SLEAZE: Every country has them

The word ‘sleaze’ is a derivative from the word ‘sleazy’ which means amongst other things. ‘shoddy’. It is a noun that describes a person who is shoddy, shabby, tacky and downright dishonest. That is the description I have given to a Canadian whose name is David Scenna. When you read further into this article, you will appreciate while I refer to this scumbag as sleaze.

In Canada, if a businessman needs money to start a company, he can go to his bank and apply for a loan. The federal government has a department called Industry Canada that will back 85% of the loan if the businessman fails to pay off the loan. The bank has to take the remaining 15% as a loss but often they haven’t lost that 15% because they have probably obtained some form of security on the loan. The losers in cases like that are the taxpayers.

The trouble is that Industry Canada allows banks to loan money with lax or no controls. In other words, a foolish loans officer in a bank can loan money to a businessman without first checking to see if he is a credit risk. For example, should he loan money to a businessman who has a bad credit history? Actually some banks do because if the borrower can’t pay off the loan, the bank really hasn’t lost anything since Industry Canada will pay off the 85% outstanding and the bank already has its security to go to for the remaining 15%.

So who benefits from the failure of the loan? The businessman if he used the loan for purposes other than starting a business. This is where David Scenna comes into the picture.

The Toronto Star began an investigation into a case where 16 loans---more than $4 million dollars was doled out at $250,000 at a time over a period of eight years to a group of a loosely associated Toronto businessmen whose leader was David Scenna, a man who had a bankruptcy in his past along with a poor credit rating.

I can appreciate why bankrupts should get a second chance if their businesses failed through no fault of their own but to loan money to a man who was not only previously bankrupt but also had a poor credit rating is outright stupid. But stupidity were the actions of the loan officers who gave this sleaze the money.

Now it is one thing to attempt to build a business from the money you have borrowed from the bank and the taxpayers but it is something else when you spend it on yourself.

That is what this scumbag actually did. He spent the millions of dollars on prostitutes, booze, partying and fast cars; money that should have been applied to his business---if there really was a business he was trying to build. The businessmen defaulted on each loan, but banks always approved another.The taxpayers’ money was literally being flushed down the toilet.

David Scenna, the alleged mastermind, went on a spending spree that included lavish parties at Toronto’s Muzik nightclub, high-profile charity functions, Porsches and Mercedes cars; and thousands of dollars paid to high-end escort agencies. One series of Scenna’s credit card bills for hookers was $38,000, according to documents found by a Royal Canadian Mounted Police investigation. He partied so hard with two escorts in his condo one night that his bathtub overflowed, damaging the unit below.

Scenna’s loan applications made it seem like he was going to set up legitimate ventures, such as modernizing the funeral memorial business with digital memory albums for grieving loved ones.

Scenna and 12 other businessmen are charged with using the money for personal — not business — purposes. The case is before the courts with the next hearing Friday, October 29th. The allegations against the men have not been proven in court as of yet.

The RCMP, in a document filed in court to obtain banking records, has called the case “an elaborate fraud” against the government. Court documents and Scenna’s business associates say the loan money was advanced through accounts controlled by Scenna.

The federal government does not know how often the loan program is a victim of fraud. About $1 billion a year is lent in small business loans. The number of defaulted loans is steadily increasing. Last year, $106 million of taxpayers money was paid back to banks for defaulted loans. That’s up from $75 million a year in defaulted loans three years before.

Under the Canada Small Business Financing Program, Industry Canada gives banks the job of approving applications. It only sees the paperwork if the loan goes into default. One of the problems the Star uncovered is there is little incentive for the banks to conduct detailed background checks.

Many years ago, I conducted fraud investigations on behalf of a large Canadian bank who had been giving credit cards to anyone who came to their door, not unlike children coming to your door on Halloween Night. They didn’t bother to check out the backgrounds of these people.

In the course of my investigations, I learned that one man gave his business address at a corner of two major streets that crossed each other. The trouble was both streets were going in the same direction and were many miles apart. In another case, the man say he was a publisher of a magazine. In actual fact, he was unemployed and had been for almost a year. There were many cases like those that I uncovered. All of them were charged and convicted of fraud. The following year after I completed my investigations, I was invited to go to London and speak at an international conference on fraud. I showed on the screen the phony applications and explain how the loans officers didn’t do a proper check. I can still hear the groans of the conferees as they saw the loans officer’s stupidity being shown on the screen. I wonder if the banks really care whether or not they people who borrow the money from them are not using the money for the purpose it was supposed to be used for. After all, what are they losing? Probably nothing.

Of course, banks have to be careful who they cancel the loan with. Here is an example of what can go wrong when the bank manager moves too quickly without first ascertaining the true facts. Back in the 1970s, a lawyer retained me to investigate a case where the bank manager not only demanded the entire loan back, he had the two owners of the business arrested and charged with fraud. In the course of my investigation, I was able to prove that they had invested the money into a million-dollar plastic extruder that made various plastic items and when the bank demanded the loan back, the company failed. The matter went to court and the men were acquitted. They in turn sued the bank and the bank paid millions of dollars in damages to the two men.

Most of the $4 million, about 85 per cent, lost by the banks in the Scenna case will be paid back to the five banks involved, according to the terms of the loan agreements. The banks include TD Canada Trust, CIBC, Royal Bank, ScotiaBank and Bank of Montreal.

Scenna, 38, grew up in Richmond Hill and attended Bayview Secondary School. He dabbled in several businesses before declaring bankruptcy in 1997, owing $105,500 to creditors, mainly credit card and car-leasing companies. Around that time his short marriage to a local woman collapsed and they divorced.

Through a church group, Scenna hooked up with a man whose Toronto firm made photo plaques to attach to headstones, which gave Scenna the idea of preparing memorabilia albums. Beginning in June, 2001, Scenna enlisted various businessmen, including friends and his brother-in-law, Massimo “Max” Pizzoferrato.

Scenna’s own credit “was not good” and he asked Pizzoferrato to sign the application for a $250,000 loan on his behalf, according to an allegation filed in court by the RCMP. Scenna did all the paperwork. Pizzoferrato, who cooperated with police, has not been charged.

Industry Canada gives the bank the option of running a credit check or getting a credit reference. Scenna, using shell companies, manufactured his own credit references, according to the allegation of the RCMP. Three weeks after applying for the first loan, the federal government and Toronto Dominion Bank (now called TD Canada Trust) issued a $250,000 loan, the maximum amount allowed at the time.
Scenna was able to supply credit references through a fictitious company called Kingsbridge Financial Associates (he lived at the time on Kingsbridge Garden Circle in Mississauga).

In one of the loan proposals — this was for a car-wash service — Scenna submitted a bogus financial review to ScotiaBank by Kingsbridge, showing an Etobicoke address. Had anyone checked, they would have discovered an eclectic shop that sold exotic coffees and artwork.

Another rule of the loan program stipulates banks should only release money if the borrower shows he is purchasing business equipment. The RCMP alleges that Scenna supplied fake invoices to the banks coming from fictitious suppliers Scenna incorporated with names like “Huge Corporation” and “M-Power Sales and Consulting”.

The Star asked all five banks to explain what steps they take to ensure a potential borrower is legitimate. Royal Bank responded saying it “follows a standardized due diligence process when evaluating all credit applications.” TD Canada Trust said its “internal due diligence process assesses many factors, including the client’s personal credit-worthiness, as well as their business plan, history, operations, prospects and financial viability.” The other three banks did not respond.

Invoices for several different loans listed the purchase of a state-of- the-art copier so sophisticated and expensive it is only used by intelligence agencies such as the CIA and the Mossad in Israel. Scenna’s associates never actually purchased the $350,000 copier.

The Star also found on at least five occasions, Scenna and his associates used the same Brampton office space as a business address on loan applications. As far as the Star could tell, no banker ever checked to see if there was actually copying equipment in suite 200 at 45 Railroad Ave. in Brampton. But they did send collection agencies there when the loans went into default and found no signs of the company.
Of the at least 16 loans handed out to Scenna and his group, he was the signing authority on three, according to the RCMP. In one period in 2005, Scenna personally received a $250,000 loan from ScotiaBank (March 4); a $250,000 loan from Bank of Montreal (June 21); and a $250,000 loan from the Royal Bank (Nov. 25). Scenna defaulted on all three loans within a few months, even defaulting on the June 21 loan before applying for the Nov. 25 loan. The RCMP found frequent and large payments of loan money to Scenna personally.

Visa bills obtained by the RCMP show that in one short time period Scenna paid $38,000 to Neodec Services, a Toronto company that processes credit card receipts from high-end escort agencies.

Two former friends of Scenna said he frequently used escorts and, for his birthday one year during the loan period, he spent $10,000 to have an escort spend several days with him. They said he frequented downtown Toronto clubs including This Is London and Muzik, at Exhibition Place, where the cost of entertaining in a VIP area starts at $225 per bottle of liquor. Muzik requires hosts to reserve a minimum of 10 or 15 bottles depending on the party size. “There would be 100 people in his booth,” said one man. “He would pay for everybody — thousands of dollars a night.” Another former friend recalls Scenna dropping $40,000 over a weekend of partying in Montreal during the Formula 1 auto race.

Galinec, who joined forces with Scenna in the late ‘90s to start up a software company, called Scenna a “success magnet.” He said, “I don’t think there was a day gone by when he wasn’t in a night club or a strip club the night before,” Galinec said. When a business plan they worked on collapsed in 2001, Scenna started pursuing small business loans.

By 2005, Scenna and girlfriend Zoe Coop were living in a two-bedroom condominium unit Scenna purchased for $340,000 in west Toronto near the lake. Doormen recall Scenna and his fleet of fine cars and a steady parade of escorts in the early hours of the morning. One morning, at 2 a.m., building security had to open the door of his sixth-floor unit because water was gushing into the unit below. They found Scenna and two escorts in the overflowing bathtub, drinking and having a “grand old time”, a worker recalled. Scenna, who by this time had received (with his group) at least $2 million in loans, cheerily paid for all the damage.

His sister, Gabriella (Max Pizzoferrato’s wife), said her brother involved them in the small business loan scheme and bankrupted them. “We lost big time. We lost everything. We are starting from scratch,” Gabriella said. In her statement to the RCMP, Gabriella said their father “died a pauper” because her brother took all the family’s money.

The Scenna case surfaced when an Industry Canada employee noticed the same address listed on numerous loans that had gone into default.

A media relations spokesman for Industry Canada (the minister is Tony Clement) said “department officials take the potential for fraud very seriously.”

“They carefully review lenders’ claims, monitor compliance and refer cases where fraud is suspected to the RCMP for further investigation,” the spokesman said in a prepared statement.

In saying what repayments were made to banks when each Scenna-related loan defaulted the case of the Scenna loans, Industry Canada did not suspect fraud until eight years after the first loan was approved.

I am going to watch this case closely and hopefully, this scumbag, if convicted, will have a difference residence to stay at; one in which he won’t be partying with prostitutes.