Paul Penna took every precaution when he decided to leave his $24-million estate to charity.
Gravely ill with lung cancer, the 73-year old mining promoter hired a respected Bay Street estate lawyer to draft his will in 1996. He then appointed a valued colleague and his long-time banker to be trustees of a fortune he built as the founder of Agnico-Eagle Gold Mines Ltd. Except for the $1-million he set aside for his wife of 43 years, he left the bulk of the childless couple's savings to about a dozen Jewish, medical and community causes.
It was the parting gift of a colourful mining player whose eccentric generosity was the stuff of mining lore. He gave tubes of gold flakes to shareholders at annual meetings, gifted Agnico stock to friends, kept a stack of winter coats at his office for the homeless and each work morning carted a bucket of corn to a park near his Mississauga home to feed the geese.
Fifteen years after Mr. Penna's death, his charitable dream has descended into a legal nightmare. His wife Lorraine received no money from the estate before she died in 2003 from Alzheimer's complications and the charities have given up hope of ever receiving their bequests.
"It's a nightmare. Tragedy. It's a horrible story," said Fred Tayar, a Toronto lawyer representing Mr. Penna's designated charities. "Money that could have been used and was intended to be used and earmarked for good purposes, charitable purposes, was destroyed."
The sad legacy of Mr. Penna's deathbed wish is a cautionary tale about gaps in the estates, banking and legal system. Those gaps were exploited by a long-time colleague he treated like a son. Barry Landen, Agnico's former vice-president of investor relations and one of Mr. Penna's executors, committed what an Ontario judge called a "massive fraud" on the estate by siphoning millions of dollars without detection for seven years.
Mr. Landen has admitted to pocketing some of the missing millions, but he insists the rest of the estate was lost to bills and depressed stock prices.
Millions of dollars flowed out of Mr. Penna's estate without any questions from the experienced professionals and financial institutions he counted on to safeguard his money. That so much could disappear for so long without anyone noticing is an alarming comment on the vulnerabilities of an estate system that will soon be handling what is likely the largest intergenerational transfer of wealth ever seen in this country.
Over the next few decades, experts predict Canada's aging baby boom generation will bequest trillions of savings they have accumulated. A large share of this money is expected to go to charities, which, like Mr. Penna's hand-picked causes, put enormous faith in the trustees handling the money to act according to the wishes of the donor.
Increasingly, legal experts say they are seeing cases involving trustees who are putting their own interests ahead of the estate by overcharging for their services or pocketing money.
At the same time that Mr. Penna's estate was being depleted, for example, another high-profile Canadian family saw their charitable bequest hijacked by a family friend they had appointed as a trustee. In 2009, the relatives of Robert and Signe McMichael discovered that the estate's trustee, former Crown attorney Geoffrey Zimmerman, had helped himself to more than $1-million of a $5-million bequest designated for the McMichael Canadian Art Collection, which houses a renowned collection of Group of Seven works.
It took seven years for Mr. Penna's other two trustees, lawyer, accounting firm, bankers and brokers to catch on to Mr. Landen's looting, despite numerous signs. No one asked how Mr. Landen was able to afford a sprawling home in Toronto's exclusive Forest Hill neighbourhood, a quartet of luxury cars or seasons tickets and entertainment suites for Toronto Raptors and Toronto Maple Leafs games. Astonishingly, no one stopped Mr. Landen from ransacking the estate even after the losses were uncovered by accident in 2004 and a court order had protectively frozen what was left of Mr. Penna's bank accounts.
"There was no oversight taken there. ... One person can do quite a bit of damage," said Peter Hubacheck, a former Agnico director and son of Mr. Penna's long-time friend, company geologist Wencel Hubacheck.
A jailhouse journey
The trail to Mr. Penna's missing fortune leads to a squat red brick fortress overlooking the Don Valley. Barry Landen has been behind bars at the Toronto Jail since Dec. 20, when Madam Justice Susan Greer of the Superior Court of Ontario sentenced him to 14 months because of "egregious" violations of court orders that were supposed to block him from raiding Mr. Penna's accounts.
It is one of the harshest contempt of court sentences delivered in Canada, a penalty that Judge Greer, a former estates lawyer, said should make the "public sit up and take notice" of the obligations of those trusted to protect estates. Her ruling described Mr. Landen as a sociopath who was "deliberately and knowingly defrauding" the estate. Mr. Landen is appealing the decision.
Mr. Landen agreed to speak publicly about his case for the first time when reporters from The Globe and Mail recently visited him in jail. Wearing a neon orange jumpsuit that made his face and goatee take on the colour of cigarette ash, he stood behind a wall of glass and cradled a pair of telephones so he could tell his story to both reporters. Asked how he is doing, the disgraced executive replied that he is in much the same state as his former boss's estate.
"I'm destroyed," he said. "I've lost everything."
His first night in the Toronto Jail was his darkest moment. That evening, he said, he slept on the floor because the two bunks in his cell were taken. "I didn't know how I was going to survive. Mentally my state was broken."
Since then, Mr. Landen said he has recovered his spirits with the help of anti-depressants and a daily job he enjoys as the "tea man" in the prison's kitchen. He said he is hopeful that an appeal court will reduce his sentence because he believes the estate's losses have been exaggerated to "make this a grandiose case, much larger than it really is."
Mr. Penna's estate was worth $24-million "only on paper," he said, because its core holdings were stocks, largely shares in Agnico, that declined in value after his boss died. To bolster his argument, Mr. Landen offers a variety of explanations, many of them contradictory.
Agnico's stock price did decline for several years after Mr. Penna's death, but by 2002 the price had fully recovered. He said many of the estate's investments were liquidated before the turnaround to pay for taxes and around-the-clock care of Mr. Penna's wife, Lorraine, before she died in 2003. He concedes, however, that the care bills totalled only $200,000.
He confirms that he withdrew close to $3-million from Mr. Penna's bank and brokerage accounts in the late 1990s because he wanted "to borrow some money to pay for a house." Those withdrawals, he said, "were pure stupidity, there was no one to blame but me."
When he explains why he withdrew $100,000 from Mr. Penna's accounts in 2006 in violation of a court order, Mr. Landen offered conflicting explanations. First he said that he was confused about the injunctions. Then he explained that he did tell one brokerage firm about the court order and the firm still allowed him to transfer out assets.
Until the estate's losses were uncovered in 2004, Mr. Landen said no one questioned multiple raids on Mr. Penna's estate.
"The whole thing is, no one really cared. No one really knew Paul's personal details as well as I did. ... They put it all on me," Mr. Landen said.
The money man
Gold prices were cresting $800 (U.S.) an ounce and Agnico was making so much cash it could barely keep count when Barry Landen joined the pint-sized mining outfit in 1981. Mr. Penna plucked Mr. Landen from the company's accounting firm, Starkman Kraft Rothman Berger and Grill, to help track the money. Although he was not a chartered financial accountant, Mr. Landen had a facility with numbers that impressed Mr. Penna.
Soaring profits were a vindication of Mr. Penna's twenty-year quest to vault the junior mining company into the big leagues with gold properties in Quebec and Ontario. It was also redemption for a promoter who had been sanctioned decades earlier by securities regulators for his early career in Toronto's notorious bucket shops that hawked worthless penny stocks. By 1985, Mr. Penna was so successful that the respected industry bible, the Northern Miner, named him Man Of The Year.
For 15 years, Mr. Landen was an indispensable member of Mr. Penna's team. Described by former colleagues as an affable manager, he shifted away from finance to nurture shareholder relations by co-ordinating annual meetings, overseeing annual reports and attending to shareholder inquiries. He also played the role of a financial counsellor to Mr. Penna, a devout Jew who frequently emptied his pockets to help the elderly and homeless people he encountered on Toronto's streets.
"I don't sleep all night worrying," Mr. Landen told Mike MacBeth in her 1987 biography of Mr. Penna. To keep the giving under control, Mr. Landen nudged his boss to create a private charity for the needy, which was fed with $1,000 weekly donations by Mr. Penna.
Charity became Mr. Penna's preoccupation as he began to succumb to terminal lung cancer in 1996. "He was driven by an incredible desire to give to those in need," said his biographer Ms. MacBeth.
He hired blue chip-law firm McMillan LLP in April of that year to draft his 18-page will and advise the estate about dispersing his fortune to a variety of small Jewish charities, hospitals and homeless missions.
Three months after he died in August, 1996, McMillan estates lawyer Catherine Roberts met with Mr. Penna's trustees – Mr. Landen, Agnico chairman Charles Langston and Lorraine Penna – to discuss the distribution of assets outlined in the will. Accounts of this meeting vary sharply.
Ms. Roberts said in a court affidavit that she recommended the complex will be probated, a legal process that registers a will with court officials to ensure its legality and to oversee distributions to beneficiaries. Ms. Roberts' affidavit said Mr. Penna's trustees declined to probate the will and her association with the estate ended after the meeting.
By not probating the will, the estate avoided Ontario probate fees that can be exorbitant – but it also meant there was no court supervision and no assurance that the beneficiaries would be notified. According to the charities' lawyer, Mr. Tayar, only a few of the organizations were told about Mr. Penna's bequest. Many of them were so small and inexperienced that they did not complain about delays even after waiting years.
The 1996 meeting with Ms. Roberts appears to be the first and last gathering of the Penna executors. According to affidavits filed by two trustees, there were no other meetings. Court documents show that a Toronto accounting firm, Kraft Rothman Berger Grill Schwartz & Cohen, which was Agnico's auditor and Mr. Landen's former employer, prepared several tax returns for the estate and unaudited financial statements for Mr. Penna's holding company but raised no alarms.
The accounting firm's founder, Bernard Kraft, who was also an Agnico director, confirmed his firm prepared tax returns for the estate, which only showed income earned, not assets. He did not comment further.
Mr. Langston died last year. The estate's other trustee, Mr. Penna's nephew Ernie Sheriff, was appointed in early 2004 to replace Lorraine Penna, who by then was incapacitated with Alzheimer's. Mr. Sheriff said in an affidavit that he never received any financial statements and he did not ask for any because "I assumed that matters had been handled properly." Mr. Sheriff did not return requests for comment.
Mr. Landen began removing money and stocks from Mr. Penna's estate in 1997, months after his death, according to a forensic probe of the estate by LECG Canada, an investigative firm. The report, which was filed in court, traced $3.7-million in misappropriated estate funds and an additional $1.3-million in questionable payments to Mr. Landen.
Most of the money was used to buy and renovate a newly purchased home in Forest Hill. Mr. Landen also charged the estate $122,000 for Raptors and Leafs tickets and special entertainment suites at the games. Another $130,000 was spent to lease five cars, including a Porsche and Mercedes. More than $100,000 was spent on computer, gasoline and telephone bills traced to Mr. Landen.
Greg Laing, Agnico's general counsel, said Mr. Landen's new Forest Hill home "wasn't unnoticed" at the company. None of the executives had seen Mr. Penna's will, so his former colleagues assumed that Mr. Landen's lavish new lifestyle "reflected a generous bequest" from the company's founder, he said.
"We are all saddened and dismayed at these events," Mr. Laing said.
Mr. Landen did donate nearly $1-million to a charity on behalf of Mr. Penna when he transferred money from the estate to the United Jewish Appeal. The money was given to a Jewish day school that employs his wife Pauline. But neither the charity nor the school was named in Mr. Penna's will. In the interview, Mr. Landen said the donation was "one of the things I did wrongly."
A legal action by the charities to recover the money has been abandoned and a lawyer representing the UJA said most of the money has been spent on capital projects.
Mr. Landen told the court that he spent nearly $200,000 of the estate's money to pay for Mrs. Penna's caregivers before she died in 2003, but the forensic report concludes that these costs were financed by withdrawals from Mrs. Penna's personal bank accounts. Mr. Penna's wife, Judge Greer concluded, was "cheated out of her inheritance."
The whereabouts of the rest of Mr. Penna's fortune has become a guessing game. Mr. Landen said he only has limited bookkeeping documents. Complicating matters, Mr. Penna's main bank, Canadian Imperial Bank of Commerce, no longer has records of his account prior to 1999. (A spokesman for CIBC said it is standard policy for the bank to destroy retail client records after six years and no bank documents were requested by the court or the estate's trustee until the mid-2000s.)
LECG estimates about $7-million of Mr. Penna's savings was spent on taxes and about $1.7-million was distributed to various family members and some of the charities after Mr. Landen's actions were uncovered. That leaves about $12-million unaccounted for. Judge Greer has ordered Mr. Landen to give a full account of the lost money.
It is likely that the pillaged estate would never had been noticed had Mr. Landen and a friend not made the mistake in October, 2003, of buying a large quantity of put options to bet that Agnico's stock price would soon decline. Days later, Agnico shares plunged on news that it had overstated its gold production, delivering a profit of nearly $200,000 on the options.
The trade attracted the immediate attention of the market surveillance team at what was then the Bourse de Montréal, where the options were purchased. The trade was unusually large and it was traced back to a company controlled by the Penna estate and Mr. Landen, who was still an executive with Agnico.
An investigation by the Ontario Securities Commission dragged on for so many years that Ontario Court of Justice judge Rebecca Shamai chastised the OSC in a ruling for the slow pace and "carelessness" of the probe. Tom Atkinson, the OSC's Director of Enforcement, attributed delays in the "complex and document intensive" nature of the investigation. He said scheduling issues and pre-trial court challenges by the accused also contributed to delays.
Five years after the trade, an Ontario judge convicted Mr. Landen on one of two counts of insider trading. (She dismissed charges against his friend, Stephen Diamond.) Mr. Landen was sentenced to 45 days in jail, but the judge allowed him to serve his time on weekends. Mr. Landen only spent four days in jail because he enrolled in a program that allowed him to serve the rest of his sentence in a community program painting the walls of an arena in Toronto's west end.
The OSC investigation would prove crucial in unravelling the case of Mr. Penna's depleted estate. It began on Nov. 3, 2004, when one of the regulator's lawyers placed a telephone call. At the receiving end was Patricia Olasker, a corporate lawyer with Davies Phillips and Vineberg LLP, who had been waiting for weeks for the commission to clear a stock prospectus for her client, Agnico Eagle. The prospectus had been delayed, Ms. Olasker was told, because the company's vice-president, Mr. Landen, was the subject of an insider trading investigation.
Seven years after Mr. Penna's death, alarm bells started ringing at the company. Mr. Landen was suspended and Agnico's board of directors dispatched a pair of Davies litigators to investigate Mr. Landen's activities. After a review of estate records at Mr. Penna's law firm, the lawyers realized that something was horribly wrong with the estate, sources said..
A month later in December, 2004, Agnico's board called Mr. Landen to a meeting. According to court documents, the executive confirmed that he had taken money and stock from Mr. Penna's estate. Their reaction was swift. Mr. Landen was fired a few days later and LECG was hired to trace his financial dealings.
Alerted about potential misconduct, charities and other beneficiaries named in Mr. Penna's will sprang into action by suing Mr. Landen and his two fellow trustees for the missing money. By the time the case landed before a judge in March, 2005, Mr. Penna's estate had largely been depleted. Judge Greer described Mr. Langston and Mr. Sherriff as "passive" trustees who failed their duty to administer the estate. The two men made an undisclosed payment to settle the charities' lawsuit.
What little was left in Mr. Penna's bank and brokerage accounts was frozen. But even that powerful court order proved ineffective. When Toronto law firm Lenczner Slaght Royce Smith Griffin LLP
was hired in 2008 to help unwind the estate, lawyers Peter Griffin and Matthew Sammon got a surprise response when they asked Mr. Penna's banks and brokerages why money from the accounts had not been transferred to the estate.
The money, the financial institutions explained, wasn't there. What was left was a trail of e-mail requests and phone calls from Mr. Landen – who despite the court order, had been able to transfer over $100,000 in cash and stock to his personal accounts. The money was withdrawn from the brokerages W.D. Latimer Ltd. and Trade Freedom Inc., which is now owned by Bank of Nova Scotia.
The financial institutions have since repaid the estate for the missing money and officials decline to comment.
Until Judge Greer sent him to jail in December, Mr. Landen had barely felt the lash of the justice system. Clifford Lax, a lawyer for Mr. Penna's late wife, said he thought of calling in the police. But ultimately he decided against it because his past experience with fraud cases is that local, provincial and federal police lack the will or experience to prosecute white-collar crime.
"Getting the fraud squad to ever charge someone with fraud, my friend, is the most goddamned thing," Mr. Lax said.
There are many lessons to be learned from the tragic saga of Mr. Penna's lost estate. Lawyers will say that large estates are at risk if wills are not probated and submitted to a court. Others will say that more regulation and accountability is required for estate trustees.
If the police are not investigating estate fraud, should a specialized regulatory or court system be established to crack down on estate mismanagement? Is justice really being served when an trustee such as Mr. Landen is not sent to jail for pocketing the money, but rather for contempt of court?
At a more basic level, perhaps the moral of the Penna story is that there can be danger in giving close friends the huge freedoms that come with managing the money and assets of estates. Mr. Landen had long-standing ties with his other two trustees and Mr. Penna's accountants, bankers and brokers. None of them felt the need to scrutinize his management of a $24-million fortune.
That blind faith, Mr. Landen warns from the grim recesses of the Toronto jail, is misplaced. "Don't name your friends as executors," he said.
Editor's note: This article makes reference to an individual named Stephen Diamond. The Globe and Mail wishes to clarify that the Stephen Diamond referred to is a chartered accountant and not a lawyer.