Downfall of Cape Breton law firm detailed in disciplinary hearing
The tangled financial web that led to the downfall of a Nova Scotia law firm is being laid out at a disciplinary hearing by the Nova Scotia Barristers' Society.
Port Hawkesbury lawyer Adam Rodgers is accused of professional incompetence and professional misconduct for failing to keep track of what his law partner, Jason Boudrot, was doing.
Boudrot was disbarred two years ago after it was discovered that money was missing from their firm, Boudrot Rodgers. The firm went bankrupt in 2018 with debts of more than $1.5 million.
In a settlement with the society, Boudrot did not contest allegations that he wrongly took money from the firm's clients, but he also did not admit any guilt.
Fake invoices issued
The three-member panel hearing the complaints against Rodgers are not hearing directly from any witnesses. Instead, the parties have agreed to work from transcripts of interviews conducted by the society's investigator.
Evidence from two lawyers who worked as associates at the firm and from two staff members outlined the questionable financial practices at Boudrot Rodgers.
The employees talked about a $700,000 line of credit the firm had with Scotiabank. When the balance on that line of credit topped $500,000, the bank required proof the firm was good for the money. The society panel has heard how the firm would manufacture that proof by inflating the value of work in progress and issuing fake invoices for trust accounts that the firm held.
"This is fraud, this is lying to the bank," barristers' society lawyer Bernadine MacAulay told the panel.
She also provided detailed financial records showing how money was moved in and out of trust accounts without the knowledge or consent of clients. Sometimes that money would be replaced. Sometimes it would disappear. She said sometimes, money would sit in the firm's general account without being properly placed in trust.
No evidence Rodgers took money
There has been no evidence presented so far at the hearing that shows Rodgers took any money for himself. But MacAulay argued there is plenty of evidence that he knew, or should have known, what Boudrot was up to and failed to raise the alarm.
An associate at the firm, Matt Hart, warned both Boudrot and Rodgers after one of Boudrot's clients complained and Hart looked into the complaint. The names of the clients are banned from publication. Hart said there was money missing from the trust account and he said they had a duty to report that to the barristers' society.
According to the evidence Hart gave the society investigator, Rodgers told him it would be taken care of, but he resisted the idea of reporting it.
Hart started looking at his own trust accounts and found that money was missing from two of them. He warned the partners that if it happened again, he would quit.
Another associate, Jeanne Sumbu, also threatened to quit when she discovered a $7,000 irregularity with one of her legal aid files.
MacAulay also introduced evidence from the firm's office manager, Michelle Leblanc, who left in 2018 amid concerns about mounting debt.
Leblanc told the society investigator she tried to raise her concerns with Rodgers but she says he didn't want to talk about it.
Leblanc also talked about problems with the firm's credit card. Employees would try to use it to buy supplies, only to find there was insufficient funds. She said Boudrot would pay off the credit card balance at the last possible moment each month, then immediately take a cash advance, leaving no room for business purchases. Employees also discovered their health benefits weren't available because the firm had failed to pay the premiums.
Helen MacLean was the law firm's bookkeeper for 21 years. Leblanc said she would produce invoices and would place copies of invoices on Rodgers' desk.
When asked by the society investigator, Rodgers denied ever seeing those invoices. MacAulay said if he'd looked at them, he would have seen the questionable transactions Boudrot was conducting on his accounts. Rodgers had told the investigator he checked the status of his trust accounts every couple of months. MacAulay said that practice would also have made him aware of the financial irregularities.
The society sent Rodgers a detailed set of questions in response to allegations and concerns voiced by employees and clients. In many cases, Rodgers' response was that he did not recall.
Rodgers told investigators that he trusted Boudrot because he'd worked with him for 14 years. He said as long as the firm kept making money and paying its bills it would be all right. The only concern he admitted to was the amount of staff time that was being taken up to generate the false invoices the firm used to deceive the bank.
Rodgers will have a chance to have his say when the disciplinary hearing resumes Tuesday.
Last month, Rodgers told CBC News he felt that an impartial panel will find in his favour.
"I did everything in my power to protect client interests, assist former employers and others connected with the firm and then speak out publicly about it, so I feel like I've done everything I was supposed to do and that taking it to this point is unfair and unnecessary," Rodgers said in September.