A now-closed Prince George business played a prominent role in a scheme to defraud a company that provides financing to automobile dealerships, according to statements made in a B.C. Supreme Court ruling on a lawsuit related to the scam.
The action was launched by Montreal Trust Company of Canada in its capacity as trustee of CFI Trust and CFI Leasing against Royal Bank of Canada but much of Justice Elliot Myers' decision depicted the shady dealings of Totem Ford, a now-closed Vancouver dealership.
As well, Prince George-based Prime Truck Rentals, also no longer in operation, was a partner in crime, according to statements provided in the ruling in which Myers alluded to a Hollywood movie to help describe how it worked.
"To those who have seen the film Fargo, the factual underpinnings of this case might seem familiar; both involve vehicles that have been double-sold and financed by a dishonest car dealer," Myers said. "However, unless one views the law of secured transactions as akin to a black comedy, the similarity with Fargo ends there. This is a somewhat drier commercial dispute between two secured lenders of the dealership. And the only things that may have been chopped up are 242 motor vehicles, which have disappeared without a trace."
In the 49-page ruling, Myers went on to describe a complex series of events that left CFI significantly out of pocket.
CFI provided financing to automobile dealers by securitizing their leasing and conditional sales transactions and in 2003 and 2004, Totem Automotive Group Ford Sales and Leasing Inc. was one of CFI's biggest clients with sales in the hundreds of millions of dollars and similar size total liabilities.
Between March 2004 and November 2005, Totem accepted 242 vehicles back because its customers terminated the agreements before their end dates and paid early termination fees for the privilege. That would have been fine except Totem failed to remit those payments to CFI.
"Instead, it deposited all or part of the funds into its operating account at the Royal Bank of Canada (RBC) and used them as its own funds," Myers said.
RBC, in turn, used the money to pay down Totem's line of credit whenever it was in the red.
In the lawsuit, Montreal Trust was seeking $5.97 million from RBC, claiming that as a secured creditor it had priority over those funds.
Myer ruled in RBC's favour, finding that had CFI failed to alert the bank to Totem's dealings when it first discovered there may have been a problem. RBC learned of the trouble only through a routine audit of its own.
Moreover, Myers found that had RBC known on time, it would have frozen the account, stopping the advancement of funds from the dealership's line of credit and limit the loss to $327,000.
But leading up to that conclusion, Myer painted a picture of complicated but nonetheless dishonest dealings by Totem in which Prime Truck played a key role.
Things began to go off the rails for in April-May 2004 when CFI received three faxes from an anonymous source urging it to conduct a forensic audit of Totem and then suggesting CFI examine all rental companies, numbered companies and a list of repossessions.
It also warned that Totem's owner, Andy Papp, and the person who dealt primarily with the leasing side of the business, Jordan Welsh, "are masters of deception."
As a result, on May 18-19, 2004, CFI audited Totem and, in the process, learned from Welsh that Totem "knowingly leased vehicles to shell companies created by Prime Truck, one of its short-term lease customers," said Myers. "The purpose of this was to circumvent a concentration limit in the agreements between CFI and Totem which prohibited any one lessee from exceeding 1.5 per cent of the value of Totem's total lease portfolio."
As a result, CFI told Totem it would not fund any more short-term leases and continued to monitor the situation.
In October 2004, CFI and Totem together attempted to repossess other Prime Truck leased vehicles and 63 were brought back to Vancouver from Prince George. Totem planned to either sell or lease those vehicles and pay out CFI from the proceeds.
During the same month, RBC noticed in one of its routine audits that 50 of the vehicles it had funded had not been on Totem's lot for an extended time. Upon further inquiry Papp gave RBC the same story - that they had been delivered to Prime Truck, which sold them into the U.S. but had not remitted the sales proceeds to Totem.
With respect to CFI, Totem defaulted on payments in October, November and December 2004 adding up to $5.6 million as a result of the Prime Truck sales. And when CFI conducted a further audit in November 2004, it learned that in side-letters, Totem and Prime Truck agreed to a residual value $5,700 lower than the value CFI indicated on the lease and upon which it had based its funding.
"In effect, Totem was getting CFI to provide more funding for the vehicles than it would have if it knew the agreed residual value," Myers said in the judgment.
Further audits and reviews by CFI in June revealed a further problem - vehicles had been double-funded, either by CFI alone, or by both CFI and RBC and the company's trust of Totem was "pretty well near zero."
Being out millions of dollars, CFI encouraged Totem to sell as many of the vehicles it had funded as possible, including those double-funded with RBC.
Totem closed on August 31, 2005 and the leasing portfolio was transferred to JW Auto Group, a partnership owned indirectly by Welsh and a partner.
Papp changed Totem's name to Alkani Sales and Leasing Ltd. in September 2005.
And in October 2005, RBC learned Totem had sold RBC-funded vehicles but did not remit the proceeds which were instead used to pay out CFI. At the end of November, it called its loans to Totem, which totaled $3.6 million and has since recovered all but $576,000.
In December 2006, CFI began proceedings against RBC. It also went after Alkani Sales and Papp but settled for $50,000 and an agreement Alkani would cooperate in the ongoing litigation against RBC.
As well, insurance covered part of Totem's Prime Truck loss and both RBC and CFI eventually settled with the insurer.
As for Prime Truck, after repossessing the 63 vehicles, Totem also promised to provide CFI with a mortgage over property owned by the parents of one of Prime Truck's principals.
In April 2005, Totem finally made good on its promise. The property was eventually sold and CFI received $1.7 million.
The Citizen has identified Kevin Ernest Durack and Hope Sharon Durack as Prime Truck's principals.
According to a short biography posted on a business website, Durack bought Smithers Truck Rentals in 1997 running a fleet of 60-70 trucks, with three-quarters of them being used by mining companies.
But by 2000, forest companies were the main customer.
"Smithers Truck Rentals had to take a hard look at how the market had changed and where it was going," the biography said. "Mining was obviously going to remain soft for more years yet to come. To remain competitive and maintain the service that built Smithers Truck Rentals to its current position, a change of name and location had to be done."
Durack moved the business to Prince George and renamed it Prime Truck Rentals, "a name that could carry into the future any market and-or location."
By 2002, its fleet had grown to 180 trucks.
In December 2004, just as the scam with Totem was happening, the Bank of Montreal began a court action against Prime Truck, saying it failed to make payroll and rent payments the months before and was more than 30 days behind payments due to several autobody shops.
It appears Prime Truck finally closed in 2005 but it looks like Durack has once again found himself in hot water.
In October 2012, a Prince George mortgage company filed an action in small claims court against Durack and his company, 9192 Holdings Ltd., seeking repayment of a $19,970 from a loan received to launch a new business.
According to the notice of claim, the money was supposed to go towards the start up of a skid-steer business but instead went to "personal debt repayment, lifestyle and living expenses (i.e. son in Los Angeles)."
Durack consented to pay off the amount at a pace of $1,200 per month.
An address for Durack in the notice matches one for a 3,787-square-foot home off Marleau Road in College Heights that's now up for sale with an asking price of $540,000.