A CONSPIRACY TO COMMIT FRAUD: PART 1 – Background & the First McInnes Cooper Grant

“Oh what a tangled web we weave, when first we practice to deceive” – Sir Walter Scott

A FOUR-PART SERIES EXPOSING E-GAMING AS AN ELABORATE CONSPIRACY TO COMMIT FRAUD

THE “TAKE”

The e-gaming story involves a complicated web of interactions and players who worked together to defraud PEI taxpayers of $1,210,000 by secretly transferring funds from the PEI government to McInnis Cooper law firm over a 2 1/2 year period, from December 2010 to July 2013. The funds were issued in the name of the Mi’Kmaq Confederacy of Prince Edward Island (MCPEI), but transferred directly to McInnes Cooper, in various increments, using several financial instruments, from several sources.

There were four key financial components comprising the total amount:

(1) $100,000 grant [Source: Innovation PEI, December, 2010];

(2) $950,000 E-gaming loan [Source: Island Investment Development Inc.];

(3) $100,000 grant [Source: Innovation PEI, January 2013];

(4) $60,000 Payment [Source: PEI Lotteries Corporation, March 2013].

Each of the above disbursements will be considered separately in this four-part series, and the treatment of each will involve a discussion of: (1) the laws that were broken; (2) the procedures and reporting requirements that were ignored and/or circumvented; (3) the work that was promised and not done, or not even promised; (4) misleading and/or fraudulent claims made in the course of accessing and disbursing each amount; and (5) the specific measures employed to ensure these transactions were kept secret.

At all times, with each component of the total amount defrauded, two key, operating objectives were at play: (1) the acquisition and transfer of money to McInnes Cooper was executed in secret, keeping the public completely in the dark about the transactions at all times, and involving only as many government employees and officials as was absolutely necessary; and (2) the money was transferred to McInnes Cooper directly from government regardless of whether MCPEI – the designated and legal recipient of the funds – was in compliance with the terms and conditions of the specific grants and loan, even when the promised work was not completed or even commenced.

The Money Trail

Although this investigation was able to track the e-gaming money trail and identify the amounts for each of the four components listed above, and although the records confirm that the full amount of $1.210,000 was indeed transferred to McInnes Cooper, in various disbursements, through various financial instruments and means, there is still – to my knowledge – no documentary evidence showing how this money was disbursed by McInnes Cooper, who received it, or how it was ultimately spent.

As well, significant portions of the total $1,210,000 amount that were designated for third party sub-contracted work were never disbursed to those third parties, but kept by McInnes Cooper.

Conspiracy to Commit Fraud

This four-part series provides compelling evidence that conspiracy to commit fraud happened to some degree at each stage of this elaborate e-gaming plan, as each portion of the $1,210,000 found it’s way from the security of government possession to bank accounts belonging to McInnes Cooper.

A map is drawn for each leg of the journey, but before embarking on this trek, ponder for a moment what  “conspiracy” to commit “fraud” actually means, in light of the technical dictionary meanings for these two words:

Linking the word-for-word definitions of these two terms creates the following sentence: “A secret plan by a group to do something unlawful, or harmful”….[employing]….”wrongful, or criminal deception intended to result in financial or personal gain.” That’s exactly what happened with e-gaming.

The Initial Cover-up 

The e-gaming project was always a PEI government project, but only a handful of people within government were ever involved, or even knew about it’s existence: Initially, e-gaming was the brainchild of Minister of Finance, Wes Sheridan; Premier Robert Ghiz; Ghiz’s Chief of Staff, Chris LeClair; Ghiz’s close friend and legal counsel Billy Dow; and MCPEI lawyer Don MacKenzie. 

McInnes Cooper: the E-gaming “Quarterback”

By February, 2010, Sheridan decided he wanted to manage the e-gaming project outside the formal structures of government, so, as stated in a document he prepared for Robert Ghiz he sent as an attachment with an email to Chris LeClair on February 21, 2010: “McInnes Cooper has signed on as our [government’s] ‘quarterback’ to help bring the project to fruition.”

McInnes Cooper put two lawyers and a business consultant/accountant on the file, who together with Don MacKenzie and Wes Sheridan gave birth to “the gaming committee,” also called the “e-gaming working group.”

E-gaming was always a PEI Government Project

Although the e-gaming project, as the Auditor General put it, “operated outside the normal control framework of government” (S. 8.3, p.43) it was nonetheless always a PEI government project, where 95% of projected revenues would belong to the province, with just 5% going to the Mi’Kmaq Confederacy.

It appears that Mi’Kmaq Confederacy’s role in the scheme was to create and maintain the illusion that it was an MCPEI project, and to serve as the formal recipient of the government grants and e-gaming loan. Still, the money was sent directly to McInnes Cooper, despite documents indicating the funds belonged to the Mi’Kmaq Confederacy, since government obviously could not provide itself with grants and a loan for the e-gaming project without making those amounts public.

So despite McInnes Cooper acting as the project manager and “quarter back” for a major government project, the law firm set up a retainer agreement with the Mi’Kmaq Confederacy as a way of handling – some would say ‘cleaning’ –  financial transactions which the PEI government used to fund its e-gaming project. In this way, these payments did not have to appear as payments from the government to the law firm.

The First MCPEI Grant Paid to McInnes Cooper

Little is known about the first MCPEI grant for $100,000 Innovation PEI paid to McInnes Cooper in December, 2010, except that it met none of the normal requirements for Innovation PEI grants.

Grant programs with the PEI government are designed to provide funding for future work, and applicants must demonstrate that the proposed projects are reasonable and have merit. Considerable detail must be submitted with each application to show the viability and likely success of the business concept or project proposal. 

Government grants are not provided to pay for work that has already been undertaken, or to cover expenses that have already been incurred. Work must first be proposed, assessed and approved by Innovation PEI before funds are disbursed. None of that happened with this initial $100,000 grant disbursement paid to McInnes Cooper.

As the Auditor General stated in Section 3.31 of her report, MCPEI approached staff at Innovation PEI about bills they had already incurred with McInnes Cooper law firm, and staff then took those concerns to the CEO, who issued the $100,000 grant. There was apparently no submission of those bills, nor description of work done justifying those bills.

In fact, there was: (1) no formal application for this grant; (2) eligible expenditures were not clearly defined in the Letter of Offer; and (3) there were no documented monitoring efforts consistent with the terms and conditions of the grant.

Essentially, $100,000 was given to McInnes Cooper law firm, no questions asked – although it was issued in the name of MCPEI – with no indication of what that money was used for or spent on. No invoices were apparently ever submitted to explain the funds.

I have recently submitted the following Access to Information request asking for all documentation on this portion of the e-gaming money:

Although there is not currently sufficient information available on this $100,000 grant to conclude that it was obtained fraudulently – which is not the case with the remaining three components of the $1,210,000 amount paid to McInnes Cooper as you will eventually see – the irregularities and improprieties are nonetheless stark and very concerning: (1) a clause in the agreement required repayment of 20,000, and there is no evidence this amount was ever repaid; (2) McInnes Cooper law firm refused to meet with the Auditor General to discuss this or any other matter, nor would the law firm provide her with copies of any documentation, despite the fact that McInnes Cooper was – according to what Wes Sheridan told the Auditor General – the project manager for the government on the e-gaming file.

A CONSPIRACY TO COMMIT FRAUD: PART 2 – The E-gaming Loan

….(Coming Soon)