As Ontario courts continue to sift through the wreckage of insolvent real estate developer Stateview Homes some lawsuits have honed in on the question of how a $37-million cheque kiting scheme was allowed to run for more than a year.
Civil claims filed by Tarion Warranty Corp. have raised questions about internal controls at embattled Toronto-Dominion Bank, introduced the possibility that insiders at the bank may have assisted in the scheme and revealed new details about how the fraud was carried out.
Tarion’s allegations are also echoed in new lawsuits and counterclaims filed by Dino and Carlo Taurasi – brothers and founders of the collapsed developer – who criticized TD’s failure to detect the fraud in a rare public statement provided to The Globe by their lawyers.
“The cheque kiting scheme has ruined our business and livelihood, as well as the dreams of the Stateview customers whose homes were never built. We are shocked that it was able to happen at such a large scale over many months without detection by the banks,” the statement said.
“TD owed purchasers and Tarion a duty of care. This duty included, among other things, that TD protect purchasers and Tarion from and/or not facilitate fraudulent or unauthorized activities by the Stateview Defendants,” reads the Tarion claim, which among other things seeks to nullify a settlement agreement between the Taurasi brothers and TD.
TD declined to comment on claims as they are still before the court, Tarion also could not comment on the specifics of the litigation but noted that the pre-construction buyers who have had contracts cancelled as a result of Stateview’s collapse are entitled to as much as $100,000 for lost deposits from its Guarantee Fund. “As the responsible steward of the Guarantee Fund, Tarion carefully considers and takes actions as appropriate to recover monies through available means including litigation,” said Andrew Donnachie, manager of media and stakeholder relations for Tarion.
Since May, 2023, Stateview’s lenders have used insolvency and bankruptcy proceedings in an attempt to recover the approximately $349-million they are owed. The process has been dogged by legal challenges including a proposed class action lawsuit from home purchasers who gave Stateview more than $77-million in deposits for new homes. Tarion failed in a civil claim filed in 2023 to obtain some of the proceeds of the insolvency liquidations to offset the tens of millions it will be required to pay buyers.
The Taurasi filings continue to place the blame for the alleged cheque fraud on former Stateview CFO and business partner Daniel Ciccone who is alleged to have forged Dino Taurasi’s signature on cheques in addition to writing thousands of cheques on Taurasi business accounts at TD and Royal Bank of Canada. Mr. Ciccone didn’t respond to requests for comment.
The Taurasis say when Mr. Ciccone came aboard the company in 2011, the former family friend had “a reputation for being an eccentric genius with a knack for financing.” By 2020, Mr. Ciccone was an integral player in the business with sole access to the firm’s online banking credentials and was said to have “developed and maintained a close personal relationship with the TD commercial banking team” that was assigned to StateView.
According to the Taurasi filing Mr. Ciccone admitted fault on Thursday March 16, 2023, when a service interruption of TD’s Remote Deposit Capture machines (a machine that allows businesses to deposit physical cheques, one of which Mr. Ciccone had in his office) meant that the company’s accounts would show an overdraft of more than $37-million by the following Monday.
“I fucked up,” Mr. Ciccone is reported to have said, allegedly in tears.
According to the filings, all the accounts associated with the name Taurasi were frozen by TD by Monday, March 20. Within days RBC followed suit.
“We continue to be unable to access banking services and are relying on our family’s support to pay our bills,” the Taurasi statement said. They also said that TD has for months declined to provide them with the full record of alleged fraudulent transactions. “TD’s refusal to provide documents has been extremely frustrating for us, and has hampered our ability to investigate where Daniel was directing payments. We are hopeful that TD will soon co-operate with us in ensuring the scope of this fraud is understood.”
The filings also describe some elements of the cheque scheme: According to the Taurasi’s Mr. Ciccone would allegedly write a cheque from an RBC StateView business account for deposit in a TD StateView account, then issue a stop-payment order at RBC when TD had provisionally released the funds but before the cheque cleared. The provisionally cleared funds would be moved by wire transfer to other accounts, including at TD. The resulting overdraft would then be covered over with another round of cheque kiting, and this process was repeated hundreds if not thousands of times over approximately 11 months and accrued the staggering $37-million deficit owed to TD.
As Tarion’s claim also states, these transactions ought to have been noted by either RBC or TD long before the fraud grew big enough to drag StateView under.
“TD’s own overdraft and clearance services – were being used for improper purposes, including fraud. TD’s existing policies, procedures, and compliance systems would and should have detected the red flags,” reads the Tarion claim. “Had TD investigated the red flags [including the significant quantum of overdraft, the frequency of the StateView defendants’ reliance on overdraft, and repeated stop payment orders] the StateView fraud would have been discovered and stopped. … In failing to investigate these red flags, and failing to stop the StateView fraud, TD’s actions fell significantly below the expected standard of care and/or industry practice.”
In recent months TD has been rocked by revelations that it is facing significant financial penalties related to failures of its anti-money-laundering systems in the U.S. and Canada. In addition to alleged connection to a US$653-million money-laundering and drug-trafficking case being prosecuted by the U.S. Department of Justice, in April TD paid its largest-ever monetary penalty – $9.2-million – to the Canadian anti-money-laundering agency Financial Transactions and Reports Analysis Centre of Canada (FinTRAC).
In late May, The Globe reported the Office of the Superintendent of Financial Institutions (OSFI) “identified deficiencies with TD’s regulatory compliance management program.”
Tarion’s claim also targets unknown persons inside TD who may have assisted in the fraud, naming them as John and Jane Does whose actions it alleges attach “vicarious liability” to TD.
“The wrongful acts or omissions of the Does are sufficiently connected to their assigned tasks as employees of TD such that their wrongful acts or omissions can (i) be regarded as a materialization of the risks created by TD and (ii) a mode of doing acts authorized by TD,” Tarion’s filing claims.
One question that hovers over the insolvency and new claims is whether there is a criminal investigation into the alleged fraud at the centre of the chaos. “We aren’t in a position to comment on any ongoing law enforcement efforts. We continue to press TD for information to investigate this matter,” reads the Taurasi statement.
Shane Dingman