clearly expose him as a party to these offences. This is particularly true because of the subsequent allegations made against Shahnazarian by Fascio.

204Shahnazarian did hear talk about contracts with McDonalds. He said that sounded familiar. This is important because it ties in with an investor’s evidence, Reg Rudko, who also indicated the accused had mentioned contracts with McDonalds.

205Shahnazarian also mentioned that Suncastle was purchasing some other inks from Korea.

206It should be noted that this is important because an investor, John Lynch, had testified that Adams told him that some of the inks were coming from Korea. It seemed like Lynch was mistaken but Lynch may, in fact, be correct that he was told this about the ink.

207Then Shahnazarian indicated that Carlo Fascio showed up. He did not know how Fascio came about being there, but he was initially brought in to try and figure out the heater system for the printer and the ink, but he never saw one that actually worked from Fascio.

208Then Fascio was asked to build the refilling line. They had the D5 cartridge from Korea which had the same properties as the Hewlett Packard cartridges, but were cheaper. They wanted to use the lumo color ink in the cartridges but there was a problem in that the Korean liaison explained that they were not filling the cartridges as they should and that is why the cartridges were not working. Fascio apparently saw what Chilleli was doing in refilling the cartridges and came up with a re-filling system idea.

209Fascio also claimed that there was a patent issue with the D5 cartridge. According to Shahnazarian, everyone was salivating at that point thinking about getting rich on the refillable system idea from Fascio. This was in mid-2007 to the fall of 2007. Shahnazarian said when Fascio came up with this retrofit refilling system, everybody forgot about the ink and the heater. Staedtler was apparently calling, asking about their volumes, what progress they were making on the heater, and when the witness would ask people about it, they said it can wait because of the interest in this refillable system.

210Exhibit #104 is an email from February 28, 2008 between Shahnazarian and Staedtler describing Fascio’s filling line. There was an indication that, if it was true, it was revolutionary technology for the print industry. The technology was a chip inside the cartridge that could communicate with a chip inside the printer to monitor how much ink customers were using and automatically refill the cartridges. In addition, it would help with determining orders for customers as well.

211Shahnazarian sent Exhibit #104 on to Herb Adams because he wanted Adams to understand Staedtler’s take on this, although the witness was skeptical of Fascio’s claim about the refilling system. Shahnazarian said that after this email he sensed that Fascio suddenly felt that he had sold his technology cheap to Suncastle and wanted to go with a new investor. Everyone’s focus at this point had shifted to this new technology but then Fascio at this point stopped work on the new technology. Shahnazarian heard that there was a disagreement regarding money with Fascio. Ultimately, Fascio never did deliver a finished product, and by April 2008 Majestic had collapsed.

212Shahnazarian indicated that Bishop was there all the time and that for Bishop to claim that he did not know what was going on, would require Bishop having “to be either blind or stupid.”

213Shahnazarian indicated that after Majestic collapsed, that Fascio had called and wanted his money back. Shahnazarian testified that he was told by Fascio that it was him along with Adams, Mary Kricfalusi and John Dow that were on Fascio’s list and if Fascio did not get his money back he was going to go to the police and have them charged with fraud and potentially sue them.

214Shahnazarian also heard from Bishop. Bishop was not threatening but he was more claiming that he was innocent. Shahnazarian did not believe that Bishop did not know what was going on, for instance, regarding the heater not working or the contract with Staedtler, and that is what his reference was to Bishop either lying or being stupid in that Bishop had to know that they were buying ink from Staedtler. In re-examination, Shahnazarian indicated that maybe Steve Bishop did not know, and that it was only his perception that he would have known, but Shahnazarian admitted that he was only at the business premises about once per month.

215Finally, Shahnazarian indicated that Bishop never dealt with him regarding how he had invented the ink or where it was being produced and so on.

(ii) Carlo Toscano:

216Toscano went to the University of Toronto and completed three years of an environmental studies program. He went to the Toronto Digital Imaging Works for a one year program and received his diploma. Thereafter Toscano got a job at Marketstar Corporation in Utah. This company provided technical assistance to companies like HP and in fact he was contracted out and paid by HP at one point. Toscano was then with Marketstar for three years. Toscano ended up as the national technical specialist in media sales. He assisted HP accounts. Large format printing was the main focus of Toscano’s work when he assisted with HP accounts. As a result Toscano was taught how HP printers worked from the ground up.

217Toscano left Marketstar to work for Staedtler. Staedtler is what he described as an OEM company, which is an original equipment manufacturer. Staedtler produced the inks for HP until HP started to manufacture their own ink. Toscano was aware of what companies had the large format printers and where they were located as his job at HP had been to support HP’s distributors. Therefore when Staedtler came out with a third party ink solution for HP printers, which was 30% less than the original price they hired Toscano. Staedtler hired Toscano because he knew who to go to and how to sell the ink. When he was with Staedtler Toscano was trained on large format printers and he became a certified technician regarding the large format printers. Toscano was aware which inks worked with which substrates. In addition, Toscano received ongoing training from Staedtler over the four years that he worked with them. Toscano essentially indicated that after his time with Staedtler he knew how to take apart and put together a number of large format printers.

218Toscano now owns his own print shop and has 12 large format printers from various manufacturers. He is certified on 32 different printers.

219Noel Shahnazarian introduced Toscano to Adams. At the time Shahnazarian was selling fabric and Toscano was interested in this fabric.

220When Shahnazarian introduced Toscano to Adams the accused was involved in a company printing fine art called Juma and his machines needed to be repaired and modified. Therefore, Toscano met with the accused in Hamilton. The accused had two large format printers. One was solvent-based and one was water-based. The solvent-based printer was working but the water-based one was not. Toscano at Adam’s request, put a document together regarding what he could do to assist Adams. Adams accepted and offered Toscano shares in Juma.

221Toscano indicated that he started to fix Adams’ printers for him when they opened up another company and moved to the Mainway location. The witness was shown Exhibit #93 dated March 18, 2005 which is the consultation agreement he signed. Toscano was to get a fee in cash and a number of shares and he was to develop technologies including retrofit the printers, the stretching machine and a bulk ink system.

222Toscano indicated that CGS Company bought the rights to distribute Staedtler ink in the U.S. and Canada. He indicated that in his last year working for Staedtler he had helped CGS to get them up to speed including the bulk ink system that he had developed. It was his intention to develop the bulk ink system for Suncastle and Adams.

223There were numerous ongoing meetings with Adams. Adams put together a group of companies called the Suncastle group of companies which was Suncastle, Majestic and Decorative Impressions.

224Carlo Toscano and his brother Mario signed on as directors of Majestic. Exhibit #85 dated June 20, 2005 shows Toscano as president and his brother as vice president of Majestic. Toscano didn’t really know why he took the position other than it was offered to him by Adams. He understood that Decorative Impressions was the artistic arm; that Suncastle was the technology and development arm and that Majestic was the printing arm of the group of companies.

225Toscano testified about the canvas stretcher. Toscano indicated that the normal procedure was to put the canvas on wood stretcher bars but that this was very labour intensive method so they wanted to decrease costs through automation of the stretching process to make it both faster and cheaper. Toscano indicated that his brother was a millwright and so he was able to mill and manufacture the components for the stretching machine and Tony Yaworski was guy who had the background in hydraulics. He said that together the three of them created the machine to stretch the canvas on the wood stretcher bars. He testified that this was developed between March 2005 and when he and his brother left the company in August or September 2005.

226Toscano indicated he did not submit expenses for this work on the canvas stretcher. He knew that a lot of the technology was going into SR&ED claims being made by Adams. A SR&ED claim is a government research and development claim where companies can apply to get money back for research and development innovations. It was necessary to do the work and document the costs and if it was a technological innovation the government gives money for it even if it didn’t work. William Stark told Toscano that a SR&ED claim had been submitted to the government for the canvas stretcher. Toscano indicated that he did not discuss this with Adams but he knew that Adams worked with Stark to submit the SR&ED claim to the government.

227Toscano testified that he had a meeting with Stark and Stark had asked him questions about what he had developed. Stark was the person who had expertise in putting the SR&ED claims into the government and he assumed that it was Adams who set up the meeting between himself and Stark. He was shown Exhibit #94, which is the SR&ED claim dated June 30, 2005. He indicated that that he was the source of the information on page two and page 13 regarding the canvas stretching fixture and that he had given that information to Stark.

228Toscano also testified about what he described as the Lumo color Fixation Device for printers. He indicated that lumo color ink was developed by Staedtler in approximately 2001 while he was still working for Staedtler. The lumo color was designed to replace the solvent-based inks and could be used outdoors with durability. He said this is a revolutionary ink but it required a modification to large format printers if the ink was to have the same properties as the solvent inks normally used for outdoor printing jobs. Staedtler had solved this problem by using an infrared heating device. The intention was to develop an environmentally friendly water-based ink to replace solvent-based inks.

229Toscano testified that a German company called Technoplots was the first company with a working retrofit for a large format printer for lumo color ink. That was in about 2001 and that’s when Staedtler released lumo color. Toscano testified that other companies in Europe and Japan also made retrofits within a year of Technoplot’s developing their retrofit. This was in about 2002. The companies that could retrofit the printers to change them into water-based printers plus install the heating device were called “system integrators”. Toscano also indicated that Europe is normally about three years ahead of North America in terms of innovations in the print industry. The technology was well received in Europe. However, the retrofit with the heating system cost $40,000 – $50,000 and the printers themselves costs $60,000 - $100,000. Notwithstanding the cost this was clearly the way the industry was moving because there was a mandate to eliminate VOCs in the printing industry by 2017.

230In 2004 a Canadian company in B.C. called, Taca Sign Supplies ordered one of these retrofit systems through CGS, which was the company Toscano was working for at the time and Toscano sold them both the retrofit and the lumo color ink.

231Toscano was therefore trying to duplicate what Technoplots had done but trying to do the retrofit for less than it cost in Europe. He spoke to Staedtler regarding what temperatures were required to bind the various inks to the various media.

232Toscano identified the business plan which is Exhibit #4 and he was directed to page 19, under the heading, “Majestic heat fixing system”. There are two paragraphs here, the first refers to solvent-based inks and the second refers to lumo color ink. Toscano clarified that a retrofit for a solvent-based printer involved converting it to be able print with water-based inks so that the printing head did not get clogged and the necessary heater to allow the water-based ink to have the durability qualities of a solvent-based ink.

233Toscano testified that he, his brother and Danny Chilleli created this retrofit heating system for the lumo color ink. He knew that Majestic put together a SR&ED claim for this work. He indicated that in the summer of 2005 he had spoken to Adams about this and that Adams said that people were working on this SR&ED claim. He testified that it was about $100 in materials to create this heating device and he indicated that they worked about 60 hours a week on this but they had figured it out in a couple of weeks so the costs was well less than $50,000. He indicated he was not paid either salary or shares for this.

234Toscano was then shown Exhibit #91 which is the summary from the forensic accountant. He indicated that he is the only person who developed any form of heating system at Majestic/Suncastle. He was the only one that had the proper background to do it. There is a SR&ED claim for $166,920 and he indicated he had no idea where this came from and it was nowhere near the cost of producing this heating system. The numbered company mentioned there is unknown to him and he indicated he never worked for them.

235Toscano testified that he did not received stock or any other set off and that nothing was paid to him for this work. He indicated he was paid small amounts on an inconsistent basis by Suncastle. He was shown Exhibit #95 which is the Suncastle general ledger as of May 31, 2008. It shows him being paid about $1,800 and that was consistent with his recollection.

236Toscano testified that the heat fixing system, the bulk ink system and the canvas stretcher were all his ideas. There was no water-based coating ever developed that was waterproof and scratch resistant. He indicated that only he and perhaps Noel Shahnazarian would be capable of doing this.

237He indicated that he left Suncastle/Majestic in late summer, early fall 2005. He indicated that it was because the bills were coming in and he was not getting compensated. He met with Adams, Rob Dash and everyone that worked there, including Mary Kricfalusi. He was told that he had not brought in investors and hadn’t finished projects. He hadn’t finished some of them because they hadn’t provided him with money to finish. He indicated that when he left he had never met Fascio or Paul Socholotiuk.

238He was shown Exhibit #89 which is the Suncastle business plan dated in August 2005. He indicated that part of it was his work and that he had been asked to provide information for the document and that Rob Dash asked him to proofread it. He indicated as well that he was positive that Adams was aware of the contents of this business plan as they had gone over it together.

239It should be noted that this makes a great deal of sense considering Adam’s degree of control regarding these companies.

240He referred to page four of Exhibit #89 indicating that they had a bulk ink system for one unit and were looking to develop it for multiple units.

241Toscano testified that there was no relationship between Suncastle and Staedtler in 2005. He indicated that he had been sent to Germany to speak to Staedtler since he used to work for them and knew the parties that were involved. Suncastle wanted to exclusively distribute the ink in Canada and Staedtler refused to sign on to that. He thought it was unlikely they’d be able to get that agreement with Staedtler because they hadn’t purchased any ink from them. He told this to Adams. Adams said to get the agreement and then they would do some purchasing. He met with Dieter from Staedtler and they liked the idea but he said Suncastle needed to prove themselves by purchasing from them. When he returned from Germany he indicated that Adams was furious. Adams said he needed this agreement with Staedtler for the investors as Adams had told investors that they had a tentative contract with Staedtler.

242Toscano was clear that Suncastle never developed the ink and that only he and Noel Shahnazarian would be capable of even considering doing that.

243He was shown page three of Exhibit #89 and indicated that he did not see anything resembling a coating technology.

244He was shown page 12 of Exhibit #89 and indicated that the purported alliance with Staedtler was incorrect. Also on page 12 there is a notation about “Aqua Color”. Toscano never heard of aqua colour. There was no proprietary printing solution for the ink as noted on page 12 because other companies also had this system. Toscano testified that some of the statements on page 12 are almost exact statements from Staedtler’s website that were incorporated into Suncastle’s business plan. He indicated that Suncastle was not in the ink business from a manufacturing standpoint. He indicated that he did not see the business plan in the final version and would have objected if he had seen it.

245Toscano had sold lumo color ink and the retrofit system to the company Taca in Vancouver but he didn’t recall telling that to Adams. The witness did hear Adams tell investors that they were the only company with water-based inks to replace solvents and at the time the heating system was running and they were showing it to clients. He also heard Adams say that they had exclusive rights on the product and Toscano knew this to be false. Toscano testified that he spoke Adams about this.

Q. Did you tell him,...

A. Yes.

Q. ...Herb, you can’t say that, that’s not right?

A. Yes.

Q. What – tell us about that conversation? How did that go when you told him that he can’t be saying this kind of stuff?

A. Well, I told him that there were other companies that were selling this product. C.G.S. in the United States could sell the product. In fact, any system integrator could sell the product. To this day anyone can sell the product as long as they have a system in place.

Q. Okay. Did you tell him that Technoplot...

A. Yes.

Q. ...was selling the product?

A. Yes, I told him that there was a German outfit that was selling the product in Europe.

246Toscano testified that he made clear to Adams that what he was telling investors was false. Adams was not telling investors that the product existed in Europe. In addition, Toscano knew that Adams knew about Taca, the company in B.C., having the technology because they were dealing with Taca buying printers and solvent ink from them. Exhibit #95, establishes that Taca’ is listed on the general ledger and shows the business dealings the company had with Taca. Toscano knew that Adams was saying that the retrofit unit was unique and that he was telling investors it was “our system” and “our ink”. Adams told investors that no one else in North America had it.

247Exhibit #4 is the Majestic business plan. On page six souken ink is mentioned. Toscano was clear that souken ink was lumo color ink with the label changed but that no changes were done to the ink itself and that Staedtler was the producer of this ink. On page seven of Exhibit #4 there is a statement about lack of competition and Taca clearly had this same ink and retrofit system. Therefore, this statement is not true. Toscano heard Adams say to investors that there was no competition for this ink and this was even after Toscano had a discussion with Adams during which they had argued about this point.

248Toscano testified that he also heard Adams tell investors that Noel Shahnazarian had altered the ink. Toscano also testified that Noel Shahnazarian said he they were going to put a binder of some sort into the ink so that it would work without the heating unit or the retrofit kit. Toscano did not see eye-to-eye with Shahnazarian about re-engineering the ink as it did not make sense, it would have been impossible to do and Staedtler would have defended their inks and formulas.

249Toscano indicated that he had spoken to investors at times and discussed technologies and what they were trying to achieve. He indicated that Adams had asked him to speak to certain investors and he indicated to them that the industry has gone from solvents to water-based just as they predicted and he did tell investors that they were at the forefront of this.

250Toscano indicated that they had tried to put lumo color ink in HP printers but it had clogged the thermal print head that HP uses and it was not viable to connect HP printers to using lumo color ink.

251He was show Exhibit #3 which is the PowerPoint presentation. He said he’d never seen this before. He indicated that the reference on page two to exclusive rights with Staedtler did not exist when he was with Suncastle.

252Toscano testified there were a number of large format prints of Britney, Shania Twain and other Rolling Stones covers in the foyer at Majestic. Toscano testified that he had printed these prints himself with solvent inks. Toscano did not hear Adams tell investors that these prints were printed with souken ink.

253Toscano testified that he left because he wasn’t getting paid. He and his brother came, took what was theirs and never returned. He indicated they did not take the technology they had developed and hadn’t been paid for. He was shown Exhibit #96 and it confirmed with him that he probably left at the end of August or early September 2005. Toscano was adamant that he did not do any damage to the printers. He indicated that Adams accused him of that and that Adams had gone to the police about him damaging printers, making them inoperable and stealing ink. He indicated that he gave a statement to police and was never charged. He indicated that the printers were fully operational when he left.

254Toscano now runs his own company called Global Printing. They did not use the technology from Majestic or Suncastle. They do not use lumo color ink. They use HP printers bought from HP and they’re just in the printing business.

255In cross-examination Toscano testified that when he first met Adams, Adams had indicated to him that he wanted to become a leader in the large format print industry. Toscano had told Adams that he had done a bulk ink system before. Toscano indicated that lumo color ink was in fact revolutionary although people in the industry thought it had been released too early because manufacturers were still selling a lot of solvent printers and it was too early to change that over to water-based. The benefit of lumo color ink was that it was a water-based ink that could essentially stick to anything but needed curing. In Europe that process was being done by infrared lights. Toscano told all of this to Adams. Toscano testified that lumo color ink worked if you had the proper curing process and once you had the curing process then lumo color ink is revolutionary. He indicated that once the heating process had been perfected lumo color ink was capable of being used on outdoor banner and was scratch and water resistant. Lumo color ink had been used in Europe and could be used with virtually all media. Staedtler in fact claimed that it could be widely used and have the outdoor capabilities of solvent ink.

256Toscano testified that he had modified the heating process using halogen lights and dimmer switch. He indicated that Staedtler did not object to this as they wanted some “system integrators” and the North American market was certainly lucrative for large format printing although Staedtler preferred only having a small number of system integrators so as to not saturate the market and to allow Staedtler to keep control of the product.

257Toscano testified that his retrofit cost no more than $100 so it was a nominal amount compared to other conversions. So the lumo color ink system plus the bulk ink system could be very cost effective for companies.

258Toscano agreed that Adams wanted to sell the product as a kit which would include the retrofit, including the heating unit and training on a new printer as well as the bulk ink system. They believed that if they were the first company to bring that kit to market that it was potentially very lucrative.

259Toscano testified that Suncastle did not have an exclusive agreement with Staedtler regarding the ink when he was there. He indicated that he had a number of discussions with Adams regarding the lumo color ink and Adams knew that Staedtler also sold the lumo color ink to CGS.

260According to Toscano, the retrofit system he created was working and that they could have gone to production with the retrofit system. This evidence was later contradicted by Adams.

261Toscano testified that his trip to Germany was in order to try and get an exclusive distributorship for Suncastle for a variety of products, including lumo color. Staedtler wanted them to buy high quantities of ink first before confirming any exclusivity arrangement. Toscano indicated it was the norm when he was working for Staedtler for companies to purchase $150,000 – $200,000 worth of ink as an opening order and Suncastle’s opening order was only about $10,000. Toscano said that Staedtler expected a lot more ink purchases than that if Suncastle was going to become a distributor at all.

262Toscano testified that Staedtler had no issue with companies rebranding the ink and apparently they did that all the time. Toscano was clear that a purchasing company could put whatever name they wanted on the lumo color ink. He indicated that he never told Adams that he didn’t need to tell investors that he got the ink from Staedtler and that Adams told people all the time that they were dealing with Staedtler.

263Toscano testified that it was important to Adams to have an agreement with Staedtler to show investors and that Adams wanted it known that Suncastle was in business with Staedtler. He indicated that he did not recall Adams saying that they invented the ink. He indicated that Adams was not just telling people about the ink but that Suncastle was going to be a system integrator.

264Toscano confirmed that it was not correct that Tony Yaworski built the stretching machine by himself. This contradicts Yaworski’s evidence on this point. Toscano’s evidence was that he and his brother Mario, had helped Yaworski with this machine. This evidence from both Yaworski and Toscano was later contradicted by the witness Daniel LeBlanc.

265Toscano testified that in 2004, when he was employed by CGS, he had sold Taca, the company in British Columbia, some lumo color ink but he did not know if Taca kept purchasing ink from CGS.

266Toscano was shown the December 2005 agreement with Staedtler which is Exhibit #103. He had not seen that document before. It was dated after he had gone to Germany to meet with Staedtler. His evidence was that it was not the type of agreement that he had brought to Germany with him to attempt to get Staedtler to sign. Toscano confirmed that Staedtler did not want to enter into a new business relationship with Suncastle without Suncastle making a significant purchase of ink.

267Toscano was shown Exhibit #105, which is the August 2006 contract which confirms the sale of ink to Suncastle from Staedtler with certain volumes being met. He indicated that the agreement that he had brought with him to Germany made by Tom Brown did not have those specifics in it. Toscano was also asked about paragraph two in Exhibit #105, which is the exclusivity clause. He indicated that CGS had the same type of agreement for the same inks.

268It should be noted that the exclusivity mentioned in paragraph two of Exhibit #105 for Suncastle was only related to the inks listed in appendix 1 as relabelled by Suncastle with a label of their choice. The contract also does not include anything about lumo color ink. It relates only to the ordinary inks sold by Staedtler. Paragraph three leaves it open to Staedtler to sell these inks to other companies so long as it’s under the Staedtler name or if it’s under a private label name chosen by the other company and the name is different from the private label used by Suncastle. Therefore, the exclusivity part of the Exhibit #105 is extremely narrow and really only protects Suncastle when they are selling Staedtler ink under whatever name Suncastle chooses to sell it as. In other words, it’s not much of an exclusivity agreement and it does not relate at all to lumo color ink. This contract is therefore of very little benefit to Suncastle. The contract did not include the lumo color ink and the exclusivity on the other inks was to a large extent illusory. In addition, these facts must have been patently obvious to anyone who read this contract.

269Toscano testified that the inks listed in Schedule A which is attached to Exhibit # 105 are inks are widely available in North America. Toscano clarified that Staedtler made these types of agreements with anyone who wanted to sell their inks.

270Toscano noted that CGS also sold Staedtler inks and that he knew 10 – 12 companies in Canada that sold the inks under the Staedtler name.

271Toscano testified that he left Suncastle/Majestic in the fall of 2005.

272Toscano reiterated that when he went to Germany he could not secure an agreement with Staedtler. He indicated that Adams was furious when he heard this.

273Toscano’s evidence was that he heard Adams say to investors that Suncastle had exclusive rights to the printing process. He also heard Adams claim that Suncastle and Staedtler had an agreement. He knew this was a lie and he was concerned about it. When asked why he didn’t call the police, he indicated the system that they had developed was proprietary, Staedtler was aware of that and they wanted system integrators and he felt it was just a matter of time before they got a contract with Staedtler.

274Toscano was asked about the statement that he made on June 29, 2010 to the Ontario Securities Commission investigator. At that time he told the investigator that he felt the fraud was that they took investor’s money and did not use the money to do what they had said. It was pointed out to him that he did not mention that Adams had lied about a contract with Staedtler when interviewed by the investigator in June of 2010. Toscano explained this by claiming that his first instinct was to point out that he did not commit a fraud and to justify that what he did was what he was told to do and that he did it properly. He wanted to protect himself from being accused of fraud. Toscano was insistent that the lumo color ink and the heating system that he devised worked properly. His concern was that they were talking about a contract which they did not have. He indicated that he did not mention this is in the June 2010 interview because they asked him questions before regarding this and felt it was self-evident.

275Toscano denied creating any sort of fraudulent agreement reportedly from Staedtler after he returned from Germany in 2005. He denied that when it was discovered that he had lied about having a contract that he was fired and he indicated that he had left on his own accord. He was then shown several emails which are Exhibit #156. He denied telling Adams that Staedtler was going to complete the contract electronically as per their practice. He further denied telling Tom Brown that he had negotiated an agreement between Suncastle and Staedtler and he did not tell Tom Brown that his own company had a company with Staedtler. The only agreement he ever had with Staedtler was when he was employed by them. He maintained that he did go to Germany and had met with Staedtler. Adams has a different version of these events. Brown also gave evidence regarding this issue of the contract arising from Toscano’s Germany trip but it was not particularly helpful in resolving the issue. Their evidence in this regard will be set out when their evidence is reviewed in this judgment.

276Toscano was confronted about the printers being vandalized when he left the company and Paul Socholotiuk’s evidence that when he started at the company after Toscano had left the printers were not operational. When Toscano was asked if he knew why this may have happened, he testified that the one printer that was modified with the heating system was structured so that only he knew how to operate it and if it was not set up and operated properly it was likely not to work. He also indicated that if the other printers had not been used for a period of time that there could be clogged heads or clogged lines.

277Toscano was asked if he liked Adams and he indicated he didn’t like what Adams had done. He admitted telling the police that he would testify with a smile on his face because he knew his evidence was the truth and he was happy to tell the truth. He indicated that he was unhappy with Adams because he wasn’t truthful with investors or to the people who worked there although he admitted that even though he had heard Adams lie to investors regarding the existence of a contract with Staedtler he did not go to the police about that. He felt that Adams didn’t tell the whole story and reveal his whole agenda. He indicated that Adams had turned his life upside down. He did admit that the company had a ton of potential and was on the cusp of succeeding.

278Toscano testified that Adams had said that he was going to take the company public initially but he always delayed it and then heard Adams say he was not going to go public. He told this to Toscano, his brother Mario and others were also present. Toscano indicated that Adams had promised them that they were going to take the company public while they were there. The witness further maintained that they had a product that worked. The problem was that Adams was not making the necessary steps to take the company public.

279Toscano testified that most of Suncastle and Majestic’s business plans were his work and that Homer Arvanitis had put the final version together. He didn’t know what contribution Adams made to the business plan.

280As noted earlier the evidence is contradictory regarding who completed the work on the stretching machine. Toscano confirmed that he, his brother Mario, and Tony Yaworski had completed it together and he described the process. Toscano was then shown Exhibits #162 to #168, which are Daniel Leblanc’s documents regarding the stretching machine. He indicated he didn’t know who Leblanc was and that he had never seen him in the building. He indicated that the documents in these exhibits were documents required for the SR&ED claim.

281In re-examination Toscano testified that he was aware of at least three other private label agreements in favour of other companies from working with Staedtler. These companies sold Staedtler inks under their own private label. He said that Staedtler always required a non-disclosure agreement as they didn’t want competing companies to know about each other. He indicated that when Adams talked about being the only company with this, it was referring more to the ink than to the process. The majority of the time it was the ink Adams was talking about. He indicated he told Adams he didn’t have to tell the investors who created the ink but he didn’t tell Adams that he could tell investors that Adams had in fact invented the ink.

282Toscano reiterated that lumo color is not included in Exhibit #105. Toscano’s evidence was that he was aware from his previous employment at Staedtler that when he worked for them Staedtler had over $10,000,000 in sales in Canada alone for these types of inks.

283Finally, Toscano noted that the ink they were using at Suncastle was lumo color ink but that they had obtained it by way of a separate order from Staedtler for about $10,000 worth of the lumo color ink.

(iii) Paul Socholotiuk:

284Paul Socholotiuk is in the printer repair business for large format printers. He now owns his own graphic business called Booth Signs and Graphics. Prior to working for Majestic he worked for a company called Advantage Graphic Supplies. He has training with Mimaki printers and he has also worked on HP printers.

285Socholotiuk testified that he went to Suncastle/Majestic for a service call. Majestic had four printers at the time. Two of the four printers, that being the eight foot and the five foot printers, were both dead and Socholotiuk got them running again. As a result Adams offered him a job at the end of the summer of 2006. Socholotiuk said the following about which company he worked for:

Q. Okay. So Mr. Adams asked you, invited you to come work for, and who did he ask you to work for Majestic or Suncastle?

A. It was just - he didn't really say specifically what company I was working for. I assumed it was all like part of Majestic.

Q. You assumed what was part of Majestic?

A. Like Suncastle and Majestic. My contracts were originally with Suncastle but we worked with Majestic. It was like one in the same.

286Socholotiuk testified that he worked on a heating device to get the souken ink working. He also did some sales work for them. The heating device was being developed to cure the ink on whatever media or substrate they were using. In addition, Socholotiuk was maintaining the printers on a daily basis. He was offered both a salary and some shares in the company for his services. Socholotiuk took directions from Adams regarding the heating device and his work with the large format printers. It was Adams who moved Socholotiuk to Majestic in late 2007.

287Adams showed Socholotiuk samples of what the souken ink could do and he was told that it was a water-based ink with no VOC’s. Socholotiuk testified that all of this lent credibility to the apparent exclusivity agreement that Majestic had with Staedtler. Socholotiuk testified that he did not understand that other companies were developing heating devices or had access to lumo color as Adams had told him that lumo color was exclusive to them.

288By early 2007 Fascio had the first generation of the heating device working. He had met Fascio approximately a month before while on a sales call and told him about the heating device and Fascio said that he could do it. Early in 2007 the first version was completed which worked pretty well, but it did not pass, what he described as the scratch test. He indicated that he spoke to Adams regarding the first run and Adams gave approval to do a second run. The second run was in the spring/summer of 2007. Socholotiuk testified that if a shareholder was told that souken ink was market ready prior to this, it was simply false. He indicated that the second run did what they were hoping for regarding printing but that it was still insufficient regarding the scratch test. There was also a problem with some of the media buckling from the heat that was being applied. He told this to Adams and he told Adams that ink was still not ready for market. There would have been lots of complaints if Majestic had tried to sell the ink and he told this to the accused. The accused apparently did not like these results and took the project from Socholotiuk and gave it to a company in Italy. Later on Adams told him that they had solved the problem but Socholotiuk never saw any real proof that this was completed.

289Socholotiuk was paid his first few invoices and also paid by some shares but he never saw the shares. He was also told that the shares that he was given in lieu of cash could be sold after the company went public. There was a period when he couldn’t sell the shares. He is owed $35,000 from these companies for work that he has done.

290Socholotiuk also testified that it was Adams that controlled the daily operations of these companies.

291Socholotiuk was aware Adams was selling his own shares allegedly because Adams had his shares for the stipulated period of time so it met the time requirements.

292Socholotiuk indicated that at one point Adams asked him to put his invoices for Booth Graphics through Majestic in order to make Majestic’s sales look better. This is Socholotiuk’s evidence on this point:

Q. At any point in time did Mr. Adams ask you to do anything with your business that made you uncomfortable?

A. Yeah, you’re referring to him asking me to put in invoices through Majestic to kind of make their numbers look better.

Q. Explain that. His Honour doesn’t know what we’re talking about so you need to explain that please.

A. I was asked to put some of my jobs through Majestic like to bill my customers with Majestic invoices and then bill myself out as an expense to make Majestic’s numbers look better, to look like they’re having monthly sales that are higher than they actually were.

Q. Okay. And did you end up doing it?

A. You know I did one invoice and then I just wasn’t comfortable with it and, you know, for a company with all kinds of shareholders it just didn’t seem ethical so I, I told him I wouldn’t do it anymore.

Q. And that was Mr. Adams specifically asking you?

A. Yes.

Q. Did he indicate to you why he was concerned about how Majestic was doing if it wasn’t his company?

A. I think he just wanted to show that Majestic was, you know, selling product and having monthly revenues and, you know, to make it look like it was doing better than it was. You know the sales guys were trying, it’s just that the sales weren’t as high as they could be.

293In cross-examination Socholotiuk denied that he was told to put this invoice through Majestic because he had used Majestic’s printer and not to help Adams achieve his objective of making Majestic’s sales look better.

294Socholotiuk testified that there were giant posters in Majestic but he didn’t know the type of ink used to print these. When he was there Majestic was not using souken ink for any jobs. It was only using the souken ink for testing purposes. He indicated that the printing was okay with souken ink but that the durability was not there and that was the significance of the scratch test he had mentioned.

295If the shareholders were told that souken ink was water and scratch proof like solvent ink Socholotiuk noted that was just not true. It was also not true that the ink was altered with a polymer to give it the extraordinary qualities. Adams was aware of both of these facts. There were some regular ink sales at Majestic but none of the souken ink was being sold.

296Socholotiuk was aware that the D5 cartridge was sold to one particular company in Florida and that it had failed but it was not using souken ink. Majestic did have one print job and that was for the Wal-Mart walk and they may have done some other small print jobs as well.

297Socholotiuk identified Exhibit #74 which is a handwritten note that he received in the late fall of 2006 or early 2007. Adams made this note and gave it to Socholotiuk. It was a “to do” list. On the second page there was an indication that Adams had said he wanted “souken working”. This was a reference to the souken ink. Socholotiuk was asked if it was clear that everyone knew souken ink was not working and he testified that everyone knew that.

298Socholotiuk was asked if he knew what the shareholders were being told regarding souken ink. He indicated he was not sure what the shareholders were aware of but they had never sold souken ink as a marketable product. Socholotiuk indicated that if the lumo color ink had been able to pass the scratch test that it would have been ready to go out the door.

299In cross-examination Socholotiuk indicated that he would see shareholders come by and that they were mostly taken around the company by Bishop.

300Socholotiuk testified that he never heard that Majestic had invented the ink and that there was no hiding that they were working with Staedtler. He indicated that he did not recall either Bishop or Adams saying that Shahnazarian had added a polymer to the ink and he did not see that on any printed material.

301Socholotiuk agreed that they were on the road to getting lumo color “system” to work. He indicated that lumo color ink was stored at Majestic, it came in marked with Staedtler boxes and some of the cartridges were rebranded with souken ink. The ink was generally kept in a cage in Staedtler boxes but there were all different types of inks in the cage. He indicated that Mary Kricfalusi had told him not to put Staedtler on souken ink as Staedtler did not want their name on it because it was under development.

302Socholotiuk testified that as time progressed the issue became with the cartridge and not the ink. He indicated that “we kinda switched over” to the cartridge that Fascio had developed and that souken ink did not seem to be in the forefront at that time.

303In November 2006 this witness was voted on to Majestic’s board of directors. He left the board of directors in 2007. He indicated that Adams was not at the board of directors meetings and he did not recall if Adams had a consulting agreement with Majestic. He indicated that he’d asked Rob Dash to see the financials and Dash indicated to him that it was none of his business because he was only a junior director. Socholotiuk also asked Adams about this because he believed that Adams was the boss. Adams told Socholotiuk that if he didn’t like it, he should resign from the board of directors, which he did.

304Socholotiuk agreed that after he had gone as far as he could go with the souken ink heating process that Adams hired another company to work on the heating process. Socholotiuk testified that he had introduced Fascio to the company. Fascio was an engineer Socholotiuk had met on a service call. Fascio was contracted to work on the heating device for the ink, as well as the cartridges and the filling line.

305Socholotiuk reviewed what Fascio had done regarding the heating device, the D5 cartridge and the filling line. Fascio had indicated that he would license a newly designed cartridge to Suncastle Socholotiuk testified that the technology flow therefore seemed to go to developing the cartridge as it was considered to be something that HP would want to buy out.

306Socholotiuk was not aware of lawsuits against Fascio or that Fascio had been charged with fraud or assault. He was also not aware of Bishop’s tax issues and / or Bishop being sanctioned by the Ontario Securities Commission.

(iv) Homeric Arvanitis:

307Homeric Arvanitis used to be a chartered accountant but his licence was rescinded and he was expelled from the Institute of Chartered Accountants of Ontario as a result of defrauding the lawyer, Kathryn Naumetz.

308Arvanitis testified that has known Adams for 18 to 19 years. He first met Adams when Adams had a business that involved a concrete additive. He was told that Adams had found some technology invented by a professor in Texas that if added made concrete better and that this was something new in the industry at the time.

309Arvanitis testified that in 2004 Adams called him and asked for help with the accounting and with the business plan for his businesses. While Arvanitis couldn’t hold himself out any longer as a chartered accountant, he could still do some accounting and bookkeeping. When Arvanitis first started to assist Adams the company had something to do with art reproduction concepts. However, Arvanitis testified that the company transitioned from that business to some technology that had to do with ink. He didn’t recall exactly when that transition took place.

310Arvanitis testified that he only worked for Adams from 2004 until the fall of 2005. He indicated that he assisted in drafting some of the business plans and the cash flow chart which depended on the information provided to him by Adams. He indicated that for the original version of the business plan it was mostly Adams providing financial information and Carlo Toscano providing the technical information. Arvanitis’ evidence was that he prepared the draft business plans and that Adams cast the final vote, with input from the technical side, in terms of approval of the business plan. Arvanitis was shown three business plans but was very vague as to what in fact he had put in those business plans.

311Arvanitis indicated that he recalled Noel Shahnazarian coming in once and a while. He believed he was one of the technical guys for the ink although Adams was the “hub of the wheel”. When the draft of the business plan was completed it was Adams who did the final approval.

312Arvanitis testified that at one point Adams felt he had a technology to revolutionize the industry.

313It was clear that while Arvanitis was with the company that Adams determined his pay, actually paid him, gave him instructions in terms of what tasks to do and Arvanitis reported back to Adams.

314When Arvanitis was asked if there were any concerns about the information included in the business plan, he indicated that he had heard that the technology had not been perfected, that it wasn’t a 10 out of 10. This was with respect to the ink, the cartridge and the filling line. He was very vague as to who gave him that information for the business plan and where he heard the rumours from regarding the technology not being complete. He indicated that he was concerned if investors were being told technology was complete when it was not complete.

315Arvanitis testified that he had a conversation with Adams indicating that it was not okay to indicate in the business plan that the technology was complete knowing that the technology was not 100% complete. Arvanitis testified that he asked Adams if Adams was sure that he wanted to put the inaccurate information in the business plan. He indicated that he did not recall Adams response to that.

316Arvanitis indicated that he was not involved in the final draft.

317It should be noted that this witness was very defensive about his contribution to the business plan. It left open the inference that he was more involved in the business plan than he let on and that he was quite aware that the business plan contained untruths that he wanted to distance himself from.

318For example, Arvanitis testified that at one point Adams had asked him to put something he knew to be untrue into the business plan. He said that he spoke to Adams about this but that he didn’t recall what Adams response was when they discussed it. He indicated that there are other things in the business plan that made him uncomfortable but his major concern was about the technologies.

319Arvanitis also prepared the cash flow that is Exhibit #66. The information in this document came from Adams. He indicated that investors generally want to know assets, liabilities and cash flow. When asked if he was aware that the company had a large debt he testified that he didn’t specifically recall that. That debt is not noted on Exhibit #66.

320Arvanitis testified that with respect to Majestic that Adams was the controlling mind and the “go to guy” when Arvanitis was there. He indicated that Adams was the one that everyone would go to, sort of like the boss. He determined everyone’s pay and he described Adams as being the driving force working with the technical people.

321In the fall of 2005 Arvanitis left Majestic and cut ties with Adams. He started a company along with others, including Toscano and his brother, called Global Printing Enterprises. He said this was because of he didn’t think Majestic was going to work and he had philosophical differences with Adams. He didn’t like that Adams controlled his pay and that one man, namely, Adams called the shots. He indicated that he had enough and he was concerned about the technology. This is his evidence regarding why he left Majestic:

Q. Okay. So what were the things that happened at Majestic that you—that led you to, to have certain concerns?

A. My concern is that, that Herb was going to — or the company was going to — continue to raise funds; I was concerned about the legitimacy of the technology, as I’ve stated in the past, Your Honour; and I didn’t wanna’ see — although I didn’t have any in the second go-around — I didn’t want any—I didn’t want any friends or family to lose money. That was my concern.

Q. So you were concerned about the legitimacy of the technology, concerned about the fact that the company was raising funds?

A. Yes.

Q. And through what mechanism were they raising funds? Just to be clear; I know it’s probably….

A. Probably the business plan and investor relation—investor presentations.

Q. Okay. And you’ve already sort of drawn for us the link between investors and legitimacy of the technology; i.e., not being complete in your mind?

A. At that time, yes, sir.

Q. That is, not being market-ready?

A. Correct.

Q. Were there any other concerns about the validity of this company, or the legitimacy of the company, or it’s practices, that also caused you to, to look twice at it and say, “I wanna’ get out”? Were there practices that you were seeing that went….

A. Practices?

Q. Um hum.

A. I think those two, sir, were my major concern. My major concern was raise—continue to—raising money, that maybe not the, not the full story was given, my major concern. And the other one was, I didn’t wanna’ see innocent people lose their money.

Q. Okay. And when you say, “…not the full story was given”, are you solely referring to the technology not being complete or was there other parts of the story that you felt were not fulsomely given to investors?

A. That, that was my concern; the technology was my concern.

322Arvanitis confirmed in cross-examination that the technical information in the business plan came from people other than Adams, for example Carlos Toscano. Arvanitis also confirmed that the rumours that he heard about the technology being an eight out of ten completed had also come from the technical people.

323Arvanitis was shown Exhibit #67 which is the webpage of his new company. The stated business philosophy of his new company is very similar to that stated in Majestic’s business plan.

324It should be noted that while Arvanitis was vague regarding Adams participation in and / or knowledge of the business plans, his evidence regarding the accused being the directing mind and will of Majestic at that time and Arvanitis’s concern about the misrepresentations being made are clear and cogent evidence to establish these points.

(v) Dale Hicks:

325Dale Hicks is a bookkeeper. Hicks initially worked for an accounting firm that worked for Majestic and Suncastle and so starting in 2006 she was doing the bookkeeping at Majestic on behalf of the accounting firm. In July 2007 she was asked to work directly for Majestic and Suncastle at Adams request. However, Hicks was paid through Majestic. She worked there until 2008.

326Hicks’ job was to enter information from the bank statements, enter payroll information, enter bills paid and to complete other bookkeeping duties.

327Hicks testified that with respect to Majestic that Rob Dash was the president, but Dash reported to Adams, from what she saw. Hicks knew that Adams was not on the board of directors of Majestic at the time but she testified that anything major was run by Adams or Mary Kricfalusi. Hicks’ evidence was that Rob Dash consulted with Adams on anything important. She also noted that Adams was the person in charge at Suncastle in that he was the person who had the final say. She said that it was Adams who was calling the shots and was in control of what took place at both Suncastle and Majestic.

328Hicks was shown Exhibit #68 which is a note that she made and sent to her accounting principle on August 6, 2006. This includes the note that “We desperately need a group meeting.” She later writes, “Rob is president of Majestic and Herb keeps changing things.” Hicks explained that the note was related to her concern about cheques being written to Adams and Kricfalusi and Hicks believing they should be noted against payroll but she was being given contrary instructions and therefore did not know what to do and hence sought direction directly from the accountant.

329Hicks testified that Chad Adams, the accused’s son, worked at Majestic and he was paid on Majestic’s books. His salary was $500 a week at most. Chad Adams did not really have a title at the company. When he was there at work he would fill up cartridges and apparently spend lots of time in the office on the computer. She thought he was doing some graphic design but didn’t really pay much attention because he was the owner’s son. She did not recall his salary and she did not recall him as being vice president of marketing or making $68,000 a year as stated in the documents provided to the mortgage person, Laurene Rogers. Rogers’ evidence will be detailed later in the judgment.

330Hicks described Kricfalusi’s role as being Adams’ assistant. She signed cheques for Suncastle, but she did not have a job description. According to Hicks, it seemed like Kricfalusi listened to Adams and did what Adams wanted her to do.

331Hicks was shown Exhibit #69 which is the Suncastle financial statement as of June 9, 2008 related to money transactions involving Adams. She had little recollection regarding the reason for these entries. Her recollection was also poor regarding the entries in Majestic’s ledger which is Exhibit # 70.

332Exhibits #71 and #72 are two cheques in the amount of $14,500 and $10,000 respectively provided to Adams at a period of time when he wasn’t on Majestic’s board of directors. Hicks testified that Adams was essentially given money whenever he wanted it as he was still in charge as even though Dash was president he still reported to Adams and Kricfalusi. She was just given instructions and she didn’t feel it was her place to inquire as to why.

333Hicks also testified that there were many money transfers back and forth between Suncastle and Majestic. It seemed to be for cash flow reasons. She was shown Exhibit #73 which shows a paycheque to Kricfalusi from Majestic notwithstanding that Kricfalusi worked for Suncastle. The financial records also reveal that Bishop was paid through Majestic at Adams’ direction. This was Hicks evidence about this issue:

Q. How is it that Herb is the one instructing you on how to pay Steve Bishop when he has no official capacity at the company?

A. As far as I was concerned, he—to me, the word “board of directors” means nothing. Ever since I started working for Majestic and Suncastle, Herb was in charge and I didn’t think to even question roles or who was a board of director or—I didn’t sign the cheques so, really, didn’t….

Q. So is that to say he was in complete control of these finances without being part of the company?

A. Um, yeah, I would say a fair amount, although Rob Dash was as well.

Q. Who did sign the cheques?

A. I would say Rob Dash. I’m not sure if Danny Chilleli was another signing authority back then or not.

Q. And if Herb told you to make out a cheque to a particular person….

A. Well, I think Steve Bishop was but he wouldn’t have signed his own cheque, I don’t think.

Q. If Herb, if Herb told you to, to make out a cheque to a particular person, was there ever a time that Rob Dash refused to sign?

A. Not that I was aware of.

Q. Never a time where, where Rob Dash said, “What…”—questioned the cheques that Herb was ordering or requisitioning?

A. Not that I was aware of, no.

Q. And between Rob Dash and Herb, who was more in charge of Majestic?

A. Personally…

Q. Yeah.

A. …my feeling, Herb.

334It should be noted that these are two further indications that Adams remained the directing mind and will of Majestic even after his resignation from the board of directors in November 2006 and it also demonstrates how intermingled these two companies were notwithstanding that they were purportedly separate entities.

335In cross-examination Hicks testified that she did not know what Adams’ status was at Majestic. She did not think that Steve Bishop was the CFO because he was not in charge of banking and the daily running of the company as Rob Dash and Adams did that. She understood that Bishop’s role was to bring in investors. Hicks would verbally give Bishop bank balances if he so requested. She indicated that she did not really know Rob Dash’s role. She described him as an overall manager and that he would go over the bookkeeping with her and he would often do spread sheets in his office. She didn’t really know what he did, but at times he spoke to her about the financial health of the company. Hicks was aware that Adams had health issues, that he walked with a cane and that he had a bad back. Adams was only in the office about 50% of the time. His health issues were noticeable and he would often come in later than the standard 9 a.m. to 5 p.m.

336Hicks acknowledged that she did not have exposure to any of the discussions at the board meetings. She did not have any knowledge regarding whether Adams had a consulting agreement with Majestic.

337Hicks was shown Exhibit #69, which is the general ledger for Suncastle as of June 9, 2008. She agreed it was a recording of the money that Adams had brought in and taken out of the company and she indicated that the balance on the last page was approximately $181,000 indicating that Adams had brought in that amount of money more than he had taken out. She believed that the general ledgers had documents to back up the entries and that she would have reported it to her accounting principles if there was no back up documents. She indicated that the big issues went to the accountants and the accountants never told her that there was a problem with the books.

338Hicks was also shown Exhibit #70 which is Majestic’s general ledger as of May 31, 2008. It was similar to Exhibit #69 regarding debits and credits for Adams. She agreed that there was a general amount owing to Adams of about $15,000.

339Hicks was shown the cheque for $14,500 which is Exhibit #71. She indicated that she expected to see a cheque like this if it was for consulting fees and it should be noted that the cheque has a notation on it of “consulting fees”. She was shown Exhibit # 73, which is the general ledger for Majestic. It indicates that Adams put more money in the company than he took out. But she could not explain the discrepancy pointed out to her on the last page of this document. None of the people she knew on the board of directors, including Dash or Bishop or any of the others came up to her and said there was a problem with this ledger when there clearly was.

340Hicks testified that she was aware that Suncastle was purchasing ink from Staedtler. She thought that all of the staff there were also aware of it. In addition, she was not aware of any effort to hide this fact from her. However, she did not recall seeing a Staedtler label on anything on the premises.

341Hicks became a shareholder of Majestic when Adams told her that she was doing a good job and that he wanted to gift her 20,000 shares. Adams did not ask for money for the shares. .

(vi) Anthony Yaworski:

342Anthony Yaworski is an auto body mechanic. Yaworski was working at East End Auto Body as a manager when he lent Angelo Salciccioli, $30,000 for his business. Salciccioli couldn’t pay the money back so he offered to pay Yaworski the money that he owed him in shares of a company called Juma. As such, Yaworski was introduced to Adams because Adams was the owner and the boss of Juma. Yaworski testified that he figured he wasn’t going to get any money from Salciccioli so he thought he may as well take the shares.

343In addition to the $30,000 that was supposed to be repaid in shares, Yaworski bought an additional $5000 in shares and also convinced some of his friends to make minor investments in the range of $400.

344Shortly after that Juma moved to the Mainway location and was now called Majestic. This was in 2005. Yaworski testified that he was responsible for the renovations that were done at Mainway to make the front entrance look like an art gallery. Yaworski testified that he had paid the costs for those renovations and initially he got some reimbursement for this but ultimately it got to the point where he wasn’t getting reimbursed anymore. In Yaworski’s words, “the whole place then went for a shit”.

345Yaworski testified that Tony Musitano tried to take over the company and that everyone was arguing. He said that Majestic’s business was to buy ink and media and sell it. He indicated that at one point Adams dropped off a picture and said, “There’s our technology. There’s our clear coat coatings. We have it.” Musitano put water on the picture and it dissolved. Musitano then told Adams, “This is a scam, this is not real”.

346Yaworski then testified that ink also became a part of it. Yaworski understood from Adams that they had a Staedtler contract for a specific type of ink that would be a gold mine for the company. He understood that Staedtler created the ink but that the sole distributor in North America was Majestic.

347Yaworski testified that his Juma shares ended up being put into a company called Holdco which is a shareholder of Majestic. Exhibit #106 is a list of Holdco shareholders.

348Yaworski was clear that Adams was in charge of Majestic during this time. Adams told everybody what to do. Adams was the guy with the chequebook and the shares.

349Yaworski testified that in the summer of 2005 things started going wrong. So, in December he went back to doing auto body work and then after that he had very little to do with Majestic.

350Yaworski testified that he his own company was called Suspendaire Systems. He indicated that he was therefore asked by Adams to help in research and development. According to Yaworski’s evidence he was asked by Adams to develop a spraying machine. He said that Adams told him that it didn’t matter if it was operational or not as the purpose was to get SR&ED grant money from the government. Yaworski testified that he told people it was a working machine. However, even though it looked like it worked it didn’t. Yaworski testified that he had lied to the federal government employee but that he had not expected to have to meet with this fellow and then he got “tossed in” to sell it. He indicated it was expected that he would do what he had to do in order to get the SR&ED money from the government. Yaworski testified that he signed documents indicating that he had been paid $30,000 from Adams for this but that was only in order to process the false SR&ED claim. Yaworski testified that he was never paid this money by Adams.

351Yaworski also testified that Adams asked him to build a canvas stretching machine and that he built this machine as well.

352Yaworski was also shown the Suncastle business plan, which is Exhibit #89. Yaworski testified that Adams gave him this document. On page 12 of that plan it states the following:

“The Suncastle Group works closely with a German ink manufacturer to develop ink with a better colour gamut, light-fastness and brilliance”.

353Finally, Yaworski testified that he did not get any money back and that he was told by Adams that he could not sell his shares for two years. It was only Adams who was allowed to sell his shares.

354In cross-examination Yaworski was shown and identified various share certificates from Juma. Yaworski identified Exhibit #110 which is a share certificate regarding shares in a company called Printing Components. Yaworski explained that he had worked for Adams for years and that he was part of the inner group. Therefore when Printing Components was started Adams gave Yaworski shares in compensation for money that was owed by Adams to Yaworski. Adams told Yaworski that when Yaworski sold his shares that Adams would receive half the money and also that Yaworski couldn’t sell the shares until he was told to sell them by Adams.

355Yaworski testified that in 2008 Adams told him that Printing Components was definitely going public within 2 weeks so Yaworski put $20,000 on his credit card through Salciccioli’s company. Salciccioli got $5000 of this and Adams got $15,000. Yaworski indicated he got 32,000 shares for this. This is the share certificate from February 27, 2008 which is Exhibit #110.

356Yaworski conceded that this further share purchase regarding Printing Components might have been irrational at the time, but Yaworski said that he was just trying to get his money back and that he was better off to stay in the circle. Yaworski admitted that he was essentially grasping at straws but all he really wanted was his money back so he stayed in the game and tried to get his money back.

357Yaworski also admitted that he had signed multiple papers saying that Adams had in fact paid him. Yaworski testified that he did this partly because he knew that Adams could have forged his signature anyway, but that essentially he did it because Adams owed money to him and Adams had said that if he didn’t sign the papers then Adams couldn’t collect the money from the government for the SR&ED claim. Yaworski said that Adams told him that when Adams collected the money for the SR&ED grants that Adams would then pay Yaworski. Yaworski acknowledged that this was fraudulent conduct but he participated because he saw it as an opportunity to get some of his money back.

358Yaworski also acknowledged that Adams had given his new company $8500 to buy ink from Printing Components to show that Printing Components had made a sale. Yaworski then indicated that he had kept that money on his lawyer’s advice because of how much money was owed to him by Adams.

359Yaworski recognized that making the fake ink sprayer and telling people it worked, when it didn’t, was also a fraud. Yaworski was shown Exhibit #94 is the SR&ED claim and the ink sprayer is not on it. Yaworski maintained that he was told that it went through and that Adams always kept a paper trail so it must be on another piece of paper.

360Finally, Yaworski testified that he had built the stretching machine by himself and that neither Carlo Toscano, Mario Toscano nor Adams had helped him with it and that this invention was not a scam. He was accused of lying about this. Yaworski was somewhat vague in terms of what he had done to make this machine. He sketched out what he had invented. This is Exhibit #111. Yaworski admitted that he didn’t have the original design documents and that he only had rough sketches.

361Yaworski was then asked about Daniel Leblanc. Yaworski initially misidentified him as a person who worked in the building, then changed his evidence to indicating he had confused the person named Leblanc with Danny Chiarelli and that it was Danny Chilleli that was actually the person that worked in the building. Yaworski testified that Daniel Leblanc didn’t have anything to do with making the stretching machine that LeBlanc had only done some home renovations for Adams and Mary Kricfalusi. Yaworski made a comment that Leblanc would not have been capable of making this invention. Yaworski was shown Exhibit #162 to #168 which is a compilation of documents that were prepared by Daniel Leblanc that all have to do with the stretching machine, prototypes, budgets, etc. Yaworski’s only explanation for this was that Adams was in charge of paperwork, that he was not asked to do paperwork and that Leblanc may have done the paperwork to cover for what Yaworski had done regarding the stretching machine. Yaworski was also shown Exhibit #91 which indicates that Leblanc got credit for the stretching machine when the SR&ED claim was put in. Yaworski maintained that he in fact was the person who created the stretching machine and that Leblanc did not have anything to do with making the stretching machine.

362It should be noted that the evidence regarding who was responsible for developing the stretching machine is very contradictory. Adams and LeBlanc maintain that Leblanc was the creator and that there is paperwork to confirm this. Yaworski claims to have made the stretching machine by himself. Toscano claims that he, his brother and Yaworski made the stretching machine through a joint effort. A definitive finding of fact therefore cannot be made. The real issue is how much is Yaworski and Toscano’s credibility eroded, if at all, because of this issue.

The Investors:

(i) John Lynch:

363Mr. Lynch and his deceased wife, Claudia, are the complainants in Count #2. Lynch is a retired police officer. He had been a police officer in Hamilton for 32 years and a fraud investigator with the WSIB for a further 10 years.

364Lynch knows Steven Bishop as Bishop had been an investment counsellor for both himself and his wife.

365Lynch testified that he met with Bishop in the summer of 2006 at Lynch’s house. Bishop was the Lynch’s investment counsellor at the time. Lynch had a private conversation with Bishop in which he asked Bishop what he was doing. Bishop explained that he was working with a distribution company called Majestic and that they had the sole rights to technologies produced by Suncastle. Both companies were owned by the accused, Adams. Bishop said the first product was a new invention, a solvent-free ink that was water-based. It was described as being a new, revolutionary ink and that the chemist working for the accused had discovered it. Lynch later found out that the chemist’s name was Noel Shahnazarian. The name of the ink was souken ink. Lynch was told that this ink was going to revolutionize the printing industry because no one else had it. Bishop advised him that the ink had been developed, tested and that the accused owned the patent for it. It was ready for production and marketing which was to be done once the money was raised in the next six months to a year.

366Lynch indicated that his wife was very interested in this idea and that he became more interested as time went by. He indicated that Bishop then arranged for himself and his wife to go to Suncastle to meet the accused, Adams. He understood from Bishop that Adams owned both Suncastle and Majestic and that Majestic was the sole distributor of Suncastle products. Lynch was going to invest in both companies and understood that there was a requirement to invest in Suncastle if he was going to be investing in Majestic. Both of these companies were located in the same building on Mainway in Burlington.

367It should be noted that this requirement of investing in both companies was not required of all investors. It appears that Lynch was singled out in that regard and it is hard not to conclude that it was because of the magnitude of the investment that he and his wife were willing to make.

368Approximately one to two months after his initial talk with Bishop Lynch met with Adams. This meeting took place in September or early October 2006 at the Suncastle/Majestic offices on Mainway. The people present were Lynch, his wife, Claudia, Bishop, and Adams.

369Adams invited Lynch up to his boardroom to explain the entire situation to him. Adams did the talking. Lynch indicated that Adams explained that his scientist had developed and tested the ink, that Adams held the patent offshore due to industrial espionage. Adams explained that he needed capital to develop the ink and market it. Lynch was clear that Adams had said that his scientist had invented the ink at the Mainway location. Lynch indicated that he understood from that meeting that production of the ink was being done in the back of the Mainway facility. Adams also talked about souken coating which Lynch understood was like a varnish and that the companies had contracts with Walmart and Home Depot to sell the coating to them. Lynch was also advised about the new filling line that the company was developing that could fill numerous cartridges at one time. Lynch indicated this was about a 30 to 40 minute discussion.

370It should be noted that if Lynch’s evidence in this regard is believed that it provides significant corroboration to Bishop’s evidence on these points. This is noteworthy because Bishop has some serious credibility issues that require that if Bishop is to be believed on any issue it would only be on the basis of reliable corroborative evidence.

371Lynch testified that he would not have invested with Adams if he knew that the souken ink in fact was a Staedtler ink. Lynch only invested because he believed there was some exclusive ownership to the ink.

372Adams then showed them the production area. Lynch was shown large commercial printers with the heating device to dry the ink. He believed he saw four of them. He was shown the filling line which he believed was being assembled at the time and not completely operational. He commented on the railings at the back of the building, indicating they were very nice. Adams responded they were coated with souken coating and that his scientist had developed it. This was supposedly the same scientist who had developed the ink.

373Lynch testified that he also noticed there were very large banners in the production area, some six or eight feet tall. One of the posters was of Jennifer Anniston. The posters were very clear and vivid. Adams told him “I told you the ink is something else” or “I told you it was a fantastic ink.” Lynch understood that these posters were printed with souken ink and if he had known they were printed with the old ink he would not have invested.

374It was made clear to Lynch that the ink was a new product that had just been developed and that no one else had it. Lynch understood this to be a once in a lifetime chance and that he was not interested in investing in something that was already on the market.

375Lynch reiterated that he believed that Adams owned both companies as Adams told Lynch that he was the majority shareholder in both companies.

376Lynch testified that he and his wife made three investments to these companies. His initial investment was made on November 10, 2006. The total amount that he and his wife eventually invested was $250,000.

377Lynch testified that he understood the ink to be a new opportunity and from his perspective he was investing money in the ink. The cartridge was an enhancement to others things being done by the company.

378Lynch testified after he had gotten word that Majestic had gone under and that there was no money he met with Adams at his home in Ancaster. Adams had told him that he was going to show Lynch documents demonstrating that the directors of Majestic had stolen all the money. Lynch testified that all Adams showed him was emails from both sides accusing the other but there was no proof as to where the money had gone. Adams had also mentioned that civil suits were outstanding. Then Adams told Lynch about the plan to have a shareholder meeting for Majestic and get rid of the board of directors. Lynch indicated that Adams explained to him that he was going to get rid of Bishop, Chilleli and Dash from the board of directors and get a new board of directors in place that would put Majestic into receivership. Then Majestic would be brought back under Adam’s control.

379Adams suggested that Lynch would be a good person to put on the board of directors. Lynch initially told Adams that he was not qualified and therefore he was not interested.

380It should be noted that this appears to have been a regular ploy utilized by Adams when significant shareholders became concerned about their investment on his companies. That is, he would assauge their concerns by making them part of the company or part of the new venture. Adams gave the Juma shareholders Majestic shares, he put Rogers on the board of directors of Printing Components and he did this with Lynch.

381Lynch testified that he went to a shareholder meeting on June 7, 2008. He said the meeting was really a shouting match between the board of directors at the time and the accused and his followers. Chilleli and Dash were voted off and Biegerl and a person by the name of McIlveen who were aligned with the accused were voted on to the board of directors. According to Lynch after this meeting Bishop was not allowed input although Bishop was still on the board of directors. As a result there was another board of directors meeting to replace McIlveen who had resigned and that’s when Lynch decided to run to legitimize the board of directors because although he felt that he was unqualified he felt he was more qualified than the other two people who had been elected to the board.

382Mr. Lynch and his wife, Claudia, did not get any of their investment back. They lost the entire $250,000.

383In cross-examination Lynch agreed that it was Bishop who first approached him indicating the company was looking for investors and that it was Bishop who first said the product was patented and ready for market. Lynch further testified that it was Bishop that explained that Adams headed up both Suncastle and Majestic prior to the Mainway meeting when Lynch first met Adams.

384Lynch further admitted that Bishop was the first to tell him that the accused was a major shareholder but Lynch also subsequently heard this information from Adams. Lynch conceded that Bishop had told him a lot of things first but Lynch noted that he had meetings with Adams to confirm it the information that Bishop. He indicated that Bishop just explained the company to him but it was Adams confirmation of that information that had persuaded Lynch to invest and that between Bishop and Adams it was Adams voice that was more important to him.

385Lynch conceded that Bishop was known to him for a number of years and that he considered Bishop to be a friend. Bishop was his former investment counsellor and so he respected his financial opinion and trusted Bishop. Lynch testified that he did not blame Bishop for Majestic’s failure and he believed that Bishop would not have knowingly mismanaged the company.

386Lynch testified that he talked about a lot of things with Carlo Fascio regarding how the company folded.

387Lynch also testified that he had spoken to Bishop about a number of things regarding Majestic because both had been on the board of directors of Majestic. He indicated however, that Bishop had not told him that his licence had been suspended by the Ontario Securities Commission for charging improper management fees. He conceded that he was sometimes given documents to sign by Bishop that were blank. Lynch indicated he would not normally do this but he had done it in this case because he trusted Bishop.

388Lynch testified that his understanding that Adams had the majority of shares of Suncastle and Majestic was told him by both Bishop and by Adams. Lynch maintained that Adams claimed that his chemist had invented souken ink and Lynch was adamant that he was not just repeating what others had told him. When asked directly if Adams had spoken only about the printers and the printing process and that Adams had said nothing about inventing ink, Lynch was clear that if Adams had said that to his lawyer that it was a lie.

389Lynch indicated he did not see any Staedtler ink in drums in the production area of the plant. He denied that Adams had said that Noel Shahnazarian was only a liaison with Staedtler ink.

390It was suggested to Lynch in cross-examination that his memory was affected by his contact with Bishop but he maintained that it wasn’t. He conceded that he still sits on the board of directors with Bishop and he thought the board of directors should listen to what Bishop had to say. He was very clear that he did not want Adams and his cohorts to carry on what he characterized as “this phony company” and that he wanted to do everything in his power to stop it. Lynch conceded as well that he drove Bishop to the trial from St. Catharines, that they go to lunch together and in the last year they had spoken a lot about Majestic since they were both on the board of directors. However, Lynch testified that they had not spoken since Bishop started to give evidence.

391It should be noted that the issue raised in the preceding paragraph graph requires close scrutiny since if Lynch is believed his evidence provides strong corroboration for Bishop and some of the other investors. Lynch impressed as a strong independent witness with a clear recollection of events. There were a few minor details where his recollection may be faulty but Lynch was consistent on all of the major issues. Collusion, whether advertent or inadvertent, must be considered when assessing his evidence but Lynch’s evidence was so clear and so consistent that any suggestion of collusion with Bishop did not raise concern such that Lynch’s evidence should be given less weight.

392Lynch maintained that Adams had told him that his scientist had invented this ink and that Adams needed money to produce it. Lynch testified that Adams indicated to him that the chemist had invented souken ink in the factory on Mainway. At a later point in his evidence Lynch testified that Adams said that the ink was going to be produced in South Korea in bulk. Lynch conceded that had not told anyone about South Korea before but that was because he had not been asked about it. This is an example of a detail that Lynch was clearly uncertain about but it appears to be a recollection issue as opposed to a credibility issue. In addition, it is minor enough in nature that his reliability in not endangered.

393Lynch was shown a copy of the business plan which is the same copy as Exhibit #4, as well as a PowerPoint presentation which is the same copy as Exhibit #3. He indicated that he had received these documents from someone at Suncastle or Majestic but did not know where he got these documents from. Lynch conceded that at various pages it seems to talk about a system as opposed to any sort of miracle ink. He also conceded that in the team member profile at page 10 there is nothing in there that Shahnazarian had invented the ink.

(ii) Laurene Rogers:

394Laurene Rogers has a business and banking background. She was a mortgage development manager for Scotia Bank and RBC, but she has since retired.

395Rogers testified that she first met Adams when she was working on a residential mortgage for Adams’ son, Chad. Part of this process was to put a mortgage on the accused’s personal property in Ancaster. Thomas Brown, the lawyer, had referred business to her from time to time and it was Brown who made this referral to her.

396In February 2006 Rogers met with Adams in the boardroom at the Majestic premises on Mainway in Burlington. The mortgage application was prepared. This is Exhibit #55. Exhibit #56 is a letter of employment dated February 9, 2006 confirming the son, Chad Adams position with Suncastle. There are some unusual pieces of information on this application for credit and in the letter. These documents claim that Chad Adams was making $68,000 in income although he was only 23 years of age and he was referred to in the application for credit as the vice president of marketing. There was a slight difference in how his position with the company was characterized in the letter which is Exhibit #56. However, the mortgage was ultimately arranged by Rogers.

397It should be noted that although the above noted information was never specifically disproved it is not likely to be true either. It is an example of mistruths being utilized to gain an advantage.

398During this same meeting Rogers had a conversation with Adams. Adams was very excited about Majestic and he took Rogers on a tour of the building. Adams had indicated to Rogers that he had started both companies and Rogers believed that Adams was in charge of both companies, that being Majestic and Suncastle, but that there were also other people involved in running the companies. Regarding Majestic, Adams had said to Rogers, “It’s my company, I started it up.” She was told by Adams that Majestic developed ink that was biodegradable and that it was the first of its kind. Rogers was also told about a bag that looked like a blood bag with a tube which made the cartridges refillable. She was told that all of this was biodegradable and so it was environmentally friendly. She was under the impression that Adams had created the ink. Adams also indicated to her that some of the posters were printed with the new ink called souken ink. Rogers indicated that she was lead to believe that the accused had created the ink because of him saying it was his company and so on. At one point in her evidence Rogers said:

Yes, I was led to believe—I mean, he, he was the only one there. He said, “This is our ink”, like, “This is my company”, “This is what I’ve developed”, “This is what we do here”, you know? So I was under the impression that, that he developed it.

399Adams indicated to Rogers that the ink was state of the art and one of a kind and that he was going to go to Staedtler and sell the ink to them. Rogers described Adams as being “large and in charge”.

400Rogers testified that she went back the next day to get the paperwork for the mortgage. At that time she was offered an investment opportunity by Adams. Rogers said she wanted to speak to her husband and to Tom Brown about it. Adams told Rogers that there were research and development people from the government that were involved in looking at the company in order to give it a $1 million grant for research and development. Adams said that he wanted to offer an early investment opportunity to Rogers because she had been helpful. Adams said that the shares were only sold in $10,000 increments when Rogers asked if she could purchase $5,000. Rogers was told the $10,000 increments were because these were private shares in a private company. Adams told her that the shares were coming from him as there were no more shares in the company.

401Rogers testified that she was told that the ink was the only one of its kind. Rogers indicated that if she had known Staedtler had made the ink, it would have affected her decision to invest. Similarly, if she knew Staedtler could sell this ink to other companies the she would have simply bought Staedtler shares on the stock market.

402Exhibit #57 is the subscription agreement dated February 10, 2006 and Exhibit #58 is a cheque for $10,000. This was Rogers’ initial investment.

403Exhibit #61 is a certificate of accredited investor dated February 10, 2006. According to Rogers evidence this is what transpired regarding this document:

Q. So why did you sign this document?

A. Herb said I had to. He said that all shareholders have to sign this document because the shares aren’t on the stock market yet, so—because you’re buying shares of a—like, private, so I’m purchasing them privately as opposed to on the stock market, that all investors have to sign this and….

Q. But he told you that because you’re buying shares from a private company you have to sign a certificate of accredited investor?

A. Yes.

Q. Did you know what a certificate—for that matter, did you know what an accredited investor even was?

A. No, not really, no; I thought, maybe, you know, that you had good credit and that, I don’t know. I—that, you know, you were a responsible person, I guess. I asked him, ‘cause he said, “You have to initial at lines 10 and 11 on…” — it reads, “page 6” but it’s actually page 2; I don’t know why it’s page 5 and 6, but, anyway — “…on page 2 of this particular document.” He said I needed to initial 10 and 11, and I told him that I do not have, you know, $1,000,000.00, of course, and that my income was very good; it was—my gross income was probably around the $200,000.00 mark or so, you know, and that, but my net income certainly isn’t, but he said, “Don’t worry about it, it’s just a formality” and that everybody just has to initial there.

404It should be noted that this is important evidence because, if true, it links Adams directly to the accredited investor documentation and therefore to Adams having some knowledge of the Ontario Securities Act requirements regarding solicitation of investment from members of the public and the accredited investor exemption. It also demonstrates a cavalier disregard by Adams of any semblance of complying with the Ontario Securities Act requirements regarding accredited investors.

405Rogers attended the shareholder meetings in November 2006, At the November 2006 shareholder meeting there were about 40 - 50 shareholders there and almost everybody spoke but Adams did most of the speaking. Rogers received a business plan at this meeting. She glanced over it but did not read it cover to cover as she was too busy. At this meeting the shareholders were told that Majestic was going after contracts to sell the ink and cartridges. The ink and the system had been perfected and Majestic was pursing Wal-Mart, Home Depot and Staedtler. The ultimate goal for the company was to go public. Rogers did not recall that Adams had resigned from Majestic’s board of directors at this meeting in November 2006. Rogers did say this about her perception regarding Adams even after this meeting in November 2006:

A. I don’t remember him resigning, no, but he always seemed to be, even after, like, he seemed to be large and in charge of that company. He seemed—like, even if he wasn’t on the board of directors or even if he wasn’t president and CEO, it seemed like he was still running the company, that people still did what Herb wanted them to do.

406In October 2007 Rogers invested an additional $25,000 by way of a loan conversion agreement with Mary Kricfalusi. Rogers testified that Adams had called her during the time that she was doing a mortgage for Adams’ daughter Bianca. Rogers subsequently met with Adams at his house on October 16, 2007. Adams indicated that if Rogers wanted to invest in the company now would be the time to do it and that she could do the loan conversion with Mary Kricfalusi. Adams told Rogers that Mary Kricfalusi needed money and Adams indicated he didn’t need any more shares. Adams indicated that Majestic was expected to go public within a week to one month and therefore time was of the essence. Adams indicated that the stock should open at about $5 a share and go to $30 a share very quickly. The promise of the company going public in the near future was a major factor in Rogers’ decision to invest. In addition, Adams had indicated that he would guarantee the loan if there was a problem with it. While this discussion was going on she understood Adams made a call to his lawyer in Nevada. After that conversation Adams indicated that they were just finalizing the paperwork and that within a week or a month at the most the company would be public. Therefore Rogers wrote a cheque and made the investment.

407Exhibit #59 is the loan conversion agreement used for Rogers to buy shares from Kricfalusi. It was done this way because Adams said that was how it was done. Rogers testified that she is somewhat of a risk-adverse person and felt pressured that if she did invest at that time that she may not get another opportunity. Rogers borrowed money from her line of credit in order to make this $25,000 investment. Exhibit #60 is a promissory note that is consistent with Exhibit #59.

408With respect to the $25,000 investment Rogers indicated that she understood she could convert the shares or call the loan. She called Adams in November 2007 when the company hadn’t gone public. Adams indicated to her not to worry, and that everything was moving along. Adams said that there was a shareholder meeting in December and she’d hear good news then. Rogers asked why there was a hold up and Adams indicated that there were some minor problems they had to iron out. Rogers attended the shareholder meeting in December 2007. There were more people there this time, approximately 100 people. There was an indication there had been a problem with the cartridge that had been sold to a company in Florida. She was told by someone that the inventor had fixed the problem and replaced the cartridges for the Florida company. She was also told that they were in the process of obtaining contracts with Wal-Mart and Home Depot and there was a contract with Staedtler. It was indicated that Majestic would be on the stock market in the New Year and again it was indicated that it would go up from $5 to $30 a share. She indicated that Bishop did a lot of the talking but Mary Kricfalusi and Tom Brown were also there.

409Rogers testified that she made a number of calls to Adams regarding this $25,000 investment. New Years came and went. In March 2008 she asked for a meeting with Adams.

410On April 25, 2008 Rogers met with Adams. She indicated she told Adams that she wanted to call the loan as she needed her money back. Rogers felt that she didn’t know what was going on and that she was confused as the doors were locked at Majestic. She was getting the “heeby jeebies”. Adams said that he couldn’t get the money back today. Adams indicated that her prior documentation was stale dated and she would have to do it again. Rogers indicated she didn’t want to do it again and Adams indicated, “Don’t be too hasty, things will come together and everything will be fine.”

411Rogers was show Exhibit #59, paragraph 4 and clearly confirmed that she had never sent the conversion notice as required by that document to convert her loan into shares.

412On May 7, 2008 Rogers met Adams again at his home.

413On May 30, 2008 she had another meeting with Adams. Adams had indicated to her at one point, “don’t worry, we’re friends, I’ll make sure you get your money.” At that time there were some further conversations about Majestic and there was an indication that Adams was forming a new company called Printing Components. Adams told Rogers that he would have her money for her for sure by the end of August.

414Rogers was shown a document which Exhibit #62 and Exhibit #63 which purportedly transfer 25,000 Majestic shares to her. Rogers testified that she had never seen these documents.

415On June 12, 2008 there was an emergency shareholder meeting where it was disclosed that Majestic was bankrupt, the technologies were bogus, that the special ink did not exist, the cartridges didn’t work and that everything was a disaster.

416At the June 2008 meeting Adams wanted to vote out the current board of directors and take the helm of the company again because of mismanaged funds but Adams was not voted back in.

417Rogers indicated that the new company, Printing Components started to be discussed in May or June of 2008. Adams said that because he wasn’t voted back on at Majestic that he would “just start up this new company and move forward.” According to Rogers, Adams said Printing Components was initiated to take over Majestic’s technologies and to carry on with the ink and various other technologies that Majestic had. Adams asked Rogers if she wanted to be on the board of directors of this new company. Adams told Rogers that he could bring the technology over, start up the new company and move forward. Rogers understood that Adams somehow had the rights or patents to these technologies. She thought she could assist if she was on the board of directors of Printing Components so she accepted the position but then after a week or two Rogers began to get calls from Bishop and realized that there was a lawsuit that was starting and that she could be liable. Rogers was scared that she was getting into something she didn’t know enough about so she called Adams and asked to be removed from Printing Components board of directors. Adams told her that she needed to email his lawyer. Rogers did that and was told that she had to present a letter in writing in person to Adams so she did that as well. Adams refused to accept it. Adams wanted a specific wording and therefore took some time for Rogers to finally be removed from the board of directors of Printing Components.

418Rogers did not get any money back from either of these investments. She lost the entire $35,000.

419Several points were made in cross-examination.

420The first dealt with Rogers’ resignation from the board of directors for Printing Components. Rogers testified that Bishop had called her and told her she might be liable for a lawsuit and that a past client by the name of Julio Ramirez also called her when he saw her name on the board of directors. Rogers testified that she did not recall anyone else calling her. She was specifically asked if she was lying about this and she said, no. Rogers also testified that she did not get any harassing phone calls from either Bishop or Fascio. She also indicated that there were no threatening telephone calls. Rogers testified that Fascio had called her at some point but she did not recall whether it was before or after the June 2008 meeting.

421Rogers was then asked about a voice recording that she made with the accused in June of 2008. In that voice recording, which is Exhibit #64, Rogers says that she has been inundated with telephone calls from Fascio, Bishop and Ramirez, indicating that unless she resigned there was a potential that she would lose her house due to a large lawsuit that was pending, Rogers says in the recording that this was causing her health problems and that her husband was considering divorcing her. She further says that she was told that her name would be given to the RCMP and the Halton Regional Police Service and that she was being investigated. Rogers goes on to indicate that she felt her career was on the line because she worked for a bank and she felt that she might be suspended without pay. Rogers also says on the tape that she was not being coerced to do the tape and she goes on to indicate that she had not sworn an affidavit or contacted the RCMP or the Halton police. Finally, Rogers indicated she had emailed the Ontario Securities Commission to indicate that she wanted to be considered as resigned from Printing Component’s board of directors.

422Even after Exhibit #64 was played in court Rogers testified that she did not recall being inundated with telephone calls. Rogers then testified that Adams had said she needed to make this recording with him before he would allow her to resign from Printing Components board of directors. Rogers was asked again about if she was inundated with phone calls and she testified that she did not recall that but she had gotten calls from Bishop and Ramirez. Rogers then testified that if that’s what she said on the tape then maybe it did happen. She said that at the time she was very afraid of being named in a lawsuit.

423Later in re-examination Rogers agreed that there was a voice in the background of Exhibit #64 apparently coaching her. Rogers testified that Adams had notes on a page with points and that he was instructing her in terms of what to say. Rogers testified that before she came to Adams’ house she didn’t know that she was going to have to record a tape and that Adams had said she needed to do this recording in order to get off the board of directors of Printing Components. Rogers described her recording the tape as a precondition for her being removed the board of directors of Printing Components.

424Secondly, Rogers recalled meeting with Adams at his house on April 25, 2008 but did not really recall what the meeting was about other than her asking for her money back by calling in the loan. Rogers initially testified that she did not recall listening in on a conference call involving Adams, John Dow, Mary Kricfalusi, Steve Bishop and Carlo Fascio. Rogers was then shown Exhibit #65, which is a letter summarizing what took place in a conference call on April 25, 2008. When Rogers was shown the letter she said that she now recalled this conference call identified her signature. There are a number of points made in the letter which are critical of Bishop and supportive of Adams. Rogers responded on a number of occasions by indicating that she did not recall what she meant when she wrote some of the things in the letter other than that Bishop and Fascio were fighting with the accused and Mary Kricfalusi. She admitted that she had only a vague recollection of the information contained in Exhibit #65. It was put to her that it would be unusual that she only had a vague recollection considering the significant amount of money she had invested in the company. Rogers testified that she was interested in where the money and the technologies went but not the infighting and that some of her memories were clear and others were not so clear. She didn’t feel the conference call was important notwithstanding the letter which is Exhibit #65. Rogers did not know who typed this exhibit and did not know what the expression “without prejudice” meant on the top of the letter.

425Third, It was pointed out to Rogers that when she signed the subscription agreement on February 10, 2006 that it appeared that she was obtaining shares directly from Majestic’s treasury as opposed to Adams selling her his personal shares. Rogers maintained that Adams had said he was selling her personal shares and that she didn’t know why the documentation was made up in the fashion it was. Rogers denied that Adams had told her that he was selling her Majestic treasury shares as opposed to his own personal shares of Majestic.

426Fourth, Rogers was cross-examined about the fact that she now believed that at the December 2007 shareholders’ meeting that the accused spoke. She was cross-examined about her testimony on November 7, 2011 at the Ontario Securities Act hearing wherein Rogers had testified that she did not recall if Adams spoke at the meeting. Rogers explained this contradiction by indicating that after she had given evidence at the Ontario Securities Act hearing she had reviewed all of her notes in this matter and now believed that Adams had spoken at that meeting.

427Fifth, Rogers didn’t know when Adams resigned from the board of directors of Majestic. She did not recall that the accused had resigned at the shareholders’ meeting in November of 2006 from Majestic’s board of directors. She repeated the phrase that she felt that Adams was large and in charge at Majestic even after November 2006 as it seemed people did what Adams wanted.

428Sixth, Rogers testified that Adams called the ink souken ink and indicated they were working on a contract with a large German company. It was later announced that the contract was with Staedtler. Rogers was clear that Adams did not say that there was a contract to get the ink from Staedtler and if Adams had said this she would have invested in Staedtler, not Majestic. Rogers agreed that it made sense to buy the ink from Staedtler but she maintained that she had been told that they had discovered this special ink therefore they were going to Staedtler to sell it.

429Seventh, Rogers admitted that Adams did not explicitly say who invented the ink but she was under the assumption that it was Majestic because of the way Adams referred to the ink “being developed” by them. She indicated that she had been lead to believe that the ink and the cartridge had been “developed” there.

430Finally, it was suggested to Rogers that at the first meeting with Adams in February 2006 that Adams had said that they had a contract with Staedtler for this biodegradable ink. Rogers was adamant that that was not correct and that Adams had told her that the government was there at the time for a research development grant with respect to the ink. Rogers testified that she did not recall Adams saying anything about buying the ink from Staedtler and if that had been the case she would have just invested in Staedtler. It was put directly to her that she was told by Adams that Suncastle and Staedtler had a contract for Staedtler to sell Suncastle ink. Rogers testified that this was not true.

(iii) Harold Elke:

431Dr. Harold Elke is a dentist who has been practicing in Lethbridge, Alberta for over 35 years. He generally used a financial advisor to invest and he has been with two brokerages for 20 years.

432Dr. Elke came to know about Majestic through Kevin Loman in the fall of 2006. In 2007 Dr. Elke met with Loman and Steven Bishop at a lounge eatery in Lethbridge. Bishop said he had an interesting product in a Toronto suburb that would change the outlook of printing in North America. Dr. Elke was aware that Bishop was the Chief Financial Officer of Majestic.

433Bishop and Loman said that there was a water-based, non-carbon-based ink called Souken ink that they developed that would reduce the volatile product that comes off common inks. They told Dr. Elke that Majestic had the exclusive rights to this ink and a specific printing process that would make it an attractive product, and he was given a copy of the Business Plan to review. Dr. Elke also got subsequent information that Majestic had exclusive North American rights to marketing the ink. Dr. Elke believes he was also told that Majestic had the North American rights to a process that was new and water-based. It was a water-based ink that could be printed on many different types of surfaces without having to be processed after that.

434Bishop told Dr. Elke that there were 300,000 shares available at below market valuation, which was $1 per share. Bishop said that an older man wanted to sell his shares because daughter died so the shares were available for 66 cents a share. Bishop reiterated the strength of the company and that the product was unique and this was a good time to invest as the stock would probably go public in 2007. Dr. Elke discussed it further with Loman over a period of time and Loman gave Elke a business plan for Majestic. Dr. Elke invested $96,000 by bank draft dated April 1, 2007 payable to Herbert Adams. It was Loman who told Dr. Elke to make the draft payable to Herbert Adams. Loman explained to Dr. Elke that he would put the shares into a holding company in Barbados.

435Dr. Elke repeatedly asked Loman when the company was going public. Loman said that there were delays in going public and after a year of delays, things started to implode.

436Dr. Elke never met Adams or spoke to Adams prior to investing or after investing. Dr. Elke was always more concerned about turning a profit than in where the money went. He cared more about the shares themselves than where they came from. He did not request that the money specifically go into Majestic’s treasury; rather, he simply wanted to purchase the shares at a low prince and turn a profit.

(iv) Jeff Hinchey:

437Hinchey has known and is friends with Rob Biegerl and with another Crown witness Bruce Russell. They were high school friends and hung out quite a bit when they were younger. Hinchey testified that his friend, Rob Biegerl had come to Ottawa and stayed with him at this home. Hinchey said that Biegerl described that he was involved with a printing supply company that sold souken ink and refillable cartridges. The cartridges were less expensive than the ones currently on the market. In addition, the company had a deal to distribute a non-volatile ink in North America. Hinchey indicated that he understood that Staedtler was the supplier of this ink. Hinchey understood however, that at that point Majestic was the only company distributing this ink or at least the first company to bring it to market.

438Hinchey indicated that in his mind the replacement ink cartridge was the most attractive idea. Hinchey indicated that he had talked to the accused once over the telephone but that he did not know how long he spoke to the accused and he didn’t recall the content of the conversation. It was after he spoke to the accused that he did decide to invest.

439Exhibit #14 is the loan conversion agreement for $25,000 that he signed. He subsequently converted the loan for the purchase of shares at the prompting of Rob Biegerl. He made a second agreement which is Exhibit #15 for a further $10,000 so it was a total of $35,000 that he invested in Majestic. Hinchey didn’t get any of that money back.

440He indicated that he was given a copy of the business plan which is Exhibit #16 before he invested in June 2006. His personal notes are on this business plan. Hinchey testified that he spoke to Adams confirming the business plan in general and the products that were being marketed by Majestic.

441It should be noted that Exhibit # 16 contains a number of significant false claims.

442First, it claims that ”Majestic is presently ready to market a complete system to convert existing LF printing machines to utilize the environmentally friendly products at substantial savings to existing operating systems.” The evidence clearly establishes this to be false. The environmentally friendly products were the souken ink. Majestic never perfected the process needed to properly use this ink for outdoor purposes.

443Second, the continuous ink delivery system was never perfected by Fascio and therefore it was not market ready.

444Third, no souken coating ever existed as claimed in the business plan.

445Fourth, the lack of competition claims in the business plan is also false.

446Hinchey testified that he did not recall anyone speaking of a miraculous ink and that he understood that the ink came from Staedtler. He could not recall anyone saying that Majestic had invented the ink.

(v) Gordon Russell:

447Russell is a friend of both Rob Biegerl and Hinchey. Russell testified that he received a call from Biegerl who told him “that he was working with a company called Majestic Supply Company, and that they were onto some very exciting products that they were about to launch into the market and that he thought it was an excellent investment opportunity and that I should come out and hear what they had to say.”

448Russell therefore went to the Majestic location on Mainway Drive in Burlington in the spring of 2006. He met with Biegerl and Stafford Kelly and later the accused joined the group. Russell did a walk around the facility and was given a general overview of what was taking place there. Russell indicated that he was given an overview of how the industry worked and the size of the industry on a global basis.

449Russell was told that most companies used solvent-based inks with VOC’s (volatile organic compounds) which were potentially unhealthy and required expensive ventilation and time to dry. Russell was told that the company had developed a water-based non-solvent ink which eliminated a number of problems including subsequent disposal of the material in a more environmentally friendly way. He understood from Biegerl that the company had developed this water-based ink.

450Russell was also told that cartridge system was being developed because the solvent inks clog the printer heads and required time and maintenance to correct and the new system would have a continuous supply of ink.

451When the accused was brought into the meeting he appeared very confident, seemed knowledgeable, and was very excited regarding the size of the market and the profits available even if they only took a sliver of the market. He described the accused as a smooth talker. There was no discussion however at this presentation regarding the creation of the ink. He got that impression that the posters that were hanging were the creation of new system. He also found out that Battlefield graphics had bought into Majestic and that made him more confident that it was a viable company. He therefore invested in the company because Biegerl was telling him it was a very solid company. He had read the business plan and had some nagging feelings but it was really because of the strength of his relationship between himself and Biegerl that he ended up investing. He indicated that he invested partially on the concept but more on the relationship between himself and Biegerl.

452Russell understood that the accused was the mastermind, “the guy calling the shots.” He said that it was Adams that had indicated, “this is where we’re headed” and it was his vision being implemented. He described Adams as being dynamic, focused and directed. It should be noted that this is further evidence regarding Adams being the directing mind and will of Majestic.

453Russell initially invested $30,000 at one dollar per share. He confirmed that Exhibit #19 is the loan conversion agreement dated March 6, 2006. Exhibit #20 is the cheque for $30,000 that he provided. He identified Exhibit #21 as his second investment for a further $5,000 for which he received 15,000 shares. He said he made the second investment because he had a call from Biegerl that the company needed extra cash quickly to set up a room at the Mainway location to demonstrate the printer conversion process. He identified Exhibit #22 as the cheque payable to Majestic, even though the loan agreement said that he was purchasing Adams’ shares. Exhibit #23 is a letter dated January 15, 2007 wherein he sent a letter giving notice that he wished to convert his investment to shareholdings.

454Exhibit # 24 is a copy of the business plan that Russell was given. The hand written notes on it were made by Russell. It should be noted that this business plan contains the same false claims noted in Hinchey’s evidence.

455Russell indicated that he understood the research and development on the ink was done and was ready to go. He believed that the business plan supported that belief.

456Russell further understood that the company had developed the ink and he understood that a chemist by the name of Noel Shahnazarian was behind it. He was told this by Mr. Biegerl. It should be noted that it defies logic that Biegerl communicated essentially the same false information to Russell that Bishop was communicating to potential investors unless this information was generally accepted within Majestic.

457Russell identified Exhibit # 25 as a document he was shown very early “in the game.” It was a projected cash flow that may have been attached to the business plan. It should be noted that these projections were entirely unrealistic given the actual state of affairs at Suncastle/Majestic. To suggest potential revenues of over $12,000,000 for Majestic at that time was misleading in the extreme.

458Russell indicated that there had been some discussion during the course of these events regarding an exit strategy to do one of the following: 1) operate the company, 2) sell to a larger competitor, or 3) make a public offering.

459In cross-examination Russell indicated that he understood that Majestic was about a system not just the ink. He never heard the statement, “miraculous” ink but understood that it was special as it could apply to various substrates. He did not recalling hearing the words directly but he believed that the ink was developed by or for Majestic by someone else. He did not recall hearing anyone saying that a polymer had been added to the ink. He indicated there was no promise that the company would go public and no guarantee regarding the share prices. In his statement to police he had indicated that they had said that they had the ink ready to go and he was under the impression that their chemist had developed it but did not recall anyone specifically saying that to him. He indicated that in the police statement he had said the focus with the company shifted from inks to the cartridge. He believed they were on the leading edge regarding the ink and that they had a one to two year lead time on the development of the ink. He indicated that he thought that Majestic had a product that was better than everyone else because the accused had said they were ahead of everyone else. In his discussions with Biegerl, he was told him that the cartridge needed to be finalized and that’s what was holding things up.

460Russell indicated that he met Bishop at the November 2006 shareholder meeting. Russell indicated he recalled Adams resigning and he was told that it was because of health reasons.

461He also met Fascio who he described as the cartridge guy. He also attended the December 7^th^ shareholder meeting and recalled Fascio talking about finding an error in the design of the first cartridge and he was glad that they found it out before it had gone to market as it would cause problems with the printer heads.

462At the June 2008 shareholder meeting, which was after the collapse of Majestic, Russell indicated that there appeared to be two camps, one supporting Bishop and one supporting Adams. He indicated that there was a huge fight that took place at that shareholders meeting. He indicated that at that meeting people wanted to know where the money went if the company was bankrupt. He indicated that he was told that the assets had been stolen or confiscated by Fascio according to Mr. Biegerl. He described it as a heated and wild meeting that went back and forth so that it was hard to keep up. There were lots of accusations from both sides and the meeting was disjointed and mismanaged.

(vi) Douglas Paul:

463Douglas Paul is an engineer who owns a software design and development company. Paul has no prior criminal record.

464Paul testified that he became involved with Suncastle and Majestic through Bishop who was his investment advisor at the time. He indicated that Bishop told him that he thought that these companies were an excellent opportunity as they had great potential. Bishop described these companies as start-up companies regarding large-format printing. The new discovery was “souken” ink.

465Paul testified that he and his wife, Anne, met with Bishop. There were a number of technologies discussed such as coatings, the media and refillable cartridges. However, it was the new souken ink which was a water-based ink that was based on green technology that had the properties of solvent inks that would revolutionize the industry. Bishop encouraged Mr. Paul and his wife to go to the Mainway plant location.

466According to Paul, Bishop indicated to them that a chemist, Noel Shahnazarian, who was supposedly Adams or Suncastle’s chemist, who had developed this souken ink in conjunction with Staedtler. Paul was led to believe that Noel Shahnazarian had discovered the ink and was working with Staedtler.

467Therefore, in the fall of 2006 he and his wife visited the Mainway location. Adams took them on a tour of the facility. At a previous meeting, Bishop had provided them with Majestic’s business plan and they had that business plan when they met with Adams. Bishop was not present. It was Adams, Paul and Paul’s wife. At this meeting they essentially went over what Bishop had said to them and Adams confirmed it. The purpose of the meeting from Paul’s perspective was to go over what Bishop had told them about these companies but they wanted to do this independently of Bishop to confirm what he had told them.

468During this meeting they talked about the ink. This was souken ink that was the revolutionary part of the process and Paul described it as the “big technology”. Adams told them that the ink was Suncastle property. The witness did not recall if they were told that Noel Shahnazarian had created it or if he had created it with Staedtler. The key for the Paul’s was that Suncastle owned this ink technology and that was what was of value to them. Paul testified that he understood Suncastle was the company that had this ink at the time and that it was being perfected at the time. The Pauls’ were told by Adams that he believed that they had a lead on all the other companies and could exploit that. Paul indicated that it did not matter to him who, in fact, had created it. The key was who owned it. Paul was clear that if he knew that Staedtler could sell this ink to others that it would have affected whether or not he chose to invest in these companies.

469Paul testified that Adams discussed other technologies during this meeting, but that the ink was the key thing. He understood that the other technologies were not dependent on the ink and that they had value, but the real value of the investment was with respect to this revolutionary ink. Paul understood that the other technologies, while potential revenue streams, were not the leading edge technologies, like the souken ink was and, therefore, did not compare revenue wise.

470Paul understood that the plan was always for Majestic to go public. He did not know if this was told to him by Adams or by Bishop or by both. He understood the timeline to go public was within a year, although he did not recall the specific timeline.

471Paul noted that during the tour of the facility in the warehouse portion of the building that there was some ink filling machines, ink cartridges on the shelves and that it had the appearance of an ongoing business that was producing something. There was what he described as a clean room that had large format printers in it which he understood was perfecting the souken ink technology. Paul testified that he was also shown the continuous ink delivery system. Paul testified that he understood the ink was 95 per cent there and that they were just working out the final details on it, i.e. the scratch test and the durability tests. He understood that it was a matter of fine tuning the formula for the ink but that they were essentially there and that they were doing this fine tuning right on the premises.

472Paul acknowledged that either Bishop or Adams gave him the PowerPoint presentation which was ultimately made Exhibit #38. He also indicated that Bishop had provided a business plan to him and that he had reviewed the business plan both with Bishop and with Adams. Paul indicated that the notes on the business plan, Exhibit #39, meant that Staedtler and the chemist had developed this ink and he believed that Korea was where the refillable cartridges were being produced. At one point he stated:

A. I believe what that means is the water-based inks—there’s also a reference to Staedtler up there, so we were told that Staedtler’s a German company and these guys were the ones who, in conjunction with Herb’s chemist, perfected this water-based ink.

473He indicated that he clearly did not understand that Staedtler had sold the ink to Suncastle and Suncastle had merely re-labelled it. He was also not aware that Staedtler had sold the same ink to a company in Vancouver and that, if he had known that, it would have affected whether or not he invested.

474Paul did not recall all of the details regarding souken coating, but understood that Suncastle owned that technology as well.

475Bishop told the Pauls’ that they could invest any amount they wanted in Majestic, but if they were going to invest in Suncastle it was a minimum of $100,000 to invest and that they would have to invest another minimum $100,000 in Majestic. It should be noted that the Pauls’ were clearly mislead in this regard by Bishop. Paul testified that he was not aware that Suncastle shares had been sold in smaller lots.

476It should also be noted that Paul’s evidence is important in its own right but it is also corroborative of much of the other evidence heard at this trial regarding misrepresentations made by Adams himself or made through Bishop.

477Paul indicated that he attended a Suncastle shareholder meeting and that only had six, seven or eight people present. He described it as a poorly run meeting, with no audits, no disclosure and with nothing being put up for discussion. Paul testified that Adams had an agenda and essentially everything passed.

478The Pauls’ believed that the real value was in Suncastle because Suncastle owned the technology. That is why they were more interested in the Suncastle investment. They understood that Suncastle owned the technology and Majestic had the first right of refusal regarding Suncastle’s products. They understood that Adams was at the helm of Suncastle and they believed that Adams was an advisor to Majestic.

479The Pauls’ invested $200,000. This is confirmed by Exhibits #40, #41, #42 and #45. They were presented with Exhibit #43 and #44, which would have converted the Suncastle shares to Majestic shares but he indicated they had no intention of signing either of those documents. Exhibit #41 is a copy of two separate cheques both dated October 27, 2006, and payable to Herbert Adams and to Majestic Supply Company respectively, in the amount of $100,000 each that were used to pay for this investment. The Pauls’ lost all of their money.

480Exhibit #46 is an accredited investor certificate which they initialled and signed, but Paul testified that they just initialled it where Bishop had told them to.

481In cross-examination Paul said that he did not recall Adams pressing him to sign the documents which are Exhibit # 43 and # 44.

482Paul testified that Bishop had sold them insurance as part of an investment portfolio sometime between 2004 and 2006. Paul testified that Bishop did not tell them that he had been sanctioned by the Ontario Securities Commission and had his licence suspended.

483Paul testified that his company was called Bindery Solutions Inc., and that he had been asked to do work for Majestic to develop a system to manage production and inventory of product. He had spent some time consulting and investigating with respect to this issue and then ultimately told Majestic that it was not feasible for them to have a custom system and that it was better for them to have what he described as a “canned” system which was something they could essentially buy off the shelf and which was most cost feasible for them.

484Paul indicated that while he was consulting with them on this process he noted that there were some ink cartridges and printers and rolls of paper in the warehouse portion, but did not see ongoing production of printing material. He understood that the company was in the business of supplying the printing industry but not doing the printing itself.

485Paul was then shown Exhibit 39 which is the Majestic Business Plan. He indicated that he was aware Staedtler was involved in the ink but that he understood that Staedtler, in conjunction with Suncastle’s chemist, had developed this ink and that that’s what he had been led to believe by Adams. He did not recall the exact words Adams used, but Adams had talked about his chemist who had this wonderful technology, that he was working on producing the ink and perfecting the technology. He indicated, however, that Adams never claimed that he personally had invented the ink. Paul understood that it was a joint effort between Noel Shahnazarian and Staedtler to produce this ink. He confirmed that Adams never said that they were making the ink on the site.

486Paul testified that Adams never claimed that they had invented the ink cartridge, but claimed that Suncastle was involved in the technology regarding the filling process. He indicated that his discussion with both Bishop and Adams was not just about the ink, but was also about the large-format printing business as a whole. He believed that the room with printers in it was for the testing of the ink. He indicated further that a heating system on the printers was discussed and he understood that was to cure the ink.

487In summary, Paul indicated that there had been a discussion regarding creating the ink with Staedtler. There had been a discussion of the cartridge being produced in Korea. There was a discussion the heaters on the printers. He also indicated that he understood that they were working on a system that was to run the printer without changing the cartridge and that that had been discussed with him by Adams. Paul indicated that Adams told him that there were technologies that they were involved in in the large format printing industry, but Paul understood that the production of the ink was the main product. He further understood that they were doing trial runs to see if they could perfect the product. He indicated that he did not recall the exact words, but the context was that souken ink was the driving value in the whole company. Souken ink was not perfected, but they were very close to it being ready for market. He believed that the ink required perfection. He conceded that he was not told that the company was only selling ink.

488Paul did not see the agreements that Suncastle had with Staedtler and did not know the involvement that Noel Shahnazarian had with Staedtler. He did not recall seeing anything from Staedtler, although he conceded it was possible. He was shown Exhibit #38 which is the PowerPoint presentation. He was clear that because of what they were told he was sold on the idea of the ink being revolutionary and that it was going to revolutionize the print industry.

489Paul testified that on the first tour given by Adams, Adams had talked about other things going on. They had different technologies that they were working on, but he felt that they were not related to the souken ink and he believed that all these products were essentially stand-alone products. He indicated that he did not understand that souken ink needed to be coated or had to be part of the continuous filling process. He further indicated that Adams, by implication, indicated that souken ink could be delivered outside the system. He indicated that Adams never indicated that the ink could only work as part of a system that included these three things.

490Paul testified that he understood souken ink had to do with large-format printers and that there was a distinction in large-format printing between water-based and solvent-based inks. He indicated he understood that the souken ink was a replacement ink for solvent-based inks. He indicated that it was possible that some modifications had to be made to a solvent-based printer in order to use the souken ink and it is possible that Adams spoke to him about these modifications. He indicated the focus of the discussion was that the company had a replacement for solvent-based inks with good environmental qualities and how the ink was to be delivered was not the major focus.

491Paul was questioned about his contact with Bishop. He indicated that Bishop had questioned him at the Ontario Securities Commission hearing on his own behalf and that any conversation he had with Bishop was about whether or not there was any chance or hope to recover any of the money that was put out. At one point Bishop asked him for money to pursue some legal grounds, but he did not give him any money for that. He indicated that the name John Lynch sounded familiar to him, but he did not recall ever meeting him.

(vii) Glenn Boles:

492Glenn Boles is a former purchasing agent who is now a coach with Softball Canada. He has no previous criminal record.

493Boles testified that Bishop was a friend of his and that Bishop approached him about investing in Majestic. Boles indicated that he has never met the accused, Adams, and that he dealt only with Bishop. He indicated that Bishop explained to him that he was aware of a company that had environmentally friendly ink, and that this was a new product that was water-based as opposed to solvent-based. The company also had a continuous application process that was also a new technology.

494Boles never attended at the Mainway location but he received documents from Majestic and understood that they were looking for an investment to get the product to market. He believed that a chemist with the company had invented the ink and that it was a revolutionary product. He understood that Suncastle owned the ink and that Majestic was the sales division.

495Boles further understood that the company was the only company that had the ink. Bishop gave Boles Exhibit #47, which is the same as Exhibit #3, which is the PowerPoint presentation from Majestic. Boles believed that this document was consistent with what he had been told by Bishop.

496Boles testified that if he had been told that they had not invented the ink, he would not have invested. He said that the whole point was that this was new in the North American market, in that it was a water-based product and, therefore, the industry would want it.

497Bishop also gave Boles a business plan. This is Exhibit #48. Boles believed that it was a good product with a big upside. He understood that Adams owned Suncastle and that Suncastle did all the research and development for the products.

498Boles testified that he made two separate share purchases. The first was by Exhibit #49, which is a loan agreement dated September 2^nd^, 2006 for $25,000. Exhibit #50 is the cheque that he wrote for that. The second purchase is detailed in Exhibits #51 and #52 for an additional $20,000 investment made in February, 2007.

499Exhibit #53 and #54 are two separate accredited investor forms. It was clear that Boles did not know what he was signing and that it was just a signature required as part and parcel of the investment. Boles testified that he signed where Bishop had directed him.

500Boles was clearly an investor in this company because he trusted Bishop.

501Boles testified that he had known Bishop for 25 years, and that if Bishop was sold on this idea then it sounded like a good investment to him. Boles was not aware that by February of 2007 Adams was no longer on the Board of Directors of Majestic.

(viii) Reginald Rudko:

502Reginald Rudko is a farmer. He has been educated as a steam engineer and chemical technologist.

503Rudko became interested in investing in Majestic through his financial advisor, Kevin Loman. Loman worked at Essen Capital. On April 8, 2007 Loman told Rudko that Majestic had a patent for a new ink which was environmentally friendly and which would be well received in the industry. There was potential for a very good return. Rudko understood that the ink was ready to go to market.

504Rudko therefore flew to Toronto with Mark Bilocerkowec. Rudko testified that Bishop met them at the airport and took them to the Majestic building in Burlington. At this location they met Adams and several other people who were working in the building.

505Rudko testified that he understood that Adams was the inventor of the ink. He indicated that it was Adams who told them that. Rudko indicated that both Adams and Bishop had taken them on a tour. People were seen refilling cartridges and running the printing presses.

506Rudko testified that Adams said the company had cleared $13.6 million the year before. Adams also told them that with the new ink and the cartridge for which Majestic also had a patent, that the company would be much more profitable the following year. Rudko testified that both Bishop and Adams had shown them an overhead with financial statements regarding sales totalling the $13.6 million profit.

507Rud