From the Special Compensation Fund Committee
The Wirick claims - an update
Over the past three years, BC lawyers have been asked to shoulder a heavy financial burden in the wake of misappropriations by former Vancouver lawyer Martin Wirick. Thanks to their professionalism and support, the Law Society has been able to pay valid claims against the Special Compensation Fund and fulfil its responsibilities in protecting the public.
All lawyers have a clear interest in knowing the status of the claims, how much they will cost and what potential there is for recoveries.
The Special Compensation Fund Committee has now reviewed and decided the majority of the Wirick claims and is working through the balance. Throughout the Law Society’s investigations, the Benchers have made it a priority to identify and secure any possible sources of recovery for the Special Compensation Fund. The Society has successfully recovered on its commercial insurance bond. While other sources have been vigorously pursued, a recent report (referred to below) has narrowed the parameters of what is feasible to recover.
In September, the Benchers received the report of Russell Law, a chartered accountant and president of MacKay & Company Ltd. (MacKayCo) who had performed a review of the available books and records of Mr. Wirick’s client Tarsem Singh Gill and Mr. Gill’s companies (the Vanview group of companies). The Law Society had commissioned this review to help complete its investigation and to trace the disposition of the funds that Mr. Wirick paid to Mr. Gill’s companies, in case there was the possibility of off-shore bank accounts or any other identifiable sources of recovery. MacKayCo found that this was not the case. Accordingly, the majority of recoveries will be limited to the funds that have been or will be recovered by the Gill estate in bankruptcy on assets that are primarily in BC.
This article addresses the most common questions and concerns relating to the Wirick claims. Both lawyers and members of the public can check on the status of these claims at any time in the “what’s new” section of the Law Society website at www.lawsociety.bc.ca.
The Wirick misappropriations
As most BC lawyers know, the story of Martin Wirick came to light in May 2002. At that time the Vancouver lawyer resigned from the Law Society and ceased practising law. Mr. Wirick had acted for a Vancouver real estate developer, Tarsem Gill, for the Vanview group of companies and for certain nominees in the sale of various properties. At the time of his resignation, Mr. Wirick admitted to the Law Society that he had misappropriated trust funds in real estate transactions by failing to pay out and discharge mortgages, and had instead applied the funds to other purposes, in breach of his undertakings.
The Law Society immediately took steps to protect Mr. Wirick’s clients and other affected parties, by conducting an audit and investigation, seeking the appointment of a custodian for his practice and ensuring that the claims of innocent homeowners were given priority consideration by the Special Compensation Fund Committee. The Committee has since been working through the claims and has nearly completed those of innocent homeowners.
A discipline hearing panel found Martin Wirick guilty of professional misconduct and ordered that he be disbarred on December 16, 2002.
To finance the Wirick claims and other claims against the Fund, the Benchers increased the annual Special Compensation Fund assessment from $250 to $600, beginning in 2003. All approved claims relating to Martin Wirick will be paid from this Fund.
Beginning May 1, 2004, new claims for compensation resulting from a lawyer’s misappropriation (none of which relate to Mr. Wirick) are covered by the new trust protection coverage of the Lawyers Insurance Fund.
What claims have been decided so far? How many are outstanding?
As of December 13, 2005, the Special Compensation Fund Committee has considered 495 claims of the 555 total claims made in relation to Martin Wirick. Of these, 347 have been decided and $32.5 million has been approved for payment. 51 claims have been withdrawn.
Another 150 claims have been adjourned for further information or investigation prior to decision and seven claims are still to be considered by the Committee.
Most of the claims denied to date have related to duplicate or overlapping claims. Most of the claims made by nominees of Mr. Gill have not yet been considered.
What were the duplicate claims for compensation?
Although the total dollar amount originally claimed against Martin Wirick for his misappropriations is close to $80 million, the actual value of the claims is much less. The Law Society had asked that all potential claimants make claims early in the process, regardless of potential overlaps, to ensure the most complete information was available for review. There were in fact many duplicate claims because more than one party to the same transaction (such as an innocent purchaser and his or her private or institutional lender) each made individual claims for one loss arising from Mr. Wirick’s failure to discharge a mortgage from title.
Over 40% of the Wirick-related claims assessed in 2004 did not require payment because of claims duplication.
For an example of a duplicate claim, see the report on the Special Compensation Fund in the Law Society 2004 Annual Report.
How much was covered by insurance?
The Special Compensation Fund was insured for $15 million of the Wirick losses under a commercial insurance bond. Through the work of the Special Compensation Fund Committee and Law Society staff, the Fund recovered the full amount of insurance under this bond. At the time the Wirick claims were discovered, there was also approximately $7 million in the Fund itself.
What happened to the money misappropriated by Wirick?
Ever since the Wirick misappropriations came to light in 2002, a key question for the Benchers — and one on the minds of many BC lawyers — is: “What happened to the money?” The natural follow-up question is: “Will there be recoveries?”
The Law Society’s Special Compensation Fund Committee pursued these issues throughout its investigation and audit of the Martin Wirick practice and, most recently, MacKayCo’s review of the available books and records of Mr. Gill and the Vanview group of companies.
The audit of Martin Wirick’s practice
The Law Society’s audit of Mr. Wirick’s books and records began in 2002. That audit revealed that approximately $52 million passed through Mr. Wirick’s pooled trust accounts to Mr. Gill and the Vanview group of companies during the period 1998 to 2002.
During this period, Mr. Gill and the Vanview group of companies were purchasing and developing various properties in Vancouver and surrounding area. It is clear that, in many of the subsequent property sales, Martin Wirick, while acting for Mr. Gill or one of his nominees as vendor, received the money in trust and paid out that money as his client directed, in breach of his undertaking to discharge mortgages. In some other cases, he prepared and registered fraudulent discharges.
From the Law Society’s investigation, it became clear that, when the Vanview group developed and sold a property, a nominee purchaser often encumbered the property prior to reselling it to an innocent purchaser. In such a transaction, Mr. Wirick received money into trust from the innocent purchaser or the purchaser's lender. He typically gave his undertaking to the purchaser’s lawyer to pay out and discharge an existing mortgage on title from the sale proceeds. But instead of doing so, he paid out funds to the Vanview group of companies. The Vanview group was then able to use the funds for other purposes. As a result of Wirick’s breach of undertaking, the purchaser owned a property that was encumbered by a mortgage that should have been discharged. The purchaser’s lender had only a second mortgage security, instead of a first mortgage.
The review of Tarsem Singh Gill and his companies’ records
The Law Society’s audit of Mr. Wirick’s accounts revealed one piece of the picture. To determine the ultimate disposition of the money that Martin Wirick paid to the Vanview group of companies, to verify the bone fides of certain Special Compensation Fund claimants and to secure any available recoveries for the Special Compensation Fund, the Law Society also sought to review the available financial records of the Vanview group of companies.
On July 15, 2003 the Law Society obtained a Supreme Court order that the trustee of Mr. Gill’s estate produce to the Law Society the financial and business records of Mr. Gill, his nominees and his companies. A further court order on February 23, 2004 allowed the Law Society to seek production of banking documents from several financial institutions.
The Law Society retained MacKayCo to review the available books and records of Mr. Gill, Vanview Construction Ltd. and the other companies in the Vanview group.
Under the court orders, the Law Society could use the Gill estate documents only for the purposes of administering Special Compensation Fund claims and in its capacity as a creditor or trust claimant of the Gill estate.
The Law Society was constrained from making voluntary disclosure to the police or to other third parties — including the profession — without a further court order. To report out on MacKayCo’s conclusions in this Benchers’ Bulletin, the Society sought permission of the BC Supreme Court. On November 15, 2005 the Court authorized the publication.
MacKayCo concentrated its review on the banking documents and financial records from January 1, 1998 through May 2002. The task was challenging because of missing financial information and the need to obtain documentation from the banks. As a result of the sheer volume of missing support for banking entries, in particular cleared cheques, MacKayCo limited its requests for copies of support to cleared items equal to or more than $10,000. In addition, MacKayCo reviewed support for any items less than $10,000 included in the available books and records.
MacKayCo confirmed that, over the four-year period, Martin Wirick paid approximately $52 million from trust to the Vanview group of companies and other related parties, primarily the operating company, Vanview Construction Ltd. MacKayCo found that $32 million of the $52 million was deposited to Vanview Construction Ltd.’s primary operating account. The remaining funds were deposited into other Vanview group accounts, and a significant proportion, discussed below, was in fact transferred back to Vanview Construction Ltd.’s operating account.
Funds distributed through this Vanview Construction Ltd. account during the period totalled approximately $52.7 million. There were no funds on hand when Vanview closed. The $20.7 million of deposits to the account in addition to the $32 million advanced by Mr. Wirick were composed of $11 million of transfers from other members of the Vanview group of companies, approximately $9 million from apparently independent parties, and $700,000 of unidentified deposits.
The $52.7 million distributed was disbursed as follows:
- $32.6 million – business expenses (development and construction costs)
- $12.5 million – payments to lenders
- $3.2 million – payments to Vanview group, Gill and related individuals
- $2.5 million – payments to unrelated businesses
- $.6 million – payments to Wirick
- $1.3 million – unidentified payments
Based on the records examined, MacKayCo believes that most of the $32.6 million in business expenses related to Gill’s development of properties in the Lower Mainland. In reporting to the Benchers in September 2005, MacKayCo said that it appeared Tarsem Gill engaged in poor business practices. In particular, his Vanview group of companies exercised little control over expenses and frequently paid its suppliers round amounts. Moreover, the Law Society audit of Martin Wirick’s records revealed that Mr. Gill and his companies frequently sold or resold properties for less than it cost to develop them, resulting in significant losses.
As indicated above, the Vanview group also made $12.5 million in payments to lenders or nominees to keep up mortgage payments on various properties, including mortgages that should have been discharged but remained on title. What the Special Compensation Fund Committee discovered in numerous transactions is that the mortgage payments fraudulently concealed the true state of title from lenders and innocent purchasers so that Vanview could use the sale proceeds of a property to pay other expenses, rather than to discharge a mortgage from title.
MacKayCo’s conclusion was that most of the money flowing from Martin Wirick to the Vanview group of companies was subsequently used to pay Vanview’s property development expenses and business losses and to maintain payments on undischarged mortgages. The Law Society has been advised that these payments in all probability will not be recoverable.
Instead, the Law Society’s recoveries appear primarily limited to the funds that are recovered by and form part of the Gill estate in bankruptcy, which is being administered by Deloitte & Touche, Inc. as Trustee. The Law Society is a major creditor of the estate by virtue of holding assignments from those persons receiving compensation from the Special Compensation Fund and may also have trust claims. The Society expects to be able to report further on these recoveries by next spring.
Are the police investigating?
The Vancouver Police and the RCMP, through the joint Lower Mainland White Collar Crime Unit, announced in early 2005 that they are conducting a criminal investigation of Mr. Wirick and Mr. Gill.
The Law Society is cooperating with the police investigation to the full extent permitted by law.
What are future plans for the prevention and payment of claims?
In the wake of Mr. Wirick’s actions, the Law Society embarked on a number of reforms to prevent future catastrophic claims and to rework the system for providing compensation to the public.
The reforms to increase public protection in real estate and trust transactions, include:
- recommending changes to real estate practice, the use of the CBA standard undertakings and early confirmation by lawyers of the steps taken to pay out mortgages and other charges;
- adopting rules that require a lawyer to report the failure (by another lawyer or by a financial institution) to provide or file a registrable discharge of mortgage in a timely manner; and
- encouraging government to fast-track consumer protection legislation to require financial institutions to provide registrable mortgage discharges in a timely manner.
The Benchers also approved a new form of defalcation coverage to provide greater certainty for the public and the profession. Since May 1, 2004 new claims for compensation fall under trust protection coverage, which is part of the insurance coverage carried by BC lawyers. Claimants now apply under that coverage, which is subject to a global limit, rather than applying for discretionary payments from the Special Compensation Fund. The Benchers have just recently clarified the future role of the Special Compensation Fund and in what circumstances it will be available to claimants.
In the months ahead, the Benchers expect to report on upcoming changes to the Law Society’s trust reporting and audit programs that will help ensure compliance with trust standards across the profession.
If you have questions or comments on the Wirick claims, or on any aspect of the Special Compensation Fund, please contact the Chair of the Special Compensation Fund Committee or Mary Ann Cummings, Manager, Special Compensation Fund and Custodianships, at firstname.lastname@example.org.