Canada's record for prosecuting white-collar crime is improving, but a recent report by Pricewaterhouse-Coopers placed Canada in fourth place in the list of the world's most fraudulent countries — behind Russia, South Africa and Kenya.
National Post
December 15, 2009
Report alleges Ponzi scheme
Businessman well-known in Jewish community
Karen Mazurkewich
Tzvi Erez is a master pianist who started his own label. His 1912 Bosendorfer grand piano was among the assets sold for creditors. NIV Music
The bankruptcy of a small printing plant in Richmond Hill has uncovered an elaborate trail of alleged fraud and deception involving 76 high-profile investors from Toronto's Jewish community believed to have lost more than $27-million.
The alleged fraud, which the court-appointed receiver has characterized as a Ponzi scheme, was reportedly built on a foundation of trust and a web of personal connections around Tzvi Erez, a 42-year-old self-styled entrepreneur with a solid family pedigree in the city's Jewish community.
Mr. Erez ran a tiny print shop in Richmond Hill through E Graphix Ltd., but claimed that he was brokering large print jobs for blue-chip clients, according to two of his alleged victims, who do not wish to be identified. They say that Mr. Erez approached them through intermediaries for cash advances on large printing orders. He is alleged to have promised to return the original investment plus interest fees of 30% per annum once he delivered the printed materials to his clients.
But there were no large orders, according to the receiver.
None of the allegations have been proven in court. After a nine-month investigation, Jerry Henechowicz, the court-appointed receiver working for The Fuller Landau Group Inc., concluded that it was clear from his investigations that "Tzvi operated a Ponzi scheme sometimes defined as an inherently fraudulent arrangement under which the debtor just utilizes after-acquired investment funds to pay off previous investors to forestall the disclosure of the fraud."
The receiver said his investigation "found little evidence that the Erez Group's actual printing business was anything other than a very small business."
The receiver's report states that between Jan. 25, 2007 and Feb. 17, 2009, $38.9-million went through eight different bank accounts in Canada that belonged to Mr. Erez or one of his companies. In his third report of Oct. 15, 2009, Mr. Henechowicz says Mr. Erez used fraudulent or forged documentation to raise millions of dollars.
"Investors would be provided fraudulent documentation, including forged purchase orders, invoices and other documents, to support what was presented as a highly profitable, yet under-financed print brokerage business," the report said. Creditors mentioned in the report include real estate developer Elliot Steiner of Elm Developments and Thornhill accountant Michael Sheyman.
Mr. Erez could not be reached for comment and his lawyer, Howard Manis, did not respond to repeated requests for an interview. Mr. Erez responded to the receiver's allegations during the investigation by asserting that the money was lost online; he told the receiver his online gambling "was driven by his desire to win enough money to repay all of his investors."
The receiver's report also said Mr. Erez had a conviction for fraud in 2006 for writing bad cheques to several Ontario casinos owned by CHC Casinos Canada Ltd.
A bankruptcy order was issued against all of Mr. Erez's companies and him personally.
The allegations of fraud first surfaced when one investor, Glickma Investment Inc., filed a civil suit with the Ontario Superior Court of Justice in February against Mr. Erez and his listed companies and a receiver was appointed. The same plaintiff also filed a criminal complaint, and on June 18, Mr. Erez was charged and arrested by Toronto Police on seven counts of uttering a forged document and one count of fraud over $5,000.
"His victims were honest people who lost a lot of money," said Lou Brzezinski, a lawyer with Blaney McMurtry, who was approached in February by the owner of Glickma Investment, seeking his help in recovering his original investment.
Mr. Erez is well established in the Jewish community in Toronto. As a teenager, he moved to Canada from Israel and attended the Community Hebrew Academy. He married Justine Tweyman, has two children, and, until the receivership, lived in a home worth more than $1.3-million on Bannockburn Avenue in North Toronto. The home was seized by CIBC last summer.
He is a master pianist who created his own label, NiV Music, in memory of his brother, who was killed in 2000 during a jewellery heist at a store where he worked. Mr. Erez produced at least one CD and posted numerous recordings of Chopin's nocturnes and polonaises on YouTube.
His stepfather, Leo Erez, is a prominent member of the Jewish community. In fact, it was the elder Mr. Erez to whom creditors turned — in addition to a local rabbi — to try and settle the dispute before it hit the courts, according to J. David Sloan, a lawyer with Baker Schneider Ruggiero, who handles several claimants.
But it wasn't just the family name that drew clients to Mr. Erez's business. According to the receiver's report, Mr. Erez used intermediaries to help draw in new investors. The report by the receiver names seven alleged "brokers" who worked on Mr. Erez's behalf. For their assistance in attracting new investors, the brokers collectively received $4-million in respect of principal repayments, interest, commissions and/or fees, according to the receiver's report, although several of the brokers have also filed claims against the Erez estate and say they were also victims of Mr. Erez.
Michael Sheyman, one of the creditors named in the receiver's report, says he was introduced to the alleged scheme by acquaintance Ehud Telem. Despite the fact that Mr. Sheyman is out $100,000, he says he is not angry with Mr. Telem because "no one knew what was going on." Mr. Telem would not respond to a request for an interview.
Another of the alleged brokers, Arik Auerbach, would not elaborate on his role in this matter, but said he was a victim as well. Although the report states he received more than $1-million from Mr. Erez, he and his wife have both made creditor claims of $776,000.
"Everyone has the same story, you were introduced by someone you trust and then you say, I'm skeptical, and you put in a little, and it goes well, so you put in more until you have a lot in," said Ari Rosenzweig, who says he and several acquaintances lost a substantial amount of money through the alleged scheme. "This is an embarrassment to the Jewish community," he added.
In attempting to retrieve investors' money, Mr. Henechowicz followed a paper trail that led him to various gambling operations. The Seneca Niagara Casino provided paperwork to show that tens of thousands were lost by Mr. Erez at its establishment.
Mr. Henechowicz also determined that $3.6-million of payments from the Erez Group went to several online casinos through intermediaries and other offshore banking facilities, principally in Germany and elsewhere in Europe, in the name of Mr. Erez's gambling alias, Steve Haris.
The trail went cold because the online casinos would not co-operate, said Mr. Brzezinski, who also represents the receiver. Online casinos typically have separate ownership in different jurisdictions, so "to get the necessary court orders to force owners to disclose and divulge information is almost impossible," he said. "To what extent are online casinos being used as offshore ways of hiding money … I don't know," he added.
During the investigation by the receiver, Mr. Erez asserted that the money was lost online and that at no time did he intentionally lose to any specific person or use the casinos' banking facilities to transfer funds to other persons or offshore accounts. Mr. Erez also asserted that money used to gamble was from his own personal funds. In his report, the receiver stated that his "tracing does not substantiate or otherwise confirm Tzvi's assertion regarding the source of funds paid into casinos."
Between Jan. 25, 2007, and Feb. 17, 2009, when $38.9-million went through eight different bank accounts in Canada, some of Mr. Erez's financial transactions caught the attention of CIBC.
On Dec. 18, 2007, CIBC filed an online suspicious transaction report with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) for a series of cash deposits each in the amount of approximately $9,990 to Mr. Erez's accounts.
In its report, CIBC stated that it "appears that the customer may have structured his deposits in order to avoid completing the large cash transaction report." A FINTRAC spokesman would not comment on whether FINTRAC followed up or forwarded the information to the police.
The civil case wound up in October, when Mr. Erez and his companies were officially declared bankrupt. Little money was retrieved for the creditors. Having only recovered $35,000 — from the sale of some assets, including his 1912 Bosendorfer grand piano — the receiver determined that there was "no certainty that further investigation would lead to any other asset recoveries."
On the criminal-charges front, the case is moving slowly. Despite the fact that several more alleged victims have come forward with claims to the Toronto Police Service's Fraud Squad, no additional charges have been laid, apart from the initial charges in June.
"It's still under investigation," said Detective Jeanille John, who is handling the case. She has not approached any of the plaintiffs in the civil suit. "We have to receive a complaint [directly]; we don't try to go to people," she said.
"It's typical that the police are not proactive," says James Grout, a partner at the Toronto-based Thornton Grout Finnigan law firm. He has worked on a number of large white-collar crime cases, including representing the receiver on the $800-million Portus Alternative Asset Management scandal. "Someone has to issue a complaint before they do anything," he said.
Canada's record for prosecuting white-collar crime is improving, but a recent report by Pricewaterhouse-Coopers placed Canada in fourth place in the list of the world's most fraudulent countries — behind Russia, South Africa and Kenya.
Canada has had its fair share of cases involving allegations of fraud this year, ranging from Montreal financial advisor Earl Jones to the $100-million Alberta-based Ponzi scheme allegedly engineered by Milowe Allen Brost and accomplice Gary Allen Sorenson.
Victims of the latest alleged Ponzi scheme are not holding out much hope that they will see justice in the courts.
"He's out there, walking around," one creditor said. "[He is] going about his business and we are out millions of dollars."
http://www.nationalpost.com/news/canada/story.html?id=2340614&p=1
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