Calgary men guilty of defrauding feds of $14 million in RRSP scam

Two Calgary men have been convicted of defrauding the federal government of $14.1 million in taxes that should have been paid on registered retirement plans, in which the money was used for offshore investments.

Steven Kendall and Christopher Houston were found guilty on Wednesday on one of four charges by Court of Queen’s Bench Justice Peter McIntyre following a lengthy trial.

He acquitted the men of fraud and theft from the individuals in the scheme, which occurred between Jan. 1, 1999, and Dec. 31, 2006. The two were also acquitted of conspiring with others.

“This was an RRSP strip scheme, designed to allow contributors to invest offshore without paying withholding tax to Her Majesty in right of Canada,” McIntyre wrote in his lengthy decision.

“Kendall and Houston used or created companies to make it look as if these were Canadian investments by contributors when they were not. The transactions thus were shams, designed to look like one thing but in fact being another. Her Majesty the Queen in right of Canada was defrauded by the actions of Kendall and Houston, working with (Milowe) Brost.”

Brost was originally co-charged with Kendall and Houston, but faces a separate trial starting next month.

McIntyre said the trust companies were obliged to follow the requirements of Canadian legislation. However, through the scheme, he said, the accused represented to the trust companies that the contributors had paid a certain amount for shares and debentures when they had not. He said the contributors retained control of most of the money “paid.”

“The essence of an act of fraud is dishonest deprivation,” said the judge. “To find dishonesty, there must be objective facts that support deceit, falsehood or other fraudulent means.

“To find deceit or falsehood, all that needs to be determined is whether an accused represented that a situation was of a certain character when it was not.”

McIntyre said RRSPs were one of the primary targets for this scheme. Contributors were earning little in Canada, and RRSPs were “low-hanging fruit for investment opportunity.”

To obtain the high returns that would induce investment, the withholding tax that would ordinarily be payable could not come into play, he added. However, withdrawing money from an RRSP for offshore investment would attract withholding tax, unless it could be made to appear that it was not an offshore investment.

Court heard most of the investments ended up in the Honduras and other Central American countries.

McIntyre said Kendall and Houston were essential to the scheme and they allied with Brost to make the scheme work.

One of the main ways they did so, he continued, was to use existing companies to induce the trust companies to release funds to “pay” for the shares or debenture units “purchased” by the contributors.

Kendall and Houston remain on bail until sentencing arguments by defence lawyers Balfour Der and Lisa Burgis, and Crown prosecutors Barb Mercier and Tyler Lord, on May 21.

Brost and Gary Sorenson were convicted last month following a five-month jury trial that ended on two counts of fraud involving an elaborate Ponzi scheme that bilked investors of between $100 million and $200 million.

Sentencing was delayed to June 8 so Sorenson, who represented himself through the trial, could hire a lawyer, who would need time to get up to speed on the case.

Brost was also convicted of two counts of fraud and one count of money laundering in the Ponzi scheme.

It was one of the longest criminal jury trials in Calgary’s history.