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Forensic investigation into $80M Bondfield fraud digs deeper

Ian Harvey
Forensic investigation into $80M Bondfield fraud digs deeper
SHUTTERSTOCK/JL IMAGES — Bondfield Construction Company Group’s Union Station work was among the company’s troubled projects.

An iconic Toronto construction company teeters under bankruptcy protection while a forensic audit digs ever deeper into the alleged $80 million trail of phony invoices.

Court-appointed monitor Ernst and Young LLP’s (E&Y) Oct. 30 Phase II report to the court overseeing the Companies’ Creditors Arrangement Act (CCAA) proceedings at Ontario Superior Court, zeros in on millions of dollars in alleged fake invoices submitted and paid by Bondfield Construction Company Group to companies which allegedly mimicked the names of legitimate sub-contracts on several key projects.

Those payments and other decisions led to the company’s finances unravelling, to contractors stopping work and suppliers shutting down for non payment and eventually to bankruptcy protection and the discovery of the alleged fraud which had been going on since at least 2011.

Less than $9 million has been traced, leaving questions about where the balance was secreted, who got what and what else it paid for in terms of a possible wider corruption in a conspiracy that appears to lead right to the top, according to court documents.

The scope of the alleged insider-driven fraud and the amounts involved will have an “impact to pay creditors” and the “accuracy of Bondfield Group’s financial statement is not certain,” reported Alex Morrison, E&Y senior vice president.

Most startling was that it alleges former Ontario General Contractors Association chair John Aquino, a 33 per cent shareholder in the privately-held business founded by his father Ralph 50 years ago, took $5.2 million.

John Aquino has stepped down and been replaced by his brother Steve Aquino, formerly vice-president of operations.

Aquino’s cousin Michael Solano, formerly the head of IT, has also been named as a key conspirator. He died in 2017 at 50 years old.

On Nov. 5, the court authorized E&Y to continue probing and gave it authorization to pull bank accounts from individuals and companies to further trace the money trail. It has already pulled 31 accounts in their investigation which found Clearway Haulage and Strada Haulage were names on the invoices which allegedly mimicked legitimate contractors Clearway Construction and Strada Aggregates.

The fate of some $1 billion in 30 active bonded construction projects is up in the air as the investigations continue. They include Union Station, years behind schedule, Integrated Healthcare Services at CFB Petawawa and various TTC projects.

Also on the line are the 300 people working directly for Bondfield and the 800 or so in the field.

The list of creditors is pages long and reads like a who’s who of the Ontario construction sector. From engineering firms like Stantec to architects like Moriyama & Teshima, with claims more of than $100 million in outstanding invoices.

 

Construction delays then exacerbated the Bondfield Group’s financial situation as project owners began to withhold payment

— Ernst and Young LLP Report

 

Leading the CCAA battle are Bridging Finance Inc. of Toronto which is claiming $51,859,200 along with Zurich Insurance which provided construction insurance and engaged E&Y. Others in the top five include JMR Electric of Exeter which is claiming $10,220,869, Urban Mechanical of Etobicoke, claiming $6,937,201, Clearway Construction of Concord (43,666,218) and Buttcon Limited ($1,935,315).

The ripple effect will be severe, not least of which with Zurich which has already experienced several high profile payouts and was called on its Bondfield policy to complete the Cambridge Memorial Hospital’s expansion which was two years behind. Sub-contractors had pulled out saying they hadn’t been paid.

The court has authorized Zurich to advance $8 million against the assets to ensure completion. Two other public sector projects have also terminated contracts with Bondfield for failures to complete construction.

Others, like the City of Toronto, have rescinded multi-million contracts before work started citing concerns over liquidity and competency.

The Bondfield Group includes four Ontario numbered companies and are all privately owned by various members of the Aquino family. E&Y’s audit also traced funds to former CFO Domenic Di Pede. The conspiracy was deeply rooted within Bondfield, E&Y reported to the court in their Phase II investigation.

One of the key orchestrators seems to have been Aquino cousin Michael Solano who the report alleges took $507,000 and dictated to the outside collaborators in more than 100 emails what they should invoice for, under which company name and for which project. Those invoices were also rushed through for approval and payment within the normal 30 days that legitimate invoices were paid traditionally, E&Y found. They also questioned why no one flagged that the IT manager was directing invoice traffic. The report alleges that $3.8 million of the purloined money was kicked back through numbered Ontario companies.

E&Y also named former Bondfield site superintendent Marco Caruso who they say sent 13 invoices on behalf of what E&Y called “suppliers of interest.”

E&Y’s report alleges that Caruso seems to have received $782,000 while others like Joe Ana and Lisa Anastasio fronted the dubious suppliers and received cheques for $1.9 million. Some of that money was allegedly channelled back into numbered companies.

The audit found 577 invoices from 19 dubious suppliers since 2001 who “provided no value” and who had no discernable footprint like a website beyond an address which was often just a P.O. Box. Further, there was no correspondence to back up the invoice, no work order,and some of the invoices were for work at highly inflated values, E&Y said.

Since 2011 the alleged fraud amounts to about $80 million but the bankruptcy-protection court is only authorized to look at the review period from April 2014 to April 2019 which involves $33.2 million and strangely, US$35,000 in an invoice from a Miami luxury watch retailer.

E&Y reported the alleged long-running fraud unravelled when Bondfield “began to experience liquidity issues in 2014 and 2015 when it began to expand its operations by taking on a number of P3 projects. While the Bondfield Group was able to obtain short term replacement financing to resolve certain of these issues by early 2018, the financial condition of the Bondfield Group had deteriorated. Many subcontractors and other vendors refused to continue to provide services and goods and progress on several construction projects considerably slowed or came to a standstill. These construction delays then exacerbated the Bondfield Group’s financial situation as project owners began to withhold payment on the project receivables.”

Bonding company Zurich stepped up and has paid out $200 million in claims, E&Y reported, meaning some subs returned to the job and suppliers began to delivery materials again. To keep things on track Zurich brought in E&Y to monitor and review the business in August 2018.

Since July 2017 Bondfield has been kept afloat by a $20 million bridging loan from Bridging Finance which called its paper in Oct. 2018, leading to a further unravelling and the first steps towards receivership.

Complicating matters, a series of exposés in the Globe and Mail from September 2015 to February 2016 raised questions around how Bondfield secured projects, specifically the $300-million contract at St. Michael’s Hospital in Toronto.

Bondfield sued for $125 million but the case has not moved forward since an April 2019 Court of Appeal decision restoring the suit which a lower court had struck down. Against this harsh glare of publicity and continuing issues with payments sub-contractors, suppliers and owners have initiated 207 lawsuits since 2017, E&Y and the Globe and Mail report, while Bondfield also fell into arrears of $8 million with the Canada Revenue Agency for payroll and HST with penalties and interest.

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