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Toronto-Dominion Bank has a claim against StateView Homes demanding repayment of $37-million it says was siphoned away in a so-called 'cheque-kiting' scheme.Alex Lupul

As litigation against Ontario homebuilder StateView Homes continues to pile up, buyers, vendors and many in the housing industry are wondering who will ultimately be held accountable.

StateView is facing claims that have climbed past $230-million, and the company is in the midst of marketing and building more than 1,500 homes at seven sites across the Greater Toronto Area (GTA), all of which face an uncertain future.

Three lenders – KingSett Capital, Atrium Mortgage Investment Corporation and Dorr Capital – are seeking repayment of more than $195-million in development and construction loans. Toronto-Dominion Bank has a claim demanding repayment of $37-million it says was siphoned away in a so-called “cheque-kiting” scheme.

On April 28, former StateView chief financial officer Daniel Ciccone filed a notice of intent to defend against TD Bank and the other defendants including his long-time business partners Carlo and Dino Taurasi. Court documents filed by TD say that some of the StateView defendants have entered into a settlement agreement with TD to repay the bank for the losses stemming from the cheque scheme, but that Mr. Ciccone is not among the settling defendants. TD alleges thousands of cheques were sent under false pretenses in order to withdraw millions of dollars in conditional credit from business accounts before the cheques cleared but after the original cheques had been cancelled.

None of the allegations have been tested in court, but one mystery still outstanding is why it took TD almost a year to catch on to the scheme.

“A high frequency of physical cheques churning within short periods through an account should be a flag and cause for further inquiry,” said Munaf Mohamed, who is a lead director and partner with Bennet Jones LLP and co-head of the firm’s fraud law practice.

Mr. Mohamed warns that whoever was behind the alleged fraud at StateView may not face criminal justice. He was part of an investigation in 2012 that uncovered an international cheque-kiting scheme that cost Bank of Montreal $20-million. That case resulted in a long prison term for the U.S. defendants, but only charges and no convictions for the Canadian alleged co-conspirators.

“Law enforcement does not typically have the resources, that are the forensic resources, to dig though the morass of financial documents,” he said. “These sorts of white-collar fraud cases are difficult to pursue and the civil justice system is likely going to get you a faster result in terms of recovering your funds, and exposing the details of the fraud, which can then potentially be used to hand over to the authorities.”

StateView’s head office is in York Region, but police there said there is no investigation under way in its jurisdiction. “The financial crimes unit is not aware of any criminal investigation pertaining to this matter,” said Laura Brabant, media relations officer with the Toronto Police Service.

The Globe has learned that a number of vendors and suppliers are filing their own civil claims against StateView for unpaid work or product.

“I have been working well with StateView for years, they were always good to my company,” said Josh Luftspring, owner of Best Brand Appliances. Nevertheless, On April 27, Best Brand filed a claim seeking more than $170,000 to compensate it for appliances the company shipped to the On the Mark condos in Markham Ont., after invoices it sent in March went unpaid. StateView ordered 70 appliance packages from Best Brand, accepted delivery of 23 but has thus far only paid for 13. On The Mark is partly occupied, and it was StateView’s practice to deliver appliances after owners had taken possession of the homes. “We’re looking forward to completing the project as home owners are living without appliances at this time. We feel horrible for this situation in all areas,” Mr. Luftspring said.

On April 21 StateView sent a mass e-mail to a number of its suppliers and vendors warning them that its “treasury functions” had been disrupted at its current bank. That e-mail came more than a month after TD filed claim on allegations of fraud and a week before StateView released a statement to the public, saying it had opened new accounts at a new bank and was in the process of “getting new cheques printed.”

“We expect our treasury functions to return to normal over the next two to three weeks,” the letter states.

The letter was sent on behalf of the Taurasi brothers who are co-presidents of the company, but StateView declined to make either man available for comment to The Globe.

The Globe has also heard from buyers in unfinished StateView projects – several who declined to comment on the record – who are growing increasingly nervous and who are receiving conflicting advice about the prospects for their investments.

Builders are granted wide latitude to cancel agreements of purchase and sale in Ontario law, and in the event of an insolvency those same contracts can and have been be voided by courts in the past.

In some cases, a portion of the deposits paid on StateView projects may also be in jeopardy if the company fails.

In Ontario, deposits for condominium purchases must be kept in a legal trust accounts, though in certain circumstances those funds can be released, if they are insured by a third party.

But for freehold properties like StateView’s townhouses and detached home projects, trust accounts are not required and the provincially mandated Tarion warranty protection only insures deposits up to a maximum of $100,000 if a project was sold after 2018 for more than $600,000.

In the case of the MiNu townhouse project in Markham, documents in the KingSett claim against StateView show close to 100 buyers have paid at least $120,000 in deposits, meaning should that project be cancelled investors stand to lose at least $20,000. Potential losses from unrealized equity gains in unbuilt homes could be much higher, but civil courts do not typically grant damages for unrealized gains.

“This is going to be quite scary for buyers in these projects. They are going to be stressed, both about what may happen to their deposits and whether the project will go ahead,” said John Zinati, a Toronto lawyer with an expertise in preconstruction contracts. “These things take a long time to settle and it will be worrisome and difficult for the buyers in these projects until then.”

Publication note: After this story was published, Justice Jana Steele appointed insolvency specialists KSV Restructuring Inc. as the receiver on the five projects at issue for Atrium, Dorr and Kingsett. The order makes KSV responsible for finding ways to pay back the lenders as soon as possible.

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