Court File and Parties

COURT FILE NO.: CV-20-00640753-00CL DATE: 20200708 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Associated Foreign Exchange Inc. and Associated Foreign Exchange, ULC, c.o.b. as AFEX Canada, Plaintiffs

AND:

9189-0921 Quebec Inc. c.o.b. as MBM Trading and Mendel Streicher also known as Mendy Streicher and Manny Streicher and Emmeco Inc., Defendants

BEFORE: C. Gilmore, J.

COUNSEL: Gavin J. Tighe and Scott K. Gfeller, for the Plaintiffs Ken Prehogan and Nadia Chiesa, for MBM Trading and Mr. Streicher Alycia Young for the Defendant EMMECO Inc.

HEARD: June 18, 2020

Endorsement on Mareva continuation motion

Overview

[1] The moving party Plaintiffs (“AFEX”) seek a continuation of the ex-parte Mareva injunction Order they obtained on May 27, 2020 against the Defendants. The May 27, 2020 Order was varied on consent on June 8, 2020 (on notice) to permit the MBM Defendants to pay $50,000 to their counsel and $4,230 per month for ordinary living expenses. The matter was further adjourned to June 18, 2020 to permit the MBM Defendants to retain counsel, file materials and for all parties to conduct cross-examinations.

[2] The Defendant Emmeco Inc. was represented at this motion but did not file materials or participate.

[3] AFEX’s claim relates to recovery of an outstanding negative balance of USD $845,030.36 resulting from six USD wire transactions in February 2020 requested and initiated by MBM for payment to various recipients designated by MBM including the co-defendant Emmeco Inc. (“Emmeco”), as well as MBM and Streicher personally. The wire transactions were to be funded through pre-authorized debit withdrawals from MBM’s account, however, the transactions were rejected by MBM’s financial institutions.

[4] The MBM Defendants have acknowledged that they are indebted to the Plaintiffs and tried to work out a resolution before the Plaintiffs proceeded with their ex-parte motion. The MBM Defendants submit that the Plaintiffs have failed to meet the high threshold for a Mareva injunction and it should be immediately discontinued.

Background Facts

[5] AFEX provides global payment and foreign exchange services. Streicher, as President of MBM, has had an account with AFEX since 2014. Streicher executed Pre-Authorized Debit Forms (“PADs”) authorizing AFEX to initiate direct debit withdrawals from MBM’s designated accounts at Caisse Populaire Desjardins Outremont (“Desjardins”) and CIBC and then transfer funds from those accounts to the AFEX account to settle foreign exchange transactions.

[6] Since 2015 MBM has conducted over 1300 transactions in the AFEX Account totalling approximately USD $160,000,000. USD $118,000,000 of these transactions were currency exchanges between MBM’s own financial institutions and USD $500,000 were transfers to Streicher’s personal bank account in New York.

[7] Given the business history between AFEX and MBM, MBM was authorized to make transfers without a clearance hold with a settlement limit of USD $1,000,000. Normally, funds would be subject to a 10-day clearance period.

[8] MBM had a revolving line of credit of up to $2M with CIBC. Between 2017 and 2020 MBM often exceeded its credit limit. In 2019 MBM relied heavily on the line of credit due to a downturn in business.

[9] Between February 13 and February 18, 2020, Streicher instructed AFEX to complete six USD wire transfers on behalf of MBM totalling USD $845,030.36. Those transactions over the five-day period are set out below:

Date, Transaction and Beneficiary

February 13, 2020 - USD $55,000 debited from MBM’s CIBC account and converted by AFEX to CAN $72,875 and paid to MBM’s bank account at Desjardins.

February 14, 2020 - USD $75,000 debited from MBM’s CIBC account and USD $29,000 paid to Streicher’s personal bank account at the Northeast Community Bank in Monsey, New York and USD $12,000 converted by AFEX to CAD $15,870 and paid to MBM’s bank account at Desjardins (the remaining USD $34,000 was used to net the negative balance from the bounced transactions and has been accounted for in the overall amount claimed).

February 14, 2020 - USD $240,000 debited from MBM’s CIBC account and paid to a designated beneficiary Emmeco.

February 18, 2020 - USD $18,882.18 debited from MBM’s CIBC account and converted by AFEX to CAN $25,000 and paid to MBM’s bank account at Desjardins.

February 18, 2020 - USD $390,000 debited from MBM’s Desjardins account and paid to Emmeco.

February 18, 2020 - USD $100,000 debited from MBM’s Desjardins account and paid to Emmeco.

[10] All of the transactions were funded by AFEX in accordance with the settlement limit for the AFEX account. On February 20 and 24, 2020, AFEX received notification from CIBC that the first four transactions had “bounced.” On February 25, 2020 AFEX received notification from Desjardins regarding “insufficient funds” for the last two transactions. Desjardins and CIBC reversed the debit withdrawals leaving AFEX no ability to recall the transactions.

[11] On March 1, 2020 AFEX closed foreign exchange option contracts with MBM to mitigate against future possible losses. This resulted in a combined loss to AFEX of a further USD $150,055.78.

[12] AFEX takes the position that there is evidence to support that CIBC froze MBM’s account on February 13, 2020 due to its failure to provide requested financial information and its ongoing overdraft position, and that Streicher knew they were frozen when he processed the CIBC transactions. While Streicher agrees the CIBC account was frozen, he was not aware of it until after the transactions on February 18, 2020 had been processed. His evidence was that his on line account showed funds available on his credit facility and he would not have proceeded with the transactions had he known the account was frozen. AFEX alleges that Streicher engaged in a form of kiting scheme with AFEX, CIBC and Desjardins and fraudulently took advantage of the AFEX settlement limit.

[13] Demand letters for repayment were sent to MBM in February and March 2020. Streicher has not repaid AFEX despite acknowledging his indebtedness to it. In particular AFEX requested return of USD $29,000 that was transferred to Streicher’s personal bank account in New York. Streicher’s position is that CIBC is the first place lender with security over both his business and personal assets and he must repay them first.

[14] Emmeco received USD $730,000 via three separate transfers that was allegedly misappropriated from AFEX. The President of Emmeco is David Stark (“Stark”) who is the Vice-President and a shareholder in the Defendant 9301-6178 Quebec Inc. (“9301”). Streicher is the President of 9301 and a shareholder.

[15] Streicher’s spouse, Mindy Wasserman (“Wasserman”), Stark, Emmeco and Stark’s spouse Esther Farkas (“Farkas”) are co-borrowers on two loans that are collaterally registered against title to various properties owned by them.

[16] Based on AFEX’s investigations, its position is that Streicher, Stark, MBM and Emmeco have significant joint indebtedness to various creditors and that Streicher and Wasserman are actively encumbering, and thereby depleting the equity in various properties owned by them or by corporations they control.

[17] On May 29, 2020 agents for the Plaintiffs’ counsel obtained an ex parte Mareva injunction in Quebec against the MBM Defendants to the extent of assets held by them, as well as against Mindy Wasserman and 9353-9500 Quebec Inc. (the “Quebec Mareva”). The Quebec Mareva was served on the various financial institutions and registered on title to the real property set out in Schedule A to the Ontario and Quebec Mareva.

The Declinatory Exception and Account Agreement Issues

[18] During the course of argument on the motion to extend the Quebec Mareva, the Defendants argued that Quebec should decline jurisdiction because the parties had chosen by agreement to submit disputes to the Courts of Ontario and specifically in Toronto. On June 15, 2020, Justice Pinsonnault released his judgment and extended the Mareva. He dismissed the Defendants’ argument with respect to the Declinatory Exception.

[19] The MBM Defendants in the Ontario case have raised the issue of jurisdiction and specifically the fact that AFEX cannot locate a signed Account Agreement between MBM and AFEX. Streicher does not deny signing an Account Agreement, his evidence was that he did not remember signing one and that neither party has any documentation to support that he did.

[20] Paragraph 26.4 of AFEX Business Account Application and Agreement sets out that the parties attorn to the jurisdiction of the Courts of Ontario and that any action is to be brought in Toronto, Ontario. The Plaintiffs submit that the MBM Defendants cannot argue in Quebec that Ontario is the correct forum because the parties had agreed to this, and when in Ontario deny that they are bound by the Account Agreement. The Plaintiffs argue that the Defendants should be estopped from altering course before this Court, having failed on the opposite argument in Quebec.

[21] The MBM Defendants argue that there was never any agreement to attorn to Ontario in the Quebec case. They argue that only Quebec has jurisdiction because all the assets are in Quebec and the individual Defendants live in Quebec. There is no basis to proceed in Ontario given the location of the assets and the parties and the lack of a signed Account Agreement.

[22] I agree with the Plaintiffs on this point. Certainly there was no “agreement” between counsel or otherwise to attorn to Quebec jurisdiction. The agreement referred to was obviously the Account Agreement. It is this court’s view that it is absurd for Mr. Streicher to argue that he was moving hundreds of thousands of dollars via AFEX currency exchange services and paying commission without any idea of his obligations to AFEX. It is indeed unfortunate that AFEX cannot find a signed copy of the Account Agreement. That does not mean that all parties acted in accordance with what they believed was the agreement that governed their commercial relationship.

[23] The MBM Defendants also argue that if the Account Agreement is found to be valid and is relied upon by the Plaintiffs, section 24.4 of the Account Agreement would apply. That section requires parties to attend mediation before any court proceeding can be commenced. The Plaintiffs have not offered to attend any form of mediation to date.

[24] I share the Plaintiffs’ view on this point as well. A mediation clause in an Agreement cannot forever oust the court’s jurisdiction, especially in relation to urgent interlocutory relief. It is clear, however, that once the Mareva related issues are dealt with, a formal mediation would be the next step.

The Alleged Fraud re the CIBC Credit Facility and the Transactions

[25] It is not contested that MBM had a credit facility with CIBC up to $2M which was substantially over its limit at various times between 2017 and 2020. Streicher admitted during his cross-examination that 2019 was a difficult year for his business and that by October 2019, MBM was overdrawn on the CIBC facility by $400,000 and had not provided required monthly sales reports to CIBC as required since August 2019.

[26] Streicher produced further evidence that between May 15, 2017 and February 7, 2020, he was contacted by CIBC on eight separate occasions and requested to cover the overdraft.

[27] In October 2019 CIBC demanded MBM’s Financial Statements which were not delivered until February 14, 2020.

[28] Streicher’s communication with CIBC during the critical period of February 13 to February 18, 2020 is in issue given the Plaintiffs’ allegations that Streicher knew, but ignored, the fact CIBC had frozen his account. He knew when he placed the impugned orders that there would be no hold put on the funds and that at the relevant time he was $600,000 over his credit limit. In proceeding with the transactions, the Plaintiffs allege that Streicher engaged in a fraudulent “kiting” scheme transferring funds from accounts he knew were frozen or had no money (Desjardins) to non arms length parties.

[29] Streicher maintains he did not know the account had been frozen until after the impugned transactions had occurred. He was often close to the line or overdrawn on his credit facility. The record is replete with emails from CIBC asking him to bring his credit facility back to the $2M threshold. Streicher submits these were all normal MBM transactions and that when he checked his account on line, he had room for the transactions on his credit line.

[30] In issue on this motion is Streicher’s knowledge of the timing of the freezing of his account with respect to the Plaintiffs having a prima facie case. Streicher denies that he knew as early as February 13, 2020 that the CIBC account was frozen. On February 13, 2020 Streicher sent an email to Marco Folini at CIBC indicating that the overdrawn amounts would be covered shortly. Mr. Folini replied that same day confirming the overdraft would be covered and requesting October 2019 Financial Statements and December reporting. The required financial reports were not delivered until February 14, 2020.

[31] Streicher’s evidence is that he was contacted by CIBC Commercial Banking Team Lead, Alexandra Boulos, on Monday February 17, 2020 at 11:42 a.m. He was asked to call Marco Folini on an urgent basis. Streicher replied he would call him later but did not actually speak with him until the afternoon of Tuesday February 18, 2020. Streicher’s evidence was that on February 17th his CIBC credit facility showed “available funds” of approximately $300,000 [1]. On this basis he continued with the impugned transactions despite the fact that he knew CIBC was trying to reach him on an urgent basis.

[32] On Tuesday February 18, 2020 at 10:12 a.m. he received an email from Mr. Folini advising as follows:

Manny as was mentioned to you verbally yesterday, your accounts remain frozen and only available for deposits. As mentioned we need the December reporting which is late and also we need to clarify and rectify the covenant breaches and determine action plan on a forward basis. Please refrain from writing cheques or making transfers.

[33] Streicher’s evidence is that he cannot recall when he read the 10:12 a.m. email from Folini on February 18th and does not recall the conversation referred to in Mr. Folini’s email which allegedly took place on February 17th. He was aware of his responsibility to ensure that when he did transactions with AFEX, there were sufficient funds in his account. [2]

[34] Streicher’s evidence was that he instructed AFEX to process transactions on his CIBC account on February 18, 2020 before he read the email from Mr. Folini. Streicher further deposed that AFEX made an error in debiting his Desjardins account on February 18, 2020. Those were not his instructions because he knew the Desjardins account did not have sufficient funds to cover the transactions.

[35] I agree with the Plaintiffs that the additional productions resulting from Streicher’s undertakings on examination demonstrate that when CIBC finally received MBM’s 2019 financial statements on February 14, 2020 showing a net loss of $961,010, its position was quite different than its previous tolerance of MBM’s overdrafts. After receiving the financial statements on February 14, 2020, CIBC wrote to Streicher on February 21, 2020 setting out a number of defaults under the credit facility. These included depositing funds at another banking institution (Desjardins), failing to respect reporting requirements and using capital for personal real estate investments.

[36] Streicher had several meetings with AFEX representatives following the impugned transactions. AFEX wanted Streicher to work out a payment plan with them. He advised he could not because his account was frozen and in any event he had to reach a settlement with CIBC before he could make any financial commitment to AFEX.

[37] Streicher’s evidence is that he has been able to reduce his trading debt to CIBC by $1,079M by refinancing and doing sales and collections. Mr. Streicher also has other debts with trade creditors and unsecured lenders. His evidence was that “family and friends are willing to help me out in my situation.” [3]

[38] The Plaintiffs have concerns about Streicher’s position that he is refinancing to pay CIBC and paying down his secured creditor through work and friends. There is no evidence of how this is happening and what funds are moving between family and friends. Despite Streicher’s protestations that he intends to pay AFEX first, the Plaintiffs are concerned that Streicher will put his assets out of reach and use the money from AFEX to pay other creditors (or family) ahead of AFEX. There were no financial statements received from MBM that indicate it is actually earning anything at this time.

[39] Based on all of the above, I find that there is a prima facie case of fraud for the following reasons:

a. At no time in the past had Streicher’s CIBC account been overdrawn as often and as much as it was in January and February 2020. It is clear that there was a link between the production of MBM’s 2019 financial statements on February 14, 2020 and CIBC’s actions thereafter. I infer that Streicher must have had some knowledge that CIBC would change its position about MBM’s overdraft and credit facility at the relevant time but Streicher recklessly proceeded with the impugned transactions. As set out in Sansregret v. The Queen, [1985] 1 SCR 570, recklessness involves “knowledge of a danger or risk and persistence in a course of conduct which creates a risk that the prohibited result will occur”. The culpability in recklessness is justified by consciousness of the risk and by proceeding in the face of it. See Sansregret v. The Queen, [1985] 1 SCR 570 at para. 22.

b. It defies logic that Streicher would not recall reading the critical email on February 18, 2020 which said that his accounts remained frozen and that he did not recall speaking to Mr. Folini on February 17, 2020. I am permitted to and do draw an adverse inference with respect to Streicher’s conduct in that he did not contact AFEX immediately nor did he attempt to return funds sent to his Desjardins account, his personal account or his business partner at Emmeco.

c. Streicher’s insistence that he had clearance of about $300,000 in his credit facility on February 17, 2018 is put in serious doubt when one adds the six impugned transactions which would have put his overdraft in excess of $3M. It is unlikely that CIBC would have allowed such an overdraft in the face of MBM’s financial position at the time and I infer that Streicher knew this.

What Weight Should be Given to Ms. Abbott’s Affidavits of May 22nd and June 12th, 2020

[40] The MBM Defendants seek to strike Ms. Abbott’s affidavits on the grounds that they are based on hearsay and should be given little or no weight. Ms. Abbott’s affidavit was the foundational affidavit in the original Mareva motion. Ms. Abbott is the Global General Counsel for AFEX and has knowledge of their business practices.

[41] The MBM Defendants submit there is no purpose to these affidavits because Ms. Abbott was not present for the conversations on which she reports. The Plaintiffs could have attempted to obtain affidavits from Mr. Manashirov or Ms. Yoon but did not. Further, Ms. Abbott did not join AFEX until 2015 and therefore cannot comment on compliance procedures at the time when MBM opened its account in 2014. Ms. Abbott is also not in a position to give evidence about the PAD forms as she had no direct knowledge of the arrangement between AFEX and MBM re pre-authorized debits.

[42] I agree with the Plaintiffs on this issue that it is somewhat of a red herring. First, Ms. Abbot does not depose that she has personal knowledge of what happened during the MBM account opening stage although it would not be unusual for a General Counsel to provide evidence of standard account opening procedures.

[43] Ms. Abbott’s evidence on the PAD form is based on the fact that MBM account funded hundreds of transactions with AFEX over the years using a pre-authorized debit arrangement. Similar to the argument about the lack of existence of a signed account form, it is not logical that a pre-authorized debit arrangement for transactions of this size was not based on some form of agreement even if the agreement can only be confirmed by the parties’ conduct.

[44] In terms of Ms. Abbott’s evidence about conversations between AFEX employees and Mr. Streicher, she was simply trying to put forward the information that AFEX had about Streicher’s position. Doing otherwise would not fulfill its obligation to provide full disclosure for the ex-parte motion. In any event, much of her recounting of Streicher’s position was not contested and was not material to the main issues.

[45] In summary, I find that Ms. Abbott attempted to provide the best evidence she could in relation to the Plaintiffs’ burdens of proof on both the ex-parte and the comeback motion.

Has the Test to Continue the Mareva been met?

[46] The court’s authority to grant a motion to extend an ex parte injunction is a hearing de novo and the presiding judge may consider the original record, transcripts and all material filed on the comeback motion.

[47] For a Mareva injunction, the moving party must, in general, satisfy the court that (a) it has a strong prima facie case; (b) it will suffer irreparable harm if the injunctive relief is not granted; (c) the balance of convenience favours the granting of the injunction; (d) the responding party has assets in the province of Ontario; and (e) there is a serious risk that the responding party will remove property or dissipate assets before the granting of a potential judgment. See OPFFA v. Paul Atkinson et al, 2019 ONSC 3877 at para. 6.

[48] The moving party is also obligated to make full and frank disclosure of all material matters within his or her knowledge, and must give particulars of the claim against the defendant(s), stating the grounds of the claim and the amount thereof, and the points that could be fairly made against it by the defendant.

[49] For the reasons set out above, I find that not much has changed since the original Mareva Order was granted. In fact, there is more evidence to support that Streicher on behalf of MBM must have known or was wilfully blind to the fact that CIBC would no longer tolerate his overdraft practices as MBM was not profitable enough to do so. The funds from AFEX went to Streicher personally or to his partner, but upon finding out that his CIBC credit facility was frozen he made no effort to return those funds to AFEX despite the possibility that the funds were still accessible to him.

[50] Much was made by the MBM Defendants about the fact that there is no evidence that Streicher or MBM have assets in Ontario. They reiterate that they do not have the burden of proof and that the Plaintiffs are therefore precluded from arguing that the Defendants have failed to provide any evidence that they do not have assets in Ontario.

[51] Both parties rely on Cosimo Borrelli, in his capacity as trustee of the SFC Litigation Trust v. Allen Tak Yuen Chan, 2017 ONSC 1815 with respect to the requirement that a party have assets in Ontario before a Mareva may be granted. The MBM Defendants argue that the Borrelli decision cannot be relied upon for the proposition that the criteria in Chitel v. Rothbart (1982) O.R. (2d) 513 (CA) can now be interpreted only as guidelines. Only the Court of Appeal can make such a significant change to the test.

[52] The Plaintiffs argue that the law has evolved since Chitel given the global economy. Doing otherwise would mean that a party would be required to commence a proceeding in each jurisdiction in which it had assets or that a party’s credit would be limited to jurisdictions in which they had assets. Neither proposition makes sense.

[53] I agree with the Plaintiffs and see no reason not to follow Borrelli (which has not been overturned) with respect to its holding in relation to the requirement to have assets in Ontario as follows:

Section 101(1) of the Courts of Justice Act provides the court with jurisdiction to grant an interlocutory junction or mandatory order “where it appears to a judge of the court to be just or convenient to do so”. A Mareva injunction is an equitable remedy and as such I agree with the respondent’s submission that this remedy evolves as facts and circumstances merit (paras 28 and 29 – Cosimo Borrelli).

[54] In summary, while the MBM Defendants are not required to prove that they do not have assets in Ontario, the fact that there is no evidence of any assets in Ontario does not preclude the court from exercising its discretion to grant the Mareva where circumstances merit.

[55] With respect to the dissipation of assets, not much needs to be said on this point. Streicher admitted that he is dissipating assets and receiving financial assistance from family and friends in order to pay down his CIBC debt. The question which remains outstanding is what happened to the funds from AFEX? Streicher has not provided any evidence on this point or offered to pay the outstanding amount into court. As such, I infer he does not want AFEX to know what happened to their funds. This is troubling and supports the Plaintiffs’ position that Streicher is making the decision on his own as to which creditors to pay first, without any information being given to AFEX.

[56] Finally, the fact that Streicher is repaying CIBC at a rapid rate causes understandable concern to AFEX as it does not have Streicher’s personal guarantee and has no assurance that in fact Streicher used the money from AFEX to pay CIBC. Streicher did not provide any concrete evidence as to exactly how he has paid down his CIBC debt so quickly (other than a vague reference to “sales and collections”) or what other creditors he may have who are receiving priority over AFEX. The other logical concern on the part of AFEX is that once CIBC is paid out, Streicher will shut down MBM.

[57] As for irreparable harm, the case law is clear that such harm must extend to the possibility that the Plaintiffs may not be able to realize on a future judgment (see Noreast Electronics Co. v. Danis, 2018 ONSC 879 at para 37). Streicher’s evidence on cross-examination is that he has “enough assets to take care of everyone” and that AFEX will be “taken care of.” If that were the case, the MBM Defendants could have paid the amount owing to AFEX into court, thereby vacating the necessity of a Mareva. The MBM Defendants have taken no such action. In this case there is a real concern that Streicher may dissipate the AFEX funds to pay off creditors in the order he deems fit. There was also some evidence that Streicher may have been dissipating assets by encumbering the equity in properties in which he has an interest. Streicher denied this and insisted that he was simply renewing mortgages as they came due.

[58] Finally, this court must balance which of the two parties will suffer the greatest harm if the Mareva Order is not extended (see RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311 at para 67). It does not appear to this court that Streicher or the MBM Defendants have been particularly inconvenienced by the Mareva given Streicher’s insistence that he has financial support from family and friends and that everyone to whom he owes money will be paid. If there are further issues, the Mareva can be amended to permit personal and legal expenses as needed.

Orders

[59] Given all of the above, I make the following Orders:

a. The Mareva Order shall continue until further Court Order or the parties consent to a termination or variation.

b. Paragraph 4 of the Order of Justice Koehnen dated June 8, 2020 shall continue.

c. Within seven days of the date of this endorsement, the MBM Defendants shall provide a sworn statement describing the nature, value and location of their assets worldwide, whether in their own name or not and whether solely or jointly owned.

d. The MBM Defendants shall submit to examinations under oath, by video conference, within 20 days of the sworn statement in paragraph c) above.

e. The sum of $121,334.82 shall be released to the MBM Defendants’ counsel forthwith subject to the Defendants disclosing the source of those funds.

f. This Order is effective when signed without the requirement of it being entered.

Costs

[60] The Plaintiffs have had success on this motion, however, if there is no agreement on costs, the parties may provide written submissions of no more than 3 pages (double spaced) in length exclusive of any Offers to Settle or Bill of Costs. case law referred to in the submissions must be hyperlinked.

[61] Submissions are due on a seven-day turnaround starting with the Plaintiffs, seven days from the date of this Endorsement. If no costs submissions are received within 35 days of the date of this Endorsement, the issue of costs shall be deemed to be settled.

C. Gilmore, J. Date: July 8, 2020

[1] Transcript of the Cross-Examination of Mendel Streicher, June 15, 2020, Q136. [2] Ibid at Q32. [3] Ibid at Q255.