Court File and Parties

COURT FILE NO.: CV-20-00642957-0000 DATE: 20200921

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Riar et al., Plaintiffs

-and-

Khudal et al., Defendants

BEFORE: F.L. Myers J.

COUNSEL: K. Sherkin, E. Sherkin and Karen Phung for the plaintiffs Pradeep Chand and Karandeep Lidder, for defendants

Transcribed Handwritten Endorsement

[1] Motion for a Mareva injunction and numerous CPLs. Through numerous corporate entities, Mr. Khudal, assisted by Ms. Joshi, unleashed two fundraising agents on their community. Mr. Khudal, and Ms. Joshi have been or are licensed investment professionals (securities and/or mortgage salespeople). They know and understand the regulatory regimes in place in Ontario to protect investors in mortgages and securities. Yet they raised tens of millions of dollars from trusting community members with no compliance with rudimentary “know your client” and suitability assessment compliance. They did not account for money received and moved. It is just apparently “gone”. The answer “[I]t’s in the properties” or “I cannot read accounting ledgers” are equally facile and inadequate.

[2] This is a motion. It is not trial on full disclosure. The findings above are based only on the current state of the evidence. A trial judge might find differently based on evidence subsequently disclosed. However, based on the current evidence, I am satisfied that the plaintiff[s] are very likely to succeed against all of the named Khudal defendants for debt, mortgage fraud, securities fraud, oppression, conspiracy, knowing receipt and knowing assistance, and whatever causes of action may apply to knowingly perpetrating a Ponzi scheme against your own community for personal enrichment.

[3] The two salespeople may have their own liabilities. But they gave evidence against their own interest. Apart from minimizing their own volition, their evidence points directly at Mr. Khudal and Ms. Joshi. Ms. Joshi helped prepare documents she knew to be inappropriate as a registered mortgage professional. Moreover her evidence of her dedication to and motivation to help her family is inculpatory and, like the two agents, an effort to decrease personal responsibility.

[4] The evidence of the bookkeeper is compelling. The books came from Mr. Khudal. She went over them with him monthly.

[5] So, where is the money? Up to the point that cash is taken from a bank, there are records for every dollar invested into the Khudal companies and every dollar moved out of them. Like peeling layers of an onion, one eventually reaches the flesh. It will be up to the Khudal defendants to decide how expensive and unpleasant the task will be. If they are truly innocent, they should want to quickly produce every bank record for every account that received money traceable to or from investors. If they continue to feign ignorance, the process will take longer, will be expensive, time consuming, and stressful. But either way, the financial documents are obtainable and money will be traced.

[6] The defendants argue that the plaintiffs moved too slowly. There is no urgency and no risk of dissipation because the motion took several months to be heard. Mr. Sherkin is correct in arguing that given Mr Khudal’s lack of transparent records, the plaintiffs had no choice but to build their case through examinations of third party witnesses as they have done. The delay was due to the defendants’ efforts to hide funds and deny responsibility.

[7] The Khudal defendants, including their corporations, have assets in Ontario. Ms. Joshi and the children have real estate. Mr. Khudal has his shares and causes of action.

[8] I readily infer a strong risk of dissipation and assets leaving Ontario:

1. The $4 million house is for sale;
2. The transfer to Ms. Khudal appears to have been funded by the companies and is studded with badges of fraud;
3. The late appearance of trust documents for the Matson property is inconsistent with the contemporaneous transaction documents and altogether too convenient; and
4. The brazenness of the Ponzi scheme leads me to infer a lack of empathy that will likely lead the perpetrators to want to keep their booty.

[9] If Mr Khudal would just come forward and show where the investors’ money has gone, this inference could be reconsidered.

[10] There are numerous undertakings in damages made.

[11] The defendants argue that there is no evidence showing actual dissipation or movement of funds abroad. However that is not necessary as the risk of dissipation may be inferred from the circumstances. Sibley & Assoc. v Ross, 2011 ONSC 2951.

[12] Mr. Chand argues that the plaintiffs have not made “full and frank” disclosure and this is fatal to a Mareva injunction request. I have no doubt that all litigants should make “fair, accurate, and candid” disclosure as discussed by Perell, J. in RBC v Boussoulas, 2010 ONSC 4650, but Mr. Chand is trying to invoke the added requirement of Rule 39.01(6) that applies to motions made without notice. That is not this case. Moreover, Mr. Singh’s ledgers and IP address are not in the plaintiffs’ control. The lack of ledgers did not impair the showing of investors’ money flowing in to the companies.

[13] Moreover, the findings in Yemec that money moving around was not a strong prima facie case was fact-based and not a binding principle of law for all cases. Here, money was solicited apparently unlawfully, by sophisticated people, and has gone missing. The intra-Khudal movements are not integral to my finding of a strong prima facie case.

[14] The arbitration clause is not before me. If a defendant subsequently moves for a stay pending arbitration, a judge will look at the issue and decide what happens to the interlocutory relief if arbitration does proceed. I do nothing today to preclude or prejudice that outcome.

[15] There is ample evidence of investor funds flowing into each of the properties listed in Schedule “A” to the draft order. Mr. Sherkin no longer seeks a CPL against properties Nos. 1 and 2 on that list as both were sold by a receiver. The Matson property pre-dates the Ponzi scheme but its movement to the children (beneficially) raises a triable fraudulent conveyance issue. Title to all of the properties is in issue through variously: oppression, resulting trust, constructing trust, knowing receipt, knowing assistance, and fraudulent conveyance claims. CPLs therefore will issue as sought.

[16] On consent, order to go granting leave to amend the statement of claim to add plaintiffs and defendants.

[17] The term set out in Schedule “A” is ordered. The plaintiffs should move to add this case to the commercial list to be heard with Justice Koehnen’s related case.

[18] The plaintiffs may deliver costs submissions by Oct. 2, 2020. The defendants may deliver costs submissions by Oct. 16, 2020. Submissions may be no more than three pages. They shall be accompanied by a Costs Outline and any offers to settle relied upon. All documents shall be delivered as OCR searchable PDF attachments to an email to my Assistant. No case law or statutory material may be filed. Rather, references to law shall be by hyperlinks embedded in the submissions.

“F.L. Myers, J.”

DATE: September 21, 2020

Schedule “A” Terms Incorporated Into Orders

1. Notwithstanding rule 59.05, this Order is effective from the date it is made and enforceable without any need for entry and filing. In accordance with Rules 77.07 (6) and 1.04, no formal Order need be entered and filed unless appeal or a motion for leave to appeal is brought to an appellate court. Any party to this Order may nonetheless submit a formal Order for original signing, entry and filing when the court returns to regular operations