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Damage can seen on the 24th floor of the apartment complex at 200 Wellesley St. in Toronto on Sep 27, 2010. Toronto Community Housing Corp. says it uncovered ‘fraudulent’ conduct after a forensic audit of insurance claims related to the fire. (MOE DOIRON/THE GLOBE AND MAIL)
Damage can seen on the 24th floor of the apartment complex at 200 Wellesley St. in Toronto on Sep 27, 2010. Toronto Community Housing Corp. says it uncovered ‘fraudulent’ conduct after a forensic audit of insurance claims related to the fire. (MOE DOIRON/THE GLOBE AND MAIL)

TCHC ex-employees were behind ‘fraudulent’ invoice scheme, agency alleges Add to ...

The city of Toronto’s public housing agency is alleging that two former senior employees orchestrated a scheme where more than $1-million in improper invoices were submitted as part of the repair costs for a 2010 fire at a downtown high-rise building.

The “fraudulent conduct” of Roman Mesec and Lou Canton “jeopardized TCHC’s critical insurance coverage and caused significant harm to TCHC’s reputation,” states the Toronto Community Housing Corp. in documents filed in Ontario Superior Court. The invoices included “undisclosed, unauthorized and in some instances, completely fabricated costs,” the housing agency claims.

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The allegations, contained in a statement of defence to wrongful dismissal lawsuits filed by the two men, outline for the first time what the housing agency said it uncovered after a forensic audit into insurance claims related to the 200 Wellesley Street fire.

Mr. Mesec, 51, and Mr. Canton, 64, were among five senior employees at the now-defunct TCHC subsidiary Housing Services Inc. who were dismissed last fall. “The findings are serious,” said Gene Jones, the then-chief executive of TCHC, although he did not make public any details of the alleged misconduct.

None of the allegations made by either side has been proven in court.

The veteran public housing employees, who helped develop HSI in 2004 as a for-profit contractor and property services subsidiary of TCHC, are seeking a total of nearly $700,000 in severance pay, unpaid wages and damages, in the lawsuits filed in late April.

Mr. Mesec and Mr. Canton were in charge of HSI’s contracting duties for the repairs at 200 Wellesley after the 2010 fire. Hundreds of the 1,200 residents at the high rise were displaced for several weeks after the fire, which was “catastrophic” and has “required the expenditure of tens of millions of dollars,” TCHC states in its statement of defence.

HSI was the general contractor in the “emergency phase” following the fire and then a subcontractor to a private company for the “reconstruction phase” of the “200 Wellesley Reconstruction Project,” TCHC says in the court documents.

The allegations of misconduct centre on whether HSI was permitted to charge its standard 10-per-cent markup for contracting work at 200 Wellesley.

The statements of claim filed by Mr. Mesec and Mr. Canton say that HSI received “conflicting and/or confusing instructions” from the insurance adjuster for 200 Wellesley, a cost-control consultant and TCHC itself. The two former managers also insisted they consulted regularly with the chief executive at HSI and senior officials at TCHC.

In response, TCHC says that HSI received very clear instructions about what it could claim for its work. “HSI’s role as general contractor and subcontractor was subject to an important caveat: as a wholly owned subsidiary of the insured party, TCHC, HSI could not profit from the work performed in connection with the 200 Wellesley Insurance claim,” the documents say.

Despite this directive, Mr. Mesec and Mr. Canton were two of “several individuals within HSI who improperly exploited the 200 Wellesley Reconstruction Project in an attempt to make HSI, which had been struggling to achieve success in its market space, appear to be profitable,” the documents state. The two men “purposely and repeatedly disregarded mandatory directions and deceived other stakeholders,” alleges TCHC, which has retained Laurie Jessome, from the Bay Street firm Cassels Brock, to defend the wrongful dismissal lawsuits.

The public housing agency notes that the compensation package for Mr. Mesec included a discretionary bonus of up to $14,000 annually and for Mr. Canton, up to $20,000 annually.

The statement of defence filed this week does not make any reference to other legal proceedings involving 200 Wellesley, including an ongoing lawsuit where TCHC is seeking $5.2-million from the main private contractor, for work done by HSI. In that lawsuit, TCHC is alleging that HSI was entitled to claim a 10 per cent markup.

The various insurers for TCHC and the company that managed the building are scheduled to be in court in July as part of ongoing legal proceedings to determine who should be responsible for the more than $30-million already paid out in repairs and other costs from the fire.

The housing agency cannot comment beyond what is filed in the court documents, said TCHC spokeswoman Sara Goldvine.

TCHC, which is the second largest public-housing provider in North America, is seeking a new permanent chief executive in the wake of unprecedented turnover of senior staff and a $750-million repair backlog for its properties.

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