ONTARIO
SUPERIOR COURT OF JUSTICE
ESTATE OF PAUL PENNA
COURT FILE NO.: 05-CV-285029-PD3; Langston et al. v. Landen;
ESTATE COURT FILE NO.: 05-002/06; Estate of Paul Penna
DATE: 20121220
BETWEEN:
CHARLES LANGSTON, ERNIE SHERIFF, JAKMIN INVESTMENTS LTD., TZVI MOND, EVA CARR, SOAD CHARITABLE FOUNDATION, BIKUR CHOLIM JEWISH VOLUNTEER SERVICES, SHE’ARIM, YESODEI CHOLIM, ZAREINU, QUEENSWAY GENERAL HOSPITAL, TORONTO GENERAL HOSPITAL, THE TORONTO HUMANE SOCIETY, ALZHEIMER SOCIETY OF CANADA, CANADIAN FRIENDS OF BIRKAT MOSHE, CAPUCHIN OUTREACH FOR THE POOR, PARKDALE, THE PARKINSON FOUNDATION OF CANADA, THE SCOTT MISSION, THE ESTATE OF LORRAINE PENNA, THE ESTATE OF MIKEY DRUTZ and THE ESTATE OF MURRAY OSHEROFF, Plaintiffs – and – BARRY LANDEN, PAULINE LANDEN, and 1435031 ONTARIO LIMITED, Defendants
Matthew P. Sammon , Counsel for the Estate Trustee during Litigation, Ronald Rutman Sean Cumming , Counsel for Fred Tayar & Associates, Counsel to some of the charitable beneficiaries
Scott C. Hutchison , Counsel for Barry Landen Barry Landen, in person
HEARD: OCTOBER 10, 2012
ENDORSEMENT: greer j. :
[ 1 ] On February 17, 2012, the Defendant, Barry Landen, (“Landen”) a former Estate Trustee of the Estate of Paul Penna, was released from prison. He had been sentenced to 14 months in prison, by my Order of December 20, 2011, for Civil Contempt of Court. Under that Order, Landen was ordered to return to Court to explain where the millions of dollars missing from the Estate had been transferred to or used by him and his family. He was also to explain where the $500,000, taken by him on a Joint Line of Credit with his wife, Pauline, and registered against the home in her name, had disappeared or been used by him or her. Since all of the money for that home, had come from the Estate, the $500,000 used by them were Estate funds.
[ 2 ] On February 17, 2012, Landen was brought before the Court. Since I was out-of-the country on supernumerary time off, Landen was ordered to appear before me in early April 2012. He did appear with counsel, who asked for an adjournment of the hearing, to allow Landen more time to try to comply with my Order.
[ 3 ] Between April and early September 2012, I contacted counsel to set a convenient date for the next appearance. I was told that Landen had a kind relative who had hired an Accountant to review the LECG Forensic Accounting Report commissioned by Landen’s Co-Trustees when they discovered that the Estate worth $30,000,000 net of liabilities was now only worth about $500,000. Another accounting was not what I had in mind. I expected that Landen would prepare an Affidavit setting out how he had used the funds and what he had done with the various missing shares of Agnico Eagle and other companies.
[ 4 ] With respect to the Line of Credit with the Royal Bank, Landen conveniently found some banking data. He had failed to report the Line of Credit as an asset in the list he provided to the Court when the Mareva Injunction was issued on March 2, 2005. This data was examined by the Accountant, Nancy Rogers (“Rogers”) of NRogers & Associates Inc., who prepared the new Report. She gave evidence on the Motion.
[ 5 ] Rogers used the LECG Report and its 40 boxes of documents to review its findings to determine if there was evidence or clues to trace the missing monies and assets. The LECG Report is dated January 23, 2006 and is part of the Motion Record before me, which now includes the Rogers Report.
[ 6 ] The LECG’s Executive Summary lists its findings of wrongdoing by Landen. It sets out the $2,315,000 net withdrawals by Landen. He transferred $70,824 cash and securities from the Estate to his personal investment account. He improperly charged his personal expenses and that of his wife and children to the Estate for sports tickets, auto leases and insurance, in the amount of $282,656. He was to receive $100,000 legacy from the Estate, which he took after he transferred 7,000 Agnico Eagle shares to himself from the Estate. All of these transfers totalled $2,768,486.
[ 7 ] The LECG Report then goes on to outline “questionable” transactions, all of which total another $1,366,846 involving transfers to a numbered company 1435031 controlled by him, the transfer of 75,500 Sudbury shares and partial repayment of a loan owed by a creditor to the Estate.
[ 8 ] It also questions other credits/repayments probably owed to the Estate but which went directly or indirectly to Landen totalling $617,439. There is reference to securities held by the Estate and Jakmin that cannot be accounted for. These securities include Silver Century, Sudbury and Destorbelle shares. LECG could not trace what happened to these shares. What is known, however, is that Landen used Jakmin as if it were his own company.
[ 9 ] LECG could not reconcile $467,689 disbursements from the Estate account and where the money went and the whereabouts of 30,000 Kremko Inc. shares.
[ 10 ] LECG traced the sale of Agnico shares and other assets into the purchase of the Forest Hill Residence, which was transferred from Pauline Landen’s name, to the Estate Trustee During Litigation, to form the basis of the Estate holdings dealt with by the Trustee.
[ 11 ] Rogers, in her Report, outlines additional documents she found in the boxes, relating to Jakmin’s RBC accounts and Jakmin’s and the Estate’s Research Capital Corp. for periods mainly between 1996 and 2007.
[ 12 ] Rogers also, in dealing with Landen’s Line of Credit with RBC, had statements from August 16, 2002 to January 7, 2007 and a second account for sporadic dates in 2004. In her findings, Rogers confirms that the Estate assets less liabilities, were $23,496,047 plus dividends in Jakmin, valued at $7,711,598, plus Investment in Temple of $3,433,786 less capital gains taxes of ($4,641,442), for a total of $29,999,989.
[ 13 ] One of the difficulties both forensic reports say, was the missing CIBC statements and record for the period prior to July 15, 1999, a period when much of the fraud appears to have taken place.
[ 14 ] Rogers says that 105,000 shares of Agnico Eagle Gold Mines shares (“Agnico”) appear to have been disposed of in 1998 at a major loss of nearly $2,000,000. There also may have been a tax liability of $3,600,000, says Rogers, on the realization of shares but it is not clear to me whether that was part of the income tax which was paid.
[ 15 ] What is not said in the Rogers Report, is that even if these 2 scenarios could be proven, it was Landen who controlled all these transactions and the disposal of Agnico shares, while he was both an Estate Trustee and a Director and perhaps Officer of Agnico, without likely reporting any of this to the S.E.C. or to the Agnico Board. He should have accounted for or justified selling shares or exercising Options and selling them at such a huge loss.
[ 16 ] Both Reports show that there were other securities missing without a trace in Longshots Inc. and Temple Growth Fund. Landen has never explained this. In my view, there is a reasonable inference he treated these as his own shares, just as he did with all the Agnico shares.
[ 17 ] Rogers says that the Estate lost a large part of its value in the decline of the Agnico shares and Options. There is no back up to show this was the case. There is no way of fully knowing on what date and for what amount the shares were sold for or the Options exercised at given the lack of brokerage data from Landen. The Report says there was a loss in Jakmin so its value deteriorated also.
[ 18 ] Rogers gave evidence on the Motion to support and assist counsel and the Court about her conclusions. There were 16 different Schedules at the back of the Report, all mathematical charts, many relating to the operation of Jakmin, which, on its face appears to have been solely owned by Paul Penna, and, was solely operated by Landen after Penna’s death.
[ 19 ] Schedule 1 to the Rogers Report shows how some of the Agnico losses and exercise of options were done. Any Agnico shares owned by the Estate at death had a value of $23.30 per share. Given the number of years Landen controlled the Estate before his fraud was discovered, and given that some Agnico shares were also held in brokerage accounts, for which the records are missing or were destroyed, there are wide gaps in what actually took place.
[ 20 ] There were also marketable securities held in Jakmin, which Rogers points out, produced income, all of which Landen presumably took out of Jakmin.
[ 21 ] Rogers also did an analysis of the use by Landen and his wife of their Line of Credit with RBC. Landen had some bank records that assisted her. The Line of Credit appears to have started in 2003 and by September 2004, they had borrowed $500,000 against the Line. Some was used to pay an overdraft at the bank of about $105,000 and $103,000 was transferred into Landen’s own numbered company. It is Rogers’ view that the balance of those monies were used by the Landen family for their personal expenses.
[ 22 ] When Rogers was cross-examined on her finds, she admits that she only spent one-half hour interviewing Landen, who said some of the payments were for VISA bills. She says the Line of Credit remained open until January 17, 2007 but she did not ask whether Landen or his Wife continued to draw down on it after the Mareva Injunction was in place.
[ 23 ] While Rogers recognized that the Temple Growth Fund was a $3,400,000 investment, she did not question Landen on this and there is no information on what happened to it. This also applies to the Longshots investment.
[ 24 ] Rogers does point out that at one point Landen used $50,000 of the Estate’s money as a downpayment on a country or cottage property. The deal did not go through and Rogers says she did not see any details. She also located a Bank of Monte Carlo receipt for about $68,000 which, she says Landen told her was a repayment of the Harold Schultz loan. All of that disappeared as well and is not accounted for.
[ 25 ] Landen was examined on the two questions I left for him to answer. He said Jakmin owned 98% of Temple Growth and the only asset it had was shares of Mentor, which eventually became shares of Agnico (presumably on a take-over). He admits that in June 2004, he and his wife drew down $125,000 on their Line of Credit, and the money went into their joint account, and from there to the numbered company and later to the trading account with the CIBC.
[ 26 ] Landen could not answer who was drawing down on the Line in July 2005 after the Mareva Injunction was in place. When asked further questions about certain questionable transactions, Landen just said he could not recall.
[ 27 ] On cross-examination, Landen says he tried once to get some banking information but when his call was not returned, he did nothing further. He admits that the Line of Credit was listed neither in the Mareva Injunction nor in his later Affidavit up-dating his assets. He also had to agree that there was an account also not listed in the Mareva Injunction, to which he deposited $20,000 for his wife and it was not frozen.
[ 28 ] When Landen was cross-examined about the various shares which were missing from the Estate, he says he has no recollection of what happened to them. He also denied misappropriating other shares and says none of his family members received any.
[ 29 ] As for the Soad Foundation, operated by Paul Penna, it had over $2,000,000 in it, as a charitable foundation at Penna’s death. When questioned about this, Landen said it was “all disbursed to the poor”, without a scintilla of evidence to prove this.
[ 30 ] I asked Landen whether he had ever written to the charitable beneficiaries about defrauding them of their inheritances, he said he had not, but would be happy to. He also did not write a letter of apology to the Court in order to help purge his contempt.
[ 31 ] Landen’s counsel conceded that there was still a lot of imperfect information about the Estate but feels the Rogers Report goes some distance to help purge the contempt. He says the forensic reports have taken us as far as it goes. He said:
It is a painful story, like every shameful story, and it has come to an end. Therefore, he (Landen) should be discharged from the Order he is under and the book should be closed.
[ 32 ] Counsel for the Estate Trustee during Litigation asks whether Landen made reasonable attempts to comply with the Order. He says the integrity of the system of justice must be protected. As for the administration of the Estate is now concerned, the main beneficiary, Lorraine Penna (now her Estate) has been substantially compensated for her loss. The charities, of course, are the ones left to bear the brunt of the fraud.
[ 33 ] I agree with counsel for the Estate Trustee during Litigation that the law of diminishing returns is at work in a case such as this. I agree that there is little likelihood of locating any further eligible assets. I saw no remorse or regret by Landen in what he did. I found him to be untruthful in saying he did not know what happened to all the missing assets.
[ 34 ] Landen really did not purge his contempt. He left it to Rogers to try to do it for him. He filed no Affidavit, and no letter of apology. He showed absolutely no remorse in the witness box and had a selected memory of events he did not wish to discuss, such as all the missing shares and the operation of Jakmin.
[ 35 ] The question then is, “Would it serve the public’s interest to sentence him to a further 6 months in prison?” I have reluctantly concluded that it would not. He is living alone in a friend’s house and is said to be in receipt of social assistance. His life has become a narrow existence in comparison to the salad days of living in Forest Hill, attending the Leaf’s games, and driving luxury cars, all on other people’s money.
[ 36 ] I withdraw my Order that Landen Pass his Accounts in the Estate as it is an impossible task for him. The LECG and Rogers Reports are the best evidence there is.
[ 37 ] The matter has now come to an end. Landen is no longer beholden to the Court and the Contempt is no longer an issue. I am not ordering that he be returned to prison.
Greer J.
Released: December 20, 2012
COURT FILE NO.: 05-CV-285029-PD3; Langston et al. v. Landen;
ESTATE COURT FILE NO.: 05-002/06; Estate of Paul Penna
DATE: 20121220
ONTARIO SUPERIOR COURT OF JUSTICE ESTATE OF PAUL PENNA
BETWEEN:
CHARLES LANGSTON, ERNIE SHERIFF, JAKMIN INVESTMENTS LTD., TZVI MOND, EVA CARR, SOAD CHARITABLE FOUNDATION, BIKUR CHOLIM JEWISH VOLUNTEER SERVICES, SHE’ARIM, YESODEI CHOLIM, ZAREINU, QUEENSWAY GENERAL HOSPITAL, TORONTO GENERAL HOSPITAL, THE TORONTO HUMANE SOCIETY, ALZHEIMER SOCIETY OF CANADA, CANADIAN FRIENDS OF BIRKAT MOSHE, CAPUCHIN OUTREACH FOR THE POOR, PARKDALE, THE PARKINSON FOUNDATION OF CANADA, THE SCOTT MISSION, THE ESTATE OF LORRAINE PENNA, THE ESTATE OF MIKEY DRUTZ and THE ESTATE OF MURRAY OSHEROFF, Plaintiffs – and – BARRY LANDEN, PAULINE LANDEN, and 1435031 ONTARIO LIMITED, Defendants
ENDORSEMENT
Greer J.
Released: December 20, 2012