MP Shory accused in giant mortgage fraud
The Bank of Montreal is accusing Calgary Conservative MP Devinder Shory of having ties to what is believed to be Canada's largest mortgage fraud.
The bank has filed a lawsuit against hundreds of Albertans, including Shory. Civil court documents filed in the lawsuit, and obtained exclusively by CBC News, allege Shory, a lawyer, executed legal transactions that misrepresented the true mortgage owner of at least five Calgary properties.
None of the allegations contained in the lawsuit has been proven in court.
In a statement, Shory said he only learned about the lawsuit through the media.
"I want to state that I have not yet been served with a statement of claim. When I am, I will defend myself vigorously against these accusations. I have done nothing wrong," he said. "As the matter is before the courts, I have no further comment at this time."
The bank, which is suing lawyers, mortgage brokers and four of its own employees, alleges it was the target of a sophisticated scam operated by 14 interconnected groups that generated at least $140 million, about $70 million of which was for phoney mortgages.
The bank, which first discovered the alleged scheme in 2006, estimates it may lose as much as $30 million to the scheme.
IN DEPTH:How does the scheme work?
The bank's investigators say the scam's ringleaders would identify the worst house in a good neighbourhood. They would buy at an affordable, fair-market-value price, but convince the bank the house was worth much more because of the neighbourhood it was in.
The bank claims it would end up providing a grossly inflated mortgage, and the ringleaders would pocket the difference.
To carry out the alleged scheme, the bank claims masterminds would recruit "straw buyers." For a payment of up to $8,000, these straw buyers, mostly new immigrants, would allow their name to be used to obtain the mortgage on the house.
In the end, the masterminds walk away from the scheme, leaving the straw buyer, who typically has no means to pay the mortgage, or a renter, on the hook. Ultimately the bank loses when it forecloses on the mortgage.
The bank has sued 17 lawyers, including Shory, alleging they were either directly involved in the scheme or did not perform their due diligence as lawyers. Lawyers would produce the necessary legal documents for the house sale.
Apartment buildings, condos were targets
In its statement of claim, the bank says Shory was one of several lawyers who were involved in the "fraudulent scheme of the Malik Group."
The bank claims the Malik group identified properties to be used in the fraudulent scheme and, "in the majority of instances, these were entire apartments or condominium complexes."
"The various members of the Malik group and the Malik lenders recruited and induced individuals to participate as 'straw buyers,'" the bank says in its lawsuit.
These straw buyers were promised $3,000 to $8,000 to make mortgage applications to the bank. The bank says the mortgages were falsely inflated by $20,000 to $30,000 for each unit.
"[The Malik group] prepared, altered, or modified proof of employment income and proof of assets sufficient for a down payment for each of the straw buyers to reflect a more favourable employment and greater assets, all of which was necessary to support the application for the mortgage advance on behalf of the straw buyer," the bank claims in its lawsuit.
The bank says Shory and the other lawyers arranged for the land transfer to be executed by the original seller, as a blank form, or directly to the straw buyer.
"The Malik lawyers used the mortgage proceeds advanced by [the Bank of Montreal] to pay the cash to close the original vendor and to pay the excess proceeds to the solicitor for the vendor. Often both the vendors and the solicitors for the vendors were members of, or associated with, the Malik Group."
Lawyer alleged to have acted in at least 5 cases
Investigators found Shory acted in at least five straw-buyer cases. The bank obtained Shory's trust account ledger. It shows he ran more than $3.7 million through an account that the bank has linked to the fraud.
The documents show Shory did not disclose to the bank that he was involved in a transaction involving a straw buyer.
In its lawsuit, the bank says the fraud's "central participants" arranged the "skip transfer." Using a skip transfer is a common method of falsely inflating the value of a property.
"In this case, the title to the property never was in the name of the central participant, but rather, went directly from the original owner to the straw buyer."
An affidavit sworn by Paul Hitchcock, the bank's head of security, refers to an April 19, 2007, letter from Shory to another lawyer, discussing a skip transfer.
"We confirm that this is a skip transfer, as such, we will be passing trust conditions imposed on us by the actual vendor's solicitor and will confirm undertakings based upon undertaking received from actual vendor's solicitor," the affidavit says.
The bank claims Shory had a legal duty to disclose this skip transfer or side deal because it's a precursor of fraud.
Shory was elected in the riding of Calgary Northeast in 2008, more than a year after his alleged involvement in the mortgage scheme.
On Monday, Shory added a link on his MP website headlined, "Conservatives Stand Up for Victims of White-Collar Crime."
In announcing tough new mandatory sentences for fraud, the Tories boasted that "our Government is building on our previous action by standing up for victims of white-collar crime. We have listened to Canadians' concerns and our Government is working hard to crack down on fraud."
Shory was in the House of Commons Wednesday evening to vote on several bills, including a Liberal motion to toughen the federal Lobbying Act in the wake of the Rahim Jaffer affair, which has embroiled the House for weeks.