Despite concerns over the Law Society of Upper Canada’s actions as police charged a disbarred Toronto lawyer with fraud this month, solicitor-client privilege prevents the regulator from sharing information from its investigations, candidates in the upcoming bencher elections say.
In the meantime, the law society has paid out more than $2 million to the clients of the lawyer, Mariano Mazzucco, who was disbarred late last year for his role in a mortgage scheme.
Victims have received $2.2 million since the law society’s compensation fund began accepting claims in June 2008. The final tally could be even higher with further claims awaiting completion and the potential for even more people to come forward, according to law society spokesman Roy Thomas.
Mazzucco, 61, was arrested on March 2 following a two-year investigation by Peel Regional Police. They allege he defrauded 40 individual victims and 10 financial institutions out of more than $12 million.
He appeared in court in Brampton, Ont., on March 9 on charges of fraud over $5,000, laundering the proceeds of crime, and criminal breach of trust. Police say they expect more victims to come forward.
The LSUC disbarred Mazzucco in November after he admitted to his role in a mortgage fraud scheme between November 2007 and March 2008. During that time, he obtained funds in 20 fraudulent mortgage deals worth a total of $7 million.
His trust account was still under supervision by the law society at the time following an earlier 30-month suspension in July 2000 for misappropriating more than $300,000. He returned to practice in 2003 under a plan of supervision that ended in September 2005.
Trust account supervision and co-signing by the law society continued until March 2008, when the LSUC took over his practice in the wake of a wave of complaints. But Mazzucco got around the restriction by simply opening another trust account at the same bank that he used for the mortgage deals.
The LSUC maintains it couldn’t prevent Mazzucco’s action. “The law society cannot prevent unlawful behaviour by someone who is absolutely determined to engage in such behaviour, notwithstanding the stringent controls that have been placed on their activities,” Thomas said in an e-mailed statement.
According to an agreed statement of facts filed with Mazzucco’s hearing at the law society on Nov. 5, 2010, a former client approached him in early 2006 to participate in a mortgage fraud scheme.
Mazzucco said he didn’t immediately jump on board but he did open a new trust account in May 2006 that the LSUC labelled “the rogue trust account.”
It wasn’t until November 2007 that Mazzucco decided to take part in the scheme, according to the agreed statement of facts. None of the criminal allegations against him have been proven in court.
Mazzucco’s contact would supply him with the names of lenders and borrowers, often the victims of identity theft, and ask him to register the transfer and charge on the property. Mazzucco refused “because he did not want to put the owner’s title at risk,” the agreed statement of facts noted.
“He had been suffering from overwhelming debt for many years,” according to the document. “The respondent used funds given to him by clients to pay money owed to other clients, in a kind of Ponzi scheme that dated back to 1990. A couple of clients giving and receiving funds were family members.
The respondent was anxious not to disappoint or hurt them.”
Of the $7 million netted by the scheme, Mazzucco distributed $3.3 million to other participants in the fraud and kept $1.5 million for himself as part of an agreement reached with his former client.
A further $1.6 million was used to pay off lenders who wanted proof the transaction had closed in order to keep the scheme going undetected. Mazzucco would hold them off with an excuse about why the deal hadn’t closed and reimbursed them using money from his rogue trust account, other personal funds, and, on occasion, other clients, according to the agreed statement of facts.
In March 2008, the law society stepped in to take over as trustee of his law practice and freeze his bank accounts within two days of receiving complaints about serious losses by those dealing with Mazzucco.
The LSUC recovered $835,000 from the practice that included money from three bank accounts used by Mazzucco as well as $43,000 stuffed into a brown paper envelope in his desk.
According to a decision by Ontario Superior Court Justice David Brown in January 2009, even Mazzucco’s main trust account had problems.
Although it “appeared to balance,” there were “transfers in and out which had not been approved by clients,” Brown wrote. Brown ordered the $835,000 to be pooled and shared pro rata among Mazzucco’s legal clients and financial institutions left short.
According to Thomas, the police and law society received notification about the problems at the same time in March 2008 and remained in contact “as confidentiality and other requirements permitted.”
Police have complained the LSUC didn’t notify them about Mazzucco’s suspension in 2000, but bencher candidate Jerry Udell says the regulator is rightly constrained by solicitor-client confidentiality in its conduct of investigations.
“It’s up to the complainants to take those steps, not the law society,” he says. “They’re not the ones who had something stolen from them. You can lead a horse to water all you want, but we have to respect the fact that the victim may not want the publicity.
“I don’t think there’s an obligation on the law society when we suspend one of our members to let the world know about it other than to ensure the public is protected. The law society’s function is to govern itself and ensure that the public interest is paramount.”
Robert Wadden, another bencher candidate, says the LSUC could improve its public perception by driving home that message. “It does act in the public interest, but I don’t know if it’s always making that clear.
There may be a communication gap between the law society and the public. It’s got to be communication as seen from the perspective of the public as opposed to the perspective of lawyers.”