PING!
Posted on 02/04/2006 12:27:26 PM PST by GMMAC
Tracking DND's missing millions
Court documents outline trio's alleged scheme to cash in on bogus contracts
Glen McGregor and James Bagnall
The Ottawa Citizen
Saturday, February 04, 2006
Two Ottawa businessmen charged earlier this week with defrauding the Department of National Defence of more than $100 million fooled everyone for a time through an elaborate billing scheme, according to court documents filed by Hewlett Packard Canada, the company at the centre of the contracting scandal.
In the statement of claim filed in a civil lawsuit by HP in December, the company describes how former DND contracts manager Paul Champagne and Ottawa businessman Peter Mellon allegedly invoiced HP for work on high-security computer systems that was never performed and directed the payments to companies controlled by them. The scheme is only a small part of the total fraud that is alleged to have been committed involving HP.
Mr. Champagne, Mr. Mellon and Ottawa-area entrepreneur Cholo Manso were charged Monday by the RCMP with a total of 24 criminal counts, including fraud, breach of trust and money laundering among them.
The scale of the case -- with more government money allegedly stolen than in the sponsorship scandal -- combined with the opulent lifestyles that Mr. Champagne and Mr. Mellon apparently enjoyed, promise to make it one of the most closely watched in official Ottawa when it goes to court next month.
The charges this week came at the end of a two-and-a-half year investigation by the RCMP's Commercial Crime Section. The RCMP has kept most details of the alleged crimes confidential, citing the upcoming court case and an ongoing investigation.
But in the civil lawsuit, HP offers details of one part of the alleged fraud, saying it was duped by a scheme originating in a meeting in 2000 between Mr. Champagne and Mr. Mellon.
According to HP's statement of claim, the key to understanding the alleged fraud is Mr. Champagne's position within the Department of National Defence. Mr. Champagne was a contracting official known as the Project Authority, with some discretion over how the work under certain contracts would be performed.
HP alleges Mr. Champagne was DND's main point of contact for the company under four streams of contracts that included computer hardware, software and support services, secure Tempest computers, and software updates through a national master standing offer.
Within each stream, HP was awarded dozens of individual contracts through which the Defence Department could order goods and services at pre-set prices and conditions.
HP alleges that Mr. Champagne was its main procurement contact from 1994 to 2003. However, the December suit against Mr. Mellon, the Baxter Group and E-Lite Canada deals with actions alleged to have taken place between 2000 and 2003, representing perhaps less than 10 per cent of the alleged total fraud affecting HP.
According to HP's statement of claim, here's how the scheme is alleged to have worked:
(1) Mr. Champagne would instruct HP Canada to issue purchase orders to three companies: Baxter Group (of which Mr. Mellon, a personal friend, was a director), E-Lite Canada (also known as Carnegie.Mellon Financial Group Inc.) and Vellis Solutions Inc., an entity HP alleges was established only to process invoices.
(2) The three entities would send invoices to HP Canada for goods and services that HP alleges were never delivered.
(3) Mr. Champagne would tell HP Canada to pay the invoices. HP Canada alleges that Mr. Mellon would instruct Vellis to direct funds to his own accounts.
(4) After paying the invoices from Baxter, E-Lite and Vellis, HP says it sought and obtained reimbursement from the Defence Department.
HP Canada alleges it paid the Baxter Group, E-Lite Canada and Vellis more than $12 million between 2000 and 2003 for fictional goods and services.
None of the allegations in the lawsuit has been proven in court.
Mr. Mellon's lawyer on the criminal charges, Leonard Shore, says his client intends to file a defence of the lawsuit in the near future. Mr. Mellon was out of the country on a holiday with his wife and could not be reached for comment, Mr. Shore said. Mr. Mellon's lawyer in the civil case was also travelling and could not be reached.
The suit against Mr. Mellon was one of four Hewlett Packard launched late last year over alleged frauds stretching back to the early 1990s.
HP has repaid $146 million to the federal government, and is now attempting to recoup as much of this as possible by suing those it believes responsible.
HP launched legal action last year against Mr. Manso and his investment company, Avemore International Inc. (formerly Quarterdeck Consulting Inc.). Mr. Manso is "fully defending it in all aspects" and has filed a defence, his civil lawyer said. HP is also suing two other Ottawa companies -- RMC Systems, Inc. and Secure Technologies International.
One case that will not go to court is HP's legal action against Mr. Champagne to recover what is believed to be the larger chunk of the money that was allegedly defrauded. The two sides settled the case out of court last year, before details of the allegations were made public in a statement of claim. The terms of the settlement are subject to a confidentiality agreement, but documents filed with U.S. securities regulators show that HP says it has recouped $10 million U.S.
That apparently includes Mr. Champagne's stake in Ottawa software company Workstream Inc. HP took over and subsequently sold most of Mr. Champagne's stocks. According to Workstream filings, Mr. Champagne held nearly 3.5 million shares in September, 2004, representing 8.2 per cent of the total. At the time, those shares were worth $10 million U.S. A more recent filing with the Securities & Exchange Commission shows HP sold nearly all its acquired stake in Workstream during the fourth quarter of 2005. Mr. Manso joined Workstream in 2001 as a director but resigned last November.
HP, according to Ontario land records, is also now the owner of Mr. Champagne's former extravagant home in Dunrobin, north west of the city. Before news of the RCMP probe broke in 2004, neighbours marvelled at the public servant's two-acre estate, with its new brick home, tennis courts, swimming pool and separate gym building.
It all now belongs to HP, at least until the company decides what to do with the property. Last October, Mr. Champagne and his wife, Stephanie Ann, transferred ownership of the home to HP and moved to a new development nearby.
Also changing hands is Mr. Champagne's multimillion-dollar home on Providenciales Island, in the Turks and Caicos.
The home, built by tradesmen from an Ottawa-area firm who flew down to Providenciales, has seven bedrooms, a pool, gym and 200 feet of beachfront. It's currently on the market for $7.7 million U.S.
Mr. Champagne and his wife remain the owner of a $223,000 U.S. home in Hudson, Florida, that backs onto a golf course, according to county property records.
Mr. Champagne's lawyer on the criminal charges, Michael Edelson, said Mr. Champagne would not be commenting.
Mr. Mellon and his wife, Helene, live in west Ottawa, and also have a residence in New York state, in the Thousands Islands area, where he runs an antique boat brokerage. Mr. Mellon is a collector of classic boats and has owned a rare 1967 Riva, a vintage wood speedboat described as the Rolls Royce of the sea.
The lawsuit filed in December was not Mr. Mellon's first time in civil court. Before it was acquired by HP, Compaq Computer launched a $17 million U.S. lawsuit against Mr. Mellon and the Baxter Group in the U.S. District Court in Virginia. The 2000 suit accused the defendants of fraudulently misrepresenting that they had a contract to supply computers for use by U.S. Federal Aviation Administration. The case was settled out of court in 2001. The financial terms of the settlement were kept confidential.
The three men charged are scheduled to make court appearances in March, but a trial could be at least a year away. The evidence compiled by the Crown is believed to run into the hundreds of thousands of pages, and will take months for the defence lawyers to study.
© The Ottawa Citizen 2006
PING!
ping for later.
I'm laughing too hard to type right now.
bump
I'd be willing to house sit for a small fee until they figure it out
For those with enquiring minds...
1967 Riva-Complete Mahoghany with 22 coats of varnish that must be renewed every 5 years. 750 Riva boats built in Italy. 427 GM block engines. Stratavereus of motor yachts.
Peter Sellers and Brigette Bardeau spent half a million for one of these boats
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