Former CAO denies fabricating land deal under questioning by city lawyer

The city’s former top bureaucrat was accused of making up a land deal to cover up a bribe and avoid criminal charges during the public inquiry into the Winnipeg Police Service headquarters project Wednesday, which he promptly denied.

Michael Finlayson, a lawyer for the City of Winnipeg, asked former Winnipeg chief administrative officer Phil Sheegl to respond to several assertions the city argues took place.

Finlayson suggested a document was manufactured to create a reason why Armik Babakhanians, owner of key headquarters contractor Caspian Construction, made a payment to Sheegl when he was CAO.

“As you know, the city takes the position that the so-called trust agreement that on its face (was made) in 2012… was in fact created by you in 2017 after a story about money going to you and (former mayor) Mr. (Sam) Katz hit the media,” suggested Finlayson.

“Absolutely not,” answered Sheegl.

“The payment of $327,000… had nothing whatever to do with the property in Arizona called Tartesso or the sale of your interest in Tartesso. It was money which was an incentive… to help Mr. Babakhanians on the police headquarters project,” said Finlayson.

“You’re totally incorrect,” answered Sheegl.

The city’s lawyer then suggested an invented story would explain why there are no emails or texts that have been uncovered for the inquiry that mention the deal right around the time it would have taken place, which Sheegl also denied.

Finlayson said a review of emails exchanged between Sheegl and either Babakhanians or his son uncovered more than 90 emails from December 2010 through July 2011 on the WPS headquarters project and zero on the Tartesso deal.

Finlayson accused Sheegl of linking the payment to a land deal to avoid facing penalties for taking it.

“The city says… it believes that this was done by you, with the guidance of Mr. Katz, in order to fend off potential criminal charges,” Finlayson added.

“The city is completely wrong,” answered Sheegl.

“The payment of $327,000… had nothing whatever to do with the property in Arizona called Tartesso or the sale of your interest in Tartesso.”

The RCMP conducted a lengthy investigation into fraud and forgery allegations related to the project, but no criminal charges were laid.

In 2022, a court ruled Sheegl had accepted a $327,000 bribe from Caspian and ordered him to pay the city compensation. Last month, the city revealed it had received a $1.15-million payment from Sheegl.

A Manitoba Court of Appeal ruling in 2023 denied Sheegl’s appeal of the bribe finding. In that decision, Justice Christopher Mainella wrote that Katz “received precisely half of the money.” It also noted Katz was not a defendant in the legal action against Sheegl and is “presumed to have done nothing wrong.”

Last week, Katz told the inquiry he is greatly offended by the allegation, which he also denied, and also stated the payment reflected the sale of one acre of land in Tartesso, Ariz.

Problems with the headquarters project at 245 Smith St. have plagued city council for years. The building opened in June 2016 at a cost of $214 million, well above its original $135-million price tag and an external audit found the project had been severely mismanaged.

Danny Gunn, the lawyer who is representing Katz at the inquiry, said the judgment that found Sheegl took a bribe, and the appeal ruling that upheld that decision, lacked full information on the full value of the land involved.

On Wednesday, Gunn said those decisions were based on estimates the land was worth about $47,000 per acre in 2005 but documents that were not previously available to the court show it was actually worth about $120,000 per acre at that point.

“This… fundamentally changes the amount of what the value of that land was,” he said.

“The city says… it believes that this was done by you, with the guidance of Mr. Katz, in order to fend off potential criminal charges.”

The lawyer said a portion of the land was left out of the estimate previously heard in court.

Gunn also suggested the friendship between Sheegl and Katz made the two quite comfortable engaging in business deals that involved few documents. He stated that reflects “an inherent trust” between the two men.

Sheegl was also asked about a deck Babakhanians both built and paid for at the former CAO’s home in 2013. The inquiry heard that the company owner initially covered the $8,500 cost of the structure in Sheegl’s backyard. Sheegl testified he did pay for the work in 2017.

Sheegl said he wound up replacing the deck, due to the fact it was built on top of his old one, so he initially didn’t expect to pay the bill until that repair was done.

“It was just laid over the old deck and there (were) problems with the wiring, there (were) problems with the deck delaminating, coming apart and I voiced my concerns,” he said.

Sheegl said he later replaced the deck and made the payment.

His testimony marks the first time the former CAO has spoken publicly about the headquarters project since leaving city hall in 2013.

Heather Leonoff, the legal counsel for the provincial inquiry, has repeatedly asked Sheegl whether he advised Babakhanians to “low ball” estimated costs while bidding on the construction contract.

“The city is completely wrong.”

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Sheegl said they never discussed anything “remotely close to that.”

By May of 2013, it became clear the headquarters construction would not be completed on budget and a meeting was held with the project’s steering committee. Sheegl warned the others the overruns were likely to become an election issue, the inquiry heard.

— with files from Tyler Searle

joyanne.pursaga@freepress.mb.ca

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Joyanne Pursaga
Reporter

Joyanne is city hall reporter for the Winnipeg Free Press. A reporter since 2004, she began covering politics exclusively in 2012, writing on city hall and the Manitoba Legislature for the Winnipeg Sun before joining the Free Press in early 2020. Read more about Joyanne.

Every piece of reporting Joyanne produces is reviewed by an editing team before it is posted online or published in print — part of the Free Press‘s tradition, since 1872, of producing reliable independent journalism. Read more about Free Press’s history and mandate, and learn how our newsroom operates.