Four Ontario men were acquitted and three others found guilty yesterday of selling phantom cars in what is believed to be the largest GST fraud ever committed -- a scam the Crown estimates came to almost $20-million.
After a lengthy trial, Madam Justice Lynda Templeton of the Superior Court convicted Ewaryst Prokofiew, Gregory Postnikoff and Joseph Rothe of conspiring to defraud more than $5,000 from the government.
She said there was insufficient evidence to convict Robert Dagnon, Randell Hill, Benny Spatafora, and Peter Solty.
The Crown alleged in the case that the accused -- who were mostly car dealers -- recruited native Canadians in an elaborate scheme to defraud the government of massive GST rebates.
The prosecution claimed the aboriginals were lured into the plan -- which lasted from 1995 to 1998 -- because their Indian status enabled them to operate tax-exempt businesses.
The car dealers created an elaborate trail of paperwork and fake companies they could use to fake the sale of non-existent cars they had purportedly shipped to a native reserve in New Brunswick.
The complex trial lasted seven months and generated more than 20,000 documents.
"This is a huge relief to my client," lawyer Steven Skurka, who represented Mr. Dagnon, said in an interview after the decision.
"He has had this hanging over him for years now. The seven-month trial alone was a major disruption to his life.
"This was as challenging a case as I've ever been involved in. There was a mountain of evidence."
Mr. Skurka said that Judge Templeton concluded that rather than being a cunning fraudster, his client was a financial officer "desperately trying to save the business." Mr. Dagnon had allegedly played the role of bringing buyers and sellers of the cars together.
In her ruling, Judge Templeton found that some of the deals at the heart of "Project Phantom" involved the sale of non-existent vehicles at auctions to dealerships located on Indian reserves.
GST credits were later claimed and divided among the participants in the scheme in spite of the fact that no GST had actually been paid.
Mr. Skurka argued during the trial that a large number of people who were working at the auction group offices genuinely believed in the legitimacy of the sales transactions.
The judge drew sharp distinctions between those who directed the operation and those who were mere recruits. Defence counsel Paul Burstein said after the ruling that Judge Templeton also seemed skeptical about the magnitude of illegal behaviour the Crown was alleging.
"It seemed that every time I heard another figure, like Pinocchio's nose, it had grown and grown," Mr. Burstein said in an interview.
"I don't know where they got the number $20-million, other than that it sounds good," he said.
"One of the things [the]judgment clearly seemed to show was that like many things the federal government seems to do, the GST rebate was not well run," added Mr. Burstein, who represented Mr. Rothe.
"Because of flaws in the system, some of the accused were able to take advantage of the loopholes in an inefficient tax scheme."
Mr. Burstein predicted that when the convicted men are sentenced, the Crown will attempt a substantial restitution order and lengthy prison terms.