Quebec realtors caught up in million-dollar 'cheque-kiting'

Real estate agents who worked for a Sutton Quebec franchise in the Montreal area are fighting to get more than $600,000 of their commissions back after the agency's former owners allegedly defrauded the TD Bank and the National Bank out of more than $2 million in 2012.

Former Sutton Royal agents fighting for commissions they say they're owed

Ge Lu is one of several former Sutton Royal real estate brokers who found their commission cheques caught up in an alleged cheque-kiting scheme. (CBC)

Real estate agents who worked for a Sutton Quebec franchise in Montreal's West Island are fighting to get more than $600,000 of their commissions back after the agency's former owners allegedly defrauded the Toronto-Dominion Bank and the National Bank out of more than $2 million in 2012.

The agents worked out of the Sutton Royal branch in Dollard-des-Ormeaux, which declared bankruptcy in December 2012.

"This is a nightmare for me," said Ge Lu, a former Sutton Royal agent who earned almost $300,000 in commissions after two huge sales in 2012, but has yet to see any of the money. 

"I am anxious," Lu said. "I am nervous. I can't concentrate on my job anymore. I did not make one transaction after that."

In April 2012, Sutton Royal's accounts at the Toronto-Dominion and National banks were frozen after an internal bank investigation determined one Toronto-Dominion account was missing more than $1.6 million, while a National Bank account had a deficit of more than $400,000.

The commission payments for many of the agents, which had been deposited into a separate account at the Bank of Montreal, were also seized as part of the bankruptcy procedure and were ruled by a judge to belong to Sutton Royal. That money is now being fought over by Sutton Royal's creditors, among them are the group of agents.

Another former Sutton Royal agent, Joey Iacuessa, said he lost tens of thousands of dollars in commission and has also had trouble re-starting his career.  

"You've basically been shafted out of your livelihood," he said. 

Alleged victims of 'cheque kiting'

In documents filed in Quebec Superior Court, the Toronto-Dominion Bank and the National Bank allege they were the victims of a scheme called "cheque kiting," run by Sutton Royal's former administrator, Corinna Susanne Groth, and its president, Dominic Mammarella.

Both Groth and Mammarella have recently filed for personal bankruptcy.

In court documents, Mammarella maintains he wasn't aware of the alleged cheque-kiting scheme. 

Kiting is a type of cheque fraud in which an account's balance is made to appear higher than it really is by exploiting the time it takes for the bank to process a cheque that has been deposited. The float, or the money that's been credited to the account for the cheque, but not yet cleared, makes it appear as if there are sufficient funds in the account to cover subsequent cheques.

In court documents, the banks claim Groth deposited bogus cheques along with legitimate ones into at least three different bank accounts with at least two different banks. Even though the accounts didn't have enough money to cover the cheques, Groth withdrew the cash anyway and, before any cheques bounced, deposited another bogus cheque, ensuring the float would cover the first one.

When confronted at her home in a newly built condo complex in Vaudreuil, Groth refused to answer any questions about the alleged kiting scheme.   

Flurry of transactions

The financial sleight of hand required in cheque kiting results in a vicious circle of withdrawals and balances, all while trying to stay one step ahead of the bank.

"You can not stop — it's like you're spinning," said Messaoud Abda, a financial crime expert and professor at l'Université de Sherbrooke. "You can't stop, because if you stop, the whole balance will melt and all the banks will know you are kiting them."

Both the National Bank and the Toronto-Dominion Bank refused to be interviewed about the allegations, but in court documents, Toronto-Dominion states initially it only became aware of a flurry of "unusual transactions" in April last year. It goes on to to say it has very good reason to believe the alleged fraud started months before.

In another lawsuit filed by Sutton Royal before it was forced into bankruptcy, the agency accuses the banks of being negligent, saying there is ample evidence to show the cheque kiting began as far back as September 2009.

Not a '1-man or 1-woman show'

According to Abda, this kind of cheque fraud can be maintained for between 12 and 18 months on average, and more often than not, involves a bank employee to facilitate the scheme.

"Someone opened the door from the inside," he said. "It cannot be a one-man or one-woman show. You need someone to do the other part of the transactions because if you are doing it all alone, you will raise questions from time to time."

In a written statement, the Canadian Bankers Association, of which Toronto-Dominion Bank and National Bank are members, said, "We disagree with your expert that a bank employee is usually involved."

The statement goes on to say: "Generally, detection would start at the branch level. If someone at the branch suspects there is cheque fraud, then the branch would get in touch with the bank's centralized security department."

Although several of the agents did report the incident to police, there is no indication any kind of police investigation is being carried out at the present time. 

Agents frustrated

In an e-mail exchange, Toronto-Dominion Bank spokeswoman Fiona Hirst said: "We have been in contact with law enforcement officials on this case. For security reasons, we cannot discuss the details of the measures we take publicly."

Apart from the fact no criminal charges have been laid, many of the former Sutton Royal agents are very bitter and disappointed with the way the alleged fraud and subsequent bankruptcy were handled by Sutton Quebec head office and specifically Sutton Quebec president Christophe Folla.

The agents say they were informed of the alleged kiting scam at a group meeting. Folla promised them he would get their money back, according to the agents.

The Sutton Quebec president did hire a lawyer to help the agents recover their money.

But the agents say the lawyer was acting in conflict of interest because he was being paid by one creditor, Sutton Quebec, while representing another – the agents. 

The agents have lodged an official complaint with the Quebec Bar Association. 

The agents later learned Folla had quietly paid off the collaborating agents from other real estate companies who were also owed money.

Stronger rules needed

"I felt like he abandoned his own family," said former Sutton Royal agent Mona Sheres.

"Betrayal is just the understatement of this entire disaster. His abandoning his own ship and looking after the other transacting brokers … there isn't even a word to describe that. It's shocking, really shocking."

CBC News tried several times to speak with Folla, but he did not return the calls.

The agents also tried to get help from Quebec's Order of Real Estate Agents, but were told the its mandate is to protect the public, not agents.

They say they would like to see stronger rules put in place to protect their commissions when the agencies they work for are implicated in alleged fraud.