COURT FILE NO.: CV-11-9210-00CL

DATE: 20181012

ONTARIO SUPERIOR COURT OF JUSTICE

(COMMERCIAL LIST)

BETWEEN:

CAJA PARAGUAYA DE JUBILACIONES Y PENSIONES DEL PERSONAL DE ITAIPU BINACIONAL

Plaintiff

– and –

EDUARDO GARCIA OBREGON a.k.a. EDUARDO GARCIA a.k.a. EDDIE OBREGON, CLAUDIA PATRICIA GARCIA a.k.a. PATRICIA GARCIA a.k.a. CLAUDIA PATRICIA DE GARCIA a.k.a. CLAUDIA SANTISTEBAN, LIGIA PONCIANO, MANAGED (PORTFOLIO), CORP., GENESIS (LA), CORP. (ONTARIO CORPORATION NUMBER 1653094, GENESIS (LA), CORP. (Alberta CORPORATE ACCESS NUMBER 2013145921), FC INT, CORP., FIRST CANADIAN INT, CORP., UNION SECURITIES LIMITED, SCOTT COLWELL, MARTY HIBBS, HIBBS ENTERPRISES LTD., COLUMBUS CAPITAL CORPORATION, ANTONIO DUSCIO, LEANNE DUSCIO, LEANNE DUSCIO carrying on business as THE QUEEN ST. CONSERVATORY, CATAN CANADA INC., VIJAY PAUL, GREG BAKER, BRADLEY F. BREEN, LOU MARAJ, 2138003 ONTARIO INC., MACKIE RESEARCH CAPITAL CORPORATION, FIRST CANADIAN CAPITAL MARKETS LTD., FIRST CANADIAN CAPITAL CORP., FC FINANCIAL PRIVATE WEALTH GROUP INC., JASON C. MONACO, DANIEL BOASE, PAOLO ABATE, NIKOLAOS SYLIANOS TSIMIDiS, GENESIS LAND DEVELOPMENT CORPORATION, LIMITED PARTNERSHIP LAND POOL (2007), and GP LPLP 2007 INC.

Defendants

Jacqueline L. King, John De Vellis and Christopher Gaytan, for the Plaintiff

David Milosevic & Caroline Garrod, for the defendants Eduardo Garcia, Patricia Garcia, Managed (Portfolio), Corp., Genesis (LA), Corp. (Ontario Corporation Number 1653094), Genesis (LA), Corp. (Alberta Corporate Access Number 2013145921 ), FC Int, Corp., and First Canadian Int, Corp.

Christopher H. Freeman, for the defendant Union Securities Ltd.

Anthony Duscio, acting in person

Leanne Duscio, acting in person

AND BETWEEN:

EDUARDO GARCIA, FC INT, CORP., GENESIS (LA), CORP. (ONTARIO CORPORATION NUMBER 1653094), and PATRICIA GARCIA

• and -

UPPER CANADA EXPLORATIONS LIMITED, PARKSIDE RESOURCES CORPORATION, GLOBAL SPORT TECHNOLOGIES CORP., and CAJA PARAGUAYA DE JUBILACIONES Y PENSIONES DEL PERSONAL DE ITAIPU BINACIONAL

HEARD at Toronto: April 4, 5, 6, 9, 10, 11, 12, 13, 23, 24, 25, 26, 27 & 30, May 1, 14 and 15, 2018

Reasons for judgment

Corrected decision: The text of the original reasons for judgment released on October 12, 2018 was corrected on October 24 for clerical and typographical errors.

S.F. Dunphy J.

[1] This law suit raises the question of whether fraud committed with the knowledge of one or more insiders to whom the plaintiff paid kickbacks loses its character of fraud if the complicit insiders are highly-enough ranked in the victim’s organization or if the payer claims that he would not have succeeded in obtaining the business without agreeing to make the payments. In my view it does not.

Summary of Conclusions

[2] The plaintiff “Cajubi” is a Paraguayan pension fund with the misfortune to have had a president, vice president and treasurer who were prepared to help channel investment funds to parties willing to divert – secretly - large kickbacks out of Cajubi’s own funds to offshore accounts at their direction. The Garcia Defendants[^1] were quite willing to pay such kickbacks in a confidential manner and showed themselves remarkably adept at fraudulently presenting their proposals to secure approvals for their investment proposals from Cajubi’s Board. These three “Insiders”[^2] negotiated the amount of kickbacks, provided guidance to the Garcia Defendants on how best to structure their proposals to win the support of Cajubi’s Board and how best to ensure the true nature of their dealings remained a closely guarded secret in the hopes that future profits might erase their tracks.

[3] The Garcia Defendants proposed three separate “investment products” to Cajubi’s Board with the guidance of the Insiders. Each proposal purported to be advanced by one of three separate, regulated Canadian institutions: Genesis Land Development Corporation, First Canadian Capital Markets Ltd. and Union Securities Limited. Each was in fact made on behalf of a deceptively named shell company controlled by the individual Garcia Defendants.

[4] In each of the three cases, the fraudulent scheme orchestrated by Mr. Garcia followed broadly similar lines with only minor variations on the theme:

• Until “outed” in early September 2009, Mr. Garcia’s own involvement with each investment was carefully shielded from the view of all but the Insiders within Cajubi and communication with the Insiders was undertaken off-line using private email accounts.

• Entirely unregulated and unlicensed shell corporations were created by the individual Garcia defendants with names designed to mimic the relevant regulated or licensed Canadian institution (Genesis, First Canadian) or its products (Union).

• Investment proposals were prepared with input from the Insiders using the logos and names of the Canadian institutions targeted, but without referring to the Garcia Defendants by name. The proposals deliberately and fraudulently misrepresented the attributes of the proposed investment and presented each as being that of the regulated or licensed Canadian institution whose stability was heavily promoted (to the point of misrepresentation). No mention was made of the unlicensed and unregulated private shell company with a similar sounding name that appeared on the contracts swiftly forwarded to Cajubi personnel for processing after approval. The contracts carried logos and references to the “real” institution to further the assimilation of the shell company with the substantial one.

• Web domain names and multiple internet addresses were created to associate the shell company with the relevant existing Canadian institution still further. Routine communications with Cajubi personnel was carried on through several such email addresses to further the illusion of association with an established institution.

• Once approved by Cajubi’s Board, wire transfer instructions to fund the investment were given by the Garcia Defendants using the letterhead and logos of the regulated Canadian entity, but dividing the approved investment into two separate payments instead of one. The larger payment was directed to the actual Canadian institution with whom an investment was eventually made through the intermediary of the Garcia Defendants. The smaller payment was described as “in trust”, sometimes said to be needed to satisfy unnamed “regulatory requirements”.

• The smaller “in trust” payment (generally near 10% of the total investment) was simply retained by the Garcia Defendants and characterized by them as an “up-front fee”. The characterization of this payment as an up-front fee was carefully omitted from any documents that might be seen by Cajubi’s Board or personnel. It was never invoiced as such separately or quantified in any contract.

• The bulk of such up-front fees were used to fund the agreed “otra punta” kickback and was promptly directed to the Swiss bank account of a Panamanian nominee company at the direction of the Insiders. A portion was retained by the Garcia Defendants.

• One or more of the Garcia Defendants also received sales commissions from the Canadian institution with whom the investment was made, the amount of such commissions was similarly undisclosed (the possibility of such commissions was adverted to in one agreement).

• Thereafter, the Garcia Defendants controlled all communications to and from the Canadian institution to ensure that the scheme remained undetected. In aid of this aspect of the scheme, the Garcia Defendants caused the addresses of the Canadian institution within Cajubi’s records to be altered to postal boxes or other addresses controlled by them. Letterhead of the Canadian institution was obtained and forged letters sent to further the deception.

• An integral part of selling the investments to Cajubi’s Board were the assurances given – fraudulently – that gains were either assured[^3] or highly likely and that statements would report on the accrual of those gains every month instead of merely at the end. False statements showed the entire amount of both transfers as having been invested with the established Canadian entity - disguising the existence of the “up-front” fees – and investment returns that bore less and less relationship to reality with each passing month. These statements were designed to appear as genuine statements of the Canadian institution with whom Cajubi thought it was investing and with the intent that Cajubi would rely upon them and book “gains” that in reality did not exist. Finally, audit inquiries were intercepted and misleading or false replies supplied to justify the fictitious gains booked.

• The purpose of these statements – fully understood by the Garcia Defendants - was to justify accrual of gains by Cajubi while leaving Cajubi in the dark about the real performance of its investment. This goal required the Garcia Defendants to ensure strict control – by interception or deception – of all communications with the investee company or the auditors that might risk disclosing to Cajubi personnel or auditors the true status of Cajubi’s investment with the relevant Canadian institution.

[5] The main service the Garcia Defendants offered was their willingness to act as cut-outs permitting the siphoning of Cajubi’s funds to or to the direction of the Insiders. Everything flowed from this initial imperative. It was the Garcia Defendants’ entry ticket and they faithfully and diligently paid many millions in such payments to a designated Swiss bank account at the direction of the Insiders to ensure the flow of deals kept coming. The whole purpose of what Mr. Garcia characterized as these “structured investments” was to create a structure to disguise and enable these very high up-front payments to purchase investments that were otherwise freely available without paying any commission at all.

[6] Of course, the Garcia Defendants shared in the wealth, diverting millions in fees to themselves while receiving substantial commissions from the various Canadian investee companies on the side, none of which were disclosed to or approved by Cajubi.

[7] If there was ever a chance that hoped-for investment success might produce profits sufficient to cover up the fraud undertaken over time, the financial crisis removed that always unrealistic hope.

[8] As with many things, greed was the undoing of this scheme. When one of the investments was liquidated during the financial crisis, Mr. Garcia caused the funds to be reinvested in a hastily-created “safe” investment named Columbus Notes. The investment was a sham and was in fact diverted to a bankrupt and fraudulent colleague where all or substantially all of the proceeds were quickly dissipated in what can only be characterized as outright theft. Even Mr. Garcia appears to have been surprised when he later discovered the degree of theft that took place, his own part in the scheme having been richly rewarded at the outset with a large transfer from Cajubi’s funds to the bank account of a relative in Guatemala.

[9] The “investments” the Garcia Defendants caused the plaintiff to engage in through these schemes turned out to be catastrophically bad ones – a disastrous outcome aggravated by the financial crisis to be sure, but not caused by it.

[10] The Insiders along with the other directors of Cajubi were removed from office when the catastrophic losses from these schemes became apparent. They are all now in jail in Paraguay and new management of the plaintiff has brought this claim to attempt to recover Cajubi’s losses. Having failed to paint themselves as whistleblowers and victims of the cupidity of the Insiders, the Garcia Defendants must finally account to the victims of their schemes.

[11] The Garcia Defendants are responsible for the all of Cajubi’s losses arising from these transactions none of which would have been made but for their fraudulent misrepresentations[^4]. Funds obtained by the Garcia Defendants through fraudulent payment of kickbacks and through fraudulent misrepresentation of the nature of the investment are impressed with a constructive trust as are any benefits obtained from the use of such funds including secret commissions. Those of the Garcia Defendants who received funds subject to these constructive trusts and those who caused the corporate defendants to breach their fiduciary duties or make such fraudulent misrepresentations are liable on the theories of knowing receipt of trust funds or knowing assistance in a breach of trust. Cajubi is entitled to judgement against the Garcia Defendants for breach of fiduciary duty and fraudulent misrepresentation in the amount of $20,843,888 and an order requiring an accounting to permit the tracing of such of the funds received and their proceeds as may yet be traceable.

[12] The brazen fraud of the Garcia Defendants has caused significant losses to a pension plan and is well deserving of an exemplary award of punitive damages in its own right. However, the vicious scorched earth campaign that I find Mr. Garcia engaged in to damage or seek revenge from witnesses or professionals he deemed to be his enemies is deserving of a still greater sanction. Mr. Garcia will be ordered to pay $250,000 in punitive damages while Mrs. Garcia will be ordered to pay $100,000. The Garcia Defendants will also be responsible for Cajubi’s full indemnity costs in investigating and prosecuting this action.

[13] Among the original parties to this action, many have been released by the plaintiff after coming to out-of-court settlements or after further investigation of the facts clarified their role. Some of remaining party defendants have been noted in default and their precise liability must therefore be determined. I shall outline the amount and basis of liability of each of the remaining defendants below.

[14] Mr. Anthony Duscio, his wife Leanne Duscio and her company Catan Canada Inc. – the “Duscio Defendants” – stand in a class apart among the other defendants to this action. Their involvement (in the subject-matter of this proceeding at least) is limited to the “Columbus Notes” matter by which Cajubi was defrauded of almost $7.4 million. This was an utterly fraudulent investment scheme Mr. Duscio and Mr. Garcia hastily assembled to avoid sending back to Paraguay the proceeds of liquidation of the Union Securities investment. This scheme enabled Mr. Garcia to secrete more than $1 million of Cajubi’s funds out of Canada into the hands of a family member. Some or all of the remaining funds simply vanished in a variety of fraudulent transfers orchestrated by the Duscio Defendants without even a façade of propriety. While Mr. Garcia appears to have been taken by surprise by the extent of Mr. Duscio’s fraud, this does not affect the liability of either for the blatant and fraudulent misappropriation of the plaintiff’s funds.

[15] There remains but a single cross-claim, being that of Union against the Garcia Defendants. Union’s name was fraudulently used by the Garcia Defendants to inflict very significant damages upon Cajubi. It has had to spend significant funds in investigating this claim and in defending itself until the true degree of the deception practiced by the Garcia Defendants came to light. They are entitled to an award of damages to indemnify them for costs incurred on a full indemnity basis as claimed.

[16] The cross-claim and counterclaim of the Garcia Defendants is utterly without foundation and is dismissed.

Factual Background

(a) Cajubi

[17] The plaintiff “Caja Paraguaya De Jubiliaciones Y Pensiones Del Personel De Itaipu Binacional” (more commonly known by its abbreviated name “Cajubi”) is a pension fund established under Paraguayan law for employees of Itaipu Binacional, the operator of one of the world’s largest hydroelectric plants, spanning the border between Paraguay and Brazil.

(b) Mr. Garcia and Mrs. Garcia

[18] The defendants Mr. Eduardo Garcia and Mrs. Patricia Garcia came to Canada in 2002 as immigrants from Guatemala. Neither had any accreditation or background as financial advisors in Guatemala nor did either ever subsequently acquire such accreditation in Canada. Mrs. Garcia has admitted that the family came to Canada without substantial assets and was of only modest means before the events giving rise to this litigation. Neither has had any substantial income not derived from their dealings with the plaintiff since (until the time of trial), funding both their lifestyle and the prolongation of this litigation primarily from the proceeds of their fraud these past eight years.

(c) Evolution of relationship between Cajubi, Insiders and Mr. Garcia

[19] Upon arrival in Canada, Mr. Garcia initially found work in the Kitchener/Waterloo area as an insurance salesman. Soon afterwards, he met the defendant Anthony Duscio and began to work as a salesman for Mr. Duscio’s company, Universal Settlements Inc.

[20] USI was in the business of finding investors willing to purchase life insurance policies from their owners (policies assigned in this fashion being known as “viaticals”). Mr. Duscio described how USI offered international financial brokers the ability to “white label” such transactions by receiving significant commissions from USI on the side that were not visible to their clients purchasing such life insurance policies.

[21] Mr. Garcia first came into contact with Cajubi through his activities with USI in or about 2005. Mr. Garcia had developed a network of financial brokers in Latin America that he used to find potential investors in viaticals offered for sale by USI. One such agent/broker was an Argentinian by the name of Arturo Girardi. Mr. Girardi was the intermediary who introduced Mr. Garcia to Cajubi.

[22] Unfortunately for Cajubi, its initial investment in viaticals with USI in or about 2005 was a small but very successful one. The insured passed away earlier than expected resulting in a higher-than-anticipated return on investment when the policy was honoured. Encouraged by this, Cajubi went on to make a number of further and more material investments in policies sold by USI and later Keystone Settlements Inc. Keystone was in a similar business and was founded and/or associated with former agents or employees of USI including Mr. Duscio after these had a falling out with USI in 2006.

[23] While enjoying initial success, the bloom had started to come off the viaticals rose for Cajubi by early 2007. By this time, Mr. Duscio – a founder of USI – had left USI and was locked in some level of dispute with it. Mr. Garcia had also had a significant falling out with Mr. Girardi and darkly warned Mr. Escurra at Cajubi (the Insider with whom Mr. Garcia primarily communicated) of the potentially “catastrophic results” that loomed if Cajubi dealt further with Mr. Girardi.

[24] The warning came in an email written to Mr. Escurra (then treasurer of Cajubi) on February 14, 2007. In the email, Mr. Garcia authored a telling phrase regarding the nature of his relationship with Mr. Escurra at that time. Mr. Garcia noted that he had always been “as flexible as possible” in “making a few “special” exceptions when dealing with your investments and payment of commissions, in the most confidential manner possible, finding legal and reasonable solutions for each “special favor” that has been asked of me”.

[25] The issue of commissions – secret or otherwise – paid in relation to other investments not raised in this case is of course a collateral one. Mr. Garcia’s relationship with Mr. Escurra in relation to the investments at issue in this litigation dates from this time frame and was in fact characterized by “special favours” to ensure confidentiality including in the payment of very substantial commissions negotiated with Mr. Escurra. The “special favours” evident in this case served to shroud Mr. Garcia’s own involvement in the various investments and, more importantly, to shroud from Cajubi’s institutional view the existence of the kickback payments that Mr. Garcia negotiated with Mr. Escurra for each of the investments Cajubi made with his companies.

[26] The parties filed in evidence many volumes of emails exchanged by Mr. or Mrs. Garcia (mostly the former) with Cajubi – both the “Insiders” and others – from the beginning of their relationship with Cajubi until the commencement of this litigation. In this course of this body of communication a few clear trends emerge.

[27] First, there was a clear dichotomy between what the parties themselves sometimes described as “institutional” communications and private or off-line communications. The rare exceptions to this appear to be accidental slips that prove the rule.

[28] Institutional communications were “official” communications to or from Cajubi and could be viewed by auditors or Cajubi personnel. In the case of letters, each of these was formally given a sequence number if emanating from Cajubi and was filed officially. “Institutional” emails to or from Cajubi would use the official Cajubi domain and the form and content of these were almost invariably of a higher level of formality. On occasion, internal “institutional” Cajubi emails were copied to private email addresses as well, but a file copy always existed on Cajubi’s server. Official titles were used and a formal style largely devoid of familiarity was employed.

[29] On more than one occasion, Mr. Escurra provided direct instructions on whether to send document to “the personnel” or to himself. On one occasion, he indicated that he was fine “this time” with a communication directly with his staff (though signed by Mrs. Garcia using her maiden name only), but directed that future documents should be sent to him to keep tight control. Tight control was not by accident, it was by common design.

[30] Unofficial communications were quite different. These were almost always sent to or from the “off-line” private email addresses of the Insiders. The style of language employed was generally more informal than communications between the same individuals using the “institutional” channels. Indeed, sometimes the Mr. Garcia and Mr. Escurra would exchange emails only a few minutes or hours apart, one set being “institutional” and the other private. In the latter emails, nicknames or diminutives are employed and a less formal style is used. These private communications were not subject to oversight by auditors or being processed by Cajubi personnel and afforded a degree of confidentiality to the sender and recipient. They have come to light only because produced by Mr. Garcia or others who received them.

[31] It is in this body of confidential communications – by far the larger of the two types – that virtually all discussions of the true nature of the relationship between Mr. Garcia and the Insiders occurred. Mr. Escurra negotiated or fixed the amount of “up-front fees” and the level of the “other end” (“otra punta”) that was paid by Mr. Garcia to Rio Conde (the Panamanian nominee company to which the Insiders directed payments be made). The amount, nature and ultimate destination of these so-called “up-front fees” was never addressed in institutional communications and careful attention was paid to ensure that neither Mr. Garcia’s name nor that of Rio Conde was ever referred to in institutional communications. On occasion, the parties specifically addressed what needed to be excluded from “institutional” communications, suggesting, for example, that certain types of instructions not be sent via email unless as attachments (attachments being easily printed without revealing their source).

[32] Second, within the body of unofficial communications, the three Insiders were in a class apart. While most communication was bilateral, it was not at all uncommon for emails from Mr. Escurra to Mr. Garcia (as an example) to be copied to one or the other of the Insiders or vice versa. The existence of the “other end” was not a secret within this group and Mr. Garcia frequently reported to them about payments made to “you” when referencing these payments.

[33] While the precise interest of the Insiders in the “other end” payments made to Rio Conde by the Garcia Defendants cannot be determined with any degree of certainty, the fact that one or more of them had an interest in such payments and was known by Mr. & Mrs. Garcia to have such an interest is not in any doubt. Mr. Garcia negotiated the amount of such payments exclusively with the Insiders (Mr. Escurra for the most part), reported on the amount and timing of such payments to one or the other of the Insiders on almost every occasion and generally did so in terms that made it clear that the money was sent “to you”. These communications are revelatory of his state of knowledge as is his acknowledgement of his willingness to assist with “special favours” and ensuring “confidentiality” in the February 14, 2007 email quoted above.

[34] Third, a consistent effort was made to ensure that Mr. Garcia’s name was never associated with any of these investments or with the corporate Garcia Defendants. This began with the very first investment proposal made by Mr. Garcia (and presented by another) on April 11, 2007 and was continued for each successive investment. Indeed, judging from an email from Mr. Garcia to Mr. Escurra, Mr. Garcia’s apprehensions about discovery of this issue rose to near panic levels in a September 9, 2009 email to Mr. Escurra after Union wrote directly to Cajubi in late August 2009 and mentioned Mr. Garcia’s role by name.

[35] Institutional communications sent from the Garcia Defendants employed an often dizzying variety of email addresses, postal addresses, signature styles and titles. Mrs. Garcia’s “normal” signature used in Canada for banking or her driver’s licence is legible and uses her married name “Garcia”. In dealing with Cajubi, she deployed a variety of titles from the companies she was associated with (or falsely claimed to be associated with) and illegible signature styles without revealing her full name or else used her maiden name alone. On more than one occasion she signed documents with two different signatures in the same communication. Mr. Garcia seldom sent “institutional” communications but where he did so, he used his matronymic (mother’s last name) to the exclusion of his family name.

[36] The Garcia Defendants also used a variety of addresses – their home address in Kitchener, rented postal boxes and others – to maintain the illusion that Mr. Garcia was not involved with the corporate Garcia Defendants and that each of these were not related to each other. Stand-ins were hired to do presentations to Cajubi’s Board and ghost-written emails and letters were sent.

[37] While Cajubi’s witness at trial (Mr. Caceres) was unaware of any reason why Mr. Garcia felt a need to disguise his own involvement, the request to do so was clearly and explicitly made by Mr. Escurra.

[38] The motive behind that request is quite adequately explained by the circumstances outlined in Mr. Garcia’s February 14, 2007 email. Mr. Girardi and Mr. Garcia had experienced a falling out and the investments with USI viaticals that both had played a role in selling to Cajubi had become a source of controversy within Cajubi. Neither he nor the insiders had an interest in Cajubi’s Board or personnel connecting Mr. Garcia to any other investments, particularly where large secret commissions to the “otra punta” were on the line. Whatever the reason for the practice (and I do not accept any of Mr. or Mrs. Garcia’s explanations), there can be no doubt that such a practice was consciously employed on both sides until Union’s letter in August 2009 required an abrupt change of strategy.

[39] Finally, the corporate Garcia Defendants were established and all institutional correspondence with Cajubi in relation to them was conducted in such a fashion as to maintain the illusion that these were not associated with each other, but were instead associated with more substantial Canadian entities in whom (or with whom) Cajubi was being persuaded to invest.

[40] The motivation explaining the pains taken to disassociate the corporate defendants from each other but to associate them with other, more substantial Canadian entities is more easily deduced: fraud.

[41] This claim concerns three investments made by Cajubi following solicitations made by the Garcia Defendants: Genesis, First Canadian and Union Securities. It also concerns a fourth – the “Columbus Notes” – that was made from the proceeds of the liquidation of the third (Union Securities), but fraudulently portrayed as being part of the original Union Securities investment.

[42] The names and amounts of each are summarized below:

a. Genesis: $10.7 million invested – substantially all lost but damages limited to $1 million per settlement agreement;

b. First Canadian: $9 million invested just over $3 million recovered;

c. Union Securities: $14,499,000 invested including the sums transferred to purchase the “Columbus Notes” and less than $500,000 recovered; and

d. “Columbus Notes”: $7.38 million invested (out of the Union Securities investment) and nothing recovered.

(d) Genesis

(i) The “real” Genesis

[43] In order to place the investment made by Cajubi in “Limited Partnership Land Pool (2007)” (or “LPLP 2007”) in its proper context, it is necessary to understand the offering as it was originally assembled by its sponsor, Genesis Land Development Corporation.

[44] Genesis Land is a public company based in Calgary that is in the land development business. Genesis Land sponsored a number of limited partnership investment opportunities that were offered to the public by way of private placement. In 2007, Genesis Land began to promote their seventh such investment, LPLP 2007.

[45] Genesis Land marketed these limited partnerships using a substantially similar layered sales structure. The LPs paid commissions to brokers in the range of approximately 8%. These brokers were retained under agency agreements that contemplated a system of sub-brokers such that the overall commission would be divided between the selling broker and the broker who recruited the selling broker. As shall be seen, Mr. Garcia was one such sub-broker and he chafed under this system that saw a portion of “his” commissions paid to another broker.

[46] LPLP 2007 was formed on June 28, 2007 under the Partnership Act (Alberta). The general partner is GP LPLP 2007 Inc., a wholly-owned subsidiary of Genesis Land. The investment was offered by way of an offering memorandum dated June 30, 2007 with the initial closing scheduled for July 16, 2007. These dates all post-date Cajubi’s investment in LPLP 2007 through the Garcia Defendants by almost three months.

[47] On formation, LPLP 2007 owned no assets. It hoped to raise up to $100 million by way of an offering of 100 million LP units at a price of $1.00 each. If the capital raise had been successful (it was not), proceeds were intended to be used (i) to purchase two undeveloped properties on the outskirts of Calgary ($72.4 million); and (ii) to provide for the “soft costs” of administration and taking the properties through the initial stages of the development approval process ($5 million); and (iii) to provide a limited liquidity pool ($8.6 million). The remainder ($14 million) was intended to be used for selling commissions, marketing expenses and legal.

[48] The structure of this investment (a limited partnership) and its nature (acquisition of raw land for development) has certain characteristics that would be well-known and understood in the Canadian investment universe. Limited partnerships are “flow through” vehicles that permit the tax attributes (expenses, gains and losses) to be passed through to the partners for Canadian tax purposes. The underlying assets to be acquired by the LP (raw land) are also such that deductible tax losses can be expected to arise in the early years as expenses are incurred to move the project through the development process until the project has matured to the point of sale where it is hoped a gain may ultimately arise.

[49] Not only was this particular investment product tailored for a particular type of Canadian investor able to make use of its tax attributes, it was by its terms not permitted to be sold to non-residents. Any purchaser who became non-resident was deemed to have disposed of his or her units, a fact quite prominently noted in the Offering Memorandum. This was necessary for regulatory and tax reasons not relevant here.

[50] None of these considerable disadvantages to a foreign investor would prove an obstacle to the sales efforts of the Garcia Defendants when paired with a sufficiently dishonest sales strategy. Before turning to that aspect of the chronology, I shall follow LPLP 2007’s story to its conclusion.

[51] This particular offering of Genesis Land was not a successful one. The timing (at or near the top of the market in 2007) was infelicitous. For whatever reason, only about $43 million was raised instead of the targeted $100 million. As shall be seen, Cajubi’s investment of $9.7 million (not including $1 million in undisclosed up-front fees discussed below) was almost 25% of the total raised. The shortfall in the offering made it necessary for LPLP 2007 to resort to borrowing to cover the land acquisition costs and expenses not able to be covered by the proceeds of the offering. The expenses of borrowing significantly reduced the profitability of the venture.

[52] As of the present time (2018), LPLP 2007 has sold all of the land acquired and has repaid or is in the process of repaying the debt taken on to make up for the shortfall in the capital raise. The precise amount of return that Cajubi can expect to receive on its investment has not yet been determined, but is expected to be under $2 million – far less than the $9.7 million invested.

[53] The plaintiff has settled its claims against Genesis Land. A term of that settlement limits the claim that Cajubi may advance as against the Garcia Defendants arising from the Genesis investment. That limit ($1 million) is significantly below Cajubi’s losses on the most optimistic estimates of proceeds that Cajubi may eventually receive from the final liquidation of the LPLP 2007.

(ii) Genesis (LA) Corp. and failed pitch in 2006

[54] Mr. Garcia began working with Genesis Land in 2005 and sold some of the earlier Genesis Land LP’s under an agency agreement. Those sales are not the object of this action and I shall comment on them no further than to note how the techniques perfected then were put to use by Mr. Garcia and the Garcia Defendants in dealing with Cajubi.

[55] In 2005, Mr. and Mrs. Garcia incorporated Genesis (LA) Corp. in Ontario and both were the sole directors of the corporation (Mrs. Garcia as President, Mr. Garcia as Secretary).

[56] The public company Genesis Land was a listed company with millions in assets and subject to normal regulation by securities regulators. The private company Genesis LA was a shell company without capital, unknown to regulators and wholly-owned by Mr. and Mrs. Garcia who had few material assets at the time.

[57] The degree to which any of this was done with the informed consent and knowledge of Genesis Land is a matter of some dispute, but not one that is relevant to this case. There was certainly some communication with Genesis Land. Nevertheless, subsequent communications make it clear that Genesis Land never fully understood what Mr. Garcia and Genesis LA were doing. The plaintiff’s claims against Genesis Land being fully settled, I shall not delve any deeper into that issue either. Whatever Genesis Land’s state of knowledge, there can be no question that Genesis Land had little to no knowledge of the specifics of what representations the Garcia Defendants were making to Cajubi.

[58] In 2006, Mr. Garcia attempted to arrange a sale of units of Genesis Land’s LP#6 to Cajubi using Mr. Girardi as his intermediary. The first sales proposal was unsuccessful for reasons that are neither clear nor material. The materials presented, re-worked with coaching from Mr. Escurra, became the basis of the successful pitch made in respect of LPLP 2007 the following year.

(iii) Purchase of Genesis LPLP 2007

[59] Effective March 1, 2007, Genesis LA signed a Commission Sales Contract with LPLP 2007. The date this agreement was actually signed is not clear. It is in evidence attached to a July 31, 2007 email to Mr. Garcia from Genesis Land suggesting it was likely executed then but back-dated. The date of execution is not material – contemporary correspondence makes it clear that Mr. Garcia was in active discussions with Genesis Land about potentially shedding his “sub-broker” status in connection with selling LPLP 2007 in February 2007. However, on March 1, 2007, LPLP 2007 was not yet registered nor was the offering memorandum finalized at this early stage. Patricia Garcia signed the agreement as president of Genesis LA.

[60] Among other things, the Commission Sales Contract prohibited the use of any technical or promotional material other than that produced by LPLP 2007. Genesis LA was not constituted a plenary agent for LPLP 2007 and had no actual authority to make representations not specifically approved by LPLP 2007. Genesis LA was promised a commission rate of 7% rising to 8% on sales over $1.2 million. Furthermore, if the sales threshold was reached, Mr. Garcia was promised in an email that he would be treated as an “independent” agent (no longer sharing commission as a sub-broker).

[61] At about this time (late February/early March 2007), Mr. Garcia and Mr. Escurra began collaborating on preparing a presentation to the Cajubi Board for a possible investment in LPLP 2007. That presentation was ultimately finalized on April 10 and presented to Cajubi’s Board on April 11, 2007. During the course of these discussions, Mr. Garcia and Mr. Escurra negotiated the amount and timing of the “other end” commission payments to be made by Mr. Garcia as well as the amount that would be payable to Cajubi at the term of the investment. This was negotiated as a fixed payment.

[62] The “negotiations” as tracked through the exchange of emails have a certain level of unreality to them. The underlying “investment” under consideration was limited partnership units without assurance of liquidity in a real estate project with high hopes but uncertain prospects. What Mr. Garcia and Mr. Escurra in fact “negotiated” was how much a shell company would agree to pay to Cajubi after five or more years, having no source of payment beyond the limited partnership units themselves. The whole tenor of the correspondence was what representations regarding minimum return would be necessary to secure approval rather than what return was actually possible let alone probable or guaranteed.

[63] The presentation being prepared was designed to suggest that the target return was guaranteed in some fashion – this being the only conceivable reason why Cajubi would be asked to agree to Mr. Garcia’s company retaining all gains over the target return. Mr. Garcia’s company was of course never in any position to guarantee any level of returns, having no capital of its own.

[64] The record of negotiations preserved also clearly identifies the discussions undertaken about the level of up-front commissions that would be paid. Emails exchanged between Mr. Garcia and Mr. Escurra’s personal email address freely discussed the subject while none of the documents being prepared for Cajubi’s Board that they also exchanged made any mention of the topic. The main issue in their “negotiations” of the upfront fee was how large they could make it.

[65] Indeed, examining the entire record of “otra punta” discussions between them over the course of just over one year and multiple investments, the roles of the parties played were the opposite of what common sense would dictate for honest dealings. Instead of Mr. Escurra on behalf of Cajubi trying to reduce the up-front commission he was being asked to pay and Mr. Garcia on behalf of his own company trying to maximize them, the opposite occurred. Mr. Garcia would either offer a high number to entice Mr. Escurra or would be coaxed and cajoled into agreeing to a higher number by Mr. Escurra. The only person trying to lower the amount – on the rare occasion this occurred – was the one with a natural interest to increase it.

[66] By March 20, 2007, Mr. Garcia had taken steps to procure the incorporation of a second company also known as “Genesis (LA) Corp.”, but incorporated in Alberta instead of Ontario. I shall refer to the two entities as “Genesis LA (Ontario)” and “Genesis LA (Alberta)” respectively to avoid confusion. Genesis LA (Alberta) was actually registered on April 12, 2007 with the same head office address as the Genesis Land – a fact discovered by Genesis Land in March 2008 and resulting in a request that Mr. Garcia effect an immediate change. Both Mr. and Mrs. Garcia were equal shareholders in it on incorporation.

[67] Mr. Garcia was asked about the incorporation of Genesis LA (Alberta) at the trial. He claimed that he caused it to be incorporated at the request of the then-President of Cajubi, Mr. Bogado. However, he was unable to articulate any reason why this was requested beyond a preference that Genesis LA be in the same jurisdiction as the subject land.

[68] The actual reason for incorporating Genesis LA (Alberta) is not hard to understand. Genesis Land is headquartered in Calgary and the investment promoted by Mr. Garcia to Cajubi was described as an interest in land in fast-growing Alberta. An Alberta corporation enhanced the desired impression that the new “Genesis (LA) Corp.” was an affiliate of the stable, public and regulated Genesis Land instead of being a bare shell company owned by a sales person operating out of his kitchen in Kitchener, Ontario with only modest assets and no relevant experience. There can be no doubt that the maintenance of this illusion was the true intention, whatever explanation Mr. Garcia may have tendered.

Presentation to the Cajubi Board

[69] By April 10, 2007, Mr. Garcia had completed an updated PowerPoint presentation to attempt to sell LPLP 2007 to the Cajubi Board. He did so having received a number of comments and suggestions from Mr. Escurra. It was presented to Cajubi’s Board on April 11, 2007 by an employee of the finance group at Cajubi. The presentation made no mention of the subject of commissions generally or “up-front” commissions in particular. The “otra punta” or “other end” commissions negotiated between Mr. Escurra and Mr. Garcia in the prior days were not discussed. As with the presentation made the prior year in respect of Genesis Land LP#6, this presentation bore little to no relation to reality if measured against LPLP 2007 as a prospective investment:

a. The entire presentation purported to be a presentation from Genesis Land. The only corporate names used were “Genesis” and “Genesis Land Development”, but Genesis Land neither authorized the presentation nor ever saw it;

b. The presentation initially[^5] proposed a private placement in 57,000 shares of “the Genesis corporation” to be “invested in the Limited Partnership “LP” of Genesis Land Development” and indicated the “total value of the issue of shares by Genesis is approximately $150 million”, but Genesis Land was not proposing a private placement of shares of any kind and the proposed limited partnership offering was for only $100 million;

c. The presentation stated that “at the end of a stated period of 60 months (5 years) Genesis corporation must provide the investor with the option to sell the 57,000 shares at the price of $171.50” resulting in an “annualized return rate of 11.38%”. This entire statement was simply false. Nothing about LPLP 2007 and its proposal to acquire land to be moved towards development approval was consistent with a five-year time horizon or a “put” option of this sort. Genesis Land – the only specifically identified “Genesis” entity – never agreed to any such put agreement nor was it aware of the representation having been made. No single-purpose shell company incorporated by Mr. Garcia had the financial resources to make such a commitment either.

[70] Mr. Garcia did not make this presentation to the Board in person although he drafted it. Indeed, neither his name nor that of his newly-incorporated shell company Genesis LA (Alberta) appeared anywhere on the document. The presentation was made to the Board by a Cajubi finance employee, Mr. Almirall. There is no evidence that Mr. Almirall knew anything about the “otra punta” arrangements discussed between Mr. Garcia and Mr. Escurra.

[71] The cover letter for the presentation to Mr. Escurra produced by Mr. Garcia was on Genesis Land letterhead[^6] and referenced an “Investment Proposal”. The letter emphasized the strengths of Genesis. The cover letter represented that Cajubi would “receive a monthly abstract detailing the investment’s accumulated value, in accordance with the agreed rate of return” and summarized “the company’s most relevant strengths” including the number of projects over 17 years, the fact that it is regulated by the Securities Commission and “audited by KPMG and the Toronto Stock Exchange”, its excellent credit rating and the value of this land assets.

[72] Genesis Land neither authorized this cover letter nor had knowledge of its existence or contents. Genesis Land never made an investment proposal to Cajubi. The cover letter, appearing as it did to emanate from Genesis Land, conveyed the desired impression that the “investment proposal” in question was that of Genesis Land itself and not that of a similarly-named, but unrelated shell company.

[73] The draft of the cover letter introducing the presentation to Cajubi’s Board initially bore Mr. Garcia’s name as signatory. At Mr. Escurra’s request, Mr. Garcia removed his own name from the cover letter. I have noted earlier the likely reason for this request. It was certainly honoured by Mr. Garcia.

[74] This request to remove a reference to Mr. Garcia’s name was not a “one-off” matter. On April 20, 2007, Mr. Escurra asked where the executed contractual documents should be sent by Cajubi personnel, suggesting they be sent to “Claudia” (i.e. Mrs. Garcia). They were in fact sent to Mrs. Garcia using her maiden name, Claudia Santisteban. Thereafter, Mr. and Mrs. Garcia both carefully avoided using the “Garcia” name in any communications intended as “institutional” communications to Cajubi. As late as July 2009, Mr. Garcia asked Mr. Escurra what name he ought to sign to a letter dealing the Columbus Notes matter.

[75] The presentation offered the purchase of “units in land” as an alternative to purchasing shares subject to a put agreement. This option was discussed in emails between Mr. Garcia and Mr. Escurra after the Board meeting. The minutes describe this as an option to purchase “units in land” administered by “Genesis Limited Partnership # Land Pool” in lieu of shares. The economics of the second option were intended to be the same with an investment period of 60 months after which the company will be required to purchase all of the units producing an effective yield of 11.38%. Mr. Garcia made mention of this second option in emails of April 12 and April 13, 2007. The Board’s final investment approval was as follows:

… it is decided to invest the required amounts … in order to complete the amount of CAN$5,700,000 … in the purchase of Units of parcels of land, offered by the company Genesis Limited Partnership # Land Pool, located in Canada under the conditions specified in the above-mentioned offer.

[76] Genesis Land had no knowledge of any agreement to repurchase LPLP 2007 units after five years at a fixed price and was certainly not binding itself to do so. Mr. Garcia’s shell company had no capacity to do so.

[77] Mr. Garcia received a copy of the Board’s minutes approving this initial Genesis investment on April 13, 2007. Following Board approval, Mr. Garcia busied himself preparing and sending draft documentation to evidence the transaction. This took the form of an “Allocation Contract” prepared based on existing Genesis Land forms used by Mr. Garcia, including the prominent inclusion of a watermark bearing the corporate logo of Genesis Land.

[78] Mr. Escurra asked Mr. Garcia to send wire transfer instructions for the approved investment and asked that these come with a “Genesis logo”. He also requested that Mr. Garcia not send instructions in an email unless as an attachment because Mr. Escurra had to be able to give the instruction sheet to his technical team.

[79] Mrs. Garcia sent Cajubi the requested wire transfer instructions for this investment on April 13, 2007. These instructions, given on Genesis Land letterhead, instructed Cajubi to send two payments totalling $5.7 million, one in the amount of $5.3 million to Jeffrey Larson in trust at TD bank in Calgary, the other to “Genesis in Trust” in the amount of $400,000 to a branch of Royal Bank in Waterloo. Mrs. Garcia’s letter, also using Genesis Land letterhead, was signed using her maiden name (Claudia Santisteban) purportedly on behalf of “Genesis LP’s”.

[80] Mr. Garcia first raised the matter of wire transfer instructions with Mr. Escurra in an April 10, 2007 private email. He mentioned that two separate wires would be required in order to comply with “money laundering regulations” and to pay commission. The reference to the need to pay “commission” was carefully removed when the formal request for funds was sent to Cajubi three days later.

[81] Mrs. Garcia’s letter was sent without the knowledge or approval of Genesis Land. The letter referred to the wire transfer instructions needed to effect the “investment in your name”. These instructions were described as being in accordance with the policies of “the company” and in compliance with “current banking procedures” without mentioning the destination of one of the transfers as being to pay commissions. I find the omission of a reference to commission was intentional. The letter had the correct address for Genesis Land, but came with a return email address of “info@genesislandla.com”.

[82] Mrs. Garcia had no title with Genesis Land nor did she have permission to use its letterhead. Genesis Land – the only “company” referenced in the letter – had no policy requiring the division of the subscription price into two portions, still less a policy that $400,000 be sent to an account over which it had no knowledge or control. No bank had any such policy either. The Garcia Defendants knew that Cajubi could not purchase Genesis LP units (including LPLP 2007) in its own name and did not intend to arrange an “investment in your name” as stated in the letter. Instead, the units were intended to be (and were) registered in the name of Genesis LA (Ontario).

[83] This wire transfer instruction and letter were deliberately false and misleading. They were designed to reinforce the false idea that Cajubi was dealing directly with Genesis Land or its affiliates and not merely with a deceptively-named shell company. They were also designed to quell any misgivings over the instruction to send the purchase funds in two segments by attributing this instruction to some amorphous banking requirement while assuring that all payments were being held securely in trust (they were not). Finally, they were designed to shield from view the existence of a $400,000 fund intended to be used to fund kickbacks or secret commissions to Cajubi Insiders.

[84] Jeffrey Larson in Trust was indeed the appropriate account to send subscription funds for LPLP 2007 units had Cajubi had been investing in LPLP 2007 units with LPLP 2007. Mr. Larson was a lawyer employed by Genesis Land and working out of their offices. As for the $400,000 directed to “Genesis in Trust”, the account in question was simply an ordinary account of Genesis LA (Ontario).

[85] The request for two wire transfers to effect a single investment did raise concerns within Cajubi’s administration. Unfortunately, they focused on the larger “Jeffrey Larson in Trust” portion rather than the “Genesis in Trust” portion. On April 13, 2007, Mr. Escurra requested Mr. Garcia to obtain a letter “signed by the President and legal advisors” explaining the reason for the remittance to Jeffrey Larson in Trust. He directed that the letter “must specify that it is a normal procedure to regulate the issue of money laundering” noting that the letter “is our only way to protect ourselves on paper regarding the circuit of money in two directions for one single purpose”.

[86] In response to this request, Mr. Garcia sought and obtained a “To Whom it May Concern” letter from Genesis Land, signed by its Vice-Chair, explaining that a lawyer’s trust account “provides strong protection for the funds not to be taken and used without providing the investor what they paid for – participation as an LP Unit holder in a Genesis Limited Partnership investment”. The letter, skirting any reference to the “in trust” transfer of which Genesis Land was ignorant, was provided to Cajubi by Mr. Garcia with the intent of inducing Cajubi to proceed with the transaction and transfer the funds to him.

[87] I have described in some detail the variety of means large and small employed to convey to Cajubi the false impression that it was actually dealing with Genesis Land or one of its subsidiaries instead of with an unaffiliated shell company. I describe some more of these below. However, a clear distinction must be drawn between the impression such steps left with Cajubi on the one hand and the Insiders on the other. Mr. Escurra certainly knew of Mr. Garcia’s involvement. He also knew in broad terms at least of the role of the corporate Garcia Defendants, a role that Mr. Garcia specifically reminded him of in an October 15, 2007 email:

Remember that Cajubi did not invest directly but through a third party X who is the one who keeps the other end, otherwise the investment could be received without comm. [Emphasis added.]

[88] Both Mr. Garcia and the Insiders understood that the real purpose of what Mr. Garcia called a “structured investment” was to provide cover for payment of the “other end” – itself nothing more than a euphemism for a blatant kick-back.

[89] The target of these efforts at misleading and disguising was Cajubi itself – the auditors, Board members and Cajubi personnel who oversee Cajubi’s investments and the movement of its funds – rather than the Insiders. These were left with a picture that was quite at odds with the precarious reality of the peril Cajubi’s funds were being placed in. The degree of success achieved in creating confusion of Cajubi’s Board is evident in the minutes that initially emerged from the April 11, 2007 meeting as a private placement in shares of Genesis Land.

[90] The role of the Garcia Defendants was fundamentally to act as a blind enabling secret commissions or kickbacks to be paid at the direction of the Insiders without the knowledge or approval of Cajubi. The Garcia Defendants willingly fulfilled that role in this and the other investments raised in this case in return for the opportunities to generate returns for themselves, both disclosed and undisclosed.

Presentation to the Cajubi Board

[91] On April 18, 2007, Cajubi sent the two wire transfers pursuant to the instructions contained in Mrs. Garcia’s letter. The same day, Cajubi sent to “Genesis” the executed (by Cajubi) “Allocation Contract” identified as “AC-3000” in the form forwarded by Mr. Garcia. A few points about this AC:

(a) The contract was in form one between Cajubi and “Genesis, a division of Genesis (LA), Corp.”;

(b) The purpose of the contract is described as being “only for the purpose of allocating funds in specific Partnership(s)” and “Genesis desires to provide such agent services in accordance with Client’s instructions”.

(c) Clause I of the Allocation Contract appoints Genesis LA (Alberta) as “Agent for allocation of funds in Units of a Partnership described in Schedule A”.

(d) Clause II contains a lengthy description of the role of Genesis Land as General Manager and its motive for seeking equity capital to purchase land rather than debt, which “conservative fiscal policy opens the door for investment partners such as the limited partnership” along with a statement that “the General Manager and the Partnership will beneficially own the Property as tenants in common each as to an undivided interest” [emphasis added];

(e) Clause III provides that the Client will only receive “Gains at Expiration” being a function of the “Terms of Reference” and the “Current Annual Rates” specified in Schedule A with any amount in excess being Agent’s fees” [emphasis added];

(f) Clause VI of the Allocation Contract appoints Genesis LA (Alberta) as the client’s “true and lawful attorney and agent to act on Client’s behalf” and the client agreed to subscribe for a total of 5,428,571 units at the price stipulated in Schedule A and to tender the Allocation Amount of $5,700,000;

(g) Schedule A listed “Genesis Limited Partnership #LandPool (2007)” as the name of the subject partnership, Genesis GP 2007 Inc. as its general partner and Genesis Land as the General Manager and stipulated that “the intent of the partnership is to utilize equity capital only” to acquire certain properties while the General Partner, a wholly-owned subsidiary of Genesis Land “will then take the properties through the development servicing stage of the Value Added Process, utilizing its own financing sources”;

(h) Schedule A also contains “Terms of Reference and Unit Prices”, listing a “Term of Reference” of 5 years, a Unit Price of $1.05 and an Annual Rate of 14.30%; and

(i) The signature page includes a place for a “witness signature” and a “Representative’s representation”. Both lines were signed by Mr. Antonio Almirall (the officer of Cajubi who delivered Mr. Garcia’s presentation to the Board of Cajubi), the signature by the “Representative” acknowledging having advised the client under the “conditions of the Representative Contract”.

[92] Among the points where the Allocation Contract diverged materially from reality:

(a) Genesis Land had nothing to do with the Allocation Contract and never saw it – the use of its logo on the contract was without authority;

(b) There was never a partnership known as “Limited Partnership Land Pool # (2007)” as specified in the Allocation Contract – the correct name of the partnership is “Limited Partnership Land Pool 2007” and it was not even registered as a partnership until almost three months later (June 28, 2007);

(c) Genesis Land had not yet even obtained its own Board approval to launch LPLP 2007 at this time, a fact made known to Mr. Garcia by Genesis Land on April 14, 2007 at least;

(d) While the AC contained the agreement to “subscribe” for units at a price of $1.05, Mr. Garcia had agreed with Genesis Land that the units would be subscribed for at a price of $0.98 per unit on April 14, 2007 (eventually reduced to $0.9763 for reasons not material) – at no time did Cajubi or anyone ever “subscribe” for units at $1.05;

(e) The representations in Clause II regarding the “conservative fiscal policy” of Genesis Land were pure fiction – the Offering Memorandum (once drafted) made it clear that borrowed funds would be required to purchase the land if insufficient capital was raised (as occurred in fact); and

(f) There was no “Representative Agreement” in existence and Mr. Almirall was never party to any such agreement.

[93] Conspicuously absent from the Allocation Contract was any indication that:

(a) Non-residents such as Cajubi would not be able to become owner of LPLP 2007 limited partnership units;

(b) LPLP 2007 did not then own any land at all, had not yet been legally formed nor had it raised any of the capital necessary to buy any land; or

(c) The Garcia Defendants' intention from the outset was to cause Genesis LA (Ontario) to subscribe for units at $0.98 per unit using Cajubi’s funds rather than the price of $1.05 stipulated in the AC and Genesis LA (Ontario) intended to retain the difference in price for its own account without ever disclosing this state of affairs to Cajubi in the AC or otherwise;

[94] The latter point was rather frankly admitted by Mr. Garcia in an email he sent to his own lawyer (that he voluntarily produced) dated April 15, 2007 where he described the “Genesis” transaction in the following terms, providing her with a draft Allocation Contract AC-3000 to review:

I attach sample of “allocation contract + schedule” I’d use to close the deal (hopefully) with the Paraguay fund, with Genesis (LA) Corp. – the new Albertan corp. -, as an agent, I’d buy from Genesis Land Development Corp. each unit @ $1 and sell it to the Paraguay fund @$1.05, keeping the difference up-front as agent’s fee. Also, at “maturity”, I’d keep the upside (if there’s any) over the target return expected by the investor (14.3%).

[95] Mr. Garcia had no difficulty in succinctly and accurately summarizing the true nature of the “Allocation Contract” that he was proposing to have signed by Cajubi. No such summary was contained in the presentation he drafted. Had Cajubi understood the facts as recited by Mr. Garcia to his own lawyer instead of being deliberately led by him to the opposite conclusion – that it was dealing with Genesis Land and its subsidiaries – the investment would never have been proceeded with.

[96] Mrs. Garcia sent a “welcome” letter to Cajubi on April 20, 2007, after receipt of the wire transfers, once again on Genesis Land letterhead. She did so without the knowledge or approval of Genesis Land. This letter enclosed certain documents for Cajubi’s records including a “Certificate of Confirmation of Allocation” and a fully-executed copy of Allocation Contract AC-3000.

[97] As with the cover letter, the “Certificate of Confirmation of Allocation” conveyed the impression under an official-looking share certificate – but not the reality – that Cajubi had actually completed the purchase of units of an entity owning land as the Board had approved in the amount of $5.7 million from “Genesis” and that Genesis Land was involved in the transaction. The Certificate bore the corporate logo of Genesis Land, official looking seals and the entirely false statement that $5,700,000 received from Cajubi “have been committed to Genesis Limited Partnership# Land Pool (2007)”. It was signed by Mrs. Garcia using an only partially legible signature itself deliberately different from the other signatures used by her in correspondence with Cajubi.

[98] Mrs. Garcia had no convincing explanation as to why she used two completely different names and signatures in the same letter when communicating with Cajubi. She signed the “Certificate of Confirmation of Allocation” with one (illegible) signature while using her maiden name and an entirely different signature on the cover letter. I have no difficulty in concluding that the true explanation is the obvious one. Mr. Garcia had been instructed to remove his own name from package of materials being sent to the Board regarding this investment on April 9, 2007. Mrs. Garcia used her maiden name to sign and send letters and emails and used a different name and signature for the Certificate with the intention of disguising her links to Mr. Garcia who in turn was linked to the increasingly controversial USI investment. The use of letterhead and logos as well as different signatures also enhanced the desired impression that Genesis LA (Alberta) was actually part of an established company with numerous employees (Genesis Land) and not merely a shell company owned by Mr. and Mrs. Garcia without any substance.

[99] The letter and certificate were false and misleading in material respects. Genesis Land had yet to commit to proceed with LPLP 2007 still less to arrange for its registration. The full $5.7 million would never be committed to buy those units because $400,000 was intended to be and was diverted to other purposes (kickbacks and secret commissions) many weeks prior to closing of the purchase of LPLP 2007 units at a price of $0.98 (instead of the $1.05 price indicated on the face of the Certificate).

Subsequent communications

[100] On June 19, 2007, Mr. Escurra (from his private email) asked Mr. Garcia to send “copies of the statutes of the Genesis LP in which we have invested”. The reply came on June 28, 2007 in the form of a letter from Mrs. Garcia writing once again under the name of “Claudia Santisteban”, once again on Genesis Land letterhead and once again “on behalf of Genesis LPs” in an “institutional” format allowing Mr. Escurra to share the document with his staff.

[101] The text of the letter indicated:

Pursuant to the established procedure, attached please find official documentation, duly stamped by the corporation, on the properties authorized by the Board of Directors, which include the abovementioned issuance of which your honourable institution is a holder of units as per the conditions of AC-3000 (emphasis added).

[102] This letter too was false and misleading:

(a) Genesis Land did not authorize or know of the letter and neither Claudia Santisteban (Mrs. Garcia) nor Genesis LA had authority to sign for it;

(b) the name of LPLP 2007 (registered that day, as it turns out) was incorrectly rendered (again);

(c) on June 28, 2007, Cajubi was not the holder of any units or interest in land as per the terms of AC-3000 or otherwise and would not be until this litigation was commenced; and

(d) LPLP 2007did not then own either described property nor did it have the funds to purchase them[^7], the just-launched (and ultimately unsuccessful) offering being intended, among other things, to raise the $51 million purchase price needed.

[103] Officials of Cajubi reviewed the material sent. On July 3, 2007, Mr. Cristaldo of the Investment Division wrote a reply to “Claudia Santisteban” noting that the executed version of the Allocation Contract AC-3000 provided for an annual rate of 14.30% over a five year term whereas “I have not been able to find these same details in the Limited Partnership master agreement” and asked her to “forward to us a registry of signatures of your institution where we can identify the signatories with their respective positions”.

[104] Had this letter been honestly answered, the scheme would have been brought to a halt then and there before the first Genesis transaction was closed. It was not.

[105] Mrs. Garcia responded to this email request on July 9, 2007 with a telling and, in my view, deliberate degree of obfuscation:

The interest rate and other information regarding your investment are not included in the general deed of the LP (master) given that this is not its purpose. The specific conditions applicable to a client’s investment … are established in the allocation contract and in the certificate of confirmation of the allocation. All our signatures belong to persons who have been authorized by corporate and legal for all respective purposes.

[106] Mrs. Garcia continued to send update communications to Cajubi from time to time, each time following the same format. She used the Genesis Land letterhead and signed using a different signature than the one used on the “Certificate of Allocation” under the name “Claudia Santisteban”. The title she attributed to herself in signing evolved over the course of subsequent letters. On October 11, 2007, for example, she sent another “welcome” letter in relation to AC-3078 signing as “Administrator – Latin America for Genesis (LA) Corp. On Behalf of Genesis LPs”.

[107] In this fashion, she sent substantially identical “welcome” letters after each of the two subsequent Genesis investments made by Cajubi (AC-3078 and AC-3079) as well as copies of various public filings by Genesis Land as these were made (quarterly financial statements and similar), always using Genesis Land letterhead.

Subsequent Genesis investments

[108] LPLP 2007 was ultimately registered and the Offering Memorandum for the sale of LP units finalized on June 30, 2007. Although the Allocation Contract was – on paper – with Genesis LA (Alberta), the LP units ultimately subscribed for using the $5.3 million sent by Cajubi to Jeffrey Larson in Trust were issued to Genesis LA. (Ontario) on July 12, 2007. Cajubi did not receive the Certificate or a copy of it.

[109] Cajubi made two further Genesis investments under documents substantially identical to the ones governing the first:

Date

Contract

Allocation Amount

Sent to Genesis Land solicitor account

Sent to "Genesis in Trust" (alleged "up front fee")

19-Apr-07

AC-3000

$5,700,000

$5,300,000

$400,000

09-Oct-07

AC-3078

$1,500,000

$1,300,000

$200,000

06-Nov-07

AC-3079

$3,500,000

$3,100,000

$400,000

Total

$10,700,000

$9,700,000

$1,000,000

[110] The financial terms of the latter two “Allocation Contracts” differed somewhat from the original. In AC-3078 and AC-3079, the “Term of Reference” was 6 years with an annual rate of 15.25% and a Unit Price of $1.1238 (marked up from the actual price paid of $1.00).

[111] In all three cases, Cajubi was directed to remit the amount of the investment via two separate wires, one going to an LPLP 2007 trust account and the other going to “Genesis in Trust” (in reality an account of Genesis LA (Ontario)). In all three cases, Mrs. Garcia sent a similar “welcome” letter on Genesis Land letterhead following the template of the April 20, 2007 letter sent by her and signed in a similar fashion allegedly on behalf of Genesis LPs. Cajubi never received any of the certificates actually issued by LPLP 2007 in respect of any of these investments until after this litigation began nor was it aware before then of the price at which such units were actually issued or to whom they were issued.

[112] Mr. Garcia or Genesis LA (Ontario) received commissions directly from Genesis Land in respect of these three investments in addition to the up-front fees retained:

a. AC-3000: $436,712.70

b. AC-3078: $196,522.03

c. AC-3079: __$459,651.36

Total: $1,092,886.09

[113] Correspondence between Mr. Escurra and Mr. Garcia preceding the second two investments contains indications that Mr. Garcia suggested that the LPLP 2007 offering was actually going very well and that there was time pressure on Cajubi to act before the opportunity was lost. For example, on September 24, 2007, Mr. Garcia wrote to Mr. Escurra that his written expression of interest would be needed soon because “money keeps coming into Calgary every day”. In point of fact, the LPLP 2007 offering failed to raise even enough money to purchase the land without borrowing at very high rates of interest.

Representative Contract – Rio Conde, Mr. Timcke and the “other end”

[114] Over the course of the three Genesis investments, a total of $1 million was wired by Cajubi to “Genesis in Trust” on the instructions of Mr. & Mrs. Garcia, such account being an ordinary, non-trust account belonging to Genesis LA (Ontario) a company with which Cajubi had no conscious dealings of any kind. Of this $1 million, $931,942 was subsequently wired to a bank account at the Swiss Bank, Clariden Leu, in the name of a fictitious entity named “Lemontree” at the direction of a Panamanian company controlled by a Panamanian nominee company named Rio Conde S.A.

[115] The Garcia Defendants took the position that this amount was paid to Rio Conde by agreement of Cajubi to pay “up front” commissions to an entity Mr. Garcia invariably described as “Cajubi’s broker”.

[116] According to Mr. Garcia, Rio Conde is a company controlled by a prominent Paraguayan securities broker named Mr. Ronald Timcke. There is no evidence of the actual ownership of Rio Conde. What is in evidence is that Rio Conde is a Panamanian company incorporated by a Panamanian law firm and that acts through nominee directors who are employees of that firm. There are a number of emails in evidence by which Mr. Timcke either instructed such nominee directors to execute documents required by Mr. Garcia or to confirm wire transfer instructions for commissions Mr. Garcia arranged to pay. The beneficial owner(s) of Rio Conde and the extent of their interests remain unknown.

[117] In support of this contention that Cajubi had approved the engagement of Rio Conde, Mr. Garcia pointed to the existence in each of the three ACs (as drafted by him) of a signature line reserved for the “Representative”. The “Representative” in turn made representations regarding Cajubi’s signature and the fitness of the investment by reference to a “Representative’s Contract” that is undefined. Mr. Garcia submitted that these references in the AC demonstrate Cajubi’s knowledge and approval of the Representative Contract and the role of the Representative.

[118] In my view, this suggestion holds no water.

[119] First, the Representative Contract had not even come into existence when the AC was being executed. Mr. Garcia had merely sent a draft of it to Mr. Escurra asking him to fill in the name of the Representative himself and the other salient details.

[120] Second, while the ACs did indeed have a signature line calling for the “Representative” to sign and certify various matters in relation to the “Client” (a vestige of the Genesis Land form from which Mr. Garcia worked), the certification was actually signed by employees of Cajubi having no known connection to Rio Conde or Mr. Timcke. This was not a simple error. It was repeated on all three ACs and arose from specific instructions given by Mrs. Garcia (using her maiden name) to have non-Board members sign on that line[^8].

[121] Third, there is simply no credible evidence that Rio Conde or Mr. Timcke played any role in “introducing” Cajubi to Genesis LA or Genesis Land or in performing any of the limited roles referenced in the Representative Contract. Mr. Garcia dealt directly with Mr. Escurra throughout in formulating the proposal for Cajubi’s Board and did not even receive the name of the “Representative” to whom the “other end” would be paid until informed of it by Mr. Escurra after Board approval.

[122] In the case of the latter two Genesis investments (AC 3078 and AC 3079), no new Representative Contract was entered into. Although the Representative Contract granted Rio Conde a 6.7% commission, Mr. Garcia actually offered a higher rate (11%) for the “other end” in proposing the second and third Genesis investments to Mr. Escurra. This was clearly an instance of Mr. Garcia using his willingness to pay more money to the “other end” as a carrot to induce the Insiders to steer more of Cajubi’s investment dollars his way.

[123] Finally, Mr. Garcia took pains to ensure that no mention of Rio Conde nor any copy of the Representative Contract was ever provided institutionally to Cajubi. All amounts paid to the “Representative” were negotiated solely between Mr. Garcia and Mr. Escurra, referred to in their emails variously as “the other end” or “commission”. Their discussions often made mention of “the one” or “the friend” as being the person who would receive the “other end”. This was a reference to Mr. Bogado, the President of Cajubi at the time and Mr. Escurra’s superior.

[124] Mr. Garcia almost always notified one or more of the Insiders each time commission was remitted to Rio Conde, and often in terms that described to the payment as being to “you”. There is no evidence of Rio Conde or Mr. Timcke playing any role in the negotiation or formulation of the underlying investment agreements themselves. Mr. Timcke’s sole involvement in the correspondence consists in (i) instructing Mr. Garcia as to where to send the funds; (ii) verifying the funds had been sent and received by the Swiss bank account he designated; and (iii) requesting that Mr. Garcia take special care to ensure no mention of Rio Conde as intermediary appear in any documents sent to the client. This latter request was responded to by Mr. Garcia who assured him that “Rio Conde does not appear on any document received by the investor”.

[125] The very existence of Rio Conde and the amount of payments being made to it was a matter that Mr. Garcia ensured was carefully withheld from Cajubi institutionally. Such matters remained matter for discussion with the Insiders alone in circumstances designed to ensure maintenance of that veil of secrecy.

[126] While Mr. Garcia consistently referred to Rio Conde as “Cajubi’s broker” the form of “Representative Contract” was to an entirely different effect. By that agreement, Rio Conde agreed to act as representative of Genesis LA (Alberta), not Cajubi. As “representative”, Rio Conde was authorized to collect the “Allocation Amounts” from clients and was be entitled to be paid commission by Genesis LA (Alberta). There is no evidence that anyone identified with Rio Conde ever performed any services at all in relation to the matters contemplated by the Representative Contract nor is there any evidence to substantiate Mr. Garcia’s claim that Rio Conde was “Cajubi’s broker”, a claim that the contract he himself prepared quite explicitly contradicts.

[127] The payments made to Rio Conde’s Swiss bank account by Genesis LA (Ontario) were as follows:

a. AC-3000: $381,942

b. AC-3078: $165,000

c. AC-3079: $385,000

Total: $931,942

Retroactive replacement of “Allocation Contracts” with “Promissory Note & Allocation Contract”

[128] Mr. Garcia had given little to no thought to the tax consequences of the structure he had used when the three Genesis investments made by Cajubi were being solicited by him. As the registered owner of the LPLP 2007 Units that were being issued, Genesis LA (Ontario) was able to take advantage of the tax losses generated in filing its taxes in Ontario while Genesis LA (Alberta) – the party with whom Cajubi had the Allocation Contracts – had only been nominally organized.

[129] At some point in mid-2008, the penny dropped that the structure employed with Cajubi might present problems should Genesis LA (Alberta) actually be called upon to pay the promised 14.3% return in five years or should Genesis LA (Ontario) actually receive distributions from LPLP 2007 on which tax might be payable. Mr. Garcia attributes the realization to being advised of unspecified “changes” to Canadian withholding tax rules. The reason why he decided to revise the agreements retroactively is less relevant than the fact it was done and what was done.

[130] At least four things were done via undoubtedly back-dated documents to remedy this problem:

(a) The original ACs were replaced in Cajubi’s files with a subtly different and back-dated “Promissory Note & Allocation Contract”;

(b) At Mr. Garcia’s suggestion and to avoid withholding tax that they were told might be applied, Cajubi sent official letters to Genesis LA referencing each PNAC confirming “we are not entering into subscription or private placement agreement for any sort of shares, but instead we are acting as an arm’s length non-resident of Canada lender”;

(c) An “acknowledgement of trust” back-dated to April 16, 2007 was created whereby Genesis LA (Ontario) acknowledged that it held the units in question on behalf of Genesis LA (Alberta); and

(d) A back-dated re-issue of the April 20, 2007 “welcome” letter from Mrs. Garcia on Genesis Land letterhead was prepared for the PNAC.

[131] Emails exchanged between Mr. Garcia and the Insiders from June through to September 2008 date these events to that time frame. Greater precision is not material.

[132] The new version of the “welcome” letter added reference to the “acknowledgement of trust” dated April 16, 2007 and changed Mrs. Garcia’s signature line to read “Claudia Santisteban, Genesis (LA), Corp., An agent & non-subsidiary of GP” [emphasis added].

[133] There is no evidence that Cajubi ever received the back-dated and re-issued version of this “welcome” letter, but Mrs. Garcia’s attention to the signature line confirms her understanding of the misrepresentation contained in the original.

[134] The first two documents were officially signed by Cajubi and replaced the originals in Cajubi’s files. The original ACs are no longer found in Cajubi’s official files, having been replaced with PNACs. The latter two documents may not have ever been communicated to Cajubi.

[135] As it turns out, Mr. Garcia needn’t have troubled himself. The LPLP 2007 partnership never returned a profit of any kind to its partners and Genesis LA (Alberta) never in fact made any payments to Cajubi. What distributions Cajubi has or will receive from this investment have arisen since the units were all transferred to Cajubi during the course of this litigation.

[136] Each of the PNACs is almost identically worded to the AC, it replaced save the preamble that now reads:

Genesis…is a corporation principally engaged in borrowing funds and acting as an agent for arm’s length third parties in connection with the allocation of funds in certain Partnerships.

Client has agreed to accept this promissory note …and desires to retain Genesis services for the purpose of allocating funds in specific Partnerships on its behalf…

Genesis hereby acknowledges itself indebted to the Client and also desires to provide such agent services in accordance with Client’s instructions;

The parties agree that the sole relationship between them arising under this Contract is principally one of debtor-creditor and secondarily client-agency [emphasis added].

[137] Clause I contains the same appointment of Genesis LA (Alberta) as “Agent for allocation of funds in Units of a Partnership described in Schedule A”, but adds a further obligation that the Agent “and shall pledge [the Units] to Client to secure this promissory note”. There is no evidence that such a pledge ever actually occurred.

Monthly Statements

[138] Mr. Escurra had advised Mr. Garcia in April 2007 that perhaps the most important requirement of the investment proposal was the agreement to provide monthly statements showing the accrual of the value of the investment. In recognition of this request, the cover letter (prepared on Genesis Land letterhead) by Mr. Garcia to make the Genesis presentation to Cajubi’s Board noted that “the fund will receive a monthly abstract detailing the investment’s accumulated value, in accordance with the agreed rate of return”.

[139] Mr. Garcia well understood that the key to securing the support of Cajubi’s Board for the proposed investment was to deliver the appearance of secure but high returns. The purpose of the monthly statement was to justify Cajubi booking as actual gains the “agreed rate of return”. The deception practiced was designed to attract Cajubi’s funds with the false appearance of secure, high rates of return in order to skim from the resulting investment the desired amount for kickbacks and secret commissions.

[140] Genesis LA (Alberta) accordingly produced monthly statements that displayed the amounts accrued amount under the relevant AC. The statements each prominently featured the Genesis Land logo, but bore the signature of Genesis LA (Alberta) with a note “Serviced by: Genesis (LA) Corp.” The statement bore the title “Statement of Allocated Funds Genesis GP 2007 Inc.” which title was changed beginning in August 2007 to “Projection of Allocated Funds Genesis GP 2007 Inc.” [Emphasis added.]

[141] Genesis LA (Ontario) as registered unitholder received the actual financial statements of LPLP 2007, but did not forward any of them to Cajubi. Those statements revealed write-downs of $5.1 million in 2008 and $8.7 million in 2009, none of which were reported to Cajubi or reflected on the monthly statements. The same financial statements revealed the debt taken on each year to fund the real estate purchases and the interest rates paid (rates as high as 14.5% for certain bridge loans).

[142] Despite the challenges facing LPLP 2007 that Mr. Garcia became aware of, he made no significant changes to the format of the monthly statements sent[^9]. These statements continued to be sent regardless of write-downs taken by LPLP 2007 and long past the time that Mr. Garcia could have had any reasonable basis to believe that the statements reflected an actual projection of expected value.

[143] Mr. Garcia was unable to give a convincing answer as to why he continued to send these statements. Mr. Garcia was never instructed to prepare statements using purely fictitious numbers without regard to reasonable belief in expectations of actual value. On November 12, 2007, Mr. Escurra explained Cajubi’s need for these statements to Mr. Garcia in the following terms:

This is for accounting purposes, because by doing it this way, it is possible to continue counting on the possibility of increments in the positions. Otherwise no Board will approve future investments if they can’t show their position by month, even though that does not represent liquidity. Instead, it represents the actual value of that investment. [Emphasis added.]

Litigation and settlement with Genesis Land

[144] On a motion in this proceeding, Penny J. found on January 5, 2015 that “it is clear that the units in Land Pool (2007) were acquired for the Plaintiff with the Plaintiff’s money with the intention that they be owned legally and beneficially by the Plaintiff”. He therefore ordered that all of such units be turned over to the Plaintiff. His order was not appealed.

[145] By the terms of settlements reached with Genesis Land, Cajubi has restricted itself to claiming $1 million dollars from the Garcia Defendants. This is the total amount of alleged “up-front fees” wired by Cajubi to “Genesis in Trust” accounts over the course of the three investments.

(e) First Canadian

[146] Shortly after receiving Cajubi’s funds in respect of the first Genesis Investment, Mr. Garcia and Mr. Escurra began working on a new project – First Canadian Capital Markets Ltd. As with Genesis, the development of this investment involved a period of joint preparation between Mr. Escurra and Mr. Garcia (with input from Mr. Bogado) with a view to preparing a presentation and an investment for Cajubi’s Board. As with Genesis, the investment proposal prepared and the form of the investment entered into were the product of considerable and deliberate deception designed to secure approval from Cajubi’s Board of an investment that could not have otherwise been obtained.

First Canadian Capital Markets Ltd.

[147] First Canadian was in the business of acting for issuers of private placements. Its business consisted of attempting to match its clients with investors looking to invest in that type of investment. The clientele it served – or at least the clientele that Cajubi ended up invested in – were companies primarily in the natural resource exploration sector that were not listed on a major exchange, but were instead traded “over the counter”. It provided corporate finance services to these entities (finding investors) and then investor relations services post-placement. Clients paid for its services through commissions from placement proceeds as well as warrants and equity. It was a small company founded by two partners, Mr. Nikoloas Tsimidis and Jason Monaco. Mr. Tsimidis described it as occupying a niche in the smaller end of the market below the level where larger players are able to become involved.

[148] First Canadian was licensed with the Ontario Securities Commission as a “limited market dealer”, a licence that did not permit it to operate trading accounts for investors. Any securities purchased by an investor had to be delivered to or to the order of the investor and subsequent sales would require the services of a licensed broker and the opening of a brokerage account.

[149] Mr. Garcia had come to know First Canadian from dealings while he was still at USI in or about 2006. In April 2007, Mr. Garcia began discussing with First Canadian the possibility of introducing certain Latin American clients to First Canadian and negotiated a commission arrangement on any sale of securities made to an investor he brought to them. To pursue this idea, Mr. Garcia requested and received an email address on First Canadian’s own domain name, the addition of some Spanish language pages to First Canadian’s web page drafted by him, First Canadian business cards and high-resolution copies of First Canadian’s logos for his PowerPoint presentations. He also asked for a summary of current deals available adding that if First Canadian were busy, they could “give me the info by email and some blank letterhead and I’ll prepare it”.

[150] Mr. Garcia also decided to incorporate a company to carry on this business. He first incorporated “First Canadian Int, Corp.” on May 1, 2009 (hereafter “FCIC” to distinguish it from First Canadian with whom it had no relation), using his own home address as its head office. He took this step without consulting with First Canadian. Mr. Tsimidis, First Canadian’s Chief Compliance Officer, objected to the use of this name when advised of it on May 9, 2007. Mr. Garcia told him that he could do business as “FC International” if that were preferable and advised him that “Genesis (Calgary) is a publicly traded co. … and I use Genesis’ name for everything, my Ontario corp. is called Genesis (LA), Corp., no problems”. Mr. Tsimidis did not withdraw his objection.

[151] The following day, Mr. Garcia asked whether he could use “FC Int, Corp.” and First Canadian raised no objection. Mr. Garcia went ahead and incorporated FC Int, Corp. on May 14, 2007. The same day, First Canadian and FC Int entered into a “Sub-finder Agreement”.

[152] Under the Sub-finder Agreement, First Canadian as “finder: agreed to pay FC Int as sub-finder a commission to be negotiated for each transaction payable on completion but estimated to be between 8% and 9% of gross proceeds. FC Int as sub-finder agreed that it was not authorized to create any obligations binding on any other party.

First investment: IMA 1906 CDN$5 million

[153] In discussions with Mr. Escurra, Mr. Garcia had proposed to submit to Cajubi’s Board a product that he himself devised with the Spanish acronym “NSAD®” (for “Notas Sobre Activos Duros” or “Hard Asset Notes”). In a series of emails exchanged over the latter part of May and early June, 2007, Mr. Garcia formulated and Mr. Escurra provided comments upon a presentation for Cajubi’s Board. The presentation was finalized and presented on June 5, 2007.

[154] “NSAD®” was an invention of Mr. Garcia. There was no registered trademark and it was in no way associated with First Canadian.

[155] The presentation was made to the Board by Mr. Ismael Perez, a gentleman who was represented to the Board as appearing on behalf of First Canadian. In fact, Mr. Perez had been engaged by the Insiders (with Mr. Garcia’s approval) for the sole purpose of making the presentation to Cajubi’s Board and was neither known to nor associated with First Canadian. Mr. Escurra asked Mr. Garcia to send him a file with the First Canadian’s business card, “the title you suggest with the coordinates and telephone number they can get in touch that is not linked to your phone at Genesis” in order to be able to produce business cards for Mr. Perez in Paraguay.

[156] Mr. Perez was a mere straw man erected to bolster the false impression that the presentation was that of First Canadian and to avoid Mr. Garcia revealing his connection.

[157] The presentation to Cajubi’s Board was attached to a cover of a letter on First Canadian letterhead dated May 22, 2007 (although finalized shortly before the June 5, 2007 Board meeting) and signed by “Mr. Eddie Obregon, BS”. First Canadian did not approve the presentation or cover letter, did not see either beforehand and did not authorize Mr. Garcia to sign any letters on their letterhead under the name of Eddie Obregon or otherwise.

[158] Mr. Garcia acknowledged the signature on the letter to be his own. Mr. Garcia has no degree or professional designation corresponding to the enigmatic title “BS” that was added to the signature line of “Eddie Obregon” and shed no light on what “BS” was meant to stand for (although he himself added the title and continued to use it while using the “Eddie Obregon” alias).

[159] “Obregon” is Mr. Garcia’s matronymic. As is not uncommon in Latin America, Mr. Garcia was given the family names of both parents at birth. Mr. Garcia possesses no identification using his mother’s family name “Obregon” alone (i.e. not in connection with “Garcia”). From the evidence before me, Latin Americans may use the father’s family name alone or in combination with the mother’s family name. I have seen not a single instance (other than for purposes of creating an alias) of any person using their matronymic alone and there is no evidence of such a practice.

[160] I do not accept Mr. Garcia’s uncorroborated evidence that he used the name “Obregon” alone in Guatemala. Other than in connection with what I have found to be deliberate attempts to dissimulate his identity, Mr. Garcia has always used either “Garcia” alone or “Garcia Obregon” together. The signature used by him to sign for “Eddie Obregon B.S.” is quite unlike the signature used by Mr. Garcia in any other connection. The email address supplied by “Eddie Obregon” used the domain “firstcanadianint.com”. Mr. Garcia also created and used a separate email address under the name Garcia using egarcia@firstcanadianint.com from which he had sent drafts of the “Eddie Obregon” presentation to Mr. Escurra to comment upon. The intention to create an alias not containing the name “Garcia” is evident.

[161] Eddie Obregon was Mr. Garcia’s alter ego and was conjured into existence only when needed to shield Eduardo Garcia from the view of those who were intended to remain ignorant of his role. It was resorted to in this instance because Mrs. Garcia had already used her own maiden name (Santisteban) in connection with Genesis – use of an entirely new set of names lessened the likelihood of Cajubi personnel connecting the two transactions.

[162] The letter described the “NSAD®” product as a “structured investment solution” that “offers capital protection and security of yield”. Capital protection was described as coming from the “underlying properties which comply with rigorous macroeconomic, technical, legal and financial standards of the bank’s Loan Committee” while security of yield was described as coming from “the appreciation in value of the assets, and historically, appreciation has been significantly higher than the yield objective of the note”. It also claimed that each project was “authorized and supervised by the securities authorities of Canada”.

[163] Attached to the cover letter was a sample list of First Canadian’s “properties” from 2004-2007. The list - actually a list of financings arranged by First Canadian – repeated the claim that “all transactions were approved by the securities authority of Ontario, Canada”.

[164] The PowerPoint presentation that followed bore the “First Canadian Group of Companies” name, with the added “NSAD®” logo described as “an investment for pension funds”. First Canadian was described as an “investment bank” or simply a “bank”. Among other representations made therein:

(a) Under the heading “What is NSAD”, the PowerPoint claimed that “Through NSAD, FC offers the Client the most direct way possible to access pure commodities free of volatility and fluctuations present in other investment vehicles”, following which appeared the logo of a prominent Toronto law firm described as “independent fiduciary” and also that of a prominent Canadian bank;

(b) NSAD was further described as “a structured investment solution … whose funds are assigned to commodity exploration properties. Only energy and mining commodities are considered, in accordance with the composition recommended by [Deutsche Bank Liquid Commodity Index]”;

(c) The “transaction steps” description represented that “the credit committee of First Canadian identifies, studies, analyzes and approves only those projects with commodity exploitation properties featuring rapid capital gain” and “First Canadian invests its own capital in such projects and invites third parties (clients) to participate”;

(d) The “transaction steps” slide claimed that clients will receive the NSAD note and an executed Investment Management Agreement “issued by FC”;

(e) An “example of a note” was included that features the name of a Canadian bank as “payment bank” with a fixed maturity date and a “fixed target return”;

(f) Under the heading “How are the returns generated and distributed”, the presentation stated: “The properties appreciate over time. Said appreciation is measured according to market value. Of the total appreciation, the client has the right to a predefined fixed percentage of returns and FC retains the surplus”;

(g) Under the heading “Free of Volatility”, the presentation stated “the gains are predefined at the beginning” and “the gains are independent of stock market variations”; and

(h) Under the heading “Legal transparency”, the presentation represented that “the bank and its transactions are audited by the securities regulators in a regulated financial market”.

[165] Neither FC Int. nor FCIC was mentioned by name in the presentation. The presentation made no mentioned of fees or commissions payable nor the name of the party to whom such payment might be made.

[166] The Cajubi Board approved an initial investment of $5 million on the terms outlined in the presentation on June 5, 2007. Mr. Garcia received a copy of the Board minute approving the investment – and the terms of the approval – shortly thereafter.

[167] Cajubi sent an official letter addressed to First Canadian to the attention of “Mr. Edie Obregon BS” on June 8, 2007, notifying First Canadian of the Cajubi Board’s decision to invest under the conditions outlined in the presentation and advising that the two wire transfers would be sent in the amounts requested. The June 8, 2007 letter was never seen by First Canadian. Given the existence of other documents addressed to First Canadian that were sent by courier to “Mr. Eddie Obregon, First Canadian Capital Markets Ltd.” to a rented postal box controlled by Mr. Garcia in Kitchener, I find it probable that this letter was sent in the same way.

[168] In the following days, Mr. Garcia sent the “Investment Management Agreement” to Cajubi for execution. While it bore the logo of First Canadian, it was in the name of FCIC. The IMA bore the identification number 1906. There were no other IMAs in existence, FCIC having only just been incorporated and having no other clients.

[169] First Canadian did not see the agreement until several weeks after it was executed. Mr. Garcia prepared and sent an instruction sheet to Cajubi that purported to be from First Canadian and was from the same Mr. Eddie Obregon. He also sent wire transfer instructions that called for the $5 million transfer to be made in two segments: $4.5 million to a solicitor’s trust account and $500,000 to an account described as “First Canadian in Trust” at the same bank. The solicitor’s trust account designated was the actual trust account of First Canadian’s solicitors and was used by them to hold investor funds in escrow pending closing of a particular financing. The “First Canadian in Trust” account in the other hand was unrelated to First Canadian and was in the name of FCIC and controlled by Mr. Garcia. It was not a trust account.

[170] The $5 million was sent in accordance with the wire transfer instructions sent by Mr. Garcia ($4 million on June 11, 2007 and $1 million on June 19, 2007). Cajubi also executed and returned IMA 1906 to the address given by “Mr. Obregon”.

[171] None of the documents sent identified the $500,000 sent to “First Canadian in Trust” as being intended to pay commissions – that disclosure was contained only in private emails exchanged between Mr. Garcia (using his own name) and Mr. Escurra. Indeed, none identified FCIC as the owner of the account. None of the documents (or private emails to Mr. Escurra) disclosed the existence of the sub-finders agreement or the commissions FC Int. stood to receive under that agreement either.

Legal documents used: IMA and “NSAD Notes”

[172] The IMA was supplied by Mr. Garcia and drafted by him or at his direction. Although it makes prominent use of the First Canadian logo on the first page, the agreement was between Cajubi as “Investor” and FCIC as “Investment Advisor”. Among the provisions of the IMA:

(a) Section 2 described the Investment Advisor as being “responsible for, and shall have discretion and authority to invest, reinvest and manage the Account in accordance with the Investment Advisor’s methods and strategies as described to the Investor” in pursuit of which responsibility.

(b) Section 5 provided that “the Term is Five Years; the Return on Investment is 14.50% annual. Details will be specified in the Note NSAD… issued by FC”.

(c) Section 10 A provided “the assets of the Account shall be held in the custody of Research Capital Corporation (the “Custodian”) or any other custodian selected by the Investment Advisor. The Investment Advisor shall notify the Investor if any other custodian is selected”.

(d) Section 11 B provided that “the Investor agrees to pay the Investment Advisor’s fees for the services provided in accordance with the terms of this Agreement. The Investment Advisor’s fees include up-front sales as well as performance fees which shall be any upside over and above the Fixed target Returns. The Investment Advisor’s fees shall be calculated and paid in Canadian dollars”.

[173] FCIC issued two “NSAD Notes” evidencing this investment. Each was on official-looking paper stock, bearing a corporate seal and signature of “Authorized Signing Officer” of FCIC and a signature appearing to be that of the same Eddie Obregon who had signed the prior letters. The first was due June 11, 2012 in the “Principal Initial Amount” of $4 million and the second was due June 21, 2012 in the “Principal Initial Amount” of $1 million.

[174] Each “NSAD Note” provided for a “fixed target return” of 14.5%, referred to the “payment bank” (Toronto Dominion Bank). Each stipulated that gains “are equal to the Return rate multiplied by the outstanding Principal amount” and that payment of gains “will be made at Maturity Date on the Note or in any other date according to the Exit Strategies”. FCIC formally “accepted” the NSAD Note “as set forth on the face page of this Note on the terms and conditions contained in” IMA 1906.

[175] The two NSAD Notes were not physically sent until early July 2007. This was done after one of Mr. Escurra’s staff members wrote to him that they had not yet been received and the email address for Mr. Obregon was not working. Mr. Garcia responded to this request (forwarded to “Mr. Obregon” by Mr. Escurra) in an email sent to Mr. Escurra’s official email, copied to the members of his staff copied on the original email. This email purported to come from Mr. Eddie Obregon and used the firstcanadianint.com domain name (activated by that time).

Second investment: IMA 1941 January 16, 2008

[176] On January 22, 2008, Cajubi invested a further $2 million with FCIC in substantially the same way as the $5 million was invested in June 2007. The same presentation was used and IMA 1941 was entered into in much the same way. Cajubi sent the same letter containing official confirmation of the Board’s decision to “Mr. Eddie Obregon” at First Canadian, but via courier to a postal box in Kitchener controlled by Mr. Garcia (and confirmed to Mr. Garcia via private email by Mr. Escurra). Wire transfer instructions sent by Mr. Garcia contained the same two-part instruction: $1.72 million was to be sent to the escrow account of First Canadian’s actual lawyers while $280,000 was to be sent to “First Canadian in Trust”. The latter account was the same account controlled by Mr. Garcia belonging to FCIC and was not a trust account. The terms of IMA 1941 and the NSAD Note were also substantially identical to those issued in connection with IMA 1906.

Reports on “Status of Allocation”

[177] On July 26, 2007, Mr. Garcia sent Cajubi a “Detail of Status of Allocation”. The report was on First Canadian paper stock and listed purchases of Horizon Industries and VMS Ventures. The report made no mention of the price paid for either security and referred only to the percent of the portfolio these accounted for with a “balance outstanding” expressed as a percent as well. Resorting to percentages enabled Mr. Garcia to skirt the sensitive topic of dollar amounts because this would have revealed the amount taken as undisclosed “upfront fees”.

[178] Also on July 26, 2007, Mr. Garcia sent First Canadian a draft of a letter it wished First Canadian to issue explaining the hold periods applicable to the securities purchased. Mr. Garcia specifically asked First Canadian not to mention the amounts of the purchases made. In a similar vein, Mr. Garcia drafted First Canadian’s response to an audit request received in October 2007, referencing only the percent invested and not the amounts invested. The omission of amounts paid was deliberate to avoid alerting Cajubi to the up-front payments retained (that were not invested as undertaken).

[179] Periodic “Detail of Status of Allocation” were prepared, each time specifying neither the value of the investment nor its purchase price, disclosing instead the percent each investment represented out of the total account. By the end of December 2007, the report showed 100% of the account allocated among ten investments.

[180] With the addition of a further $2 million (or $1,720,000, accounting for the diversion of $280,000 to “First Canadian in Trust”), further private placement investments were made. Separate “Status of Allocation” reports were sent with respect to these additional funds, always reporting in percentage terms in lieu of dollar cost terms in order to avoid identifying the “fees” that had been paid.

[181] Of the $5 million sent by Cajubi pursuant to IMA 1906, $4,550,000 was ultimately invested in private placements for which First Canadian acted as “finder” and FC Int. acted as “sub-finder”. Similarly, of the $2 million sent under IMA 1941, $1,720,000 was ultimately invested in such private placements.

[182] Each of the security certificates evidencing the investments were placed in the name of FCIC in trust for Cajubi. Following each closing, First Canadian sent a report to FCIC in trust for Cajubi a report detailing the precise amounts of consideration it received from its client (the issuer) arising from the transaction. None of these reports were forwarded to Cajubi by the Garcia Defendants.

[183] The security certificates were initially deposited in a custodial account as Research Capital. Research Capital was ultimately unable to be satisfied of the arrangements governing the account and the true nature of the relationship between Mr. Garcia and Cajubi. The securities were subsequently transferred to a different custodial account at Union in June 2007 while Mr. Garcia was in the early stages of putting together in intended investment proposal with that brokerage. In establishing the custodial account for Cajubi’s securities at Union, Mr. Garcia provided for “special mailing instructions” directing all correspondence to his own company – FC Int. – at a rented postal box in Kitchener. This ensured that he would be in a position to control what was seen by Cajubi.

Process of allocating funds to private placements

[184] From time to time, Mr. Garcia gave instructions to First Canadian allocating funds from the funds wired by Cajubi to various private placements offered by First Canadian. Prior to every decision to allocate to a particular investment, Mr. Garcia negotiated the commission FC Int. would receive under the sub-finder agreement and, following completion of each placement, FC Int. sent invoices for its commission that were duly paid by First Canadian.

[185] There is no evidence that Mr. Garcia did any actual due diligence on the merits or qualities of any of the investments he caused to be purchased with Cajubi’s money. There is no evidence that he had any particular skill or experience to offer had he wished to do so. There are a handful of emails extant where Mr. Garcia asked the views of one or the other of the partners in First Canadian about some of them, but none reflect anything worthy of the term “due diligence” still less independent due diligence.

[186] FC Int. received $237,500 in commissions from First Canadian arising from the 10 private placements purchased by FCIC under IMA 1906 in its capacity as “sub-finder”. A further $91,300 was received from First Canadian in respect of the six private placements purchased by FCIC pursuant to IMA 1941. Cajubi was unaware of the existence of such commissions or their amount until after the litigation began.

VMS Investment

[187] One of the private placements invested in by Cajubi under IMA 1906 was actually successful. $500,000 of Cajubi’s funds was invested in VMS Ventures under IMA 1906 at a price of $0.22 per share. The shares were sold between October 31, 2007 and 26 March 2008 at prices between $0.62 per share and $1.48 per share. Total proceeds of almost $3 million were derived from these sales.

[188] FCIC retained for its own account just over $1.9 million of the proceeds from this single security in a portfolio of ten. While IMA 1906 potentially granted to FCIC all gains on the portfolio over the target 14.5% at the end of the term, there was no authority whatsoever for Mr. Garcia to have appropriated this gain on a single security to his own benefit.

Monthly reporting

[189] The Garcia Defendants sent monthly reports regarding the First Canadian investments by Cajubi. These began in July 2007 (for the month of June) and continued until 2009. Separate statements were sent for IMA 1906 and IMA 1941 (after the latter was entered into).

[190] Once again, the underlying agreement (in this case, the IMA) purported to provide Cajubi with a “guaranteed” yield in return for surrendering any upside beyond such yield. Once again, Mr. Garcia understood Cajubi’s requirement to receive monthly statements to justify the accrual of that “guaranteed” yield and, once again, he complied by producing statements that delivered on that requirement without regard to the actual cost or mark-to-market value of the underlying investments.

[191] There can be no question that these “Statements of Account” later renamed to “Illustration of Account” were intended to appear as if authorized by and emanating from First Canadian and the transactions recorded therein – all of which referred to past events – were intended to be received by Cajubi as true representations of actual events and not imaginative fictions of what might have been. However, the figures reported were inaccurate. The gains reported each month bore no relationship to actual changes in values of the securities being purchased. The amount invested included the up-front amount that was never in fact invested with First Canadian.

[192] Mr. Garcia also sent “Status of Allocation” reports from time to time listing the various securities purchased. These reports were invariably expressed as a percentage of funds rather than disclosing dollar amounts in order to disguise existence of the “up-front fees” that had been removed from the invested funds at the front end and were thus never allocated to any investment.

[193] When an audit request was received in early November 2008, Mr. Garcia arranged to prepare and send the reply himself, sending to the Paraguayan auditor the “Status of Allocation” reports and the “Illustration of Account” forms. The letter purported to be signed by Mr. Tsimidis of First Canadian. I accept Mr. Tsimidis’ evidence that he did not and would not have signed the audit reply letter that bears his name. Mr. Garcia had access to letterhead that he had used on other occasions without authority or knowledge of First Canadian. The letter was faxed from a telephone with a 519 area code (Kitchener) rather than from First Canadian’s own offices in Toronto. The letter was a deliberate forgery by Mr. Garcia intended to deceive Cajubi’s auditors.

[194] Mr. Garcia’s efforts were rewarded as the auditors did not question the booked values of these investments by Cajubi.

[195] The fact that Mr. Garcia saw fit to send his “Illustration of Account” reports to the auditors confirms that Mr. Garcia knew and understood that Cajubi was using his “Illustrations” to accrue gains in its own internal records and he was ensuring that the auditors did not question that practice.

Third investment: First Canadian Private Wealth Group preferred shares

[196] On March 5, 2008, Cajubi’s Board approved its third and last investment with First Canadian. This investment took the form of the purchase of $2 million in preferred shares issued by First Canadian Private Wealth Group Inc. The transaction proceeded in a similar fashion to the other two investments with some significant distinctions. A written presentation was made, but this time approved in fact by First Canadian and the investment itself was funded in a single wire transfer to First Canadian’s lawyers. However, Mr. Garcia negotiated a commission for himself directly with Mr. Tsimidis. During the course of the negotiations, Mr. Tsimidis reduced the return on the preferred shares to account for Mr. Garcia’s up-front commission demand.

[197] The commission from First Canadian agreed to was in the amount of $175,000. At Mr. Garcia’s direction, this amount was paid by First Canadian directly to Mr. de Leon in Guatemala. Mr. de Leon is Mr. Garcia’s uncle. While described to Mr. Tsimidis as Cajubi’s agent, Mr. de Leon had nothing whatsoever to do with Cajubi and was unknown to them (including the Insiders). Mr. Escurra would not discover Mr. de Leon’s existence until more than a year later. A commission payment of $115,000 was also sent to Rio Conde. There is no agency or similar agreement that has been produced to justify this payment or indeed the payment of two secret commissions instead of just one. Nothing in the record establishes the source of the $115,000 paid to Rio Conde. It is logical to infer that it came from the monies sent to Mr. de Leon.

Rio Conde and the “Otra Punta”

[198] On June 13, 2007 – following the Cajubi Board’s approval of the initial $5 million investment with “First Canadian” – Mr. Garcia sent to Mr. Escurra a draft of a “Commission Agent Agreement” with FCIC. He asked him to fill it out and send it back with the name of the person to whom “the other end will be paid”.

[199] The draft agreement in question provided that the named agent would act as agent of FCIC with authority to “generally solicit Investment Management Agreements” and “collect and immediately remit to the Company the investment amounts”, such amounts to be sent “to the order of FIRST CANADIAN IN TRUST”.

[200] The Agency Agreement was filled in and returned to Mr. Garcia via email by Rio Conde’s Panamanian lawyer/agent on June 15, 2007.

[201] The following summarizes the fate of the “upfront” fees:

Wired to "First Canadian in Trust"

Subsequently wired to Rio Conde Swiss account

IMA 1906

$500,000

$450,000

IMA 1941

$280,000

$180,000

Total

$780,000

$630,000

Commissions paid by First Canadian to FC Int. under sub-finder agreement

[202] FC Int. invoiced First Canadian for commissions it claimed under each of the private placements that its affiliate FCIC invested Cajubi’s funds in under the two IMAs. The total commissions paid to FC Int. under IMA 1906 were $251,549.90 while the commissions under IMA 1941 amounted to $95,865.01. In addition, $175,000 was paid in relation to the FCPWG preferred share investment bringing total commissions received from First Canadian on the three investments to $522,414.88.

Summary of Losses re First Canadian Investments

[203] It is easier to determine the amount of Cajubi’s losses arising from its three “First Canadian” investments than it is to determine where all the money went. Cajubi invested a total of $9 million over the three investments noted above. A total of $3,175,000 was recovered leaving a net loss of $5,825,000. Of that amount, at least $2 million was retained by the Garcia Defendants arising from the VMS sale proceeds and the $100,000 kept from the “First Canadian in Trust” wire transfer made in connection with IMA 1941. A further $630,000 was transferred to Rio Conde. The remaining amount – approximately $3.2 million – appears to be attributable in whole or in substantial part to the very substantial trading losses arising from the very high risk, speculative investments selected by FCIC acting as “investment advisor” under the two IMAs in an attempt to generate sufficient income to repay the very substantial funds removed up front.

[204] In addition to retaining at least $2 million directly from Cajubi’s investments with First Canadian, the Garcia Defendants received substantial commissions from First Canadian that were not disclosed to Cajubi. These amounted to $522,414.90.

(f) Union Securities

Overview and beginnings of relationship

[205] In July and August 2007 Mr. Garcia began working on a third investment proposal to Cajubi involving a managed commodities trading account with Union Securities Limited. Between October 2007 and March 2008, Cajubi invested $14,099,000 with Union through the intermediary of Mr. Garcia’s company Managed (Portfolio), Corp. under four separate “Investment Administration Contracts” as follows[^10]:

IAC Date Amount

7085C September 2007 $2,099,000

7120C December 2007 $2,000,000

8019C January 2008 $5,000,000

8031C March 2008 $5,000,000

$14,099,000

[206] Union was a broker based in Vancouver. It had a small branch office in Kitchener. The office was staffed by Mr. Brian Wadsworth as Branch Manager, Ms. Heather Roberts as office administrator and two commodity brokers: Mr. Marty Hibbs and Mr. Scott Colwell. In 2006-2007, the Kitchener branch of Union was in rebuilding mode, having lost most of its brokers shortly before. The accounts introduced by Mr. Garcia rapidly became one of the most significant in this small branch office attempting to rebuild itself. The damage and fallout caused by this litigation doubtless contributed significantly to its demise.

[207] On December 22, 2006, Union received a web-based inquiry for information on opening a small personal options trading account from Mr. Garcia. This inquiry was forwarded to Mr. Wadsworth who assigned Mr. Colwell to follow up. Mr. Colwell did so, met Mr. Garcia and offered to start the process of opening an account. On January 10, 2007, Mr. Garcia responded that something had come up and that opening a new account would be placed on hold.

[208] Mr. Garcia revived these discussions in May 2007. He also raised the subject of opening “managed futures” accounts for his non-Canadian clients including “one private pension fund almost ready to go”. By July 3, 2007, Mr. Garcia had advanced to the point of asking Mr. Colwell for the account opening forms for such a managed futures account. On July 13, 2007, Mr. Colwell and Mr. Garcia met to discuss matters further.

[209] The pattern established in Genesis and First Canadian continued here. Mr. Garcia sought to interpose a shell company controlled by him, but with a name confusingly similar to that of an existing, established company that he proposed to introduce to Cajubi.

[210] The Cajubi account that Mr. Garcia sought to open presented complications for Union because Mr. Garcia was proposing that his own company - he initially proposed to call it “Union L.A.” - would act as agent and give trading instructions directly on behalf of Cajubi as account holder. Mr. Garcia and Mr. Colwell corresponded for some time regarding the form and details of the contemplated account. Mr. Garcia insisted early on that “all the correspondence related to such [account] has to go to Union L.A. in Ontario”.

[211] Union indicated that the name proposed by Mr. Garcia for his company was problematic. Shortly thereafter, Mr. Garcia caused the defendant Managed (Portfolio), Corp. to be incorporated on August 7, 2007 with himself as director and his home as head office. It was this corporation that was ultimately used by the Garcia Defendants in their dealings with Union and Cajubi. The name was chosen by Mr. Garcia to be closely tied to the name of the Union account he was seeking to have opened by Cajubi.

[212] By August 9, 2007, Mr. Garcia was in negotiations with Mr. Escurra on a Term Sheet to govern the proposed managed account preparatory to making a presentation to Cajubi’s Board. A draft of both Term Sheet and board presentation was sent to Mr. Escurra that day by Mr. Garcia. A further draft of the proposed Term Sheet was sent on August 13, 2007.

[213] While the account that Mr. Garcia had been seeking to open with Union was a comparatively ordinary if actively managed trading account, the term sheet from which Mr. Garcia negotiated with Mr. Escurra contained terms and conditions that were entirely of his own invention. He nevertheless implied that these were added conditions were actually requirements of Union and that what he was presenting was a Union product. Mr. Garcia’s term sheet contained references to minimum investment amounts, minimum incremental investment amounts, target return yields, and lock-up periods. None of these were conditions of Union.

[214] Mr. Garcia suggested that what he was doing was creating a “structured product”. He was doing nothing of the sort. He was taking an existing freely-available product (a brokerage account) and introducing levers of control in his favour upon it to facilitate the payment of the secret commissions he intended to extract and to prevent the payment of those commissions from being visible. There was nothing whatever to impede Cajubi from dealing directly with Union to open an account and to operate that account in precisely the way the account was operated minus Mr. Garcia’s skimming.

[215] Even the Insiders seem to have been taken in by Mr. Garcia’s charade of pretending to “negotiate” the term sheet with Union when he was in fact negotiating with himself. As late as September 25, 2007, Mr. Escurra was asking whether Union might accept a smaller initial investment without affecting the other conditions including target yield, bonus and the amount of the “otra punta”. Mr. Garcia did not hesitate to mislead Mr. Escurra when to his own advantage.

[216] In covering emails attaching the term sheet, Mr. Garcia also suggested that the “other end” was something that he was negotiating with Mr. Colwell for Union and Managed Portfolio. There is no evidence that Mr. Colwell was aware of the negotiations of the “other end” between Mr. Escurra and Mr. Garcia – Union was certainly not involved in those discussions and never consented to or approved any “other end” payments to Rio Conde or otherwise. Managed Portfolio was of course Mr. Garcia’s own company and was unconnected to Union.

[217] On August 9, 2007, Mr. Garcia proposed to Mr. Escurra that the “other end” would be fixed at 10% up front[^11], but suggested that he might be able to “increase the other end by a little bit up front” if they were to lower the expected return for Cajubi from 17% at the high end to 15%. By August 13, 2007, the Term Sheet had been revised to provide for a target return of up to 16% and to fix “the other end” at 13%. The term sheet was being prepared by Mr. Garcia in tandem with a PowerPoint presentation intended for Cajubi’s Board.

[218] Once again, discussions between Mr. Garcia and Mr. Escurra did not seek to limit the size of the “other end”, but to search for ways in which to grow it. Both Mr. Garcia and Mr. Escurra knew full well that what was being negotiated was the amount of kickback to be paid in consideration of the investment. No other explanation is consistent with the facts.

Ms. Ligia Ponciano

[219] Mr. Garcia made arrangements for the presentation to Cajubi’s Board to be made by yet another straw person selected for the task. In this case, that person was Ms. Ligia Ponciano. Mr. Garcia had no convincing explanation for why he needed to engage Ms. Ponciano for this purpose instead of making the presentation himself. She had no knowledge of or involvement with any of the entities involved. The true explanation is that Mr. Garcia’s name could not be connected to the proposal if it was to have a chance of being approved by Cajubi’s Board. Mr. Garcia needed to ensure that his own name and involvement was shielded from view and this is why he turned to her.

[220] Like Mr. Garcia, Ms. Ponciano had moved from Guatemala to Canada. The two knew each other as colleagues prior to moving to Canada.

[221] Mr. Garcia paid Ms. Ponciano to deliver the presentation he had written to Cajubi’s Board on August 29, 2007. She flew to Asuncion, stayed overnight, met Mr. Bogado and Mr. Escurra to rehearse the presentation and then made a brief presentation to Cajubi’s Board based on the PowerPoint she had been provided. This done, she returned.

[222] Ms. Ponciano followed the script written for her by Mr. Garcia. She was not brought into the tent and made party to the confidential discussions between Mr. Escurra and Mr. Garcia regarding the “other end”. When Mr. Garcia sent correspondence to Mr. Escurra about a revised draft of the Term Sheet on August 13, 2007, he sent an identical email a few minutes later to Ms. Ponciano, but deleted the reference to the “other end” contained in the otherwise identical email to Mr. Escurra.

[223] Ms. Ponciano’s credibility was questioned by Mr. Garcia. There was cause to do so. She had provided a statutory declaration earlier in the proceedings which affirmed statements allegedly made by her in more than two dozen emails and letters bearing her name. She later recanted those statements and denied any role in the authoring or sending of those documents. She said that she felt both fear of and pressure from Mr. Garcia when she had made those prior statements. She continues to fear Mr. Garcia and asked not to name her current employer in court. She believes Mr. Garcia caused her to lose her prior job through a damaging anonymous letter sent to her prior employer. She believes Mr. Garcia is the one who sent it. She feared a repeat.

[224] In my view, her belief is well-founded. She is not the only witness who was the victim of similar anonymous letters. The form and format of all of these attacks was similar and I have no hesitation in attributing them all to their single common denominator with motive and a visible track record of similar conduct, Mr. Garcia.

[225] While it is unfortunate that Ms. Ponciano failed to be truthful initially, I am fully convinced of the sincerity of her testimony at trial. She has explained in a credible way the reasons for her prior statements – reasons that do not excuse but can serve to explain. She was a credible and forthright witness.

[226] Among other things, she has denied authoring or signing the many letters and emails attributed to her among the thousands of documents produced in this case. These documents related primarily to Mr. Garcia’s rear-guard efforts to attempt to prevent Cajubi from discovering the truth of his role in these investments, particularly after the Insiders were dismissed and a new Board and management team were brought in by Cajubi.

[227] I accept her evidence that she authored none of them (with the exception of the two letters she acknowledged having signed at Mr. Garcia’s request). It is beyond doubt that either or both of Mr. and Mrs. Garcia were the authors of all of the remaining documents bearing Ms. Ponciano’s name and that they prepared each of them with the intent to deceive. These documents bearing Ms. Ponciano’s name are far from the only fraudulent documents produced by Mr. and Mrs. Garcia.

Presentation to Cajubi’s Board and Board’s decision

[228] The presentation bore Union’s logo on the cover page and was entitled “Managed [Portfolio]®”, while the banner on the second page read “Managed [Portfolio]® by Union”.

[229] There was and is no registered trademark for “Managed Portfolio” – the use of the trademark symbol was a flourish that Mr. Garcia inserted for effect as he had done with “NSAD®“. It was inserted to cause the reader (Cajubi’s Board and staff) to infer that Managed Portfolio was a trademark or division of Union. It was not. It was an entirely unrelated corporation controlled by Mr. Garcia without assets, track record, regulatory approvals or any of the other attributes of a regulated Canadian financial services company. It was, in other words, quite the opposite of the entity being presented to Cajubi’s Board. There can be no doubt that Cajubi’s Board would never have entertained still less pursued a proposal of this sort made by Mr. Garcia’s company in its own right.

[230] The text of the presentation itself extolled the virtues and the highly regulated nature of the commodities market in general and of “our group” in particular. Under the banner of “our group”, Mr. Garcia’ described Union as “a regulated Canadian investment administrator” in operation since 1963 with offices in 20 cities in North America, more than 325 traders, regulated by the IDA and member of numerous stock and commodity exchanges. His own corporation (Managed Portfolio) did not warrant a mention.

[231] Most of these statements in the presentation were generally true of Union. They were not at all true of Managed Portfolio. Managed Portfolio and Union in no way formed a “group”, affiliated or otherwise. The only agreement extant between the two was an informal understanding between Union’s trader and broker that they would share a portion of their own commissions with Mr. Garcia on certain conditions (including disclosure of the arrangement to Cajubi).

[232] Under the heading of “our administered commodities account”, Mr. Garcia included conditions from the term sheet he had formulated with Mr. Escurra. These included a minimum investment level, a term of five years, a lock-up period of two years and a “bonus” of 1%.

[233] None of the “conditions” of the proposed investment described in the presentation were known to or approved by Union and none were actual conditions of the Union trading account that Mr. Garcia was arranging for Cajubi to open. Union neither offered nor paid any account opening “bonus” as proposed and imposed no limits on deposits or withdrawals from the account.

[234] Under the heading of “advantages of Managed [Portfolio]®”, the presentation claimed that Managed Portfolio had “traders recognized at the national level in charge of selection, monitoring and execution with more than 25 years in derivatives management” and “track record of yields of 20% over 10 years”.

[235] Managed Portfolio was a shell company without employees or any history of operations. Neither Union nor the intended trader contacted by Mr. Garcia (Mr. Hibbs) claimed to have a “track record of yields of 20% over 10 years”. This was Mr. Garcia’s own fabrication designed to impress Cajubi’s Board. Mr. Hibbs had written to him in July that “we aim for at least 10% annual returns and anything more is a bonus”. Mr. Hibbs, like any experienced trader, was extremely wary of saying or writing anything that might be perceived as a representation or warranty regarding future performance. Mr. Garcia operated without any similar inhibitions.

[236] The presentation contained no references to Mr. Garcia (the sole director of Managed Portfolio) or his qualifications. It contained no references to Managed Portfolio as a legal entity separate and distinct from Union and unaffiliated with it.

[237] The presentation was, in a phrase, wildly false and misleading both for what it said and what it did not say. This was not through oversight, but was through design. Mr. Garcia wanted Cajubi’s Board and staff to view Managed Portfolio as being part of Union and he was willing to make whatever representations seemed likely to win them over. As shall be seen, he was very successful in that endeavour.

[238] Mr. Garcia alleged that Mr. Colwell and through him Union was aware of Ms. Ponciano’s role in delivering the presentation for Union and had seen the presentation itself while it was being drafted. In this regard, he produced two letters on Union letterhead: one purporting to be from Mr. Colwell introducing Ms. Ponciano to Cajubi dated August 17, 2007, the second being a letter allegedly sent by Mr. Wadsworth – the Kitchener branch manager of Union – on December 3, 2007, proposing an increase in Cajubi’s investment of $2 million on the same terms and conditions “as applied back in October 2007 presented by Ms. Ligia Ponciano”.

[239] Neither of these two letters appear in Union’s files nor on their computer system. Mr. Garcia had access to Union’s letterhead and sent the initial draft of the first letter by email to Mr. Colwell and acknowledged that he likely drafted the second letter as well. I shall examine the circumstances of each separately.

[240] The August 17, 2007 letter introducing Ms. Ponciano was originally requested by Mr. Garcia in an email to Mr. Colwell on August 17, 2007. Mr. Garcia’s draft would have presented Ms. Ponciano to Cajubi as being “authorized to do a presentation” of Union. Mr. Colwell’s response to Mr. Garcia made it clear that he would need clearance from his compliance group to send such a letter. There is no evidence that such clearance was ever received and, given the text of the draft letter, I find it inconceivable that any such clearance could have been given. The signed letter of introduction allegedly signed by Mr. Colwell and produced by Mr. Garcia – found nowhere in Union’s records – represented only that Ms. Ponciano is “not an employee of Union”, but has been provided with “literature” which Cajubi was asked to receive.

[241] Mr. Colwell left Union in January 2009 following discovery by Union of secret payments made to him that Mr. Garcia played a role in securing. Those circumstances are discussed further below. I draw no adverse inference from Union’s failure to call him. Mr. Garcia did not call him as a witness either.

[242] I am in no position to find that the letter as produced by Mr. Garcia is genuine. There are sufficient examples of fraudulently produced documents attached to Mr. Garcia in this matter that I am unable to accept any documents produced solely by Mr. Garcia or the Garcia Defendants at face value although all have been examined by me[^12].

[243] I find no need to determine whether the August 17, 2007 introduction letter produced by Mr. Garcia is genuine. On its face, it provides no evidence that Mr. Colwell had reviewed much less approved of a lengthy presentation drafted entirely in Spanish to be made by Ms. Ponciano. The presentation as made was something that no employee of Union or any other regulated financial services company would willingly allow to be made to a customer or potential customer. It is inconceivable that Mr. Colwell would have assented to such a presentation. Further, the change in the wording of the letter between the draft originally proposed by Mr. Garcia and the signed copy he produced suggests quite to the contrary that Mr. Garcia knew full well that Union’s compliance department would not authorize a letter allowing Ms. Ponciano to make any presentation on behalf of Union. Allowing someone to drop off literature and business cards is a long way from approving of a lengthy PowerPoint presentation.

[244] Mr. Wadsworth has no record of the December 3, 2007 letter attributed to him either. While the signature appeared genuine to him, he did not accept authorship of it. Mr. Garcia admitted that he very likely drafted the contents of this letter as well he had access to original letterhead of Union.

[245] Mr. Wadsworth appeared as a careful and experienced employee with many years working in a highly regulated financial services environment. I find it highly implausible that he should have sent the December 3, 2007 letter attributed by the Garcia Defendants to him. The contents of the letter would have made little sense to Mr. Wadsworth. He did not know of any presentation made by Ms. Ponciano in October 2007 and the idea that a broker would suggest to a client that an “offer” to increase the amount on deposit in its trading account was “valid for the next 15 days” is senseless. Cajubi’s account agreement with Union permitted it to make deposits and withdrawals as it pleased and without restriction. It would also have been quite irregular for Mr. Wadsworth to sign a letter without retaining a copy for Union’s files. He had to the contrary warned Mr. Hibbs and Mr. Colwell about doing just that.

[246] Mr. Wadsworth’s signature on the letter of December 3, 2007 was either forged by Mr. Garcia or was obtained by subterfuge. In either case, Mr. Wadsworth was not aware of its contents and either did not sign it or did not do so knowingly.

[247] I find that neither Mr. Colwell nor anyone at Union ever saw the presentation prepared by Mr. Garcia for Cajubi’s Board. There are records of Mr. Garcia sending drafts of the presentation to Mr. Escurra and to Ms. Ponciano. There is no evidence of any draft of the presentation or the term sheet ever being copied to Mr. Colwell, Mr. Hibbs or Union. Mr. Garcia’s claims of having showed it to him physically does not mesh with the large number of documents he did send Mr. Colwell via email and are not credible. There is no evidence that Mr. Colwell understood Spanish.

[248] Mr. Garcia knew perfectly well that he caused to be presented as a product of Union a proposal that he had drafted without Union’ knowledge, approval or consent. This was deliberate on his part. He was seeking to insert Managed Portfolio and himself in the middle of a relationship where it had no substantive business role to play – Cajubi could open a discretionary trading account with Union at any time without the assistance of Managed Portfolio. Managed Portfolio needed to be in the mix to generate commissions – both to pay the “otra punta” and to pay Mr. Garcia – and Mr. Garcia knew full well that Union could not be part of that arrangement.

[249] The minutes of Cajubi’s Board meeting of August 29, 2007 demonstrate that the presentation hit the intended mark. Ms. Ponciano was described as a representative of Union who presented her credentials as such. No mention of Mr. Garcia or Managed Portfolio is to be found. The Board minutes faithfully summarized the presentation made. The Board determined to invest the Canadian dollar equivalent of US$2 million in the “financial product called Managed Commodities Portfolio – Managed Portfolio, administered by the financial entity Union” with the characteristics outlined in the minutes.

Documentation of the investment: IAC 7085C

[250] Union did not have direct contact with Cajubi in preparing or arranging execution of the account documentation. Mr. Garcia was the intermediary for all of their dealings and arranged to include his own Managed Portfolio documents in the bundle of contractual documents to be processed. This was done in the course of September 2007.

[251] On September 25, 2007, Cajubi executed the following documents which Mr. Escurra scanned and sent to Mr. Garcia on September 26, 2007:

(a) Full Authorization to Trade;

(b) Union “Managed (Portfolio) Account Agreement”;

(c) Letter of Direction and Limited Power of Attorney;

(d) Combined Commodity Futures and Commodity Futures Options Trading Agreement;

(e) Risk Disclosure and Information Statement for Commodity Futures; and

(f) Investment Administration Contract 7085-C.

[252] All of these documents save the Investment Administration Contract are Union documents on Union forms. The IAC on the other hand was unique to Mr. Garcia and his company Managed Portfolio. Union was not a party to it and did not receive a copy of it.

[253] The Account Agreement appears to be in Union’s standard form for a discretionary trading account. Schedule A of the Account Agreement designated Mr. Hibbs, as Associate Portfolio Manager (no “Portfolio Manager” was appointed). Transaction fees were fixed at $100 per transaction.

[254] The account opening forms contained a notation: “please send all correspondence related to this account to: Managed (Portfolio) Corp. in Kitchener, ON Canada”, along with a Kitchener telephone number. I infer that this notation and telephone number were inserted in the draft by Mr. Garcia whether before or after Cajubi executed the documents cannot be said with confidence.

[255] It is clear from the totality of evidence regarding this and the other investments arranged by the Garcia Defendants that tight control over communications was a key requirement to ensure the true nature of their activities remained shielded from Cajubi’s view.

[256] Some of the principal terms of IAC 7085C (drafted by Mr. Garcia) include the following:

(a) Managed Portfolio was described as the “Investment Agent” and Cajubi as the “Investor”;

(b) The preamble described the object of the agreement as being “to retain the Investment Agent to act as an investment agent for managed accounts in Canada consisting of assets of the Investor (the “Account”)”;

(c) Section 2 granted to the Investment Agent “the discretion and authority to invest, reinvest and manage the Account in accordance with the Investment Agent’s methods, resources and strategies as described to the Investor” and provided the Investment Agent with authority “as agent and attorney in fact to sign and execute all documents … and to take all other action that the Investment Agent reasonably considers necessary or advisable in order to carry out its duties under this Contract”;

(d) Section 7 provides that “the investor is entitled to receive semi-annual payments based on the initial principal amount as long as Investor does not withdrawal (sic) any funds. The annual rate payable will equal 4%”;

(e) Section 9 provided an “exceptional bonus” of 1% on the principal amount;

(f) Section 12 provided that the “assets of the Account shall be held in the custody of Union Securities … The Investment Agent shall not maintain custody or possession of any assets of the Account”;

(g) Section 13(b) provided that “the Investor will receive ongoing compensation from the associate portfolio managers and/or RR’s and/or commodities investment advisors or licenced brokers, for its ongoing consultation in respect to the Investor, providing such compensation is legally permissible by IDA regulations and laws”; and

(h) Section 13(c) provided that “the Investor agrees to pay the fees for the services provided in accordance with the terms of this Contract. The Investment Agent’s fees include up-front administration and sales fees as well as the on-going fees described in section (b)”.

[257] No “methods, resources and strategies” of the Investment Agent were ever disclosed to Cajubi as described in s. 2 of the IAC and the Investment Agent was neither registered to provide investment advice under Ontario law nor did it possess any experience or employees with experience of any kind to enable it to do so. Nothing in the IAC disclosed the amount or method of calculation of commissions received or to be received under s. 13(b) nor was the Investment Agent a member of the IDA. Nothing in the IAC discloses the amount of “up-front administrative and sales fees” referenced in Section 13(c).

[258] The IAC is an odd agreement because it appears to be operated as an essentially gratuitous subtraction from Cajubi’s rights under the Account Agreement without any particular offsetting benefit. Whereas Cajubi could have deposited or withdrawn funds from the trading account with Union at will under the terms of the Account Agreement, the IAC imposed a 24-month lock-up. Whereas Union simply charged a commission for trading at a disclosed rate (Mr. Garcia had negotiated a rate higher than the retail rate to allow room for him to share in it but did not disclose that breach of fiduciary duty either), the IAC refers to a variety of unquantified and unspecified fees. Mr. Hibbs was already the appointed Cajubi’s “associate portfolio manager” in Union’s Account Agreement and there is no additional service being to be provided by a shell company (Managed Portfolio) with neither employees nor experience.

[259] The question arises as to why the IAC was executed in the first place? I conclude that Cajubi did so because it was persuaded by the circumstances to view Managed Portfolio as an arm of Union and the IAC as a requirement of Union. Neither was true, but Mr. Garcia’s entire effort had been directed at creating and reinforcing that false conclusion.

[260] The presentation had sold Cajubi’s Board on Union alone, but referred to a product described as “Managed [Portfolio]®” with the clear inference that this was a Union product. The IAC was simply one of a bundle of Union documents presented for execution and bore the very same logo at the top. While fees were not disclosed in the IAC, they were disclosed in the Account Agreement and the natural inference was that these were the only fees in fact, none others being disclosed.

[261] Prior to executing any contractual documents, Cajubi sent them to its outside lawyers for review. The memorandum from the Paraguayan law firm commenting upon and summarizing (in Spanish) the contractual documents mentioned receipt of a letter from Mr. Hibbs dated September 10, 2007 to Mr. Bogado.

[262] The letter was on Union’s letterhead and appears to bear Mr. Hibbs signature. It was directed at Mr. Bogado of Cajubi and bore the subject line of “Manager as per Managed (Portfolio) Contract Ref# 0785-C” and provided in its operative text:

According to applicable rules, guidelines and regulations, a managed future account needs a portfolio manager and/or associate portfolio manager in connection with such specific account; to buy, sell and trade in future contracts and/or future contract options, in accordance with the terms and conditions set forth in the Managed (Portfolio) contract. In your case, the individual that has been appointed associate portfolio manager of your account is Mr. Marty Hibbs.

[263] Mr. Hibbs was not asked about this letter when he testified and it cannot be said whether he had any idea what “Ref# 7085-C” in the subject line referred to or why the letter was provided in the first place. Mr. Hibbs had not seen IAC 7085-C and had no reason to know of the number or name Mr. Garcia put to it.

[264] The letter was very likely drafted by Mr. Garcia who had access to Union letterhead and brought letters to Mr. Hibbs or Mr. Colwell to sign on multiple occasions.

[265] Mr. Garcia did not send letters for no reason. Whether Mr. Garcia received a query about the purpose of the IAC or simply sought to head a query off at the pass with this letter cannot be said. However, the purpose of the letter is clear enough. It was intended to suggest to Cajubi that the IAC – which vested in Managed Portfolio full discretionary authority - was a requirement of Union and reinforced the idea that Managed Portfolio was an internal entity. The letter served its purpose and Cajubi executed all of the documents presented to them, including the IAC.

[266] Cajubi followed ordinary procedure and sent all of the executed documents (i.e. including the IAC that did not concern Union) in a single package to Union at its correct address in Kitchener. Mr. Garcia received scanned copies in advance of the courier copies from Mr. Escurra and no doubt expected to be able to pick up the courier package at Union when it arrived.

[267] What Mr. Garcia had not anticipated was that Ms. Roberts – to whom the package was at all events addressed – was required under Union’s compliance procedures to open all incoming letters and packages. Mr. Garcia had not intended for Union to see the IAC and had removed this document from the package of scanned materials he forwarded on to Union a few days earlier. In its stead, he had sent a carefully prepared summary of the IAC from his own lawyers.

[268] Ms. Roberts opened the package and, seeing its contents, forwarded it to Mr. Colwell who was responsible for Cajubi. Mr. Colwell gave Mr. Garcia the good news that the package had arrived and would be forwarded to head office by courier that very day. This news created something of a panic on Mr. Garcia’s part. Mr. Garcia quickly wrote an email to Mr. Colwell in bold type instructing him to “leave the whole package as is”. Mr. Colwell responded “no problem” and indicated that he had only just started going through it. Mr. Garcia responded that “we’re cool this time”, but suggested he would have to use a different address in future if there is a problem.

Subsequent investments: IAC 7120C, IAC 8019C and IAC 8031C

[269] Cajubi made three subsequent investments in the managed commodity account over the following six months: IAC 7120-C for $2 million was dated December 2007, IAC 8019-C for $5 million was dated January 2008 and IAC 8031-C was dated in March 2008. No further documentation on Union’s part was required to add funds to the existing account. While there was only the single trading account at Union, separate IACs materially identical to IAC 7085-C were entered into between Managed Portfolio and Cajubi for each one. Union had no reason to be aware of these.

Wire transfer of investment funds

[270] The Garcia Defendants sent wire instructions to Cajubi for each of the four discrete investments made by Cajubi. The wire instructions and amounts were as follows:

IAC BMO TD Total

7085C $ 1,710,685 $ 388,315 $2,099,000

7120C $ 1,630,000 $ 370,000 $2,000,000

8019C $ 4,075,000 $ 925,000 $5,000,000

8031C $ 4,075,000 $ 925,000 $5,000,000

$11,490,685 $2,608,315 $14,099,000

[271] In each case, the wire transfer instructions for both transfers were sent to Cajubi by the Garcia Defendants on Union letterhead and purported to emanate from Union. None of these instructions were in fact sent by or known to Union. Union only found out about the form of wire transfer instructions sent by the Garcia Defendants to Cajubi when investigating the facts leading up to this litigation. In each case, the portion directed to BMO provided the correct Vancouver bank account coordinates for Union. However, the portion directed to TD Bank was for the benefit of an account described as “Managed Portfolio in Trust” purporting to have the same address as the Kitchener office of Union.

[272] The initial wire transfer instructions provided contact information for Ms. Roberts, attributing to her the non-existent title of “Union – Latin America Division”. The next three wire transfer instructions contained the name of Mr. Colwell instead, using either his home address (2nd and 3rd wire transfer instructions) or a postal box rented by Mr. Garcia (last wire transfer).

[273] The change in contact information was a calculated one by Mr. Garcia. Cajubi was in the habit of sending a letter by courier to the intended beneficiary of a wire transfer confirming that the wire transfer had been requisitioned from its bank and would arrive soon. Indeed, each of the requisitions sent by Cajubi to its own bank to fulfill these wire transfers clearly referred to the funds requisitioned as being sent to Union, even though one of the named beneficiaries was “Managed Portfolio in Trust”, confirming the degree to which the subterfuges employed by the Garcia Defendants had been successful in assimilating Managed Portfolio with Union in the eyes of Cajubi. Following its normal procedure, Cajubi sent a letter to Ms. Roberts at Union on October 3, 2007 referencing both wire transfers including the transfer to an account (TD Bank) that had no connection to Union. This generated puzzled inquiries from Union that Mr. Garcia was not keen to see repeated, even if he was able to deal with them the first time.

[274] Mr. Garcia took steps to have the Insiders alter the address Cajubi had for Union on file. On January 28, 2008, Mr. Garcia sent an email to Mr. Colwell alerting him to an incoming courier package in connection with the third wire transfer and reminding him of this arrangement that had been put in place so that Mr. Wadsworth would not “screw the whole thing up”.

[275] Mr. Garcia later prevailed upon the Insiders to change the address Cajubi kept for Union in its files to a postal box in Kitchener rented by him. Thereafter, when Cajubi sent correspondence to Mr. Roberts or Mr. Wadsworth, it went directly to that postal box. Mr. Garcia received numerous letters addressed to Union at that address that he opened and never forwarded to Union.

[276] Mr. Garcia was intentionally deceiving both Cajubi and Union and intercepting mail bound for Union without authority.

[277] The Garcia Defendants never had the authority of Union to provide wire instructions to Cajubi directing the deposit of funds into a Managed Portfolio account at TD. There was never a “Latin America Division” of Union and Ms. Roberts was unaware that her name was being used. Managed Portfolio did not share premises with Union and the address provided on the wire transfer instructions for Managed Portfolio was false. The designated Managed Portfolio account was in fact controlled by Mr. Garcia and was not a trust account.

[278] The wire transfer instructions were sent with the intent of deceiving Cajubi and succeeded in doing so. They were intended to deceive Cajubi into believing it was sending funds to Union in trust and that the “product” it was investing in was one sanctioned by Union. None of this was true in fact.

[279] Even the use of randomly chosen but large numbers to identify each of the four IACs was designed to reinforce the illusion that this tiny shell company named Managed Portfolio was actually part of Union, a relatively large, established and regulated Canadian brokerage with thousands of customers having similar agreements.

“Artificial Intelligence Project”, liquidation of account and resignation of Hibbs and Colwell

[280] The first funding of the “Managed Portfolio” account at Union was made in early October 2007. Very soon afterwards, discussions began between Mr. Colwell and Mr. Hibbs on the one hand and Mr. Timcke, Mr. Bogado and Mr. Garcia on the other hand regarding establishing some form of automated program to capture Mr. Hibb’s trading methodology.

[281] The merits of this particular initiative are of no particular relevance to this narrative beyond the fact that the project was undertaken and the manner in which it was done.

[282] Some time after work had begun on the project, Mr. Bogado offered to pay $146,000 to Mr. Hibbs in consideration of the intended joint venture for which Mr. Hibbs would be providing the intellectual property. Mr. Hibbs gave the wire transfer co-ordinates of his private company and the funds were sent (whether by Cajubi corporately or Mr. Bogado individually is not clear but not relevant). Neither Mr. Hibbs nor Mr. Colwell advised Union of the project, their discussions or of the fact that they received $146,000 from Mr. Bogado in March 2008 in consideration of the project. Mr. Hibbs split this payment between himself, Mr. Colwell and Mr. Garcia.

[283] The financial crisis had erupted into flames in September 2008. The Cajubi commodities account at Union was not spared. On November 11, 2008, Mr. Hibbs and Mr. Colwell wrote to Mr. Escurra to provide an update. The letter was sent to Mr. Escurra via Mr. Garcia and is not part of Cajubi’s files. The letter advised Mr. Escurra of the magnitude of losses. These were estimated at 30% while the liquidation value of the account was estimated at 4.3 million. Mr. Hibbs was nevertheless optimistic that the losses, though large, could be recovered over time.

[284] The loss estimate was accurate relative to the amount actually received by Union ($11.49 million less $3 million transferred out to Managed Portfolio in August 2008), but obviously understated the loss considering the funds wired separately to Managed Portfolio of which Union had no information.

[285] Cajubi’s Board decided to liquidate the Union commodities futures account at a meeting on November 21, 2008 and prepared a formal letter of instruction advising Union of this decision. Mr. Garcia was advised of this instruction and received the letter addressed to Union. As with many letters Cajubi sent to Union, the letter was prepared without an actual street address and was left to the Insiders to arrange to deliver electronically or by courier at the address on file. That address had previously been changed to Mr. Garcia’s address. This letter never reached Union.

[286] Mr. Garcia simply instructed Union to liquidate the account and transfer the net proceeds to “Managed Portfolio ITF Cajubi” at the account he designated (the same one into which the August transfer had been made)[^13]. He then requested Union to keep the account open even with a zero balance. Closing the account would almost certainly have raised uncomfortable accounting problems that may have disclosed the level of secret commissions skimmed from this investment.

[287] Mr. Garcia had a serious problem. The letter from Cajubi’s Board directing the liquidation of the commodities position also directed the migration of the “portion assigned to commodities trading to fixed income in Columbus Notes”. He knew that Cajubi was expecting a letter from Union confirming that it had carried out this decision. The problem was that Union had never received the Board’s instruction, Union had nothing whatever to do with Columbus Capital, did not hold any Columbus Notes in its account for Cajubi, did not have a “fixed income” portion of Cajubi’s account and had neither seen nor executed Cajubi’s orders to purchase Columbus Notes.

[288] Mr. Garcia had one advantage. Union had not seen the Board’s letter. Mr. Garcia would have an opportunity to “massage the message”. His first option was to attempt to persuade Mr. Colwell to sign a letter to Cajubi to help him out. He brought Cajubi’s November 21, 2008 letter to Mr. Colwell along with a proposed response he had drafted on December 8, 2008.

[289] The meeting did not go well. Mr. Colwell had not seen the Cajubi letter before then but noticed that the letter was actually addressed to him. The letter and proposed reply referred to Columbus notes and neither Mr. Colwell nor Mr. Hibbs had any idea what that referred to. After consulting with Mr. Hibbs, Mr. Colwell wrote Mr. Garcia that his proposed reply “could give a completely false impression that we have some knowledge of Cajubi’s other position” in Columbus Notes. Mr. Colwell proposed a simpler reply that simply noted the amount that had been wired to Managed Portfolio ITF Cajubi “as per your instructions relayed to us by Mr. Garcia”.

[290] Mr. Garcia became angry as a result of the refusal of Mr. Hibbs and Mr. Colwell to provide him with the letter he wanted and harshly worded emails were exchanged. Over the coming days, their rupture would become complete. Mr. Garcia became convinced that he had been shortchanged by them in regards to his (undisclosed) share of their commissions.

[291] While he did not get the letter he wanted from Union, Mr. Garcia sent a softened version of Mr. Colwell’s edit of the letter to Mr. Bogado and Mr. Escurra the next day (backdated to November 27, 2008) by private email only. He pointedly advised them both that a hard copy of the letter would not be sent to Cajubi. Cajubi never received a formal reply to its letter and the emailed letter copy sent to the Insiders did not end up in Cajubi’s official files.

[292] I reach no conclusion as to whether Mr. Colwell or Mr. Hibbs saw or executed the version of the letter sent to Mr. Bogado and Mr. Escurra. There is no convincing evidence that it was genuine and compelling evidence that the relationship between them had broken down shortly after the initial draft was presented on December 8, 2008.

[293] While the revised letter of Mr. Hibbs and Mr. Colwell as sent by Mr. Garcia made no mention of Columbus, Mr. Garcia’s cover email claimed that the letter “confirms the transfer of the trading funds to Columbus Notes”. Mr. Garcia was not being honest with the Insiders. Union knew nothing of the Columbus Notes investment and was entirely in the dark about it. The letter, if genuine, confirmed nothing of the sort.

[294] This dishonesty with the Insiders on Mr. Garcia’s part continued. On December 22, 2008, Mr. Garcia sent a letter to Mr. Escurra blaming Mr. Hibbs and Mr. Colwell for the losses in the Union account, claiming that neither Managed Portfolio nor its directors or officers have had “any type of association, company, agency … or similar relationship with Mr. Hibbs or Mr. Colwell.” This claim was quite at odds with the commission sharing arrangement he did have with Mr. Hibbs and Mr. Colwell that figured so prominently in the breakdown of their relationship earlier that month. The same letter enclosed copies of the Columbus Notes issued, each bearing a prominent “Received” stamp from Union on their face bearing the same date (December 22, 2010) as the letter and purporting to be signed by Ms. Roberts.

[295] Ms. Roberts did not affix the stamp to those Columbus Notes. I conclude that the stamp was applied electronically by Mr. Garcia using an electronic stamp that Ms. Roberts had given him access to earlier for other purposes. It was designed to imply to Cajubi – falsely – that Union possessed the Columbus Notes and was in any way associated with them. The Columbus Notes matter is addressed below.

[296] The letter of December 22, 2008 is one of several documents that I have no hesitation in concluding was forged in substantial part by the individual Garcia Defendants.

[297] Shortly after this clash, Mr. Garcia met with Mr. Wadsworth. He advised him that he felt he had been cheated out of his fair share of commissions by Mr. Hibbs and Mr. Colwell. He also told him about the $146,000 payment for the AI project. This was all news to Mr. Wadsworth and he was skeptical. Mr. Garcia provided email evidence proving the transfer and Mr. Wadsworth was convinced. He viewed the secret side payment as a very grave violation of ethics and resolved to raise it with the two when they returned from the Christmas break.

[298] When Mr. Colwell and Mr. Hibbs returned to the office in January, they were ordered to return the undisclosed funds they had received. They declined to do so and resigned instead. Thereafter, Mr. Wadsworth and Mr. Roberts alone tended to the Cajubi account, an account that was open in theory but which had no further assets in it. Mr. Wadsworth attempted to suggest further investments to Cajubi via Mr. Garcia but nothing came of his attempts.

Monthly Statements

[299] Mr. Garcia caused Managed Portfolio to prepare its first monthly statement to Cajubi beginning with October 2007 (the month of the first transfer from Cajubi funding the account). Following the format of the Genesis and First Canadian monthly statements, the monthly statements describing the Union investment were intended to deceive Cajubi and bore little relationship to reality.

[300] To all appearances, the form (entitled “Illustration”) emanated from Union. The heading on the form read “Managed [Portfolio]® - the same name that appeared on the Board presentation and the same name that appeared on the Union Account Agreement. Union’s actual account numbers appeared in the upper right corner below which the name Mr. Hibbs, Associate Portfolio Manager and his address at Union appeared. In fact, the only company named on the statement was Union[^14]

[301] Although appearing to emanate from Union, Union had nothing to do with this statement and remained ignorant of its existence and contents. Union never received a copy of any of these monthly “Illustrations” nor did the figures displayed on the report conform to the figures in Union’s own corresponding account. The “gains at 4%” recorded in the first section of the form for “this period” and “year to date” bore no relationship whatsoever to the actual gains or losses recorded in the Union accounts referred to on the form.

[302] The “Activity” box bore absolutely no relationship to the actual activity in the Union accounts referred to on the form. The “Illustration” purports to evidence receipt of $2,099,000 on October 12, 2007 in the referenced Union accounts The actual amount received by Union from Cajubi in the account referenced on the form was $1,710,685 – the difference ($388,315) had been wired to Managed Portfolio by Cajubi under the wire instructions sent by the Garcia Defendants (under Union’s name) and was in no way part of the Union account managed by Mr. Hibbs. The activity statement also recorded a 1% “bonus” on October 31, 2007 – again, no such bonus was credited to the account. Finally, “gains to 10/31” of $4,602.85 are recorded as activity in the account – the same figure appearing from the “gains” recorded in the preceding box. No such gains were actually recorded by Union in the account that month.

[303] Mr. Garcia had seen to it that the account opening forms provided to Cajubi for execution directed correspondence from Union to himself instead of to Cajubi. As a result, he received the actual, detailed monthly statements of Union for October and every subsequent month. These were never forwarded by him to Cajubi. Those statements would have revealed precise details of the actual gains and losses each month. They were never sent to Cajubi.

[304] The “Illustration” of activity in October was prepared and sent after October was ended and the actual results of October were fully known and available. As such, there was nothing to “illustrate” and the statement “illustrated” nothing at all that was true or accurate about the Union accounts referenced. It was an illustration of a fictional reality only. Cajubi could have had no conceivable use for such an ex post facto illustration of what did not happen. The only conclusion possible is that the individual Garcia defendants intended Cajubi to accept the document as a representation of reality and to rely upon it as such. Cajubi did in fact so rely as they intended and they were aware of this fact.

[305] Mr. Garcia made a point of sending these “Illustrations” every month and asking for evidence of receipt from Cajubi as if the “illustrations” had some legal or accounting relevance.

[306] As with the statements sent by Mr. Garcia to record the Genesis and First Canadian investments, the statements sent to Cajubi in respect of the Union investments were modified after a few months without drawing any attention to the modifications. Cajubi’s accounting staff continued to receive them and process them as in prior months.

[307] Beginning in January, 2008, the “gains” report title was altered to read “Payable Semi-Annually (at 4%) while a new report entitled “Gains at 14% (arithmetic means of target returns)” was added. This change was made following discussions between Mr. Escurra and Mr. Garcia because the 4% amount displayed appeared “too low to close the year” to Mr. Escurra. The new format showed improved “results” by using the 14% figure. The Activity portion of the report remained unchanged, but continued to record the accrued “gains” as if they were actually activity in the subject account – they were not.

[308] The next change to the format of the reports was the recording as activity in the account the purchases of Columbus Notes in August, October and November 2008. These transactions represented outright withdrawals from the Union account – the Columbus Notes referenced on the “Illustration” were in no way part of the Union accounts referenced on the form.

[309] Mr. Garcia and the Insiders all understood that the balance in the Union trading account was zero by the end of November 2008. In his December 22, 2008 report to Mr. Escurra (prior to the write-downs agreed in January 2009), Mr. Garcia had noted this fact and the fact that only the Columbus Notes remained, but nevertheless undertook that Managed Portfolio “will continue to send via email to the vice-president’s email address (Delgado@cajubi.org.py) the respective monthly illustrations”. This correspondence plainly reveals the deceptive intent of the “Illustrations” – there was no other reason for Mr. Garcia to undertake to continue to send them, and to send them to an “official” email address.

[310] Mr. Garcia was closely examined about these “Illustrations”. His explanations as to why such fictions were produced and duly sent by him each month were hollow, and amounted to little more than saying that he sent them because Cajubi wanted them.

[311] That answer was partly true. Cajubi wanted statements, but it was untrue that Cajubi wanted fictitious ones. He knew that Cajubi was accruing the gains “illustrated” on these statements and the forms were carefully designed to encourage and facilitate Cajubi continuing to do so. The correspondence between Garcia and the Insiders that has been preserved and produced makes it quite clear that the intent of the statements, however formatted, was to support the accrual by Cajubi of the amounts reported. The degree to which Mr. Bogado and Mr. Escurra appreciated that these were fictitious numbers reflecting neither the legal obligations of Union or Managed Portfolio to Cajubi nor the actual state of the account at any point in time is a moot point. Mr. Garcia certainly knew this to be true and knew that Cajubi institutionally (i.e. outside of the Insiders) did not. He sent them and continued to send them for the purpose of deceiving Cajubi and knew Cajubi to be deceived.

[312] That Mr. Garcia fully understood this fact is demonstrated by the care he took to ensure the same fictitious numbers were supplied to Cajubi’s external auditors when needed.

[313] On November 6, 2008, Cajubi sent an audit letter to Union addressed to Mr. Colwell’s attention via fax to Union’s office. The letter asked Union to advise Cajubi’s auditors directly of “all balances maintained for” Cajubi as of September 30, 2008. Mr. Garcia received notice of the pending arrival of this audit request. He knew it was coming by fax and to what number. He sent an email to Heather Roberts asking her to look out for the fax and “as soon as you receive it forward it to me so we can translate and prepare accordingly”, adding “this is Very important, please keep me posted”. Mr. Garcia himself prepared and sent the reply to this letter via return fax. He did so without advising Union or clearing the contents of his report with them.

[314] The response prepared by Mr. Garcia was a deceptive one. It was sent on a cover sheet containing the “Managed Portfolio®” logo as a banner but otherwise without a corporate name. The subject line was “Cajubi – Accts at Union Securities, Ltd. within IAC arrangements” [emphasis added]. In response to the audit inquiry for account balances, Mr. Garcia merely attached the September “Illustration” and indicated that the report attached was issued as of September 30, 2008[^15]. The “Illustration” referenced Union’s actual accounts by number. The fax bore an illegible and unidentified signature that I find was applied by Mr. Garcia.

[315] This response to an audit inquiry asking for account balances from Union was not accidental. It was intended to suggest that the response was coming from Union and that the balances shown in the enclosed “Illustration” were the actual balances as the auditor was requesting. There is no conceivable reason an auditor would have wanted a hypothetical answer to an audit inquiry about actual balances on a given date in the past, still less to receive the answer from an entity (Managed Portfolio) to whom the inquiry was not directed and who did not hold any of the funds in question. The only point of the response prepared by Mr. Garcia was to deceive. It would appear that the deception was successful as there was no follow up from the external auditor. The figures in Cajubi’s accounts were precisely corroborated by the audit reply Mr. Garcia sent. He sent the reply knowing and expecting this to be the result.

[316] The deception aimed at the auditors was not directed at the Insiders though. At the same time as Mr. Garcia was sending a misleading “Illustration” to the auditor, he sent an email to the Insiders containing a summary of the actual results in the Managed Portfolio account noting $4.77 million in “trading losses” and $1.945 million in commissions “of which 91.5% was for the other end”. Mr. Garcia had the accurate and sought-after information at his fingertips. He chose to send a fictitious answer to the auditor in the hope – justified – that it would succeed in deceiving.

Semi-annual payments of 4%

[317] The degree to which Mr. Garcia had successfully deceived Cajubi into accepting Managed Portfolio and the IACs as being part of Union in some fashion is particularly clear in the matter of the semi-annual payment of 4% prescribed by s. 7 of the IACs. There were a total of four IACs in operation and Cajubi sent formal requests to “Union Securities” requesting payment of these amounts “in accordance with the relevant IAC contracts”. None of these requests were actually received by Union although Mr. Garcia arranged to send copies with a “Received” stamp on them apparently signed by Ms. Roberts using the electronic stamp of Ms. Roberts without her authority. Indeed, Mr. Garcia had arranged to set up an email account in Ms. Robert’s name on the “managedportfolio.com” domain controlled by him as well.

Rio Conde and the “Otra Punta”

[318] As with the Genesis and First Canadian investments, the papering of the “otra punta” followed the Union transaction and did not precede it. On October 19, 2007, Rio Conde’s Panamanian nominees forwarded to Mr. Garcia a copy of a simple agreement on Managed Portfolio’s letterhead back-dated to September 21, 2007 addressed to Rio Conde in Panama saying “we are pleased that you have chosen to distribute Managed (Portfolio) services and products” and “your application has been approved and registered in our records”. The letter promised to pay an up-front commission of 12.5% on amounts allocated “on sales generated by you or your subcontractors” and promised to remit such payments to the same designated Swiss bank account as in the other cases.

[319] The letter was sent by email and by courier, the cover email indicating that it was sent at the request of “Mr. Ronnie”, a reference to Mr. Timcke. Mr. Garcia has produced emails from Mr. Timcke to the Panamanian nominees dated October 16, 2007 requesting that they do so.

[320] There is no such application or agreement in evidence nor is there any evidence that Rio Conde or anyone purporting to act on behalf of Rio Conde had any role in “generating sales” or was even aware of the Union Securities transaction until after the fact.

[321] The “agreement” with Rio Conde was a mere fiction designed to paper over what were in fact kickbacks that were negotiated by and paid at the direction of the Insiders. The written record contains numerous instances of discussions conducted on the subject but all of them were between Mr. Garcia and Mr. Escurra with the occasional mention of “the friend” (a term referring to Mr. Bogado).

[322] Of the $2.608 million deposited into the TD bank account of Managed Portfolio, $1,762,455 was wired by Managed Portfolio to the Swiss Bank account designated by Rio Conde, $140,990 was transferred to Cajubi’s account at Union to fund the 1% “signing bonus” Managed Portfolio had agreed to credit Cajubi (not disclosed to Union Securities nor paid by them). The balance ($708,870) was kept by Managed Portfolio.

Garcia Commissions

[323] Union charged Cajubi $100 per trade as is explicitly disclosed in its Account Agreement with Cajubi. What Cajubi was not told by Mr. Garcia was that Union’s normal retail commission fee was only $75 per trade. Mr. Garcia negotiated to increase the fee by 33% to $100 in order to enable Union Securities to pay commissions to him. Managed Portfolio received $15 from each trade paid from this increased commission rate. The total of such commissions paid by Union Securities directly to Managed Portfolio out of the commissions charged by Union Securities to Cajubi was $246,084.57. None of this was disclosed to Cajubi.

[324] The IAC contained the following disclosure in relation to receipt by Managed Portfolio from Union Securities in clause 13(d):

In compliance with the IDA’s By-law 29.6, whereby it states that no gratuities, advantages, or any other consideration in relation to any business of the customer with the member can be provided to someone without prior written consent of the customer, by signing this Contract, [Cajubi] hereby acknowledge that the Investment Agent will receive ongoing compensation form the associate portfolio managers … or licensed brokers, for it’s [sic] ongoing consultation in respect of the Investor, providing such compensation is legally permissible by IDA regulations and laws.

[325] Managed Portfolio was not a member of the Investment Dealers Association and provided no disclosure of the amount of fees received by it from Union Securities to Cajubi. As previously noted, there was no communication to Cajubi either of the amount of such commissions or their method of calculation.

Losses arising from the Union Securities transactions

[326] Cajubi transferred a total of $14,099,000[^16] to a combination of Union Securities and Managed Portfolio in respect of the four investments described.

[327] The Union Securities accounts were entirely liquidated by November 27, 2008 and the net proceeds transferred to the account of Managed Portfolio. The total amount received was $7,095,059.63. This amount was not remitted to Cajubi. $115,040 was retained by Managed Portfolio and $6,980,020 was transferred by Managed Portfolio to Columbus Capital to purchase the Columbus Notes (the losses on which are dealt with below). The plaintiff must also credit the $480,050 in quarterly distributions it received under the terms of the IACs. Its loss net of (i) the Columbus Notes transfer and (ii) the “semi-annual” distributions received is thus: $14,099,000 invested less $6,980,020 transferred to Columbus Notes and less $480,050 in distributions received for a net loss of $6,638,930.

[328] A significant portion of this loss can of course be attributed to trading losses. The account engaged in high volume trading of commodity futures and was savaged by the financial crisis. This lost amount will be beyond tracing. However significant amounts passed through Managed Portfolio’s hands that were not lost on trading: approximately $2.2 million in “up-front” fees transferred to “Managed Portfolio in Trust” (net of distributions made) and proceeds of liquidation simply retained by Managed Portfolio as well as trading commissions paid to Mr. Garcia’s direction by Union Securities over the course of 18 months ($246,084.57) may yet be traced in whole or in part. These have yet to be accounted for.

(g) Columbus Notes

[329] Between August and November 2008, Mr. Garcia caused Managed Portfolio to transfer all of the remaining assets from the Union Securities account to promissory notes issued by “Columbus Capital Corp.”. A total of $7,379,958 of Cajubi’s funds were transferred to Columbus[^17] and resulted in the issuance of the following “Columbus Notes”:

[330] No material financial or physical assets were acquired for this considerable investment although very considerable commissions were taken – without disclosure – by Mr. Garcia the bulk of which were swiftly spirited out of the country to Mr. Garcia’s uncle in Guatemala. A portion of this – US$350,000 – was returned to Canada by the uncle in the form of a bank draft made payable to Mrs. Garcia. It has not found its way to Cajubi though.

(i) The rise and fall of Columbus Capital

[331] Who was Columbus Capital? The corporate record, at least, is fairly straightforward. Columbus Capital was incorporated on August 25, 2008. Its registered office at that time was 20 Queen Street North, Kitchener. Mr. Greg Baker was the sole director and officer of Columbus Capital for the first year at least.

[332] The listed address of Columbus Capital (20 Queen Street North in Kitchener) was a building acquired by the defendant Catan Canada Inc. on January 12, 2006 for consideration of $1 million. Catan had itself only been incorporated days earlier (January 1, 2006) with the defendant Leanne Duscio as its sole officer and director. Mrs. Duscio claims to be its sole shareholder as well.

[333] Whatever the public record shows regarding ownership and control of Catan, the defendant Mr. Anthony Duscio was at all material times the de facto controlling mind and will of Catan. Mr. and Mrs. Duscio both agree that Mr. Duscio made virtually all of the financial decisions in relation to Catan, controlled all of its banking, arranged for the keeping of its books and records, etc. Mrs. Duscio was advised by her husband from time to time what needed signing and, when asked, did so with little apparent curiosity. She had little to no direct information about any of the business undertaken by Catan. There is no evidence that she invested anything in it or played anything but a passive role. Catan was for all intents and purposes Mr. Duscio’s alter ego, an alter ego whose usefulness was greatly enhanced following his bankruptcy.

[334] Mr. Duscio’s departure from USI in or about early 2006 was not an amicable one. It resulted in litigation with other shareholders, litigation that Mr. Duscio credits with causing his own personal bankruptcy filing in early 2008. USI itself ultimately fell into CCAA proceedings of its own for reasons that are not before me in late 2008.

[335] At the time of trial, Mr. Duscio had very recently obtained employment working in a factory while Mrs. Duscio works as a sales assistant in a retail store at a modest hourly wage. Despite their very modest joint income, the couple continues to maintain a lifestyle well beyond what their income would suggest. They live in a custom-built home outside of Kitchener that can only be described as palatial, have a property in Florida that they visit perhaps two times per year and have luxury cars registered to both addresses.

[336] Mr. Duscio had originally hoped to house USI in the Queen Street building but when that situation turned into litigation, Catan was left with a building and no tenant. Mrs. Duscio moved her dance studio from her home to the office and began a small-scale business that she described as more of a hobby out of the building. As of mid-2008, Mr. Duscio had little in the way of concrete plans for the building (it was eventually sold in 2012).

[337] A former USI colleague, Mr. Waddell was using an empty office in the building while establishing a new viatical business named Keystone. Mr. Duscio considered himself a “silent partner” in that business, a silence no doubt due to some combination of Mr. Duscio’s bankruptcy filing in 2008 and to the non-competition agreement that he was still bound by in favour of USI. Keystone – with which Mr. Garcia also had some connections – is not the object of this claim and is referred to here only as part of the narrative.

[338] Mr. Duscio met the (former) defendant Mr. Baker through his wife’s dance studio where Mr. Baker’s daughter attended. By mid-2008, Mr. Duscio and Mr. Baker had something else in common apart from their daughters’ interest in dance. They were both undischarged bankrupts - a status that appears to have deterred neither from continuing to pursue business ideas whose central object was raising money from third parties. Mr. Baker had also taken to using one of the vacant offices in Catan’s Queen Street building as a base for business operations while he looked at ways at getting back on his feet.

[339] Mr. Baker had a business idea to which he had been introduced by two acquaintances, the defendants Mr. Lou Maraj and Mr. Brad Breen. These two had contacts with a major internet computer retailer and also with certain lessors of computer equipment. The retailer was prepared to give them firm purchase orders and pricing for refurbished, off-lease computer equipment. All that was needed was the seed capital necessary to pay the up-front equipment costs, refurbishing and shipping.

[340] Mr. Baker had little experience in raising funds for a start-up business. However, he knew Mr. Duscio as someone who might be able to help him raise funds. Neither appears to have viewed their status as undischarged bankrupts as an obstacle. The business seemed to him a sure thing because nothing would be purchased except on the strength of firm commitments from the internet retailer, enabling profit to be locked in and money to be ventured with little risk.

[341] Needless to say, few things in life beyond death and taxes are in fact sure things and this business, as it turned out, was no exception to that iron rule. The odds of success of a new venture are not greatly improved when doing business with people as prepared to commit fraud as brazenly as at least some of those who became tied up in this venture were.

[342] Mr. Baker discussed the idea with Mr. Duscio in mid-2008. Mr. Duscio then discussed it with Mr. Garcia (Mr. Garcia and Mr. Baker did not know each other and did not deal directly with each other in relation to Columbus Capital until after things fell apart). Each of the three saw in this business idea the opportunity for personal profit, although, as it turns out, for very different reasons.

[343] Mr. Baker’s main interest was in ensuring that he, Mr. Baker, did not get cut out of sharing in the profits given his limited intended role in the business and the ease with which he could be by-passed.

[344] Columbus Capital was incorporated on August 25, 2008. Mr. Duscio arranged the incorporation. A month later, Columbus Capital opened two bank accounts at TD (a Canadian and US dollar account). Mr. Duscio and Mr. Baker were listed as signing authorities for both accounts. Since Mr. Duscio was the one actually raising money, Mr. Baker did not protest or question why Mr. Duscio was a signing officer on the bank accounts opened.

[345] Columbus completed its first computer purchase/re-sale transaction in January 2009 on a small scale with some success. Mr. Baker handled none of the funds at this stage – the payment of suppliers was arranged by Mr. Duscio who strictly controlled the money he had raised. Mr. Baker did not know where Mr. Duscio got the funds – as shall be seen this was Cajubi’s money that Mr. Duscio had received from Mr. Garcia. More transactions soon followed and, to Mr. Baker at least, the thing seemed to be taking off. Tensions began to grow, however, as profits were being earned on each contract but nothing ever seemed to be available to pay the partners working in the business for what they were doing.

[346] Things fell apart in early June 2009 after less than six months of operation. Mr. Baker had discovered various banking documents and ledgers in Mr. Duscio’s office showing a very high volume of funds that had been moved through Columbus Capital – far beyond what the business he knew of could account for. Mr. Duscio’s bookkeeper kept Catan’s records and had been directed by Mr. Duscio to keep the accounting records of Columbus Capital as well. The records also showed very large commission payments been paid to a certain Mr. Nicolas de Leon, a name Mr. Baker was not familiar with.

[347] The scales having quickly fallen from his eyes, Mr. Baker immediately took steps as sole shareholder and director to change the signing officers on the Columbus Capital bank account on June 9, 2009 and ultimately transferred the remaining funds in the accounts to new accounts established by him. Mr. Duscio was entirely frozen out of access to Columbus Capital’s funds. Litigation followed soon afterwards.

[348] At trial, Mr. Duscio sought to minimize his involvement in Columbus. He claimed that he had no real role in the business and was only shown as a signing officer at the bank as a favour to enable him to look after the interests of friends who had been persuaded to invest in Columbus on the faith of Mr. Duscio’s recommendation. He claimed to not be involved in the business undertaken by Columbus Capital beyond a friendly interest and perhaps the making of an introduction or two.

[349] Mr. Duscio’s attempt to minimize his role was simply not credible. Mr. Duscio is a charmingly convincing but utterly insincere witness. There is simply nothing that he said under oath that I am able to accept unless corroborated. His version of events is utterly contradicted by the documentary record. I accept Mr. Baker’s evidence regarding Mr. Duscio’s role. There is overwhelming evidence of Mr. Duscio’s very close involvement in all aspects of Columbus’ business up until June 2009. He controlled all of the finances, he kept the books, he alone knew where the outside financing came from and he arranged it on his own. No transactions were undertaken except with his approval and no suppliers were paid without his say-so.

[350] I find that Mr. Duscio was the de facto controlling mind and will of Columbus Capital from inception until he was locked out on June 9, 2009, even if he sought to disguise his involvement in this business as well.

[351] Columbus Capital ceased carrying on business soon after Mr. Duscio was locked out in June 2009. While substantially all of the funds that went into Columbus came from Cajubi and from customers paying for purchases financed by Cajubi, nothing whatever has been recovered from it. The cash that remained in the bank on June 9, 2009 and the inventory and accounts receivable on hand at that time have never been accounted for. This is the object of the claim against Mr. Breen, Mr. Maraj and 2138003 Ontario (all noted in default) that shall be dealt with below.

[352] I shall turn now to examine how Columbus Capital was unwittingly financed by Cajubi.

(ii) First Columbus Note

[353] On August 14, 2008, Mr. Garcia opened a new account at TD Bank in Kitchener under the name of Managed Portfolio. There is conflicting evidence before me as to whether the account in question was opened in the name of Managed Portfolio alone or under the name “Managed Portfolio ITF Cajubi”. The issue did not arise until very near the close of evidence at trial. I do not find it necessary to decide this particular evidentiary conflict. There is no evidence of any actual trust documentation having been created. The Garcia Defendants do not dispute that the funds deposited into the account were Cajubi’s.

[354] Early the next morning, Mr. Garcia instructed Union to transfer $3 million from Cajubi’s trading account to the newly opened account TD account by wire transfer. He identified the account name as “Managed Portfolio ITF Cajubi” in his confirming email to Union.

[355] It is clear that this new TD account was opened for the express purpose of receiving the funds transfer from the Cajubi’s Union account.

[356] Managed Portfolio was able to effect this transfer by reason of the power of attorney granted to it in the account opening documentation with Union that Cajubi had signed. While Cajubi’s agreements with Union contained sufficiently general agency authority to permit Managed Portfolio to request this transfer, the IAC contracts did not. Each of the IACs between Cajubi and Managed Portfolio specifically provided that all of Cajubi’s assets were required to be “held in the custody of Union Securities” as Custodian and that Managed Portfolio as “Investment Agent” would “not have authority to take or have possession of any assets of the Account … or to direct delivery of any Investments or payment of any funds in the Account to itself”. The transfer was a direct violation of the IAC.

[357] There is no evidence that Cajubi or the Insiders were made aware of the existence of this new “in trust” account or of the very large funds transfer made to it. I do not accept Mr. Garcia’s evidence that he received oral authorization from Mr. Escurra to effect this transfer. The two communicated extensively via email generally and it would have been out of character for such a large transaction to have been the object of no more than a telephone discussion never confirmed in writing. Further, despite the fraudulent and dishonest nature of much of what Mr. Escurra and Mr. Garcia arranged in relation to Cajubi’s funds, there was a clear pattern of at least appearing to adhere to approval formalities in the case of things as fundamental as funds transfers.

[358] There is no evidence that even the Insiders were aware that any funds had left Union’s control. It is entirely possible that they expected funds were being shifted within the Union account, but there is no record of this either.

[359] The first Columbus Note was dated August 22, 2008. The documents apparently underlying the purchase of this first Columbus Note are (i) a proposal letter dated August 15, 2008 from Columbus to Managed Portfolio ITF Cajubi; (ii) a letter re: funds transfer dated August 21, 2008; and (iii) a “Demand Promissory Note” promissory dated August 22, 2008. Each of these documents was drafted and revised in a series of emails exchanged between Mr. Garcia and Mr. Duscio in August and early September, 2008. None were executed until long after the funds had already been transferred by Mr. Garcia to Catan.

[360] I write “apparently underlying the purchase” because virtually nothing was as it appeared on the face of these three documents:

(a) The “president” of Columbus who executed these documents was described as Mr. Vijay Paul. This was the name of a real person with a peripheral connection to Mr. Duscio and the “Columbus Capital” business idea (he in fact raised a small amount of funds for it that was lost as well). However, the “real” Mr. Paul was never an officer or director of Columbus, never saw or knew of any of these documents at the time and certainly never signed them. His signature was a forgery and this was certainly known to Mr. Duscio who either forged Mr. Paul’s signature himself or procured someone else to do so;

(b) The forged signatures were not placed on the documents until after September 3, 2008;

(c) The letters contained references to “your managed futures account” and the IACs falsely suggesting a non-existent connection between the Columbus Notes “investment” and Union; and

(d) Columbus Capital did not exist when the funds were actually advanced or when any of the documents purported to be drafted and signed.

[361] The form of the “Demand Promissory Note”, it must be said, is something of a parody of an actual promissory note. It was printed on elaborate paper stock intended to resemble a bond or other security certificate. Although called a “demand” promissory note, it also had specified dates for repayment of principal and interest. Proceeds were represented as being invested in certain unidentified “negotiable or non-negotiable investment instruments or vehicles or contracts issued by high rated North-American financial firms or institutions”. These were described as “Collaterals” which the debtor “has agreed, inter alia, to hypothecate, transfer, assign and pledge” to Lender. No actual security agreement exists or was ever drafted nor was the collateral ever identified or even inquired about until many months later. Finally, it called for the personal guarantee of two unidentified shareholders of “lender” (with the word “Borrower” added by hand in substitution). The guarantees too were never drafted nor the shareholder guarantors ever identified.

[362] On August 22, 2008, Mr. Garcia caused Managed Portfolio to transfer $3,000,000 to Catan after receiving an email from Mr. Duscio that day with the bank account information. Mr. Garcia clearly knew that Catan (and not Columbus) was the destination of the funds and he knew that Mr. Duscio would control the funds once transferred.

[363] On August 26, 2008, Catan wired $300,000 (or 10% of the total received) to Mr. Nicolas de Leon Morales. Mr. Duscio caused this wire transfer to be sent at the direction of Mr. Garcia. This amount was described by Mr. Garcia as a commission agreed to by Mr. Duscio – a commission of 10% in respect of a demand promissory note paying only 6.25%.

[364] This commission payment was neither disclosed to nor consented to by Cajubi.

[365] Mr. de Leon is a Guatemalan resident and the uncle of Mr. Garcia. Mr. Garcia claimed to have a “commission sharing” arrangement with this gentleman. Mr. Garcia produced such a written agreement (dated August 15, 2008) in the course of this litigation. However, he admitted under questioning at trial that the written agreement was actually drafted for tax purposes by his tax accountant two or more years after the fact. Mr. Garcia and his companies were then object of tax audits in that time frame. Mr. Garcia nevertheless maintained that the written agreement corresponded to an existing verbal agreement that he in fact had with his uncle in 2008.

[366] I do not accept this late-breaking and highly implausible evidence. Mr. De Leon had nothing whatever to do with Cajubi or Columbus Capital. The suggestion that Mr. Garcia had an agreement to part with the majority of his secret commission in those circumstances is implausible in the extreme. Columbus Capital did not even exist on the date of his alleged agreement with Mr. De Leon. It was a sham document prepared for tax purposes but without any substance. The alleged verbal agreement did not exist.

[367] What did the Insiders know about this transaction and when did they learn it? There is very little contemporary direct evidence to go by.

[368] Firstly, Mr. Garcia sent an email on August 25, 2008 to Mr. Escurra’s personal email stating that the “internal transfer of short term funds ($3M) within the commodities account managed by Marty earns for you (otra punta) CAN$50,000 that will be sent to you today to the Lemontree Account. Please have the people at Rio Conde send me the attached receipt duly signed and sealed to: 103-325 Max Becker Dr., Kitchener… Att: Heather Roberts”.

[369] While Heather Roberts was the actual Kitchener office administrator for Union Securities, the address given by Mr. Garcia was a postal box controlled by him and unconnected to her or to Union Securities.

[370] Apart from the fact that this email clearly confirms Mr. Garcia’s acknowledgement that the “otra punta” transfer to Rio Conde was for “you” (i.e. Mr. Escurra), the email also indicates that Mr. Garcia characterized the transaction to Mr. Escurra as an “internal transfer” within Union and the account managed by Mr. Hibbs. He made no mention of his own commission. The purchase was in no way an “internal transfer” within Union.

[371] Mr. Garcia caused Managed Portfolio to send to Cajubi’s accounting department the usual monthly “Illustration” for the month of August 2008 in early September. The statement records the purchase on August 22 for $3,000,000 of “Columbus Cap. P. Note”.

[372] The direct and indirect references to the Union account in the background documents to the first Columbus Note, the lack of authority for moving the funds out of Union Securities in the IACs, the reference to those same IACs in the text of the Columbus Note, the suggestion of an “internal transfer” in in the private email to Mr. Escurra as well as the reference to the Columbus Notes in the usual monthly statement to Cajubi – all of these lead to the conclusion that Mr. Garcia deliberately deceived Cajubi and the Insiders about Columbus. He deceived both into believing that Columbus was an internal investment performed by Union and within Union.

[373] In fact, Mr. Garcia continued to represent the Columbus Notes as something recommended by Union and/or Mr. Hibbs to Cajubi without any belief that this was true until it became impossible for him to maintain that after Mr. Wadsworth of Union began communicating directly with Cajubi without passing through Mr. Garcia in late August 2009.

[374] As late as August 20, 2009, Mr. Garcia wrote that the Columbus Notes were acquired “based on investment advice provided by Mr. Hibbs and Mr. Colwell”. That allegation was false in every conceivable way and known to be false by Mr. Garcia when he wrote it. He did not retract it until after this litigation was commenced. It was this blatant falsehood that Mr. Wadsworth responded to with a letter to Cajubi sent directly, resulting in Mr. Garcia’s unmasking.

[375] I find that Mr. Garcia deliberately and falsely represented to Cajubi that the $3 million transferred to Catan and purportedly invested in Columbus Notes remained within Union’s control until invested in Columbus Notes, that Mr. Hibbs and Union advised on the purchase and then held the resulting investment.

[376] I also find that Mr. Garcia did not disclose the fact that he was receiving a secret commission of at least $300,000 arising from this transaction. I write “at least” because I cannot find with any confidence that he did not receive more of the funds.

(iii) Second Columbus Note

[377] The second Columbus Note purchase of $400,000 on October 30, 2008 resulted from an ambiguous letter dated October 21, 2008 letter purporting to be from Mr. Hibbs to Mr. Escurra offering to accept a further $400,000 “in the commodities account (fixed income/short term instruments portion)”. There was no such “portion” of the Union account. That is, however how Mr. Garcia described the first Columbus Note in his August 25, 2008 email to Mr. Escurra.

[378] Is this letter genuine? Mr. Hibbs could not say so, but admitted that Mr. Garcia often composed letters to be sent to Cajubi and brought such letters to him for signature after which Mr. Garcia took care of sending them. While it is possible that Mr. Hibbs signed the letter without having noticed the “fixed income/short term instruments” qualification, I find it unlikely that he would have done so. There are certainly enough instances of Mr. Garcia sending letters or documents attributed to Union under false pretences – wire transfer instructions, investment proposals and others – that one more or less adds little to the picture. Mr. Garcia and Mrs. Garcia were prepared to send any number of letters on letterhead that was not their own. This particular letter would have been an odd thing for Mr. Hibbs to sign – the idea that a client thought that it needed “permission” to invest additional funds with its own broker would have appeared more than passing strange to him. Mr. Hibbs certainly had no idea that the letter he was signing – if indeed he did so knowingly – was actually sought by Mr. Garcia to be used to provide cover for an “investment” he knew nothing about (i.e. in Columbus Notes).

[379] On October 28, 2008, Mr. Delgado wrote to Mr. Garcia that the Cajubi Board would be considering the presentation the following day. The presentation to which he refers and the usual prior drafts were not produced.

[380] The new investment was duly approved by Cajubi’s Board on October 29, 2008. The Minutes mention only an investment with Union – there is no mention of Columbus by name. The wire transfer instructions sent following this decision also refer to a transfer to Union even though the account named was that of Managed Portfolio. Cajubi sent confirmation of the investment to the attention of Ms. Roberts at Union. The letter never found its way to Ms. Roberts having been directed by Mr. Garcia to a rented postal box controlled by him instead of to Union’s actual address. There can be no doubt that Cajubi was completely taken in by the deception and continued to believe it was investing with Union.

[381] I find that Cajubi was led to believe that this $400,000 investment was recommended by and purchased through Union. No such transfer was ever sent to Union and Union remained in ignorance of this entire transaction. The funds were sent to Managed Portfolio from which they were electronically transferred from Managed Portfolio’s account to Columbus’ account on October 30, 2008 without the involvement of Union in any way.

[382] Once again, it appears that the paperwork followed this transaction. An email of October 30, 2008 from Mr. Garcia to Mr. Duscio advised him that there was time to put the paperwork together. A promissory note and proposal letter in form materially identical to the First Columbus Note were prepared, back-dated and executed in due course (also with forged signatures of Mr. Paul).

[383] The following commission payments were made in consequence of the Second Columbus Note:

(a) $6,000 to Rio Conde; and

(b) US$55,692.34 sent to Mr. Nicolas de Leon

[384] The payment to Rio Conde was announced to Mr. Escurra in a short email from Mr. Garcia that mentions only that the $6,000 corresponding to the $400,000 was on its way and that “the friend knows what we need here” (referring to Mr. Bogado). No mention of the much larger payment to Mr. de Leon was mentioned.

[385] Mr. Garcia produced the October 2008 “Illustration” in the same format as previous months referencing Union’s accounts by number and implying the Columbus Notes were held within the Union Securities account. They were not. Subsequent months followed this format.

(iv) Third and Fourth Columbus Notes

[386] Following the liquidation of the Union account on November 21, 2008, Union transferred the entire balance in the account - $4.095 million – to “Managed Portfolio ITF Cajubi” as directed by Mr. Garcia.

[387] The third and fourth Columbus Notes were put in place by Mr. Garcia without the involvement of Union using documents materially identical to the first and second Columbus Notes. The following commission amounts were paid/received arising from these last two Columbus Notes:

(a) Third Columbus Note commission paid to Mr. De Leon: US$321,979.66; and

(b) Fourth Columbus Note commission paid to Mr. De Leon: US$127,554.80.

[388] With the purchase of the last Columbus Note on November 28, 2008, Managed Portfolio had completed the liquidation of the account held at Union Securities. Mr. Garcia directed Union Securities to keep the account open with a zero balance. This was not an accident. It provided him with the pretext to continue to have Managed Portfolio send monthly statements to Cajubi regarding the Columbus Notes but describing Union Securities as the “Associate Portfolio Manager”[^18].

(v) Where did the Columbus Notes money go?

[389] By June 9, 2009, when Mr. Baker locked Mr. Duscio out of the Columbus bank accounts, very little of the money transferred to Catan or Columbus Capital remained.

[390] The analysis of where the money went begins with Catan, the recipient of the proceeds of the first Columbus Note in the amount of $3 million on August 22, 2008.

[391] Immediately prior to this transfer from Managed Portfolio, Catan had $292,238 in its TD Canada Trust account and US$13,469.37 in its US$ account[^19]. With very minor exceptions (approx.. $32,000 total), there were no further deposits (excluding internal transfers) into either of the accounts before June 1, 2009 when $513,931.92 was transferred over to Columbus Capital leaving the Canadian and US$ accounts within a few thousand dollars of the balances they had before August 22, 2008.

[392] While I have used the June 9 account “lock-out” as a relevant date for purposes of examining where the money went, I should not be taken as accepting that this is the relevant date from the perspective of the equitable remedy of tracing the property and its proceeds. All of the funds in Catan’s account became impressed with a constructive trust in favour of Cajubi when the funds were initially deposited there as part of a scheme that Mr. Duscio (Catan’s controlling mind) knew to be fraudulent as regards Cajubi.

[393] Over the intervening ten months, Catan’s General Ledger identified $2,079,136 as being funds allegedly expended on behalf of Columbus Capital (excluding the transfer of $513,931.92 on June 1, 2009). This left Catan’s General Ledger showing $406,847.44 owing by Catan to Columbus Capital on June 1, 2009.

[394] Since the balances in the accounts before and after the transfer in of Cajubi’s funds was approximately the same, this demonstrated that at least $400,000 of Cajubi’s funds were spent by Catan (under Mr. Duscio’s direction) that even Mr. Duscio could not find cause to charge to Columbus. Among the larger of the miscellaneous non-Columbus expenditures identified during this time frame:

(a) Advances to Mrs. Duscio’s Dance Studio: $19,231;

(b) Tony Duscio lawyers (paid as accounts payable): $76,558;

(c) Tony Duscio lawyers (charged as shareholder advances): $17,000;

(d) Payroll to Mrs. Duscio starting in January 2009 ($750/wk x 22 = $8,250);

(e) Leanne Duscio: $20,000;

(f) Cash withdrawals ($12,500);

(g) John Duscio ($8,000);

(h) BMW (shareholder advance): $25,890;

(i) Tony Duscio cheque: $5,000;

(j) Home Improvements: at least $32,000 identified.

[395] Overall, it is clear that Catan spent approximately $400,000 of Cajubi’s money on expenditures having nothing to do with Columbus or the use of proceeds represented on the Columbus Notes between the receipt of the $3 million until it transferred $513,931.92 to Columbus Capital on June 1, 2009. There is no evidence that Catan had any “business” beyond owning the 20 Queen Street building from which a small amount of rental income was derived. I need not examine or count every nickel to conclude as I do that all or substantially all of the funds spent by Catan from August 22, 2008 until June 1, 2009 went to personal expenditures of either Mr. Duscio or Mrs. Duscio. Cajubi’s money, once deposited at Catan, became a piggy bank that was drawn upon at will. Mrs. Duscio was given a salary she had not previously drawn, home improvements were made and paid for, luxury car payments were made, etc.

[396] Turning to the $2,079,136 identified as having been spent by Catan on behalf of Columbus Capital, the following appear:

Mr. Nicolas de Leon: $479,105.70

Synergy Motor Inc.: $700,038.94

Clear Skies Holdings: $900,076.00

Transferred to Columbus: $513,931.92

[397] The payments to the two corporations (Synergy and Clear Skies) were to U.S.-based companies associated with Mr. Jim Torchia. No assets were in fact acquired for or transferred to Columbus Capital as a result of either funds transfer.

[398] Mr. Torchia was a long-time business associate of Mr. Duscio during his time at USI and sourced many of the insurance policies from the United States that Mr. Duscio found investors to purchase. Mr. Duscio also alleged that Mr. Torchia had made a personal loan to enable the purchase by Catan of its building which loan somehow became compromised by Mr. Duscio’s bankruptcy.

[399] There was at least some documentation concerning the transaction with Clear Skies Holdings. Mr. Torchia allegedly purchased a crane (in his own name) on August 21, 2008 from North Georgia Equipment Sales for $900,000. A second bill of sale from the same vendor bearing the same date and for the same crane shows a different purchaser (M.S. International: Mark Suthers) and purchase price ($1,314,000). Finally, an undated “Certificate of Ownership” from “Export Capital Group” signed by Mr. Torchia purports to evidence Columbus Capital’s ownership of the same crane located in Georgia at a price of $900,000, with a “profit” noted of $40,000 “scheduled to be returned via sale on or before September 30, 2008”. No crane and no profit or sale price were ever received by Columbus Capital.

[400] Mr. Duscio alleges that both of these transactions with Mr. Torchia were arranged by Mr. Baker, his only role having been to introduce the two. While professing no role in the crane transaction, he claimed to know that there was fraud on the part of the principals of North Georgia Equipment Sales. I don’t believe any of Mr. Duscio’s evidence about this transaction.

[401] Mr. Baker had nothing to do with either funds transfer and I accept his evidence that he knew nothing of the crane transaction. Mr. Duscio alone knows what his arrangements with Mr. Torchia were when the funds were sent to his companies. It is sufficient for these purposes for me to conclude that no asset was acquired by or transferred to Columbus Capital as a result. I infer from Mr. Duscio’s dishonest testimony on the subject-matter that he knows the truth of the matter and has not revealed it. I am entitled to draw an adverse inference that the truth he has withheld would not exonerate him and I do so.

[402] There were other unexplained connections between Mr. Torchia and the Columbus Notes. The “Notary” and “Witness” signatures appearing on the first Columbus Note (alongside the forged signature of Mr. Paul) appear to be from “Nancy DeLuz” and “Katrina Tipton” respectively. Both of these names appear on other documents associated with Mr. Torchia or his businesses. Given that Mr. Paul did not in fact sign the Columbus Note, these signatures are also highly suspect. Mr. Duscio admitted to knowing both names even if he could not identify either signature on the Columbus Note. The use of these two names, known to Mr. Duscio, adds further if circumstantial weight to my conclusion that Mr. Duscio either affixed the forged signatures on the Columbus Notes himself or arranged for someone else to do so, using names of real people known to him.

[403] The proceeds of the three other Columbus Notes (as well as the $513,931.92 transferred by Catan on June 1, 2009) was transferred into the TD bank accounts of Columbus Capital that were also controlled by Mr. Duscio.

[404] The $513,931.92 transferred from Catan on June 1, 2009 was transferred out via wire transfer that same day to parts unknown. Mr. Duscio has not explained what became of these proceeds. There can be little doubt that funds transferred from one account (at Catan) controlled by him to another account controlled by him (Columbus Capital) and wire transferred out on the same day were transferred by him or at his direction. No assets corresponding to the transfer in Columbus Capital’s name have been identified. Mr. Duscio has not accounted for these funds. Columbus Capital’s General Ledger, maintained by Mr. Duscio’s bookkeeper (Ms. Ruxton) was not updated to include either the receipt of the funds into the TD C$ account of Columbus Capital or the destination of the wire transfer out.

[405] As the subsequent Columbus Notes proceeds came into Columbus Capital, the pattern of spending within Columbus Capital as evidenced by its general ledger, followed the same pattern as shown by Catan. Among other expenditures of a clearly personal (to Mr. Duscio or Mrs. Duscio) or unrelated to the computer refurbishment and resale business of Columbus Capital:

Mrs. Duscio’s dance studio: $20,530;

Mrs. Duscio advances: $31,522.81;

Credit Nation: $999,936.10

Commissions to Mr. Duscio: $6,276

Mr. de Leon: $633,465

Mr. Duscio’s legal fees: $39,080

Home improvements: at least $21,000

[406] Once again, Mr. Garcia and Mr. Duscio concur that the payments to Mr. de Leon Morales were made at Mr. Garcia’s direction. The total of such payments made to Mr. de Leon Morales from Cajubi’s funds (between payments made by Catan and Columbus Capital) is thus $1,112,571.

[407] The total amount paid by Catan or Columbus Capital to Mr. Torchia or companies connected to him (Synergy, Clear Skies and Credit Nation) amount to just over $2.6 million. Each of the payments were arranged by Mr. Duscio alone. They were each done without approval from or the knowledge of Mr. Baker (the only de jure officer or director of Columbus Capital). Each such payment was funded almost entirely from the proceeds of Cajubi’s funds that Mr. Garcia had caused to be “invested” in Columbus Notes. I can also safely conclude from the context, Mr. Duscio’s evasions and his persistent lack of candour and honesty that none of these payments were bona fide arm’s length transactions and nor were any able reasonably to be considered as the sort of “investments” generating “collateral” that was the represented use of proceeds on the face of each of the Columbus Notes. I am also able to conclude that Mr. Duscio was fully aware of all of these facts at all material times. What precisely the arrangements were between Mr. Torchia and Mr. Duscio may never be known – enough is known to conclude this much at least.

(h) Other End or “Otra Punta”

[408] Mr. Garcia took the position that none of the investments of Cajubi in Canada undertaken through the Garcia Defendants would have been made absent his agreement to pay what he characterized as “up front” commissions to Rio Conde, an entity he consistently referred to as “Cajubi’s broker”. By Mr. Garcia’s admission, almost $3.5 million was paid by the Garcia Defendants collectively to Rio Conde out of approximately $32 million in funds sent by Cajubi to Canada at his direction[^20]. He alleges that these “up-front fees” were specifically agreed to by senior management of Cajubi and were quite normal.

[409] The total amount of fees paid to Rio Conde on the four investments at issue in this case is as follows:

Genesis: $ 931,942

First Canadian: $ 630,000

Union Securities: $1,762,455

Columbus Notes $ 160,459

Total: $3,484,856

[410] I am able to make the following findings from my review of the thousands of documents produced by the parties relating to the negotiation, administration and unravelling of the various “investments” at issue in this case as well as the oral evidence of the witnesses:

(a) While characterizing Rio Conde as “Cajubi’s broker” consistently, the Garcia issued letters or signed agreements that invariably retained Rio Conde to represent one or the other of the Cajubi Defendants: none of the written agreements created by Mr. Garcia to reflect the funds paid to Rio Conde ever created a direct relationship between Rio Conde and Cajubi and Rio Conde was most certainly not acting as Cajubi’s broker under those agreements;

(b) Neither Mr. Timcke nor anyone alleged to be related to Rio Conde is copied on more than a tiny handful of the thousands of emails and produced;

(c) The amount of the payment to Rio Conde from each investment was the object of negotiations exclusively between either Mr. Bogado or Mr. Escurra on the one hand and Mr. Garcia on the other – Mr. Timcke appears never to have even been copied on that correspondence;

(d) Rio Conde was based in Panama with a Swiss bank account using a random account name (“Lemontree”) operating through attorneys with no actual role in any of the transactions, all circumstances suggesting the payments made were motivated more by a desire for secrecy and anonymity than honest payment for identifiable services;

(e) Mr. Garcia usually confirmed payment of “otra punta” amounts to Mr. Escurra and/or Mr. Bogado alone and did so either before or immediately after wiring the funds;

(f) In correspondence with Mr. Escurra in February 2007, Mr. Garcia reminded Mr. Escurra about the “few “special” exceptions when dealing with your investments and payment of commissions in the most confidential manner possible finding legal and reasonable solutions for each “special favour” that I have been requested to do”;

(g) Mr. Garcia occasionally let his guard down in some emails to the private email accounts of Mr. Escurra mentioning the payment of funds to Rio Conde stating quite bluntly that he had sent the money to “you” (i.e. Mr. Escurra);

(h) All or substantially all of the documents executed by Rio Conde, including invoices directed at the relevant Garcia Defendant, were actually drafted by Mr. Garcia and simply sent to Mr. Escurra to arrange for their execution by the Panama attorneys;

(i) From the first dealing of the Garcia Defendants with Rio Conde (the Genesis investment in April 2007), Mr. Garcia was clearly warned that it was important that Rio Conde’s name not appear in any “document or extract sent to the investor” and he assured by reply that “Rio Conde S.A. does not appear on any document received by the investor” (May 4, 2007);

(j) The Garcia Defendants carefully adhered to this direction to avoid mention of Rio Conde in documents officially sent to Cajubi – whether physical documents or via email - for all subsequent investments as well;

(k) Only the three “Insiders” at Cajubi discussed Rio Conde in emails with the Garcia Defendants and virtually all discussion with any of them on the subject was undertaken via their private (non-institutional) email addresses and often using vague language (“otra punta” instead of Rio Conde or “The One” or “the friend” instead of Mr. Bogado) and with subject lines emphasizing the ultra-confidential nature of the discussion;

(l) The wire instructions sent by the Garcia Defendants never identified the purpose of wire transfers directed to them “in trust” and subsequent account statements invariably treated the “in trust” amount as if it had actually been invested instead skimmed off the top as an “up-front fee”;

(m) None of the contracts presented by the Garcia Defendants to Cajubi for signature explicitly described the “up front” fees paid to Rio Conde or mentioned Rio Conde by name.

[411] All of the evidence before me and leads inexorably to the conclusion that Mr. Escurra and Mr. Bogado had a significant direct or indirect personal interest in the payments made to Rio Conde. Mr. Delgado was certainly “inside the tent” for discussions about many of the payments, but I cannot reach the same conclusion in regard to him with any confidence. Mr. Garcia and the Garcia Defendants directed Cajubi to make almost $3.5 million in wire transfers to accounts controlled by them “in trust” with the intention of using all or substantially all of the funds so transferred to pay Rio Conde, but studiously avoided alerting Cajubi’s personnel or Board to that fact when arranging the wire transfers.

[412] I find that each of these payments was in substance a corrupt kick-back that the Garcia Defendants agreed to pay in whole or in substantial part for the benefit of persons known to stand in a fiduciary relationship to Cajubi. Each such payment was known to be a corrupt and dishonest payment when it was made. Each was intended to encourage the Insiders to breach their fiduciary duties to Cajubi by working to secure Cajubi’s approval of investments through the Garcia Defendants

[413] On this one point at least, I accept Mr. Garcia’s evidence: none of the investments would have been approved or made without the agreement of the Garcia Defendants to make these corrupt payments.

Analysis and Discussion

(a) Liability of Garcia Defendants

(i) Credibility of Mr. & Mrs. Garcia

[414] I have concluded that I can attach no weight to the sworn testimony of either Mr. or Mrs. Garcia except in the case of admissions against interest or where credibly has been otherwise safely corroborated. The same holds true of the documents they have tendered in evidence. Documents – and in particular emails – in their thousands have been filed by the Garcia Defendants into evidence while only a relative few of them were subjected to direct scrutiny at trial. Sufficient instances of documents bearing “cc’s” that were never copied, letters sent by the Garcia Defendants on third party letterhead without authority, the use of multiple email identities, received stamps of third parties applied without authority by the Garcia Defendants, backdated documents, and allegedly original documents that were never seen by their purported authors have been uncovered to cause me to view all such documents with wariness.

[415] I have made a number of findings regarding some of these documents – many, such as the many emails sent under the name of Ms. Ponciano through an email account she had no knowledge of, speak volumes of the dishonest and deceitful schemes of their true authors (the Garcia Defendants), but are of little direct relevance to the issues requiring determination here. The liability of the Garcia Defendants is amply demonstrated at the inception stage of the various investments without getting lost in the weeds of untangling the means by which they continued to attempt to obscure their schemes later on. Such behaviour is corroborative, but the wealth of evidence is such that further corroboration becomes superfluous after a point.

[416] Patricia Garcia’s testimony portrayed herself as a wife who provided only occasional clerical help for her husband’s business and someone who possessed minimal knowledge of what was going on about her. She described herself as sending the various letters and emails signed by her that are in evidence only after these were first composed entirely by her husband and then signed by her either without reading them or having only glanced at them. She also admitted to sending numerous emails, again allegedly on the unquestioned directions of her husband carried out without inquiry.

[417] She essentially claimed that she signed what she was asked to sign, sent what she was asked to sign and understood little to none of it and asked no questions. Her husband was behind everything and alone knew what was going on. She only filed documents and did simple bookkeeping.

[418] While the behaviour she described, considered in the context of what she was doing (e.g. sending letters directing millions of dollars in the names of third parties she had no authority from) crosses well past the line of recklessness or wilful blindness that are the moral and legal equivalents of actual knowledge, the self-portrait she painted bears little relationship with reality.

[419] It became clear during her testimony that Mrs. Garcia had quite a detailed grasp of what was going on in the various corporations she helped maintain. She was familiar with the names of the entities and persons associated with this case. She was quite familiar with the various contracts entered into. She knew with little need for prompting just what her assigned corporate role was in each legal entity she was connected to (director, officer, etc.).

[420] Mrs. Garcia prepared and signed many dozens of letters, faxes and emails. Large numbers of these, including wire transfer instructions in the millions of dollars, were prepared on the letterhead of or using the logos of companies she knew did not belong to the Garcia Defendants while directing funds to accounts controlled by them. She created at least three distinct signatures and used them with consistency. She corresponded via email using a variety of names and email addresses, again with consistency. Any inconsistency on her part might have raised suspicions and caused the house of cards to come down about their heads. She transferred hundreds of thousands of dollars to her own account from the corporate accounts she managed with cheques she drew up herself and signed. She was careful and meticulous.

[421] I conclude that Mrs. Garcia knew exactly what she was doing. While it is clear that Mr. Garcia had the direct contact with the Insiders and played a more central role in drafting presentations or in communicating with the various legitimate Canadian entities the family was seeking to impersonate, she was her husband’s full and conscious partner. She played a direct and indispensable role in preparing and sending communications whose fraudulent intent she cannot have failed to understand.

[422] Mr. Garcia’s dishonesty pervades this case to an even greater degree. It is evident in the disingenuous explanations of the “otra punta” and his own attempt to portray his role as that of creating “structured solutions” for Cajubi. It is evident in the meticulous charade created to assimilate his own shell companies with established Canadian companies while keeping his own name from being visibly attached to any of them. It is evident in the sales presentations he prepared that artfully, but fraudulently misrepresented the nature of the “investment product” being sold, pushing just the buttons that needed pushing (and with the coaching of the Insiders to guide him). It is evident in the myriad of addresses and email accounts deployed to convey the correspondence of but two people to one single “client”. It is evident in the false addresses to which Cajubi’s correspondence to Union or First Canadian was re-directed to himself alone. It is evident in the monthly statements that bore less relationship to reality with each passing month that he knowingly agreed to prepare for the express purpose of being relied upon as accurate by Cajubi into which he inserted just enough to confuse and create plausible deniability. It is evident in the letters forged or obtained by subterfuge. It is evident in the dozens of instances where Mr. Robert’s stamp was used without authority or letters or emails were sent out under Ms. Roberts’ or Ms. Ponciano’s name without their knowledge.

[423] Two instances where Mr. Garcia’s dishonesty was clearly on display are highlighted here. They both relate to the Columbus Notes affair, one prior to the litigation and one during it (under oath), the latter involving Mrs. Garcia as well.

[424] From the very beginning of the Columbus Notes “investment”, Mr. Garcia had taken pains to create the impression that Columbus Notes were in some way associated with Union and that Union was and remained the custodian of all of the funds referred to in the three IACs. It will be recalled that the IACs did not authorize Managed Portfolio to hold any of Cajubi’s money, a prohibition Mr. Garcia treated as more of a guideline than a rule. This particular deception targeted Cajubi and the Insiders and involved Mr. Garcia helping himself to a particularly large payday. He deliberately and falsely characterized the purchase of the first Columbus Note to Mr. Escurra as an “internal transfer”. He created monthly statements that purported to report on the state of the Union account for Cajubi’s accountants that also referred to the Columbus Notes as if held there. He continued to claim to Cajubi that Mr. Colwell and Mr. Hibbs had recommended Columbus Notes as late as August 2009, and had the nerve to copy the letter to Mr. Wadsworth at Union. Mr. Wadsworth exploded and challenged Mr. Garcia to prove this allegation in a letter sent directly to Cajubi’s Board members – breaching for the first time Mr. Garcia’s carefully controlled screening of communications between Canadian investee companies and Cajubi’s “institutional” mail. It was in response to this letter than Mr. Garcia wrote a panicked email plea to Mr. Escurra for support now that his name was publicly connected to this investment (and recognizing that the connection to the others would soon emerge).

[425] Mr. Garcia admitted the charge made in his letter that Mr. Colwell and Mr. Hibbs were involved in the Columbus Notes investment was false, but sought to attribute this to anger. I cannot excuse this behavior so lightly. These statements were all deliberate lies on his part, not mere “mistakes” due to anger. These lies were prepared, refined and repeated with meticulous calculation over a period of one year and maintained and repeated for months after Messrs. Hibbs and Colwell had parted company with Union. This deception was calculated, persistent and served a defined goal.

[426] After the litigation was commenced, a considerable focus of the various examinations that occurred was the Columbus Notes matter and, in that connection, the very transfers of funds to Mr. Nicholas de Leon Morales in Guatemala soon came to light. Each of Mr. Garcia and Mrs. Garcia were examined under oath about Mr. de Leon and directly asked how it was that they knew him.

[427] Mrs. Garcia claimed not to remember how she knew him “at this time” when examined prior to trial despite having received $350,000 from him directly and despite his obvious and close family connection. I have no hesitation in concluding that her answer was deliberately dishonest and given despite being under oath. She lied and lied with a purpose – to keep Cajubi off the trail of funds that led to her and to her family.

[428] Mr. Garcia also gave deliberately false answers to similar direct questions about Mr. de Leon, referring to him as a “business associate”, a “colleague” or a “financial adviser” without mentioning his family connection when this answer was directly called for. Mr. Garcia directly denied that Mr. de Leon had “anything to do with Cajubi” when in fact more than a million dollars of funds claimed by Cajubi in the very litigation he was being examined about had been transferred to Mr. de Leon at his direction. Once again, these were deliberate lies and lies told with a purpose – to keep Cajubi off the trail of funds that led to him and to his family.

[429] This façade of lies regarding Mr. de Leon was not dismantled until immediately prior to trial when the escape of the cat from the bag was imminent and inevitable. In the meantime, years had gone by where the plaintiff might potentially have been able to trace or recover some of the substantial funds directed his way by the Garcia Defendants.

[430] I found both witnesses prepared to be dishonest whenever they thought a dishonest answer might advance their cause. Both of these witnesses have demonstrated a willingness to part with the truth only when all other options have been exhausted. I attach no credibility to the testimony of either Mr. or Mrs. Garcia except in matters without controversy, where contrary to their interests or where satisfactorily corroborated by other sources.

(ii) Applicability of the indoor management rule and true nature of the “Otra Punta” payments

[431] This issue is in fact the central pillar of the Garcia Defendants’ position in this case. Their position is that everything that was done was approved by one or more of the Insiders and as such, they are entitled to rely upon the indoor management rule.

[432] The flaw in this position is that the indoor management rule cannot be relied upon to excuse fraud of the person invoking the rule. The simple fact is that each of the four investments that underlie this claim – Genesis, First Canadian, Union and the Columbus Notes – was procured by reason of the secret commissions that the Garcia Defendants caused to be paid to or to the direction of the Insiders and the fraudulent misrepresentations made as to the nature of the investments being proposed.

[433] The Garcia Defendants knew full well that the Insiders were acting corruptly and they worked actively with the Insiders to prevent Cajubi from discovering that fact. They knew that neither Cajubi personnel nor the rest of Cajubi’s Board could be allowed to see behind the charade they were creating and that any breach of the veil of secrecy created risked bringing everything down about them. As a result they worked with the Insiders to create the tightly controlled channels of communication that ensured things stayed that way.

[434] Fraud unravels all and the indoor management rule will not stand in the way of the cleansing process. The contrary suggestion is not worthy of consideration.

(iii) Liability for fraudulent misrepresentation, breach of fiduciary duty, knowing assistance and knowing receipt

[435] The facts found by me in this case support multiple theories of liability, many of which overlap. No novel application of the applicable legal theories is required and a summary of these principles will suffice.

[436] The tort of Fraudulent misrepresentation was recently summarized by the Supreme Court of Canada in Bruno Appliance and Furniture, Inc. v. Hryniak, [2014] 1 SCR 126, 2014 SCC 8 at para. 21 as requiring proof of the following four elements:

(1) a false representation made by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); (3) the false representation caused the plaintiff to act; and (4) the plaintiff’s actions resulted in a loss

[437] A convenient summary of the applicable principles governing the existence of a fiduciary duty and the consequences of such a relationship being found to exist can be found in Hodgkinson v. Simms, [1994] 3 SCR 377, 1994 CanLII 70 (SCC) where Laforest J. writing for the majority described an agency contract as the “paradigm example” of a contractually-imposed fiduciary duty (at S.C.R. p. 407) whereas advisory relationships will attract fiduciary responsibilities "where the function the advisor represents himself as performing, and for which he is consulted, is that of counselling an advised party as to how his interests will or might best be served in a matter considered to be of importance to his personal or financial well-being, and in which the adviser would be expected both to be disinterested, save for his remuneration, and to be free of adverse responsibilities unless the contrary is disclosed at the outset”: Hodgkinson at S.C.R. p. 410-411. The existence of unilateral discretion is also a hallmark of a fiduciary relationship: Hodgkinson at S.C.R. p. 410.

[438] A fiduciary duty may also arise as a result of the imposition of a constructive trust. In Soulos v. Korkontzilas, [1997] 2 SCR 217, 1997 CanLII 346 (SCC), McLachlin J. writing for the majority, summarized the constructive trusts (at para. 17) as:

an ancient and eclectic institution imposed by law not only to remedy unjust enrichment, but to hold persons in different situations to high standards of trust and probity and prevent them from retaining property which in “good conscience” they should not be permitted to retain. This served the end, not only of doing justice in the case before the court, but of protecting relationships of trust and the institutions that depend on these relationships.

[439] Examples of remedial constructive trust cited by McLachlin J. include property obtained through breach of a fiduciary duty (at para. 36) and where the fiduciary has acted by “diverting a contract, purchase or other opportunity from his beneficiary to himself” (at para. 37.

[440] Finally, a fiduciary duty or constructive trust imposed upon a corporation may also be imposed upon another – an affiliate, an officer or director of the corporation – under the related but distinct theories of knowing assistance in a breach of trust (or fiduciary duty) or knowing receipt of trust property: Air Canada v. M & L Travel Ltd., [1993] 3 SCR 787, 1993 CanLII 33 (SCC). Both of these doctrines have recently been reviewed by the Court of Appeal in DBDC Spadina Ltd. v. Walton, 2018 ONCA 60.

[441] The doctrine of knowing receipt requires a finding that the person has received trust property in his or her own personal capacity with actual or constructive knowledge of the breach of trust or fiduciary duty: DBDC at para. 37. It is thus only applicable as against the recipient of property found to be trust property (including property subject to a constructive trust) upon proof of the requisite level of knowledge. It is a form of liability that arises from the law of restitution and is a tool deployed, among other purposes, to trace trust funds that have been misappropriated and restore them to their rightful owner.

[442] The doctrine of knowing assistance is fault-based instead of restitution-based. It requires proof that the person, with knowledge, participates in or assists the defaulting trustee or fiduciary in a fraudulent or dishonest scheme: DBDC at para. 40. Actual knowledge includes recklessness or wilful blindness: Air Canada at para. 39.

[443] In my view the application of these principles to the case before me is straightforward.

[444] I shall begin be examining fraudulent misrepresentation in the case of each of the four investments. There can be no question that each of them was brought about by deliberate and fraudulent misrepresentations as to who Cajubi was dealing with and as to what Cajubi was investing in. Of less direct relevance to liability, but equally pervasive, is the continued deception that was employed to shield the schemes from detection and the continued reliance placed by Cajubi in terms of making fresh investments and in terms of booking gains that did not exist. I shall then move on to consider the aspect of breach of fiduciary duty because each of the contracts also created agency and trust relationships expressly and because, by reason of the fraud at the inception of each contract, a constructive trust arose over the proceeds of that fraud that extends both to funds received from Cajubi and to benefits received in consequence (i.e. undisclosed commissions. misappropriated trading gains and any other misappropriated funds).

[445] In the case of the Genesis investment, the following defendants are involved: Mr. Garcia, Mrs. Garcia, Genesis LA (Alberta) and Genesis LA (Ontario). The IACs were all entered into between Genesis LA (Alberta) and Cajubi. However, the presentation was prepared by Mr. Garcia, Mr. and Mrs. Garcia both prepared and sent the correspondence received by Cajubi that formed part of the scheme. Genesis LA (Ontario) actually received Cajubi’s “in trust” funds (purportedly part of each AC) pursuant to the wire transfer instructions sent by Mrs. Garcia and put itself forward as purchaser of the LPLP 2007 units using the funds sent by Cajubi to LPLP 2007’s escrow law firm in trust. All four are equally liable as principals and as parties providing knowing assistance to this scheme. While Mrs. Garcia has claimed general ignorance of the goings-on, I have rejected her denials. Her actions sending letters and wire instructions on letterhead of a public company causing funds to be wired to her family’s control rise to the level of recklessness and wilful blindness at all events.

[446] The following false and fraudulent misrepresentations were made by the Garcia Defendants in relation to the inception and maintenance of the Genesis investment:

a. That the proposal made to Cajubi’s Board was that of Genesis Land or an affiliate thereof instead of the presentation of a shell company incorporated by the Mr. and Mrs. Garcia;

b. That each AC was also entered into by Cajubi with an affiliate of Genesis Land and with the knowledge and approval of Genesis Land;

c. That letters and wire transfer instructions appearing to emanate from Genesis Land were in fact genuine communications from Genesis Land and not communications from Mrs. Garcia;

d. That LPLP 2007 was conservatively capitalized and would use equity capital only to acquire the land;

e. That Cajubi would acquire a direct ownership interest in LP units of LPLP 2007;

f. That Cajubi was eligible to own such LP units directly notwithstanding its non-resident status;

g. That the entire “Allocation Amount” was to be applied to the purchase of LP Units from LPLP 2007 instead of acquiring an equitable interest only from Genesis LA (Ontario) who purchased the same units at a discount from the disclosed price using Cajubi’s own funds;

h. The proposed investment was not influenced by the promise of corrupt inducements in the form of the “otra punta” payments made to the direction of the Insiders;

i. That Mr. Garcia was not connected to Genesis LA (Alberta);

j. That the monthly statements accurately showed actual transactions and gains and provided a reasonable basis to accrue monthly gains; and

k. That such monthly statements were prepared and sent by Genesis Land or an affiliate thereof.

[447] Cajubi entered into the relevant Genesis investments and deferred taking steps to enforce its remedies in reliance on these false representations that were made expressly or by implication. Knowledge that some or all of these representations were false would have caused Cajubi to refrain from completing the transaction or have caused it to seek immediate restoration of its funds.

[448] The relevant Garcia Defendants sought diligently and deliberately to implant each and every one of these false understandings and to maintain them following completion. Discovery of the false nature of these representations after completion of any of the investments would have also dissuaded Cajubi from making any of the subsequent investments it made with the Garcia Defendants in ignorance of the connections between them. In this way, the fraudulent misrepresentations used to induce one investment form part of the cumulative fraudulent misrepresentations that lie at the heart of the subsequent investments.

[449] Cajubi has restricted its claim for losses regarding Genesis to $1 million. Its actual losses far exceed that amount.

[450] In the case of First Canadian, the relevant Garcia Defendants are Mr. Garcia, Mrs. Garcia, FCIC and FC Int. Each of these actively and knowingly participated in making the following fraudulent misrepresentations to Cajubi:

a. That the First Canadian investments were not connected to the Genesis investments themselves induced by fraudulent misrepresentation;

b. That the presentation made to Cajubi’s Board was made on behalf of and with the approval of First Canadian and that the proposed “NSAD®” notes was actually a product of First Canadian;

c. That the IACs were agreements with First Canadian or an affiliate thereof rather than a shell company with a similar-looking name;

d. That Mr. Eddie Obregon was a real employee of First Canadian and not Mr. Garcia using an alias with the intent to deceive;

e. The proposed investment was not influenced by the promise of corrupt inducements to the Insiders in the form of the “otra punta” payments;

f. That correspondence sent to First Canadian by Cajubi was not re-directed to false addresses or otherwise intercepted by the Garcia Defendants;

g. That the type of assets to be purchased have demonstrated “appreciation in value” that has historically been “significantly higher than the yield objective” of the “NSAD®” note instead of being highly speculative “pink sheet” or unlisted securities without any such track record;

h. That the securities to be purchased were to be the object of a careful and rigorous selection process by a “credit committee of the bank” to identify only those “properties featuring rapid capital gain” and that Cajubi’s purchases were “authorized and supervised by securities authorities of Canada” instead of being clients of First Canadian from whom it would receive commission, warrants and equity for each successful sale completed that would be shared with the Garcia Defendants;

i. That the wire transfer instructions received were genuinely those of First Canadian and not instructions from an unrelated company using First Canadian’s logo without authority;

j. That the entire amount wired pursuant to the wire transfer instructions was to be used to acquire investments (including the “in trust” component), that all such funds were held by First Canadian or affiliates and none would be diverted to pay undisclosed fees; and

k. That the monthly statements were authorized and approved by First Canadian and accurately reported the funds applied to purchase investments and accurately reflected gains earned.

[451] These representations were all false and all actively fostered by the relevant Garcia Defendants. None of the investments would have been approved by Cajubi’s Board or funded had knowledge of their false and fraudulent nature emerged prior to closing. Cajubi has lost $5.822 million of its invested funds as a result of its reliance upon the false representations expressly or impliedly made by the relevant Garcia Defendants.

[452] In the case of Union, the relevant Garcia Defendants are Mr. and Mrs. Garcia and Managed Portfolio. Each of these actively and knowingly participated in the following fraudulent misrepresentations made to Cajubi expressly or by implication:

a. That the Union investment was not connected to the Genesis or First Canadian investments or Mr. Garcia and that Managed Portfolio was similarly not connected to any of the Garcia Defendants;

b. That the presentation made to Cajubi’s Board by Ms. Ponciano was both approved and authorized by Union;

c. That the proposed investment was not influenced by the promise of corrupt inducements in the form of the “otra punta” payments made to the direction of the Insiders;

d. That Managed Portfolio was an affiliate of Union and not a newly-incorporated shell company controlled by the individual Garcia Defendants;

e. That Cajubi entering into the IMAs was a requirement of Union in order to have allow Mr. Hibbs to invest the funds deposited under the Account Agreement and that the IMAs were authorized and approved by Union;

f. That Union’s traders had a “track record of yields of 20% over 10 years”;

g. That Cajubi would receive and did receive copies of all account statements and other correspondence sent to it by Union instead of being retained by the Garcia Defendants;

h. That correspondence sent by Cajubi to Union Securities was not re-directed to other addresses or otherwise intercepted by the Garcia Defendants;

i. That emails and letters showing as being copied to Union were in fact so-copied;

j. That correspondence appearing to come from Union or bearing “received” or similar stamps from Union were actually received by Union or sent by Union as the case may be;

k. That Union approved a “target return” of any kind;

l. That no monies were transferred out of the possession of the Custodian (Union);

m. That the Columbus Notes were arm’s length investments entered into with the knowledge, approval and recommendation of Union;

n. That no “otra punta” payments or undisclosed commissions were paid to the Garcia Defendants or at their direction arising from the Columbus Notes investment; and

o. That the monthly “Illustrations” sent were prepared and approved by Union and reflected actual activity in the named Union accounts and that gains at least equal to those reported had in fact been achieved in the relevant month.

[453] The representations were all false and all actively fostered by the Garcia Defendants. None of the Union investments would have been approved by Cajubi’s Board or funded had knowledge of their false and fraudulent nature emerged prior to closing. Cajubi has lost $12,460,930 of its invested funds as a result of its reliance upon the false representations expressly or impliedly made by the Garcia Defendants.

[454] All of the agreements entered into by Cajubi with the Garcia Defendants were thus induced by fraudulent misrepresentation and the relevant Garcia Defendants are liable for all losses suffered in consequence thereof.

[455] Further, all funds transferred to or to the order of the Garcia Defendants and all benefits received by them in consequence of these agreements are impressed with a remedial constructive trust (limited to $1 million in the case of Genesis) and may be recovered to the extent still traceable. This brings into the analysis the law of fiduciary duty.

[456] Each of the ACs or their replacements the PNACs (governing the Genesis investments), the IACs (governing the First Canadian investments) and the IMAs (governing the Union investments) contain explicit language conferring agency authority upon the relevant Garcia Defendant. The IACs and the IMAs confer explicit discretionary investment authority as well. All funds transfers made at the direction of the Garcia Defendants to fund these investments were explicitly made “in trust”.

[457] There can be no question that the Garcia Defendants to whom any funds were entrusted by Cajubi received such funds as fiduciary both by reason of the express contractual terms governing the investment and by reason of the remedial constructive trust that is imposed upon the proceeds of the fraudulent misrepresentation by which those contracts came into being. Conceptually, the latter takes precedence over the former.

[458] By reason of the constructive trust arising, the relevant Garcia Defendants had a continuing duty as constructive trustees to restore such funds to Cajubi forthwith and to account for any benefits received arising therefrom.

[459] This means that all of the funds wired to the Garcia Defendants directly were received subject to a remedial constructive trust and must be accounted for and restored. It also means that all amounts that were received from Genesis, First Canadian, Union, Catan or Columbus Securities arising directly or indirectly from the Cajubi investments (each of which I have found to have been induced by fraud) are similarly subject to a constructive trust and must be accounted for and restored, including commissions paid to or at the direction of the Garcia Defendants (such as to Mr. Nicholas de Leon). Finally, it means that any other benefits received by the Garcia Defendants that arose from such agreements – in particular the misappropriated profits from the VMS transaction – must be accounted for and restored. Appropriate authority to trace and recover such funds as have been transferred away from the Garcia Defendants into hands that knew or ought to have known of their fraudulent origins must also be granted.

(iv) Punitive damages

[460] Mr. Garcia orchestrated a deliberate and long-running fraud. He enabled the payment of millions of dollars in kickbacks to the order of senior fiduciaries of the plaintiff for the purpose of incenting those fiduciaries to divert to his control tens of millions of dollars in pension funds. Those funds were directed by him into wildly risky and inappropriate investment structures that resulted in huge losses to the plaintiff but benefitted him personally to the extent of further millions of dollars in secret side commissions. The Columbus Notes affair had not even the semblance of a legitimate cover to recommend it and resulted in the outright theft of further millions. His actions were characterized by deliberate deception and dishonesty.

[461] As discovery of these schemes became increasingly likely, Mr. Garcia resorted to still more dishonesty. Fictitious email accounts were created and correspondence sent without authority. One by one, persons who played any role in these matters, be it deliberate or unwitting, fell victim to anonymously sent vicious letters that I have concluded were sent by Mr. Garcia. Many lost their jobs or advantageous connections as a result – Marty Hibbs and Ms. Ponciano in particular. Police were sent on false trails by Mr. Garcia attempting falsely to portray himself as a whistleblower. Plaintiff’s counsel were subjected to baseless accusations and complaints over several years.

[462] A summary of the evidence of Mr. Garcia’s vengeful actions intended to harm the reputations and means of earning a living of those with whom he came into contact in working his schemes against Cajubi follows. Some of the actions were taken overtly by Mr. Garcia (complaints to regulators or the police) while others were done anonymously (plain brown envelopes left with friends/employers/neighbours) or by way of anonymous internet postings. Mr. Garcia is the one common denominator all of these have and the tone and tenor of the various communications is consistent with his actions. I conclude without hesitation that he was the author or moving force behind all of them. The summary:

a. Mr. Hibbs (of Union Securities): correspondence that I attribute to Mr. Garcia was sent to present and former business associates of Mr. Hibbs including Business News Network resulting in Mr. Hibbs being removed from their roster of guest experts;

b. Mr. Wadsworth (of Union Securities): correspondence I conclude emanated from Mr. Garcia was sent to colleagues, neighbours, regulatory authorities and family;

c. Mr. Tsimidis (of First Canadian): similar correspondence I conclude emanated from Mr. Garcia sent to colleagues, friends, regulators and others;

d. Mr. Baker (Columbus): Mr. Garcia directly threatened him with the prospect of being visited by Central American gang members;

e. Ms. Ponciano (recruited by Mr. Garcia): correspondence sent to the RCMP and to her employer that resulted in her dismissal when she declined to lie for Mr. Garcia any further;

f. Mr. Censale (former defendant Mackie Research Capital): slandered on web posting made by Mr. Garcia;

g. Cajubi’s counsel: Mr. Garcia has made groundless but serious allegations against six lawyers from the plaintiff’s law firm to the Department of Justice, the Minister of Justice, the RCMP and the Law Society of Ontario;

h. Cajubi itself: Mr. Garcia has complained of being the victim of this law suit to the President of Paraguay, Paraguayan prosecutors, Fintrac, Interpol and even the United Nations.

[463] Mr. Garcia’s vicious and vindictive behaviour is as worthy of exemplary sanction as any seen by this court.

[464] Then there is the matter of the fraud itself. Mr. and Mrs. Garcia must both assume responsibility for their dishonesty and fraud, their deliberate breaches of fiduciary duty and for the extensive efforts made to defer the recognition of their fraud during which time the plaintiff may well have lost the ability to trace substantial sums.

[465] Punitive damages are to be assessed separately from compensatory damages. Whereas compensatory damages are intended to place the wronged party as nearly as can be accomplished by a monetary award in the position it would have occupied had the wrong not occurred, punitive damages have a different object. Punitive damages “are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own”: Honda Canada Inc. v. Keays, [2008] 2 SCR 362, 2008 SCC 39 at para. 62.

[466] There can be no question that the actions of Mr. and Mrs. Garcia have been both advertent and outrageous and are deserving of punishment on their own. The actions of Mr. Garcia both in making deliberately fraudulent representations and in conducting what can only be described as a campaign of terror directed at those who might testify against him both require exceptional treatment. I assess Mr. Garcia’s responsibility at a higher scale than that of Mrs. Garcia for the reasons given.

[467] I am ordering Mr. Garcia to pay punitive damages to Cajubi in the amount of $250,000 and Mrs. Garcia to pay punitive damages to Cajubi in the amount of $100,000.

(b) Liability of Anthony Duscio, Leanne Duscio and Catan

i. First Columbus Note

[468] Mr. Duscio arranged for the first transfer of $3 million to Catan on August 22, 2008, ostensibly to permit “Managed Portfolio ITF Cajubi” to acquire the First Columbus Note. He was the controlling mind and will of Catan at the time even if his wife Leanne was the titular shareholder and signing officer. He arranged for all of the bookkeeping and banking and took care of matters electronically or arranged for his wife to sign what needed signing.

[469] At the time of the transfer of $3 million by Managed Portfolio to Catan on August 22, 2008, Mr. Duscio knew:

a. That the funds were being transferred from Mr. Garcia’s company Managed Portfolio but belonged in fact to Cajubi – a fact underscored by the documents then being drafted by him that referred to the intended owner of the Columbus Note as “Managed (Portfolio) Corp. ITF Cajubi”,

b. That “ITF Cajubi” meant “in trust for Cajubi”;

c. The Mr. Garcia was acting in a fiduciary capacity in relation to the funds being transferred;

d. That he had agreed to return 10% of the same trust funds received back to Mr. Garcia – the fiduciary who had transferred the money to Catan – as part of a secret commission arrangement that he knew full well had not been disclosed to or approved by Cajubi;

e. That Mr. Garcia’s acceptance of this $300,000 bribe – for no other word describes it – was a breach of his fiduciary duties to Cajubi and the bribe was paid in whole or in substantial part with Cajubi’s own funds, Mr. Duscio being a bankrupt without access to such funds;

f. That the funds received by Catan were at least ostensibly intended to fund the purchase of a “Columbus Note” from Columbus Capital and not Catan, Columbus Capital being a company he had not yet incorporated;

g. That Mr. Paul, whose signature was required on all of the draft documents being prepared (and back-dated) knew nothing of the transaction and he had no intention of advising him of it or seeking his approval;

h. That he intended instead to procure or apply forged signatures of Mr. Paul for the documents underlying the transaction that were still being finalized which documents he never intended to be more than for show to deceive Cajubi;

i. That he intended to cause Catan to transfer almost $1 million of the funds so received immediately to his long-time friend and associate Mr. James Torchia for purposes having no connection whatsoever to the use of proceeds representations made on the Columbus Note which he intended Cajubi to rely upon.

[470] Catan knew what Mr. Duscio, its directing mind and will knew. Mr. Duscio arranged for the receipt of the $3 million by Catan and was responsible for authorizing and actually disbursing virtually all of those funds by Catan. The facts known to Catan and Mr. Duscio establish that Cajubi’s funds were received by Catan as a consequence of fraud and in breach of fiduciary duties owed by Managed Portfolio to Cajubi. This in turn leads to the conclusion that the funds were received by Catan impressed with a constructive trust in favour of Cajubi. Catan breached its obligations as constructive trustee by failing to hold the funds separate and apart and failing to take immediate steps to return them to Cajubi.

[471] Instead of discharging its trust obligations to Cajubi, Catan violated them as quickly and as often as possible. The money was dissipated on secret commissions paid to Mr. Garcia via an intermediary in Guatemala in circumstances that belie the existence of a bona fide belief that it was thereby discharging its obligations to Cajubi as constructive trustee. Other proceeds of the funds were spent on clearly personal items for the benefit of the Duscio family having no connection with Cajubi while still other funds were sent to Mr. Torchia. None of these expenditures could reasonably be expected by Catan to discharge its obligations to Cajubi as constructive trustee.

[472] As officers and directors – de jure in the case of Ms. Leanne Duscio and de facto in the case of Mr. Anthony Duscio – of Catan, the liability of Catan for breach of the constructive trust by which it was bound falls equally upon the shoulders of Leanne Duscio and Anthony Duscio. These two both provided knowing assistance in Catan’s breach of trust: Air Canada.

[473] The particulars of the knowing assistance of Anthony Duscio needs no elaboration. He was one of the architects of the fraud perpetrated upon Cajubi and he actively and knowingly authorized and directed the dissipation of the funds received by Catan that he knew or ought to have known came subject to a constructive trust in Cajubi’s favour.

[474] In Leanne Duscio’s case, I find that her passive acquiescence in her husband’s schemes went beyond mere trust and faith and crossed the line into wilful blindness. She knew that her husband had filed for bankruptcy earlier that year and she knew generally what reverses had led him there. She continued to sign as needed cheques and authorizations for very large quantities of money to transit through her company without due inquiry and in circumstances where she ought to have been on inquiry. She cannot hide behind her own wilful blindness to avoid the consequences of facilitating her husband’s fraud.

[475] Mr. Duscio’s liability can of course also be established through the application of the law of fraudulent misrepresentation: Bruno Appliance and Furniture, Inc. He prepared a promissory note from a company not yet incorporated, arranged a forged signature on both the note and the accompanying documents soliciting the investment, the forged promissory note contained representations regarding the security to be taken and the use of funds that Mr. Duscio knew were false when made, he intended for Cajubi to rely upon the fraudulently created promissory note and the fraudulently made promises of security and use of funds and Cajubi did so rely.

[476] Cajubi is entitled to judgment against Mr. Duscio, Mrs. Duscio and Catan in the amount of $3 million and to a tracing order permitting it to trace its funds.

i. The Second, Third and Fourth Columbus Notes

[477] In the case of each of the last three Columbus Notes, Mr. Duscio was the operating mind of Columbus Capital even if he held no formal office. It was he who arranged for the (forged) signatures of documents evidencing these “investments” on behalf of Columbus Capital, it was he who directed his bookkeeper to keep Columbus Capital’s books and it was he who strictly controlled deposits and withdrawals from Columbus Capital’s bank account (that he had also arranged to open). Mr. Duscio’s knowledge was that of Columbus Capital as regards these funds that he caused to be deposited into Columbus Capital’s bank account and to be disbursed from it.

[478] Mr. Duscio and therefore Columbus Capital knew that the source of funds for each of the latter three Columbus Notes was “Managed (Portfolio) Corp. ITF Cajubi” an acronym he knew meant “in trust for Cajubi”. He knew the funds were trust funds belonging to Cajubi. He knew that he had agreed to pay a secret bribe to Mr. Garcia to cause Mr. Garcia to transfer Cajubi’s funds into his control. He knew that each of the Columbus Notes to be delivered to Managed Portfolio as agent for Cajubi were fraudulent both as to their signature and as to the statements regarding security and intended use of funds.

[479] The same doctrines applied to the analysis of the first Columbus Note – knowing receipt/knowing assistance and fraudulent misrepresentation – can be applied to the transfer of $4,379,958 to Columbus by Mr. Garcia and Managed Portfolio in October and November, 2008 and the delivery of the last three Columbus Notes. Mr. Duscio is liable for the fraud he knowingly assisted Columbus Capital to perpetrate upon Cajubi and for knowing receipt of funds transferred by Managed Portfolio to Columbus Capital in breach of the former’s fiduciary duties to Cajubi. There is no evidence that Mrs. Duscio or Catan had any direct role in Columbus Capital or its misappropriation of trust funds.

[480] Mr. Duscio must be held liable to restore to Cajubi the full amount invested in the Columbus Notes less any recoveries received to date. Cajubi is also entitled to a constructive trust over all of the amounts transferred to Catan or Columbus Capital and to trace any proceeds in the power possession or control of Mr. Duscio.

[481] Mr. Duscio’s conduct was brazenly fraudulent and caused enormous harm to Cajubi. Mr. Duscio’s conduct amounts to theft and he cannot have failed to be conscious of it. He knowingly received trust funds and put them to personal use. These facts also clearly support a substantial award of punitive damages.

[482] I am assessing Mr. Duscio’s liability for punitive damages at $100,000. This is intentionally near the high end of the spectrum for punitive damages given the outrageous conduct shown while being intentionally below the level applied against Mr. Garcia whose fraud was longer in duration, was more carefully pre-meditated and inflicted more damage.

(c) Claims against defendants noted in default

[483] Apart from claims against the Garcia Defendants and the Duscio Defendants, the plaintiff has either settled or withdrawn all of its claims with the exception of (i) Columbus Capital; (ii) Brad Breen, (iii) Lou Maraj and (iv) 2138003 Ontario Inc. These four defendants have been noted in default and are deemed to admit the allegations made against them in the statement of claim. My task is therefore restricted to assessing whether the facts pleaded against them state a cause of action and applying the evidence adduced at trial regarding damages to the pleaded causes of action. The claims as against all four are related to the Columbus Notes matter.

[484] As maker of the four Columbus Notes, Columbus is liable in contract for the full amount of such notes being:$7,379,958 plus interest at the contractual rate as follows:

a. As to $3,000,000 in principal, at the rate of 6.25% per year calculated annually from August 22, 2008 both before and after default and judgment;

b. As to $400,000 in principal, at the rate of 6% per year calculated annually from October 30, 2008 both before and after default and judgment;

c. As to $1,130,430 in principal, at the rate of 6% per year calculated annually from November 28, 2008 both before and after default and judgment; and

d. As to $2,849,528 in principal, at the rate of 6% per year calculated annually from November 28, 2008 both before and after default and judgment.

[485] The evidence establishes that none of these amounts have been repaid at maturity despite demands made for payment.

[486] Can Columbus Capital, although noted in default, be held liable upon what I have found to be forged promissory notes? While the evidence at trial (and not the facts pleaded and deemed admitted) has established that the notes were signed with a forged signature and that the person whose signature was forged (Mr. Paul) was not an authorized signing officer of Columbus at all events, none of these facts are pleaded. The notes are pleaded and deemed admitted.

[487] In my view, the evidence adduced at trial – even if it contradicts the admissions made by Columbus Capital – does not change the situation materially. The evidence at trial established that Mr. Paul’s signature was forged and that he was never in fact an officer of Columbus Capital. It also established that Columbus Capital was operated as the alter ego of Mr. Duscio with the blessing of Mr. Baker, its sole shareholder and officer at the time. Mr. Baker was not aware of the frauds being perpetrated by Mr. Duscio during this time frame, but he had knowingly allowed Mr. Duscio to take control and did so precisely because he was aware that Mr. Duscio was raising money and the money he raised was Cajubi’s money delivered in consideration of the Columbus Notes. This state of affairs lasted until June 9, 2009 when Mr. Baker asserted control and ousted Mr. Duscio. The Columbus Notes were delivered by someone with apparent authority vested in him by the one person with actual authority. Columbus Capital would, on these facts, be estopped from pleading the fraud in the note itself as against the victim of that fraud. It was the actions of Mr. Baker – who had authority – that enabled Mr. Duscio to claim to be clothed with authority to act on behalf of Columbus Capital.

[488] In addition, the Statement of Claim pleads that Columbus Capital “had no legitimate corporate purpose” and “was a corporate vehicle to facilitate the transfer of [Cajubi’s funds at Union Securities] to Garcia and his business associates”. It also pleads that $4,379,958 was deposited into the bank account of Columbus which were transferred out in circumstances that constitute “improper conversion and improper personal use of funds”. The proper use of such funds (purchase of negotiable instruments of highly rated North American financial firms) is also pleaded.

[489] The facts pleaded establish the liability of Columbus Notes on the four pleaded promissory notes as well as a proprietary claim for a constructive trust and the remedy of tracing as regards the $4,379,958 that is alleged to have been converted improperly.

[490] Mr. Breen and Mr. Maraj and 2138003 are alleged to have received “at least $410,000 of Cajubi’s funds from either Columbus or Catan or both”. They are also pleaded to have received such funds when they “knew or were wilfully blind to the fact that their delivery …constituted a breach of trust and wrongful conversion of Cajubi’s funds”.

[491] The evidence led at trial establishes that these three were responsible for what Mr. Baker and they at least thought that Columbus Capital was intended to be doing (i.e. buying off-lease computers, refurbishing them and selling them over the internet via a major on-line retailer). After Mr. Baker froze Mr. Duscio out of Columbus’ bank account in June 2009, new accounts were established and Mr. Maraj, Mr. Breen and 2138003 proceeded to collect existing accounts receivable and realize upon assets purchased with the funds advanced from Columbus’ account. The evidence establishes that these defendants have failed to account for $933,871 in accounts receivable at Columbus Capital and the closing cash value of the remaining accounts ($94,338) for a total of $1,028,209.

[492] The evidence at trial and the admitted facts establish the liability of such three defendants for failing to account for $1,028,209 of the plaintiff’s funds that were taken in breach of trust and wrongful conversion. Cajubi is entitled to judgment in such amount and to a constructive trust on the proceeds (if any can be found) of such funds.

(d) Claims of Union Securities

[493] Union Securities cross-claimed against Mr. Garcia, FCIC and Managed Portfolio for contribution and indemnity in respect of any amounts it may have been ordered to pay the plaintiff plus its own costs including investigation costs incurred in responding to this claim. Union withdrew its claims against its former employees (Mr. Hibbs, his personal corporation and Mr. Colwell) as well as its claim against Ms. Ponciano. Union Securities was also able to settle Cajubi’s claim against it without having to pay any damages to Cajubi.

[494] Accordingly, the cross-claim of Union Securities is now restricted to the claims for indemnity of costs of this action – including investigation costs – as against Mr. Garcia and the two corporations through whom he interacted with Union Securities (FCIC and Managed Portfolio).

[495] The Garcia Defendants bear sole responsibility for Union Securities costs of defending this action and of investigating it. The far-reaching fraud of the Garcia Defendants was designed to implicate Union in the scheme and to do so without Union’s knowledge.

Disposition

[496] The individual Garcia Defendants are ordered to pay to Cajubi $20,843,888 as damages for fraudulent misrepresentation broken down as follows:

a. Genesis: $1,000,000 (capped claim);

b. First Canadian: $5,825,000 net losses on investment.

c. Union Securities (not Columbus): $6,638,930 net losses on investment;

d. Columbus Notes: $7,379,958 net losses on investment

e. Total: $20,843,888

[497] Genesis LA (Alberta) and Genesis LA (Ontario) shall be jointly and severally liable with the individual Garcia Defendants to Cajubi as to $1,000,000. FCIC and FC Int. shall be jointly and severally liable with the individual Garcia Defendants to Cajubi as to $5,825,000. Managed Portfolio shall be jointly and severally liable with the individual Garcia Defendants to Cajubi as to $14,018,888 (Union Securities plus Columbus).

[498] The forgoing amounts are for liquidated damages and exclude constructive trust and tracing remedies. The following amounts (and any traceable proceeds thereof) are impressed with a constructive trust in favour of Cajubi:

a. All amounts transferred to or received by the relevant Garcia Defendants arising directly or indirectly from Cajubi’s Genesis Land/LPLP 2007 investment to a maximum amount of $1 million;

b. All amounts transferred to or received by the relevant Garcia Defendants arising directly or indirectly from Cajubi’s First Canadian investment including all commissions or other amounts received by the Garcia Defendants from First Canadian and any proceeds of the sale of any securities purchased through First Canadian in trust for Cajubi and not remitted to Cajubi to a maximum amount of $5,825,000;

c. All amounts transferred to or received by the relevant Garcia Defendants arising directly or indirectly from Cajubi’s Union Securities investment including all commissions or other amounts received by the Garcia Defendants from Union Securities and including any proceeds of any account at Union Securities in the name of Cajubi remitted to or at the direction of the Garcia Defendants or any of them to a maximum amount of $14,018,888 (in combination with the amounts referred to in the subparagraph next following);

d. All amounts transferred to or received by the Garcia Defendants arising from the Columbus Notes investment from any source including Catan and Columbus Capital including any commissions or other amounts directed by any of the Garcia Defendants to Mr. Nicholas de Leon Morales or any account controlled by him and any amounts arising from transfers made by any Garcia Defendant to Catan or Columbus Capital to a maximum amount of $7,379,958.

[499] The Garcia Defendants are ordered to account to Cajubi for all amounts referenced in the preceding paragraph. The plaintiffs shall be entitled to letters of request permitting them to seek further information pertinent to the tracing of such funds from: (i) Clariden Leu bank in Zurich, and (ii) Mr. Nicholas de Leon Morales in Guatemala; (iii) Mr. Ronald Timcke; and (iv) other parties on application with evidence as to the information sought from such person.

[500] Anthony Duscio and Columbus Capital are ordered to pay to Cajubi the sum of $7,379,958 in respect of the Columbus Notes matter, their liability for such amount being joint and several with each other and with the individual Garcia Defendants and Managed Portfolio. The money received in respect of the Columbus Notes was procured through fraud and fraudulent misrepresentation for which both are liable.

[501] The liability of Ms. Duscio and her company Catan is restricted to the Cajubi funds that were actually received by Catan ($3 million). Should the plaintiff uncover evidence supporting tracing other amounts found by me to be subject to a constructive trust into the hands of either Catan or Ms. Duscio, further application may be made on the basis of such additional evidence of knowing receipt of funds subject to a constructive trust.

[502] The following amounts (and proceeds thereof) are impressed with a constructive trust in favour of Cajubi:

a. All amounts transferred to or received by Anthony Duscio, Leanne Duscio, Catan or Columbus Capital in any way arising from transfers by the Garcia Defendants to Catan or to Columbus Capital or in any way arising from the Columbus Notes including any amounts received from Mr. James Torchia or any entities affiliated with or controlled by him to a maximum amount of $7,379,958.

[503] Anthony Duscio and Patricia Garcia are ordered to pay Cajubi $100,000 in punitive damages. This amount shall be subject to post-judgment interest only.

[504] Mr. Eduardo Garcia is ordered to pay Cajubi punitive damages in the amount of $250,000. This amount shall be subject to post-judgment interest only.

[505] The liquidated amounts ordered payable shall bear pre-judgment interest as follows:

a. Relevant Garcia Defendants amounts re Genesis: from November 11, 2007;

b. Relevant Garcia Defendants amounts re First Canadian: from January 23, 2008;

c. Relevant Garcia Defendants amounts re Union Securities: from March 17, 2008;

d. Relevant Garcia Defendants amounts re Columbus: from October 30, 2008;

e. Leanne Duscio and Catan: from August 22, 2008, 2008;

f. Columbus Capital and Anthony Duscio from the date of each Columbus Note at the stipulated interest rate $6.25% for the first note; 6% for the last three) from the date of each such note calculated annually until judgment and at the same rate following judgment.

[506] In the case of the $20,843,888 payable by the Garcia Defendants, pre-judgment interest has been assessed as of the date of the last transfer from Cajubi in connection with the relevant investment. In the case of the Leanne Duscio and Catan, the date of the transfer of Cajubi’s funds to Catan (August 22, 2008) has been used. The reference to “Relevant Garcia Defendants” means Mr. Garcia, Mrs. Garcia and the corporate Garcia Defendant(s) connected to the particular investment as described above.

[507] It is in my view just and equitable that Mr. Duscio’s liability for pre-judgment interest ought to track the promissory notes (the Columbus Notes) he caused to be created and delivered with fraudulent intent.

[508] The interim relief granted by me following the hearing of this case is confirmed and is not superceded by this judgment. All freezing orders and orders for the production of information are intended to continue to apply as if incorporated by reference in this judgment.

[509] The plaintiff is entitled to costs assessed on a full indemnity basis and including investigation costs of this action as against the Garcia Defendants and the Duscio Defendants. The costs liability of the Duscio Defendants shall be limited to 35.4% of the total of such costs and the Duscio Defendants shall be jointly and severally liable with the Garcia Defendants for the plaintiff’s costs to such extent.

[510] The costs liability of the Duscio Defendants has been calculated as the ratio of the total costs of the action that the monetary liability of the Duscio Defendants ($7,379,958) bears to the monetary liability of the Garcia Defendants excluding costs, interest and punitive damages ($20,843,888).

[511] In my view it would be impractical and unduly onerous to attempt to segregate the costs of this multi-year litigation involving such detailed and expensive forensic investigations as between these two defendant groups on a line-by-line basis and a reasonable pro rata division of the overall costs of the litigation is a fair and just means of proceeding.

[512] Judgment shall issue as well against Mr. Maraj, Mr. Breen and 2138003 Ontario Inc. in the amount of $1,028,209. All proceeds of any bank accounts of Columbus Capital or of the collection of the accounts receivable of Columbus Capital that have come into the hands of any of these three defendants are impressed with a constructive trust and they are all ordered to account for such proceeds.

[513] Union Securities shall also be entitled to judgment on its cross-claim as against Mr. Garcia, FCIC and Managed Portfolio in respect of its costs of this action on a substantial indemnity basis from May 22, 2014 through to the end of trial. For greater certainty, such costs shall include investigation costs.

[514] The counterclaim and crossclaim of the Garcia Defendants is dismissed.

[515] At the close of trial, the plaintiff provided me with a draft judgment containing the relief it sought in this action. The plaintiff has been largely successful in this action with only comparatively minor corrections brought by me to the amounts claimed. The draft judgment in question included extensive claims for information from third parties designed to further the tracing exercise the plaintiff will be required to undertake to locate and attempt to recover the funds taken from it.

[516] The plaintiff shall be entitled to take out formal judgment consistent with these reasons upon providing a copy thereof to counsel for Union Securities and to all defendants not noted in default. Any party objecting to the form of judgment or any part thereof shall provide me with written reasons for their objection (restricted to five pages in length) within fourteen days. The plaintiff shall be entitled to reply within three business days of such objection. I shall finalize and sign judgment based upon comments received after the time for making such submissions has expired.

[517] The plaintiff and Union Securities have been awarded their costs as set forth above. The following procedure shall govern the settling of such costs as I have awarded:

a. The party entitled to costs shall provide an outline of costs claimed pursuant to my order together with such written submissions regarding the amounts claimed (not to exceed 10 pages) within thirty days of the date of release of these reasons to the party from whom such costs have been ordered to be paid;

b. The party ordered to pay such costs shall have 21 days to provide a response to such claim in writing (not to exceed 10 pages in respect of each such claim – the Garcia Defendants responding as a single party and the Duscio Defendants also responding as a single party);

c. Reply submissions if any shall be made within seven further days and be restricted to three pages;

d. All submissions shall be provided electronically (pdf scan);

e. No party need attach case law to their respective submissions unless not readily available on line; and

f. The party claiming costs shall submit to me electronic copies of all submissions (their own and responding submissions) through my assistant with a copy confirming such delivery to any party who has provided responding submissions.

[518] With the exception of the liability of Columbus Capital and Anthony Duscio under the Columbus Notes, all monetary awards bear post-judgment interest in accordance with the Courts of Justice Act. Post-judgment interest payable by Columbus Capital and Mr. Duscio shall be at the rate stipulated in each of the Columbus Notes.

[519] Judgment to issue in accordance with these reasons.

___________________________ S.F. Dunphy J.

Released: October 12, 2018

Date of Corrected Reasons Released: October 24, 2018

COURT FILE NO.: CV-11-9210-00CL

DATE: 20181012

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

CAJA PARAGUAYA DE JUBILACIONES Y PENSIONES DEL PERSONAL DE ITAIPU BINACIONAL

Plaintiff

– and –

EDUARDO GARCIA OBREGON a.k.a. EDUARDO GARCIA a.k.a. EDDIE OBREGON, CLAUDIA PATRICIA GARCIA a.k.a. PATRICIA GARCIA a.k.a. CLAUDIA PATRICIA DE GARCIA a.k.a. CLAUDIA SANTISTEBAN, LIGIA PONCIANO, MANAGED (PORTFOLIO), CORP., GENESIS (LA), CORP. (ONTARIO CORPORATION NUMBER 1653094, GENESIS (LA), CORP. (Alberta CORPORATE ACCESS NUMBER 2013145921), FC INT, CORP., FIRST CANADIAN INT, CORP., UNION SECURITIES LIMITED, SCOTT COLWELL, MARTY HIBBS, HIBBS ENTERPRISES LTD., COLUMBUS CAPITAL CORPORATION, ANTONIO DUSCIO, LEANNE DUSCIO, LEANNE DUSCIO carrying on business as THE QUEEN ST. CONSERVATORY, CATAN CANADA INC., VIJAY PAUL, GREG BAKER, BRADLEY F. BREEN, LOU MARAJ, 2138003 ONTARIO INC., MACKIE RESEARCH CAPITAL CORPORATION, FIRST CANADIAN CAPITAL MARKETS LTD., FIRST CANADIAN CAPITAL CORP., FC FINANCIAL PRIVATE WEALTH GROUP INC., JASON C. MONACO, DANIEL BOASE, PAOLO ABATE, NIKOLAOS SYLIANOS TSIMIDiS, GENESIS LAND DEVELOPMENT CORPORATION, LIMITED PARTNERSHIP LAND POOL (2007), and GP LPLP 2007 INC.

Defendants

AND BETWEEN:

EDUARDO GARCIA, FC INT, CORP., GENESIS (LA), CORP. (ONTARIO CORPORATION NUMBER 1653094), and PATRICIA GARCIA

• and -

UPPER CANADA EXPLORATIONS LIMITED, PARKSIDE RESOURCES CORPORATION, GLOBAL SPORT TECHNOLOGIES CORP., and CAJA PARAGUAYA DE JUBILACIONES Y PENSIONES DEL PERSONAL DE ITAIPU BINACIONAL

REASONS FOR JUDGMENT

S.F. Dunphy J.

Released: October 12, 2018

Date of Corrected Reasons Released: October 24, 2018

[^1]: The “Garcia Defendants” refers to Mr. Eduardo Garcia Obregon, his wife Mrs. Claudia Patricia Garcia (and all names used by each) as well as the companies controlled by them that played a role in these schemes: Managed (Portfolio), Corp., Genesis (LA), Corp. (Ontario), Genesis (LA), Corp. (Alberta), FC Int, Corp. and First Canadian Int. Corp.

[^2]: The “Insiders” refers to Mr. Victor Bogado (President of Cajubi and Chairman of the Board), Mr. Mariano Escurra (Vice-President and later President of Cajubi) and Mr. Walter Delgado (Vice President and then Treasurer of Cajubi).

[^3]: In the case of the Genesis and First Canadian investments, the assurances went to the point of obtaining agreement that the Garcia Defendants would be entitled to any “surplus” beyond the targeted gains as a fee, a concession that made no commercial sense absent a credible guarantee of the minimum return.

[^4]: A settlement with certain former defendants has reduced their liability in respect of the Genesis investments to only $1 million.

[^5]: A further option to purchase “units in land” was also offered and Mr. Garcia assured Mr. Escurra that there was no difference between the two options from Cajubi’s perspective, both having the same economics. That final draft of the presentation containing this option has not survived. I have concluded that the penultimate draft sent on April 10th did not change in any way that is material to this litigation when finalized.

[^6]: A draft of the cover letter from the prior day has survived. I have inferred from the email correspondence before and after that draft that no substantive change as made to the draft when presented to the Board the next day beyond removing Mr. Garcia’s own name.

[^7]: The Delacourt property was purchased on October 15, 2007 for $31.4 million while the Airdrie property was purchased for $21.7 million in 2009.

[^8]: Correspondence from Mrs. Garcia in respect of the execution of the latter two Allocation Contracts survives, I infer similar instructions were given for the first.

[^9]: The Garcia Defendants revised the monthly statements sent in respect of all outstanding investments when specifically invited to do so in response to the financial crisis. The amount and nature of the revisions were negotiated directly with the Insiders in January 2009 and did not reflect an actual arm’s length valuation process of the underlying assets.

[^10]: Some of the documents were signed by Cajubi undated or with only the month filled in. Their precise date of execution is not material.

[^11]: He also proposed a smaller initial amount with regular payments as an option but this was not pursued.

[^12]: The Garcia Defendants tendered into evidence a memory stick containing thousands of documents, only loosely sorted by subject-matter (and nearly randomly sorted beyond that) with minimal descriptions attached and many in the Spanish language only. It soon became clear that many had either not been seen by or at least not reviewed by the plaintiff. They were nevertheless filed without objections being raised. I have reviewed each and every one of them.

[^13]: There is contradictory evidence as to whether this account was in fact called “Managed Portfolio ITF Cajubi” in TD Bank’s records. While I am not satisfied that it was so designated from the outset, the issue is a collateral one. Mr. Garcia freely disposed of the funds within it and no terms of an express trust have been proved.

[^14]: The title of the document “Illustration” in the upper right corner came with an asterisk that referred to a small-print note in the lower corner indicating “subject to contract 07085-C” an indirect reference to the IAC with Managed Portfolio bearing that name. Beyond this indirect footnote reference, there is no reference to the corporate entity Managed Portfolio on the face of the form.

[^15]: The response also included the summary page only of the actual Union statement for the since closed (and successful) separate Union hedging account that had never been part of “Managed Portfolio” or its “Illustrations”.

[^16]: This figure does not include $400,000 that Cajubi thought it invested in Union on October 30, 2008 but was in fact diverted to Managed Portfolio and invested in Columbus Notes as described below.

[^17]: The first transfer was actually to Catan Canada Inc. as noted below.

[^18]: Above the name of Union Securities was the name of Marty Hibbs or “Marty Hibbs (and S. Colwell)” until January 2009 when Mr. Brian Wadsworth’s was substituted following the departure of Mr. Hibbs and Mr. Colwell from Union Securities.

[^19]: These are the figures from the General Ledger – the bank account balances were slightly different due to outstanding items.

[^20]: A further $2 million was invested via Union Securities that was fully repaid before this litigation commenced. Although amounts were paid to Rio Conde in respect of this investment as well, the plaintiff advised during the hearing that it would not pursue a claim in respect of this investment on which it made a profit.