Winnipeg Free Press - PRINT EDITION

Fraud case plays out as duelling storylines

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Which of these two stories should we believe?

In one story, Astra Credit Union (now Assiniboine Credit Union) was defrauded of more than $6 million by its biggest corporate client, Protos International, and a longtime employee. In another version, heard last week in a Winnipeg courtroom, there was no fraud because executives at Astra knew of and approved the loans.

It's safe to say only one story can be true. If you like to bet, the smart money is on the latter version, which explains why provincial court Judge Marvin Garfinkel discharged four men — former Protos chairman David Wolinsky, CFO David Mollins, Maple Leaf Distillers CFO Barry Milne and Clarke Culbertson, an Astra branch manager — from having to face fraud charges.

After hearing testimony at a preliminary inquiry, Garfinkel could not agree with Astra's claim it was an unwitting victim in a scheme that provided Protos with almost limitless credit. In fact, he saw the credit union as an active participant.

"Astra in my assessment acted with full knowledge of the situation," the judge concluded.

Garfinkel found regular reporting on the status of the Astra accounts to the highest level of the credit union. He said it was clear decisions were made to extend loans to the Protos companies with the comfort that increased interest charges would be assessed.

This is, in all respects, a stunning analysis, given that it completely, profoundly contradicts every statement, assertion and allegation Astra/Assiniboine has ever made about the case.

From the moment the story became public, the credit union claimed it was the victim of a fraud orchestrated by a senior employee. This assertion — that Astra had no idea what was going on with the Protos accounts — was the reason criminal charges were laid. Listening to Garfinkel's analysis, it's pretty clear now that wasn't true.

To understand just how out of step Astra is with the truth, you have to go back to 2006 when Protos International, a holding company that controlled entities such as Maple Leaf Distillers and Salisbury House, collapsed owing more than $22 million.

When Maple Leaf Distillers was sold later that year, Astra and Assiniboine credit unions claimed most of the proceeds as secured and preferred creditors. That left 200 other creditors and shareholders with nothing.

In 2009, Winnipeg police charged the four men with defrauding Astra in a cheque-swapping scheme. A 2006 Free Press investigation found dozens of cheques were cycled between Astra-held accounts for more than a half dozen Protos companies to keep each just below its overdraft limit. The problem was, none of the accounts had enough money or credit to cover the cheques. The result was credit limits on every account were exceeded, often without proper authorization.

From the moment the scheme was revealed, Astra/Assiniboine claimed the credit union had been deceived. This point was also made in a letter to credit union members, where it was alleged a "senior, longtime and trusted employee had granted unauthorized overdrafts and provided inaccurate reports to the board." This assertion was repeated in testimony at the preliminary inquiry by former Astra executives such as CEO Ian Dark.

Here's the rub: In determining there was no basis for fraud, Garfinkel is also determining there was no truth in Astra's claims. That significantly shifts the theory about who the real victim was in this narrative.

The cheque-swapping, initiated primarily to prop up Maple Leaf Distillers until a buyer could be found, effectively stripped other Protos companies of all value. Those few that had any cash flow, such as Salisbury House or the Green Gates restaurant, were raided on a daily basis to keep the cheque-swapping scheme afloat, with Astra execs fully aware of what was happening.

New lines of credit were extended to smaller Protos companies that had no real assets, again to create a new source of money for Maple Leaf.

All the while, shareholders of Protos, and of individual companies within the Protos portfolio, were blissfully ignorant that their investments were being eroded by a burgeoning debt load.

It appears Astra had no choice but to claim it had been defrauded. Otherwise, the focus of this story would have inevitably shifted to the actions of the credit union itself, and how it had continued to extend credit to the Protos companies knowing it was in a preferred position to collect on the Maple Leaf sale proceeds. This was, in fact, the exact point made by former Protos and Maple Leaf investors, who settled recently with Astra out of court.

Is this the end of the Protos soap opera? The Crown can still proceed with the criminal charges via direct indictment. But there is no indication that will happen.

As for Astra/Assiniboine, executives there should be thankful the court was not asked to pass judgment on their moral and ethical standards.

dan.lett@freepress.mb.ca

Republished from the Winnipeg Free Press print edition April 30, 2013 0

History

Updated on Tuesday, April 30, 2013 at 9:33 AM CDT: corrects spelling of individual's last name.

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