Trust transfers covered major revenue shortfall at Heydary Hamilton, report finds

More than $2.7 million transferred from Heydary Hamilton PC’s trust account went towards paying the firm’s day-to-day operations, a Law Society of Upper Canada investigation has found.

During a court appearance last week, the law society submitted a 10-page sworn affidavit by Margaret Cowtan, the LSUC’s manager of trustee services who conducted a forensic investigation of Heydary Hamilton’s trust account. In it, Cowtan said there were “numerous” money transfers from the firm’s trust account into a general account from which it paid operational costs.

“These transfers, which exceed 2.7 million dollars, were the major source of inappropriate withdraws of trust funds throughout this period,” wrote Cowtan.

In December, the law society confirmed the death of lawyer Javad Heydary, who departed for Iran during an investigation into missing client funds, through “official documentation.”

Cowtan’s report to the court noted money from Heydary Hamilton’s general account also went to Red Seal Notary for no apparent service. Heydary was a director and shareholder of the company.

“In turn, there were payments from the [Red Seal Notary] account directly to Mr. Heydary personally, which were deposited into his personal account. The total amount transferred in this manner in 2013 is approximately $200,000, although the pattern of these transfers had existed many years prior,” the affidavit states.

Law society senior counsel Nadia Musclow told the court on Jan. 20 that the payments from Red Seal Notary to Heydary were in the form of shareholder loan repayments. Heydary Hamilton’s operational costs appear to have absorbed most of the missing money, she said.

According to Cowtan’s investigation, the firm, located on the 45th floor of 66 Wellington St. W. in Toronto, had a monthly operational expense of $500,000 while the revenue it generated was “nowhere near sufficient to cover the expenses, and the shortfall was primarily made up by the transfer of funds from trust to general referred to above.”

Heydary Hamilton’s demise has affected more than 1,000 clients. In her affidavit, Cowtan said the firm’s trust account records contained “significant errors and/or misrepresentation” that included many bank deposits that never went through. Those deposits, along with the $2.7 million in transfers, created “an overall overstatement of the funds in the trust account at the time of the trusteeship of at least 3.4 million dollars.”

By the time the law society took trusteeship of the Heydary law firms, there was some $300,000 left in the Heydary Hamilton trust account. Former client Hasan Abuzour, who says he has had to borrow money to make his mortgage and car payments, notes he needs at least that amount immediately. He adds he’s not happy with the amount of detail included in the law society report.

“I don’t believe this report is enough,” he says, noting he expected more details about his money’s whereabouts after an investigation that took more than a month. Meanwhile, Abuzour says he has spent tens of thousands of dollars in legal fees without assurance he’ll ever recover his money. After discharging his former counsel for what he described as a lack of planning, Abuzour has now retained lawyer Mark Adilman of Marciano Beckenstein LLP.

Adding to the complexity of the case are questions around the truth of Heydary’s death after a body was repatriated to Richmond Hill, Ont., from Iran in December and buried without DNA confirmation.

Three independent individuals who knew Heydary attended the funeral and confirmed his identity, the court heard. But according to Musclow, it was counsel for Heydary’s wife — and not the law society — who chose the three individuals and arranged for their viewing of the body.

Musclow said the three people believed the body was Heydary but “had difficulties recognizing his body” because it had decomposed to some degree. The body arrived in Canada nearly a month after Heydary’s reported death on Nov. 24.

Abuzour tells Law Times he himself saw the body at the funeral and that his reaction was: “Maybe him, maybe not.”

On Jan. 20, Superior Court Justice Julie Thorburn suggested the law society should identify the three individuals who confirmed Heydary’s death and share copies of their affidavits with Abuzour so he can assess their independent status.

“Without knowing their names, it’s really not helpful,” said Thorburn.

Adilman says Abuzour’s former counsel had contacted police at some point during the ordeal but notes he’s not aware of the status of any investigation at this point.

The law society investigation didn’t find large sums of money transferred overseas or between the Heydary law firms. In fact, Heydary Hamilton’s trust account was at a different bank than the other affiliated firms. Those other firms “have not been implicated in the shortages and misapplications that occurred to the trust funds in the Heydary Hamilton accounts,” Cowtan’s report states.

On Thursday, the proceedings continued with Abuzour’s arguments that he should receive the bulk of the $319,000 remaining in Heydary Hamilton’s trust account. He wants 96 per cent of that amount since his funds made up that portion of what should have been in the trust account, but the law society said it wants to consider the funds owed to the 62 clients who also had money in the account. Counsel for Abuzour was also seeking access to the records the law society has on the Heydary Hamilton accounts and detailed evidence of transactions between the firm and other Heydary businesses such as Red Seal Notary.

In response, the court ordered the law society to give Abuzour some of the information, including details on the total amount of money that should have been in the Heydary Hamilton trust account. The law society, however, said it could take another two months to produce the information. Thorburn wasn’t happy about that timeline and asked counsel to look at ways to expedite the matter. That afternoon, the law society agreed to provide the requested bank statements to the Abuzours by the end of this week.

Also on Thursday, the court revisted the questions about Heydary’s death. According to Thorburn, the legitimacy of Heydary’s death “has to be resolved one way or another.” She adjourned the matter so that counsel could consider the next steps in confirming Heydary’s death, including through forensic evidence if necessary.

For more, see "Clients to seek millions from Heydary's estate" and "More than 1,000 clients left scrambling."

Update, Jan. 28: Story updated to clarify that Thorburn had originally suggested that the law society should identify the three individuals who confirmed Heydary’s death rather than ordering it to do so; story also updated to clarify that the court ordered the law society to give Abuzour some information on the Heydary Hamilton trust account and finances rather than the actual records it has.

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