A Conspiracy to Commit Fraud: Part 4 – A Fictitious and Fraudulent Project Grant

From the PEI CPA Code of Professional Conduct:

NOTE: Registrant = Chartered Professional Accountant

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

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Introduction to Part 4 and Series Summary

My four-part e-gaming investigative series presents documentary evidence showing how $1,210,000 of public dollars was first fraudulently acquired by key players in the PEI government, then funnelled through the Mi’Kmaq Confederacy of PEI to McInnes Cooper law firm.

It’s important to point out that this amount was not the total government funding that went into the e-gaming initiative. In fact, the Auditor General, Jane MacAdam, was not able to determine what the full cost of the e-gaming project was to Island taxpayers. She was refused access to many government documents by the MacLauchlan government, and got no documents from McInnes Cooper law firm. In the end, she was forced to qualify what she did discover by saying: “At a minimum, government incurred costs of $1.5 million on the e-gaming initiative,” [Section 1.7, p. 2]. 

Most of the difference between the amount I’ve been using in this series ($1,210,000), and the $1.5 million identified by the AG, results from my exclusion of the earlier grant of $232,000 provided to the Mi’Kmaq Confederacy of PEI before McInnes Cooper was brought onboard by the PEI government to manage the e-gaming project in February, 2010 [Grant #1 in the following chart]:

The four key financial components comprising the $1,210,000 amount (as presented in the above chart) are: (a) Grant 2; (b) Loan; (c) (Grant 3) and (d) Payment.

The details explaining how each of these components was acquired fraudulently are presented separately in each of the following segments of this investigative series:

(1) [Grant 2] – $100,000 grant [Source: Innovation PEI, December, 2010] – see: A Conspiracy to Commit Fraud: Party I – Background & the First McInnes Cooper Grant;

(2) [Loan\ = $950,000 E-gaming loan [Source: Island Investment Development Inc.] – see: A Conspiracy to Commit Fraud: Part 2 – The Full Story on the E-gaming Loan;

(3) [Payment] $60,000 [Source: PEI Lottery Corporation, March 2013]; see – A Conspiracy to Commit Fraud: Part 3 – The Illicit Sale of an Obsolete E-gaming Legal Opinion; and,

(4) [Grant] – $100,000 grant [Source: Island Investment Development Inc., January 2013].

This article deals with what the AG refers to as [Grant 3] – the final $100,000 grant from Island Investment Development Inc. (IIDI). 

I’ve already filed a formal complaint with the PEI Law Society against Carr, Stevenson and MacKay lawyer William F. Dow (“Billy” Dow) related principally to his involvement in the E-gaming & Financial Transaction Platform initiatives, especially the e-gaming loan for $950,000 (See: A CONSPIRACY TO COMMIT FRAUD: “PREAMBLE” TO PART 2 (Complaint to the PEI Law Society Against Billy Dow) and Complaint Letter to the PEI Law Society Against Billy Dow).

Similarly – given the blatant violations of key provisions of the CPA Code of Professional Conduct and  Chartered Professional Accountants and Public Accounting Act –  I will be filing a complaint with the Chartered Professional Accountants of Prince Edward Island against three registrants or CPA members  – David Arsenault, Neil Stewart, and Cheryl Paynter – for their respective roles in jointly conspiring to conceive, prepare and execute a fictitious project grant to pay the final $100,000 McInnes Cooper law firm demanded from the PEI government for the e-gaming project, in clear violation of Rule 205 of the Code of Conduct cited at the outset of this article.

The Fraudulent Manner in which the Final Grant was Acquired

It’s impossible to overstate the degree of premeditated, calculated planning that was employed to acquire the final grant needed to “make McInnes Cooper law firm whole” – as Kevin Kiley put it to AG staff – which was the remaining $100,000 needed to acquire the full $1,210,000 amount promised by Wes Sheridan. 

Recall that the e-gaming project was formally terminated on February 24, 2012, after the Deputy Minister of Justice at that time – Shauna Sullivan-Curley – obtained a legal opinion that concluded that for the provincial government to proceed any further with the scheme would be “criminal”. That created a huge problem for Sheridan – and McInnes Cooper – how was he going to honour his promise to provide all the funds?

To start with, as I’ve already outlined in Part 2 dealing with the e-gaming loan, no more advances were supposed to be legally issued on the loan after February 24, 2012; in fact, since there was no longer any hope of repayment (repayment of the loan was contingent on the project being successful), the only moral and legal option was to call in the loan immediately, since it was effectively “in default” the minute the project ended. But of course, that didn’t happen.

As well, as I explained in Part 3 of this series, there was no possibility that an e-gaming initiative could be successful or should proceed without government’s involvement after February 24, 2012.  Legislation would be required to establish a financial transaction platform, upon which internet gaming depended, and could only come from the PEI government, and the PEI government had already decided it was not going to provide that legislation.

Yet, as previously noted, McInnes Cooper law firm continued to generate invoices to use up the final amount of the $1,210,000, which it hadn’t already acquired by the time the project formally ended.  It remains a real head-scratcher for me that additional invoices for roughly $100,000 were generated and submitted by McInnes Cooper in the two months following the project’s termination, as was noted by the Auditor General in Section 3.33 of her e-gaming report:

Not only were those subsequent e-gaming invoices completely fraudulent in nature – in that no legitimate e-gaming work could be justified after February 24, 2012, the money used to pay those fraudulent invoices, came from a “third grant” which was itself phoney, and completely fraudulent.  In fact, when McInnes Cooper submitted a final e-gaming invoice to IIDI for $390,000 in the fall of 2012, no amount of that final bill should have been regarded as a bona fide “outstanding” bill and paid, but that’s exactly what happened. As the AG noted:

Read the above clip from the AG report slowly and carefully:

IIDI would “release the balance of the loan funds committed to the project” – this was effected by Billy Dow, the lawyer handling the e-gaming loan, despite the legal provisions within the loan agreement stipulating that no further loan funds were to be advanced after the project ended:

“Atlantic Lottery Corporation (ALC) would buy from MCPEI a legal analysis relating to internet gaming for $60,000” – Sheridan fraudulently obtained this $60,000 by using taxpayer’s money to have the PEI Lotteries Commission (of which he was the “head”) pay for a report he already had access to for free; and,

“Innovation PEI would provide a grant to MCPEI for $100,000 – a totally fraudulent grant drawn up to fund a totally fictitious project, as will be explained in more detail below.

But also note that the AG stated that: “The Deputy Minister of Finance met with the local Law Firm at that time and reached an agreement whereby government would pay all outstanding bills, except for approximately $30,000.”

When Kevin Kiley, a McInnes Cooper lawyer, was asked about the “settling of the McInnes Cooper account,” that incomprehensible $390,000 bill, he said he had no recollection of any meeting with Deputy Minister David Arsenault, nor any recollection of discussions with the Mi’Kmaq Confederacy for that matter,  the ‘client’ ultimately on the hook for the law firm’s outstanding bill. In fact, the only thing Kiley could recall was that McInnes Cooper “wrote off some of the bills”. 

Consider the notes from the draft report of the interview that Kevin Kiley had with staff from the Auditor General’s office in 2017:

But a meeting with the Deputy Minister of Finance, David Arsenault, did in fact happen, as the AG confirmed, and sometime after that meeting, Arsenault contacted Neil Stewart to share his plan for coming up with the money that emerged from his “agreement” with McInnes Cooper. 

Part of that plan was to have IIDI “take the hit” for the loan, so Arsenault asked Neil Stewart not to go to Treasury Board (despite the “security agreement” that Wes Sheridan had provided on the e-gaming loan), and to also put together a final grant application for MCPEI in the form of a phoney project application for $100,000 that would pay that final portion of McInnes Cooper’s $360,000  bill, that mysterious $100,000 generated after the project ended. 

I obtained a copy of an email from Neil Stewart discussing this scheme after it was  filed with the PEI Supreme Court in the Capital Markets Technology (CMT) lawsuit:

This letter is proof positive of a “conspiracy” to fraudulently acquire money under false pretences.  And four senior government personnel did the conspiring: David Arsenault, Neil Stewart, Melissa MacEachern and Cheryl Paynter – three Chartered accountants (Arsenault, Stewart and Paynter) and a Ph.D in economics (MacEachern): they all need to take responsibility for betraying the public trust on this important matter and somehow be held accountable, notwithstanding the passage of time:

It Was All About Keeping E-gaming “Secret” – Right up to the Bitter End

When David Arsenault asked Neil Stewart to have IIDI provide “provision” (e.g., assume the “loss”) for the $950,000 e-gaming loan, what he was really asking is for IIDI officials to help him and Wes Sheridan keep Treasury Board, the Official Opposition, and the general public completely in the dark about the e-gaming loan – a defaulted loan that should have been reported -and “written-off” by Executive Council as a complete loss, as soon as the project ended on February 24, 2012. 

The email chain associated with the above email from Stewart shows that it was not only Neil Stewart who was in on this strategy, but also the Deputy Minister of Innovation and Advanced Learning at the time, Melissa MacEachern.  Six minutes after receiving Stewart’s email about Arsenault’s plan to come up with the money to pay off McInnes Cooper (above) Melissa MacEachern, responded with the following concern:

Stewart responded just four minutes later to put her mind at ease about how he could accommodate the loss:

The key admission here is Stewart’s conclusion that: “There is no way to collect this debt unless treasury pays for it;” and of course, that was never going to happen, despite that being the only “security” provided for the loan – e.g., Wes Sheridan’s written promise that if the loan goes into default, the PEI government would pay it off. That never was loan “security” – but a convoluted deception, that didn’t escape the Auditor General’s attention:

Enough about secrecy, deception and unsecured loans…let’s get back to that final grant for $100,000.

The Final $100,000: A Textbook Case of Fraud

Going back to Neil Stewart’s initial letter to Melissa MacEachern, notice that he matter-of-factly stated that the Deputy Minister of Finance (David Arsenault) – working under the Minister of Finance at the time, Wes Sheridan – is “asking that IPEI provide a grant to Mi’Kmaq Confederacy of $100K, with the funds going to the Bill [McInnes Cooper].”  This is an important detail – “with the funds going to the bill” – because when they proceeded to write up that grant application, they didn’t mention anything about that bill, but indicated that the grant was for future project work to be undertaken by the Mi’Kmaq Confederacy.

Was Don MacKenzie – the Executive Director and legal counsel for the Mi’Kmaq Confederacy at the time, and who was subsequently appointed as the head of the PEI Law Society [not to mention a member of the e-gaming working group] – ever even consulted about this scheme, or in anyway involved in this fraudulent endeavour? Not in any substantive way. He wasn’t copied on the correspondence; however, he most definitely came to know about it at some point since he had to sign over that $100,000 grant cheque to McInnes Cooper after it was issued.

Did MacKenzie come to IIDI asking for a grant for a Mi’kmaq project he had in mind? Definitely not. Yet, consider carefully what the AG said about how the grant was drawn up for a future Mi’Kmaq Confederacy project:

Can you imagine applying for a $100,000 PEI government grant and being told “just send us a short email…that’ll suffice for an application”?  Not likely! 

What was the “economic growth opportunity” that would allow MCPEI to “explore further opportunities in economic development?” The AG didn’t indicate  that in her report, but she did mention that the “approval sheet” and “grant agreement” indicated what the funds were slated to be used for; and although she didn’t specify what that would be exactly, she did state that the project “was indicative of events yet to occur.”  She then concluded that to put it that way was “misleading,” but let’s be frank – it wasn’t just misleading, it was entirely fraudulent.  

Months ago, when I first conceived this four-part series, I decided to submit an Access to Information request to find out exactly what those “events yet to occur” were on the grant application, knowing full-well that whatever they might be, they were completely made up and were “never-going-to-happen” events.  Here is what I asked for:

I planned my research and writing to ensure that I would get that information in time to complete the four-part series before the provincial election. What I sadly didn’t properly factor into my planning was how this Liberal government feels no obligation to respect citizen’s rights, nor legal deadlines prescribed in the law pertaining to the release of access documents.

I also submitted a request for documents on that initial grant discussed in Part 1, which again was used to pay past bills but likely also presented some ‘future’ project since grants are not supposed to be issued to pay bills, but to engage in new work of some kind.  I’ll not be getting those documents by the prescribed date under the law.

Let’s Just Get Past the Election!

In the same way that I’m now being denied access to the substantial documentation filed with the e-gaming Motion Hearing on election day by Judge Gordon Campbell (See: Are Liberal Politics at Play in the PEI Supreme Court E-gaming Case?) I’ve just been told not to expect a response to my Access request for those final e-gaming grant documents until after the election. I received this disappointing news last Friday (April 12, 2019):

When I was candidly informed by the Access worker that: “I know that these decision letters will not be issued by the due dates,” I couldn’t help but wonder whether she also knew WHY these decision letters will not be issued to me by the due dates, and if she does, why I wasn’t given that information as well. 

I’m guessing the decision-making thought process went something like this: “ummm…. we know Kevi’s going to write an article that informs Islanders how crooked the Liberal government really is, which could cost us a few votes, so we’re gonna hang unto them until after the election.”   As my two daughters used to say when they were teenagers and it was the fad: “Whatever!”

It’s frustrating, because I carefully planned my research and writing so I’d be able to see just how “detailed” the bogus project for the final $100,000 grant really was and share that information with the general public.  I’m now kicking myself a bit for relying on the legal requirement within the Freedom of Information and Protection of Privacy Act that obliges the Head of government departments to provide access within a prescribed amount of time (30 days). When I eventually get the documents I’ll share them in a blog post. It should be interesting to see what the person actually writing up the grant documents (Cheryl Paynter I believe) came up with when she most likely asked her boss (Melissa MacEachern): “What the heck am I supposed to say the project will be about?” and likely received the following response: “Just use your imagination!”   

Well, there you have it!  A complete overview and breakdown of how $1,210,000 promised to McInnes Cooper by Wes Sheridan was successfully delivered against all odds, for work that was never done, on a scheme determined to be criminal. Impressive!

One has to marvel at the sheer audacity – not to mention tenacity – that a dozen or so key senior players in government and law firms together diligently employed to achieve this unlikely goal over a tumultuous 2 1/2 year period of time, all the while keeping their efforts almost completely secret from everyone else, within government, the Official Opposition, and the general public.

Now that we know how McInnes Cooper acquired the $1,210,000, I wonder if the government we’re about to elect will (1) take the next logical step to rectify this sorry saga and get to the bottom of where all that money went after it was deposited in McInnes Cooper’s bank account; (2) hold the scoundrels accountable for their respective roles in the elaborate fraudulent scheme; and (3) demand that the money stolen from Islanders is returned to government?

I don’t recommend a “hold your breath” strategy: I suggest we all just keep breathing normally as we collectively embark on a more ethical road with the resolve to ensure that this kind of skullduggery never happens again!