By the time his lawyer David Sherman arrived moments later, Cunningham was trembling and white as a sheet. When Sherman heard the news, he was outraged and stormed over to the Blaneys lawyers to warn them. “I fundamentally told them that there will be hell to pay, and that these allegations were absolutely false,” recalls Sherman, a sole practitioner based in Hamilton, Ont.
Sherman’s admonishment to the Blaneys lawyers would prove prescient: The claim Cunningham had stashed millions in offshore accounts was rejected later by the courts. Two different judges in Cunningham’s divorce found there was no basis to the claim he had hidden any assets in offshore accounts. In a 2007 summary judgment, Justice Laurence A. Pattillo noted Cunningham’s “evidence establishes in my view, through independent third parties, that what was alleged by [his wife] (based on her private investigator’s reports) is not only not true, but in my view, fraudulent.”
Today, Cunningham is suing Blaneys, his ex-wife, and other related parties for $12 million for defamation and leveling false allegations against him. None of Cunningham’s claims in the defamation suit have been proven in court.
So what went wrong? As it turned out, Blaneys had hired a Newmarket, Ont.-based private investigation firm called Internal Affairs, run by a husband and wife duo of Cullen Johnson and Elaine White, to conduct an asset sweep of Cunningham’s holdings on behalf of Joan Montgomery, Cunningham’s estranged spouse. Johnson and White billed themselves as experts in finding hidden money offshore. What Blaneys didn’t know, however, was White and Johnson were largely running a scam: Instead of producing genuine information, the private investigators simply manufactured much of it and charged clients tens of thousands of dollars for forged and bogus documents. In the case of Cunningham, they presented Blaneys with an impressive-looking 59-page, single-spaced dossier, replete with bank account numbers, dollar amounts, and wire transaction records — for the most part fiction.
This month, White and Johnson go on trial in Virginia on charges of fraud and money laundering, having been extradited from the Caribbean last spring. They’d fled to the islands in 2010 after being charged for fraud in Canada. They face the U.S. justice system before eventually being returned to Ontario to contend with similar charges there. Meanwhile, Cunningham’s lawsuit against Blaneys is in discovery and steaming towards trial.
Yet the White and Johnson affair raises serious questions about the relationship between lawyers and private investigators. After all, White and Johnson were employed by many lawyers over many years and are charged with having forged and fabricated numerous dossiers that caused a lot of damage. In the end, it was primarily Cunningham, a former Ontario MPP, who brought their alleged crimes to light in the face of indifference from the lawyers who had employed White and Johnson, Ontario’s regulatory watchdog for private investigators, and the Law Society of Upper Canada. “These people weren’t going to take me down,” he declares. “They were not going to malign my reputation and get away with it.”
Moreover, the scandal presents a vibrant example of the problems that can arise if lawyers don’t check the credentials or track records of private eyes they employ.
“You’ve got to exercise some due diligence — you can’t just pick a name out of the Yellow Pages,” remarks Philip Epstein, a partner at Toronto-based Epstein Cole LLP and one of Canada’s leading lawyers and lecturers on family law. “You’ve got to make some reasonable investigation as to whom you are hiring and then you have to follow up.”
POOR REGULATION OF PIs
Private investigators have been in the news a lot lately — and rarely for good reason. At the centre of the Rupert Murdoch News of the World phone-hacking scandal in the U.K. was the use of private eyes to illegally tap into the phones of celebrities and politicians. In Canada, Ontario private security contractor Gary Peters assisted one of Libyan dictator Muammar Gaddafi’s sons, Saadi, to flee to Niger in 2011 after his father’s regime collapsed.
And the White and Johnson affair is not the first time a prominent Canadian law firm was taken for a ride by a private eye. In September 2006, Davies Ward Phillips & Vineberg LLP hired investigator Juval Aviv to “conduct an in-depth asset investigation of Conrad Black and his related companies,” according to an affidavit made by Aviv. The law firm had ties to Hollinger Inc., the Toronto-based holding company Black once controlled. Aviv claims to be a former Israeli commando and secret service agent who runs a New York corporate intelligence firm called Interfor Inc.
In August 2007, after Black was convicted of fraud, a hearing was held in Chicago to decide if Black could return to Canada while waiting for his sentencing date. During this hearing, the fruits of Aviv’s labour were produced. In a report, Aviv claimed Black had moved at least $60 million from Canada, the U.S., and the U.K. through offshore accounts to Gibraltar over the previous two years. Aviv claimed this information came from unnamed sources. While Black indeed used offshore shell companies, in all of the investigations of his corporate dealings there was no suggestion such a sum had gone missing.
Indeed, Black’s lawyer, Edward Greenspan, dismissed Aviv in court as a “double-dealing con artist.” This stemmed from the fact Aviv claimed to be the leader of a Mossad assassination team in Europe that killed the Palestinians responsible for the 1972 Munich Olympics massacre — a story that became the basis of George Jonas’ 1984 book Vengeance and the Steven Spielberg movie Munich. Israeli counterterrorism adviser Yigal Carmon, along with other top Israeli officials, have said Aviv was never an assassin, an intelligence operative, or led such a mission.
Then, as a consultant to Pan American World Airways, Aviv investigated the 1988 bombing of Pan Am Flight 103 over Scotland. Aviv then blamed the CIA for allowing the bomb to get aboard the doomed plane to protect a Syrian drug shipment. This was denied by the CIA and, in 2003, Libya admitted responsibility.
Hence, in court, Greenspan said Aviv had misled people about “two major world events.” Greenspan provided details of Black’s personal bank accounts that showed Black couldn’t have moved $60 million to Gibraltar. In the end, Aviv’s report didn’t apparently impact the judge’s ruling, although she did deny Black’s request to return to Canada.
As it turns out, the private investigation industry is one of the most poorly regulated in Canada. Provincial governments oversee the sector; in Ontario, that task falls to the Private Security and Investigative Services Branch (PSISB) of the Ministry of Community Safety and Correctional Services. For at least the past 10 years, if not longer, the branch hasn’t yanked one licence of a private investigator or security consultant. Moreover, to get a licence as a private eye, you need to pass a quick test and have no criminal record in Canada.
Such slapdash oversight means mistakes happen. Derrick Snowdy, an Ontario private investigator, is the former owner of Epic Protection Group Ltd., a now-defunct Toronto private investigation firm. In 2007, Epic hired Gary Beebe as an investigator, who held a licence issued by the PSISB. Beebe was a Canadian-born former Atlanta, Ga.-based police officer who said he’d returned to Canada over a citizenship issue. Yet Snowdy soon discovered there was more to Beebe’s past than he let on: In 2005, Beebe had been convicted and sentenced to prison in Georgia for soliciting campaign contributions from would-be donors in return for giving them exclusive government contracts if he was elected as a local sheriff. Beebe had even promised to not investigate certain violent crimes his contributors might commit, including ensuring a planned murder would go unsolved.
After firing Beebe, Snowdy complained to the PSISB about why it had given him a private investigator’s licence. “The registrar gave me a scathing letter that doing background checks was my responsibility,” he relates, before observing “there’s no reason to believe that anyone that hires a private investigator or security guard by virtue of them having a licence isn’t a criminal or a terrorist” with a record in another country.
In fact, private investigators say it’s rare for lawyers to demand credentials or references. Therefore, it’s no shocker White and Johnson got away with their scheme for so long and fooled so many lawyers in the process.
A TRAIL OF FABRICATIONS
The fact lawyers were hoodwinked by Johnson and White is no surprise given the couple’s professional pedigrees. What’s known about White is she once worked as an investigator for a subsidiary of Lindquist Avey, a well-regarded forensic accounting firm in Toronto in the ’90s later purchased by Kroll. Johnson was a police officer with the Toronto Police Service, where he enjoyed success during his 20-plus years on the force. He became an assistant in the chief’s office, a detective sergeant in the intelligence branch, and spent a number of years with internal affairs. Colleagues recall him as a competent and scandal-free officer.
After Johnson retired from the force in 1996, he set up Internal Affairs. White founded her own firm, although the couple worked closely together. Initially they carried out some legitimate work. At what point the evidence they provided became so sketchy is unknown, although at least one early case was the bitterly contested divorce between British businessman Lawrence Sweeney and his socialite wife Louise. One of her lawyers hired White and Johnson to see if they could uncover assets amid Sweeney’s labyrinthian corporate holdings. They produced a report saying Sweeney had hidden $3 million in 28 offshore accounts — a claim Sweeney’s divorce lawyer, Harold Niman of Niman Zemans Gelgoot LLP, says was fiction. Louise never ended up using this report during the couple’s 2002 trial.
Still, one of the law firms that briefly worked for Louise on her divorce was Harris + Harris LLP, a small firm based in Mississauga, Ont. This was the same firm where James Edney worked until the summer of 2006, before he joined Blaneys.
Harris + Harris was connected to White and Johnson on at least two occasions. One was when they suspected one of their former bookkeepers of stealing from the firm. White and Johnson charged $29,000 to produce a report claiming the woman had secreted the firm’s money in the Bahamas, Channel Islands, Hong Kong, Macao, Dubai, and Switzerland. When Greg Harris retained a law firm in Hong Kong to chase down these claims, he learned that “the bank account information provided . . . was non existent.”
The other case had more serious repercussions. Harris + Harris was hired by three Toronto Catholic School Board employees who used to pool their money and play the 6/49 lottery. In 2004, one of their co-workers, Lorraine Teicht, bought a ticket for the group at a variety store. As it turned out, the ticket was worth nearly $6 million, but it was stolen by the store’s owner and Teicht was unaware they had won. Six months later, one of her co-workers discovered the ticket was a winner. White and Johnson were hired to investigate whether Teicht had pocketed the cash. Her co-workers hired Harris + Harris to represent their interests.
White and Johnson produced a report saying Teicht had indeed stolen the lottery winnings and stowed the cash offshore. Driven by this false information, Teicht’s co-workers harassed her for months, causing Teicht to have two nervous breakdowns and other health problems. “I mean she didn’t sleep, she didn’t eat, you tried to talk to her about it and she would just shut down,” recalls her daughter, Tara Teicht. Meanwhile, Teicht’s co-workers paid White and Johnson tens of thousands of dollars to hunt down these purported offshore accounts. Finally, in 2007, it was discovered the variety store owner had stolen the ticket. He was charged and imprisoned and that same year, Teicht and the other employees received their lottery winnings. She had little time to enjoy it, though; in 2010 she died of cancer.
It seems likely James Edney heard of White and Johnson while working at Harris + Harris and by the summer of 2006, he had a case needing investigative services.
Working with Andrew Heal, another Blaneys lawyer, they were representing Joan Montgomery in her divorce from Eric Cunningham.
A native of Hamilton, Ont., at 26 Cunningham was elected to the Ontario legislature. In 1980, he and Montgomery were married and eventually had a daughter. The marriage lasted until 2002. By then, Cunningham had left politics and become a successful marketing executive while Montgomery worked for various government agencies, including as a hearings officer with the Immigration and Refugee Board.
After Cunningham petitioned for divorce in 2004, the outstanding issues were spousal and child support and the division of marital assets. What made the case more difficult was Montgomery’s growing emotional instability (she was forced to leave her job in 2007), which led her to become convinced Cunningham was hiding money — which is how White and Johnson came to be hired.
By late October 2006, Internal Affairs had produced a lengthy report suggesting Cunningham had hidden nearly $2.4 million in 18 offshore bank accounts. The report, though, came with an errors and omissions disclaimer, stating: “This report may contain information compiled from a source that the author of this report does not control and whose information, unless otherwise indicated in this report, has not been verified . . . the author of this report . . . does not guarantee the accuracy, completeness, or timeliness of unconfirmed information provided by third party sources. . . .” It went on to say a court order would be required to turn the contents into evidence to be used in court and, “Individuals and or their counsel who deal with this information in any other way do so at their own risk.”
In correspondence that’s since come to light as a result of discovery for Cunningham’s lawsuit against Blaneys, Edney wrote to Montgomery in October 2006 about the report’s findings, saying: “I have no means at my disposal in order to ensure the accuracy of the information contained in the private investigator’s report. As such, pending such means being at my disposal (through the cross-examination of Mr. Cunningham or alternatively, the ability to subpoena banks and financial institutions in order to verify same) I will take the information therein as being correct and accurate, save as provided herein. I do wish to stress this fact to you, as it is conceivable that the information contained in the investigator’s report is not accurate and has been misstated.”
OFFSHORE ACCOUNT INFO HARD TO COME BY
To people familiar with the world of offshore banking, the White and Johnson report should have raised red flags. For one thing, Blaneys had not gone through the usual process of legally accessing offshore accounts — which involves obtaining a court order in Canada after furnishing evidence, hiring a lawyer, and obtaining a court order in a foreign jurisdiction, and then going to the overseas bank in question with the orders. Moreover, banks don’t hand over, in the absence of court rulings, reams of detailed account information to perfect strangers willy-nilly, especially in this post-Sept. 11-privacy law age. “I never retain investigators to find offshore accounts,” notes Philip Epstein. “From long experience I knew it was impossible to do that.”
When Harry Lake, a veteran corporate private investigator who owns Toronto-based Introspec Investigations Inc., was asked about whether White and Johnson’s offshore banking details should have triggered concerns at Blaneys, he said: “It should have big time. . . . They should have known that sort of information isn’t easy to come by. In the old days we used to buy all sorts of information but those days are long gone.”
Two days before Blaneys hit Cunningham with the motion, Edney wrote to Montgomery about a wire transfer document the investigators had furnished, saying “the source of the evidence is unknown” and mentioned there was a chance the courts would sanction her for “having obtained this evidence.”
The day before the November hearing where the contempt motion was introduced, Ian Epstein, a Blaneys partner and member of the firm’s executive committee, left a voicemail on Edney’s phone saying after conferring with another senior partner, they approved of proceeding with the contempt motion on the grounds that they trusted Johnson’s background as a cop. “But you know I think you were quite right not to have asked where [Johnson] got the information but you’ve got it and you know at the end of the day I think . . . they’re just going to be put on the defensive,” he added.
What lengths should the law firm have gone to to verify the White and Johnson report before they used it? In 2005, Ontario Superior Court Justice P.H. Howden wrote in Stone v. Stone “the court acknowledges that the standard of proof in contempt cases is proof beyond a reasonable doubt. The ordinary civil standard does not apply.”
This point was reiterated in 2007 by Pattillo in dismissing the contempt motion brought by Cunningham’s wife, writing “contempt is a very serious matter. The onus is on the person alleging it. . . .” and the standard was “proof beyond a reasonable doubt.”
“You always have an obligation for due diligence,” observes Phillip Epstein, “and you have a professional obligation not to bring motions that are frivolous and unfounded and particularly with a motion for contempt, you have a duty to the court as well as to your client to make sure there is a basis for the application.” He also said the disclaimer on White and Johnson’s report should have been heeded. “It’s like an accountant saying I can’t verify the numbers on a financial statement. That sort of financial statement is useless.”
Only after the contempt motion was served did Blaneys try to verify White and Johnson’s findings, according to documents filed with the court. And it didn’t take them long to discover they couldn’t. In fact, two days after the hearing, Blaneys’ Andrew Heal received information from the HSBC and CIBC banks saying they could not verify the purported Cunningham accounts. Meanwhile, Cunningham immediately went to the various banks and had them issue letters saying no such accounts existed. By early December 2006, three days before they were supposed to return to court to argue the motion, Heal said to Edney in an e-mail that “until there is clear information corroborating the origins and authenticity of the documents in question, I am unable, and in my view we are unable, to argue the continuing motion. . . .” A day later, Heal and Edney told Montgomery none of the banks could confirm any accounts or money existed.
Meanwhile, Cunningham complained to the Law Society of Upper Canada about the Blaneys lawyers’ actions. In a Sept. 24, 2009 letter, the LSUC refused to commence proceedings against Edney, concluding as Edney was advancing his client’s interests — without any knowledge that the underlying report was either fraudulent or based on inaccurate or forged documents — he had acted reasonably and was justified in his methods. In the end, Blaneys hired another corporate investigation firm, which could not verify the White and Johnson information either. By January 2007, the lawyers were telling Montgomery they couldn’t proceed using the information (she remained unconvinced). By then White and Johnson were refusing to answer Blaneys’ questions about the material.
All told, by October 2007 Montgomery spent $250,000 on White and Johnson and their spurious information and $600,000 in combined legal and investigation fees. Cunningham says he’s shelled out $650,000 in unnecessary costs fending off the allegations. During the winter of 2007, Montgomery dropped Blaneys and hired new lawyers.
Edney and Blaneys refuse to comment on the whole affair, citing the pending lawsuit. Yet Sherman, Cunningham’s divorce lawyer, is ticked off that Blaneys never acknowledged it used fabricated information. “I have never received anything from opposing counsel saying ‘OK, OK, we agree that there is no evidence to support any of this and we’re withdrawing the allegation,’” he says.
DESPITE EVIDENCE, PI LICENCE RENEWED
For Cunningham, the nightmare was only beginning. He was forced to complain three times to the PSISB about White and Johnson before the regulatory agency finally acted. And even after the OPP officer assigned to the case concluded in the summer of 2007 “the bank accounts did not exist and the wire transfers did not take place” Johnson’s licence was renewed twice more by PSISB.
White and Johnson were finally charged by the OPP in the summer of 2009 before fleeing Canada the following year, setting up shop in a condo they owned in the Bahamas. There they created a web site to mock their victims and make more unsubstantiated claims about corruption among prominent Canadians.
They were finally run down after they accused Julian Fantino, a former Toronto police chief and a cabinet minister in the federal government, of corruption by hiding millions of dollars in offshore accounts. He was not amused and ordered the RCMP to find White and Johnson. In August last year, they were arrested in Turks and Caicos. They were then charged by the U.S. Internal Revenue Service for money laundering and fraud and deported to the U.S. this past spring.
Nevertheless, none of the lawyers who hired White and Johnson ever reported their actions to the PSISB; one complained to the OPP. The whole ordeal, however, has taken a financial and physical toll on Cunningham. “You start to talk about the damages that I’ve experienced, and the loss of time for your business, and all the rest of the costs that go with it, it’s horrific,” he says. “Absolutely horrific . . . I’m certainly going to be in the Freedom 75 program, as opposed to maybe Freedom 60. I have no prospect of retiring whatsoever.”
See Letter to the Editor response from Yuval Aviv.