Court File and Parties

Court File Nos.: FS-20-20649 Date: 2024-01-05 Superior Court of Justice - Ontario

Re: Galit Altman, Applicant And: Yoel Altman, Respondent

Before: M. D. Faieta J.

Counsel: Julie K. Hannaford & Angela Pagano, for the Applicant Gary Joseph & Kira Beck, for the Respondent

Heard: August 30, 2023, September 12, 2023 & October 4, 2023

Endorsement

Faieta J.

[1] The Applicant mother brings this motion, as amended, for the payment of $10,505,000 as an advance on equalization for the purpose of submitting a voluntary disclosure application to the Canada Revenue Agency. This motion was heard on August 30, 2023.

[2] At the same time, the Respondent father brought a cross-motion for an order setting aside the freezing orders granted pursuant to paragraph 18 of my Order dated October 5, 2022 and paragraph 4 of my Order dated November 12, 2022, or alternatively, an order that permits the Respondent to withdraw $25,000 per month to pay business expenses and employee costs. The Respondent father’s motion for the following Order was heard on September 12, 2023:

(a) An order setting aside the Preservation Orders dated October 5, 2021 and November 12, 2022.

(b) Alternatively, an order varying the Preservation Orders to permit the Respondent to withdraw $25,000 per month to pay business expenses and employee costs and a further $25,000 for personal living expenses.

(c) Fixing dates for the questioning of the parties.

(d) Directing the exchange of an Affidavit Listing Documents within 30 days.

Background

[3] The parties began cohabiting in about August 2001, were married in June 2003 and separated in July 2019. There are three children of the marriage ages 17, 14 and 11. The children reside with the Applicant mother in the matrimonial home in Toronto and she is their primary caregiver. After their separation, the Respondent father moved away from Canada and now lives in Florida and sees the children intermittently.

[4] During their marriage, the parties enjoyed an affluent lifestyle which included a matrimonial home in Forest Hill, a nanny, private schools for the children, exclusive club memberships, private air travel, high-end clothing and shopping experiences, and deluxe spa and beauty treatments: See Altman v. Altman, 2022 ONSC 4479, para. 4.

[5] The Respondent is an entrepreneur that has financed high growth companies in biotechnology, technology, e-sports and real estate.

[6] The Applicant states that during their marriage, she allowed the Respondent to create corporations and investment accounts in her name through which he would conduct business and move assets around.

[7] The Applicant states that the Respondent established Sababa Consulting Ic. (“Sababa”) in 2009. She owns a 50% interest in the company. The remaining 50% interest is owned by Izhak Hinitz (“Hinitz”), who the Applicant states is the Applicant’s former friend. The Applicant states that the Respondent conducted business through Sababa and that she was at all times a passive signatory to any Sababa related documents placed before her by the Respondent. The Applicant states that the Respondent set up another company, Ateed, that was equally owned by the Applicant and Hinitz.

[8] In June 2018, the Quebec Superior Court stayed charges that had been laid by the Quebec securities regulator, Autorité des marchés financiers, against the Respondent and others (including Sababa) in relation to a $4.9 billion takeover of the parent company of online gambling website, PokerStars, by Amaya Inc.. The Respondent was alleged to have been an adviser to Amaya and faced six charges of insider trading and attempting to influence the market price of the purchaser’s securities. See Altman v. Altman, 2022 ONSC 4479, para.3. The Applicant believes that the Respondent made an enormous amount of money on trading in the shares that he held in Amaya and other related companies.

[9] Several months prior to their separation, the Applicant gave the Respondent a power of attorney so that he would no longer need her signature to effect transactions. The Continuing Power of Attorney, signed on December 20, 2018, (“POA”) appoints the Respondent as the Applicant’s attorney for property and all investments, and she authorizes the Respondent “… to do, on my behalf, any and all acts, which I can do by law, except make a Will, subject to any conditions and restrictions contained herein”.

[10] The Applicant states that after their separation, the Respondent abandoned all responsibility for the corporations and accounts that he had created in her name and left her to deal with the consequences of the transactions that he had run through them during the marriage.

[11] The Applicant states that in or about 2017, the Hinitz and the Respondent decided to wind up Sababa. The Respondent directed the company to sell its shares in Amaya and JackpotJoy so that the Respondent and Hinitz could divide the proceeds between them. Hinitz’s share of the proceeds went into his company, Eyes Videos. The Respondent directed that his share of the proceeds (almost $6 million) be placed into a brokerage account in the Applicant’s name that the Respondent had opened with Mandeville Private Client Inc.. The transaction was recorded in Sababa’s books as an “advance to shareholders”. The Applicant states that she knew nothing about any of this at that time.

[12] In the Fall of 2020, about 18 months following the date of separation, Hinitz contacted the Applicant about liquidating/splitting up Sababa and Ateed. In reviewing the terms proposed by Hinitz with an advisor, the Applicant learned that Sababa had not filed an income tax return since 2011 and that Sababa owed significant income tax ($3,737,988 plus interest and penalties) to the CRA in connection with Sababa’s sale of assets in 2017.

[13] The Applicant states that the 2017 asset sale created an income tax liability for Sababa as well as a personal income tax liability for the Applicant given that the transfer of about $6 million to the Applicant’ account with Mandeville would be treated as income to the Applicant.

[14] The Applicant states that her income tax lawyer, Ian Morris, has advised her that she could face an income tax liability as high as $5,322,574 plus interest, plus a possible penalty of $1,635,453, in addition to other penalties and consequences. She states that Mr. Morris advised her that the most prudent plan would be to make a voluntary disclosure to the CRA on “… chance the CRA may decline to apply a gross negligence penalty associated with the late filing”.

Issues

[15] The parties have agreed that they will exchange an Affidavit Listing Documents within 60 days and that there shall be one full day of questioning of each party, on a date to be agreed up on by the parties, prior to the end of 2023. To move this case towards resolution or trial, a combined Settlement Conference/Trial Management Conference shall be held in person on January 31, 2024, at Noon, for two hours.

[16] These motions raise the following main issues:

(a) Should the Respondent pay an advance on equalization in the amount of $10,505,000 to the Applicant?

(b) Should the Preservation Orders be set aside or varied?

Should the Respondent Pay an Advance on Equalization to the Applicant?

[17] Relying on Zagdanski v. Zagdanski (2001), 55 O.R. (3d) 6 (Ont. S.C.J.), the Applicant submits that this court has the inherent jurisdiction to award an advance on the equalization payment to the spouse with the lesser net family property. This position was not challenged by the Respondent.

[18] In Zagdanski, at para. 39, Lane J. stated that the following factors should be considered when deciding whether an advance on an equalization payment should be granted:

(a) There will be little or no realistic chance that the amount of the contemplated advance will exceed the ultimate equalization amount. Accordingly, there should be some considerable degree of certainty about the right to, and the likely minimum amount of, an equalization payment.

(b) There will be need, not necessarily in the sense of poverty, but a reasonable requirement for the funds in advance of the final resolution of the equalization issue.

(c) There may be other circumstances such that fairness requires some relief for the applicant; frequently, but not necessarily, there will have been delay in the action, deliberate or otherwise, prejudicing the applicant by, for example, running up the cost.

Is there Little or No Realistic Chance that the Advance will Exceed the Equalization Payment?

[19] The Applicant seeks an advance of equalization in the amount of $10,505,000.00.

[20] The Applicant submits that she will be entitled to an equalization payment of about $17,000,000 to about $19,000,000.

[21] The Respondent has not delivered a Net Family Property Statement. However, his disclosure provided on February 13, 2023, shows that he has personally has account balances of about $9,000,000 with various institutions and four other corporations which he controls have about $11,000,000 with other institutions.

[22] The Respondent states that the NFP cannot be relied upon as the Applicant’s interests in Sababa and Ateed are listed at $1 and have not been valued. The Respondent states that he did not create Sababa’s tax liability and that he played no role in the trades and business dealings that led to the tax liability. Both the Applicant and Hinitz stated that the Applicant was involved in Sababa in name only and that she was not involved in any decisions about acquisitions or trades or any business in the company. The Respondent’s position makes little sense given that the language used by the Respondent in contemporaneous emails filed with the Court. In addition, while denying knowledge of Sababa’s affairs, the Respondent states that he knows of “losses” related to a company called Urban Cotton Company that could be used to reduce Sababa’s income tax liability. Further, the Respondent states that he has serious concerns regarding the accuracy of the financial information reports in that they were based on the statements produced by brokerage firms which do not have the correct adjusted cost base of holdings to accurately report the profit/loss for each transaction.

[23] It does not rest with the Respondent to complain that the Applicant has understated the value of Sababa and Ateed by failing to obtain valuation reports when he was the controlling mind of these companies and has the most information about their operations but has failed to cooperate in the preparation of their valuations. In any event, given my view that actual ownership of the Applicant’s interest in Sababa would likely rest with the Respondent, not the Applicant, any increase in value would only increase the equalization payment estimates noted above.

[24] I find that there is little or no realistic chance that the requested advance or the actual advance that I have ordered will exceed the equalization payment owed by the Respondent to the Applicant.

Is there a Need for the Funds in Advance of the Final Resolution of the Equalization Issue?

[25] As noted earlier, the Applicant faces income tax liability for funds withdrawn in 2017 by the Respondent from Sababa as a shareholder loan and placed in a brokerage account in the Applicant’s name all of which occurred under the control of the Respondent. Further, the Applicant, as a shareholder and officer of Sababa is responsible for the Sababa’s income tax liability which is substantial given that it has failed to file income tax returns for several years.

[26] On August 8, 2023, the Applicant filed applications under the Voluntary Disclosure Program to the CRA on her own behalf as well as on behalf of Sababa. The Applicant’s application states that she owes a total of $5,978,973.60 for the 2017-2022 tax years, inclusive, based on the 2017 shareholder advance and income subsequently earned thereon. The Applicant and Hinitz, being equal owners of Sababa, arranged for financial statements to be prepared for Sababa for the years 2012-2023. The last “Financial Information Report” indicates that $3,496,034 is owed by Sababa in income tax. The Applicant states that $3 million was delivered with Sababa’s VDP application to the CRA. The Applicant and Hinitz each paid half of that amount. Such payments may reduce the risk of the imposition of interest, penalties and other charges for the late filings.

[27] I find that there is a need for the funds to Respondent to pay an advance of $7,975,007.60. This amount is based on $9,475,007.60 being the tax liability noted above ($5,978,973.60 and $3,496,034) less the $1.5 million payment made by Hinitz toward Sababa’s tax liability. While Hinitz is an equal shareholder of Sababa, there is no evidence that he will be able to make any further payment towards its tax liability and thus the Applicant will be liable for the entire residual amount if Hinitz fails to pay his share.

Does Fairness Require Relief for the Applicant?

[28] In addition, fairness dictates that the Respondent make an advance to the Respondent in order to remove the tax liability that he created for both the Applicant and Sababa. The Respondent’s evidence that the Applicant was a directing mind of Sababa is not supported by any evidence nor does it make any sense. The Respondent does not deny that he asked the Applicant to be a shareholder and officer of Sababa. In an email from the Respondent, he refers to the removal of “my” share out of Sababa. This amongst other things indicates that the Respondent viewed the Applicant’s shareholder interest in Sababa as his own. Nevertheless, by having the Applicant agree to accept his request to become a shareholder and officer of Sababa, and by having her execute a broadly worded power of attorney, he was able to move Sababa’s funds as if they without any tax liability. Having created this tax liability mess for the Applicant, fairness dictates that an advance be made from equalization so that the Applicant can discharge the aforementioned tax liabilities.

Conclusion

[29] I find that it just to order that an advance on the equalization payment of $7,975,007.60 be paid by the Respondent to the Applicant. This finding is without prejudice to a further request for an advance in the event that the CRA imposes interest and penalties on the Applicant’s and/or Sababa’s income tax liability.

Should the Preservation Orders be Set Aside or Varied?

[30] The test for a preservation order under s. 12 of the Family Law Act, R.S.O. 1990, c. F.3, was described in Altman v. Altman, 2021 ONSC 6610, at paras. 41-49.

[31] The Respondent submits that he has been transparent with his finances in that he has provided the Applicant with:

• his account statements from July 1, 2018, to present that he holds directly or indirectly at any financial institution located anywhere in the world in accordance with the Order dated November 12, 2021;
• an income report for the years 2018, 2019 and 2020 and a valuation report related to certain corporate interests on November 2, 2022 as of July 29, 2019.

[32] The Respondent states that by April 2023, the value of his personal assets have fallen since October 2021 by about $3.6 million to $9.2 million. The Respondent further states that, during that same period, the net value of all of his assets (both personal and corporate) have fallen by about $10.5 million to $11.8 million.

[33] I agree with the Applicant’s submission that, while the Respondent has provided some disclosure, his financial affairs are still far from being transparent:

(1) The Respondent was previously ordered by this court to authorize the Applicant to obtain a list of his accounts from financial institutions as she suspected that he had not fully disclosed all of these accounts. The Applicant discovered that the Respondent has an additional 54 undisclosed accounts with financial institutions, including 21 personal accounts, for the period July 2018 to present. The Respondent has not provided any substantive response to this evidence. I note that the Bank of Montreal, TD Canada Trust, and HSBC have not responded to the Applicant’s request for a list of the Respondent’s accounts.

(2) The Applicant’s Chartered Business Valuator delivered a request for information on April 7, 2023. No response has been provided. See para 20.

(3) On July 4, 2023 a request for a full accounting was made. The Respondent stated that this information would be provided but he has not done so. See Respondent affidavit para 22

(4) The Respondent entered into an agreement to purchase a Rolls Royce Cullinan during this period. The Respondent states that he had intended to quickly sell this automobile for a profit however he did not complete this purchase due to unforeseen taxes. These events raise the question of where the Respondent planned to obtain the funds for this purchase. In affidavit sworn September 8, 2023, Ryan Davidson, a dealer at a stock trading platform located in Florida, states that he and the Respondent intended to sell the Rolls Royce in advance of its purchase. He states that he used his credit card to place a $10,000 deposit on the Rolls Royce. Mr Davidson states that he and the Respondent decided to “cancel” the purchase of the Rolls Royce as it was not worth it to proceed given the Canadian luxury tax on such automobiles.

Impact on the Respondent’s Private Equity Financing Business

[34] The Respondent states that he “earns a living by financing companies and earning capital gains through the valuation arbitrage between private and public companies”. The Respondent states that he made 20-50 “wires of funding” per year in the past but has failed to provide any private equity financing since the Preservation Order was granted. Given that the Preservation Order only permits transactions that occur in the “ordinary course of business”, the Respondent states that the level of scrutiny applied by his banker, Canaccord, to every withdrawal request, has made it “effectively impossible” to operate his business as he has to make investment decisions/commitments quickly and has diminished his reputation within the financial industry.

[35] The Respondent provided no particulars (to whom?, when?, how much?) of the private equity placements that he made in any period prior to the Preservation Order nor did he provide particulars of any placement that he arranged after the Preservation Order was issued that was allegedly thwarted by Canaccord. Nor did the Respondent provide any documents (such as email exchanges between the Respondent and Canaccord) to support his assertion that Canaccord’s application of the “ordinary course of business” exception found in the Preservation Order made it impossible for him to arrange a private placement in a timely manner. The Applicant notes that there is no evidence that the Respondent contacted the Applicant, through counsel, to obtain her consent to release of funds from Canaccord for a private placement financing.

[36] The only documentary evidence provided by the Respondent regarding a request for release of funds from Canaccord relates to a demand loan of $4.1 million made by Edward Gefland in March 2016 to the Respondent. At some undisclosed time, Mr. Gefland demanded that $350,000 be repaid immediately. On December 20, 2022, Mr. Gelfand sent an email to Peter Kirby, at Canaccord, which states:

Hi Peter, Yoel wants to wire 350K out of his Canaccord account to me. Please use the following wire instructions. … LMK once it’s done.

[37] A copy of Canaccord’s response to this request, or to any request for the release of funds, was not placed before the court. I reject the Respondent’s submission that Canaccord’s refusal amounts to an “overly cautious” approach to the application of the Preservation Order. Mr. Gefland’s email does not explain the reason for the release of funds and, in any event, it is difficult to understand how a significant repayment of a $4.1 million loan is a transaction that is in the “ordinary course of business” or, in other words, is a normal routine transaction in managing the Respondent’s business.

[38] The Respondent also states that Canaccord refused to release an unspecified amount of funds so that he could pay his limousine driver the sum of $8,475 per month to cover invoices for the period January 2022 to August 2022 on the basis that such costs were not in the “ordinary course of business”. The Respondent did not provide any written communication from Canaccord related to these invoices.

Personal Expenses

[39] The Respondent states that he has no ability to pay his credit cards and his regular personal expenses of about $25,000 per month. His personal expenses include about $12,000 per month for rent, $2,108.55 for property taxes, $2,500 per month for groceries, $1,500 per month for utilities and rental insurance, interest payments of $1450 per month on his line of credit. The Respondent states that, since October 2021, he has borrowed about $250,000 to fund these expenses. There is nothing in the Respondent’s latest Financial Statement which reflects that the Respondent has a debt to his girlfriend.

Bank of Montreal Accounts

[40] Following the hearing of these motions, additional evidence was placed before this court. Pursuant to an authorization granted by this Court, the Applicant requested that the Bank of Montreal disclose any accounts held by the Respondent. On September 19, 2023, the bank disclosed that the Respondent holds seven accounts including a credit card and several related corporations hold a total of five accounts. The Applicant states that these accounts were not disclosed by the Respondent. One of the accounts is a chequing account (#...385) that had a balance of about $695,000 as of August 1, 2023. This account is not frozen pursuant to the Court’s earlier order. The Respondent states that this non-disclosure was inadvertent and that he was unaware that the funds were in this account. On the other hand, the Respondent states that funds from this account have been used to pay the balances on his American Express credit card.

Conclusion

[41] I am not satisfied that the Respondent has been transparent with the disclosure of his financial affairs. As a consequence, I cannot rely on his assertions that the Preservation Orders have caused him financial hardship such as being unable to pay his bills. The Respondent’s motion to set aside or vary the Preservation Orders is dismissed.

Disposition

[42] Order to go as follows:

(1) The Respondent shall forthwith make an advance on equalization to the Applicant in the amount of $7,975,007.60 as follows:

(a) The funds in the account held at Gluskin Sheff in the name of “ITF Galit Altman Mordocovich” pursuant to the Endorsement of Diamond J. dated June 6, 2022 (currently valued at $521,466), plus any interest accumulated to the date of transfer less any transfer or account closure costs shall be forthwith transferred to J.K. Hannaford Barristers (“JKHB”), in trust for Galit Altman, and characterized as an advance on equalization; and,

(b) Cannacord Genuity Group Inc. (and, if necessary, the Bank of Montreal) shall forthwith liquidate assets belonging to the Respondent Yoel Altman from the following Cannacord accounts [Account # 434-012, Account #41L-472, Account#41L-490, Account #42B-575] and Bank of Montreal Account #658-05552-14, and in such combination and in such amounts as are necessary to permit the total amount of $7,975,007.60 to be paid to JKHB, in trust, which amount shall be characterized as an advance on equalization;

(c) The amount of $1,500,000, being the amount provided by the Applicant to accompany the payment for the Voluntary Disclosure Application for Sababa, shall be released to the Applicant from the $7,975,007.60 to be held by JKHB in trust.

(2) JKHB shall provide copies of all transfers made from the above funds to the Court and to the Respondent.

(3) The parties shall exchange an Affidavit Listing Documents within 60 days.

(4) One full day of questioning, up to 7 hours in length, of each party shall be occur prior within three months on a date to be agreed up on by the parties.

(5) A party seeking their costs shall deliver their costs submissions within two weeks. Responding submissions shall be delivered within three weeks. Maximum length of submissions is three pages excluding any offers to settle and a bill of costs.

Mr. Justice M. D. Faieta Released: January 5, 2024