Court Certifies Class Action Lawsuit over Banyan Tree Leveraged Charitable Donation Program

Here is an article in the Globe and Mail on the Banyan Tree Foundation and Fraser Milner Casgrain.

TU THANH HA

From Saturday’s Globe and Mail
Published on Saturday, Jan. 23, 2010 12:00AM EST
Last updated on Saturday, Jan. 23, 2010 3:14AM EST

.A judge has given the green light for a class action to proceed against a foundation that lost its charity status after the government alleged millions of dollars of donations were used to pay its directors and mortgage its president’s house.

Madam Justice Joan Lax of Ontario Superior Court certified the class action against the Toronto-based Banyan Tree Foundation this week.

It was filed on behalf of 2,825 Canadian donors who are on the hook for back taxes after the Canada Revenue Agency disallowed $210-million in charity pledges.

The CRA, in correspondence with Banyan in 2008 that it released to the media, said its audit showed Banyan Tree was “driven by the financial gains of the charity’s directors rather than the charitable purpose for which the charity was established.”

The CRA alleged that president Robert Thiessen used $2.3-million from the charity to mortgage his house while more than $6-million in various fees, or half of operating expenses, were paid to Banyan Tree’s directors or corporations they controlled.

Land records show that Mr. Thiessen, 58, and his common-law wife, Deanna Naus, 37, purchased in 2003 a $2.3-million home near the upscale Bridle Path area of Toronto.

Mr. Thiessen’s lawyer, Robert Cohen, said his client “vehemently” denies the allegations.

A title search showed that Mr. Thiessen and Ms. Naus got a $2.3-million mortgage from a numbered company, 1106999 Ontario Ltd., later renamed Rochester Financial Ltd.

The CRA alleges that Rochester’s money came from the foundation.

Mr. Cohen said “1106999 Ontario (Rochester) is not a charitable foundation” and declined to comment further.

Under Banyan Tree’s arrangement, donors only paid a portion of their pledge in cash. The rest was made up of loans contracted from Rochester Financial.

According to the class action’s statement of claim, deposits paid by the donors were held by Rochester.

Banyan Tree was supposed to invest the Rochester loans with a Bahamas firm, Hampton Insurance Company Ltd., then donate the returns to various charities.

However, the CRA says, Rochester didn’t operate at arm’s length and Mr. Thiessen ran its day-to-day operations.

In 2003, the federal agency alleges, the charity got a $3-million promissory note from Hampton then repaid it within days with $2.3-million in cash.

“At the same time, 1106999 Ontario Ltd (currently operating as Rochester Financial) entered into a loan agreement with Hampton to borrow $2,343,000 with the sole purpose of providing a mortgage to Robert Thiessen and Deanna Naus,” the CRA said.

“The series of transactions create a paper trail of promissory notes, loans and mortgages receivable and payable between the parties involved. However, it is clear that the overall purpose of the transactions was to move funds out of the charity and place them in the hands of Mr. Thiessen.”

In her ruling, Judge Lax also allowed the law firm Fraser Milner Casgrain to be named as a defendant. According to the plaintiffs, the law firm provided the legal opinion used to promote Banyan Tree.

With research by Rick Cash

http://www.thestar.com/business/article/754726—daw-suit-claims-charity-sham-misled-taxpayers

Daw: Suit claims charity ‘sham’ misled taxpayers

Two participants in a charitable scheme that promised $120 in tax receipts for a $34 payment have won certification to proceed to trial with a class-action lawsuit.

They aim to win a $55 million judgment for 2,825 high-income taxpayers they claim were misled by the Banyan Tree Foundation Gift Program between 2003 and 2007.

The program was stripped of its right to issue charitable tax receipts in 2008, when Canada Revenue Agency alleged $210 million of its transactions did not qualify as gifts.

Named in the suit are Banyan Tree, three associated companies and the law firm Fraser Milner Casgrain LLP, which provided a tax opinion to the promoters.

The suit alleges one of the law firm’s 536 lawyers supplied the tax opinion letter, knowing it would be used to market the loan-based donation scheme.

Madam Justice Joan Lax of the Ontario Superior Court of Justice ruled it was not plain and obvious that the claim against the law firm would fail at trial, even though the two claimants had not read the tax letter.

She also said it is possible – if the claims are proved in court – the class-action lawsuit could achieve “behaviour modification by holding corporations and law firms accountable for the promotion of allegedly sham investments.”

Fraser Milner replied to a request for comment that “our lawyers are acknowledged for their expertise and we have acted with the utmost integrity and professionalism in this matter. We intend to appeal.”

In addition to alleging Banyan’s tax receipts were a sham, Canada Revenue Agency says it failed to demonstrate it was genuine to pay $10.1 million to directors and related corporations.

Canada Revenue has issued repeated warnings to taxpayers about tax-driven charitable schemes that are marketed heavily before the end of each year.

As of late 2008, CRA had denied some $2.5 billion worth of claims for charitable tax credits and was pursuing participants to repay their tax refunds, plus interest.

Kathryn and Rick Robinson of Oakville disclose in their lawsuit they claimed $120,000 in charitable donations to Banyan Tree between 2003 to 2005.

Their claims for tax credits were later denied. Meanwhile, a company tied to Banyan Tree’s promotion is seeking repayment of loans it claims to have provided.

The couple had put up only $34,120 of their own cash, half of which was to be held as a security deposit for $103,000 in loans.

Their statement of claim, drawn up by David Thompson of Scarfone Hawkins LLP in Hamilton, alleged Banyan claimed in 2003 that the loans would be repaid over 10 years from investment returns on the security deposits, or if not in that manner, then from an insurance policy.

To do the job, the investment returns would have be out of this world. So, if there was a legitimate insurer, it would have assumed a lot of risk.

A 2004 letter to another Banyan Tree “donor” said his security deposit would have to earn an annual return of 35 per cent. The letter, obtained by the Toronto Star, claimed he had earned 53 per cent as of Sept. 30, 2004.

Later, it was alleged that money held for participants in the scheme were lost due to fraud by an investment manager who traded in high-risk futures contracts.

The companies named in the suit are Promittere Financial Ltd., Promittere Asset Management Ltd. and Rochester Financial Ltd., all of which operated out of the same offices as Banyan Tree president Robert Thiessen.

“I am turning human greed into philanthropic work, and I make no apologies about that,” Thiessen told CBC journalist John Nicol shortly before CRA shut Banyan Tree down.

Nicol also reported that Thiessen had bought a $2.3 million home on the exclusive Bridle Path in 2003, a $2.1 million cottage in 2005 and a $600,000 condo in Burlington in 2007.

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Canada is run by the Robert Thiessen type of men
We can only tell our grand son the country we left
for him ,has a problem we cant solve,The law protect
plain bad.
The way I see it Sven Poulsen I am deeply ashame of
this fact.
Sven Poulsen.