Mob & shady characters
The story of how Toronto billionaire Michael DeGroot lost US$111 million in connection with casinos in the Dominican Republic is quite surreal from a gambling law perspective, and even more surreal is that some of the people the The Fifth Estate called the “shady cast of characters” who made the US$111 million disappear, seem to have come out of it unscathed. For now.
Mr. DeGroot is a well-known, well-connected and well-liked elderly Bay Street billionaire and philanthropist in Canada who founded Laidlaw.
In 2011, he was open to a new type of investment opportunity and was looking at casinos.
The Globe & Mail and The Fifth Estate investigated the story of how he came to be an investor in casinos in the Dominican Republic, and in this documentary called “The Mob and Michael DeGroot”, the Fifth Estate explains how, in 2011, Mr. DeGroot was approached by Toronto and Vaughn resident Andrew Pajak who introduced him to Antonio and Francesco Carbone, to invest in buying a series of old casinos, lottery businesses, nightclubs and such in the Dominican Republic under the umbrella of the Dream Group.
Pajak allegedly confirmed his Mafia connections and was recorded saying that he moved money for the mob through real estate. In the recording below from the the Fifth Estate, he says: “I arranged to take care of a lot of the mob’s money … I don’t play fucking games.” And according to this report, Pajak had deeper connections – he is alleged to be a “mob associate in the 1st degree.”
According to The Fifth Estate, the Carbone brothers also had shady connections. They were alleged to be affiliated with an illegal online sports gambling website called Platinum Sports Book that the RCMP said had connections to the Mafia and the Hells Angels. The Carbone brothers deny they were connected to Platinum SB and it was taken down in February 2013. However, they were charged and convicted of possession of illegal guns and spent 60 days in jail in Toronto.
According to Pajak, he and the Carbone brothers were good friends for over 20 years, and before Dream Casino, he submitted sworn evidence before an Ontario Court Judge that the brothers worked for him in a gaming equipment related business, also in the Dominican Republic. In support of a light sentence for the gun possession charges against the Carbones, Pajak testified in Court that the Carbones were: “honest and hardworking”, and so integral to his businesses that his [previous] business could not have grown to the extent it had, without the work of the Carbone brothers.
A jet and $2 million in personal expenses
According to Court filings, they brought a fourth person in early, Edward Kremblewski from the Vaughn area. Allegedly, Pajak and Kremblewski knew each other for quite some time through the Polish community. Kremblewski was a member of the St. Casimir’s Church in Toronto and they both belong to the same club.
So, together, those four people – Pajak, the Carbone brothers and Kremblewski, who knew each other for decades, or at least all were connected through Pajak for decades – appear to have lived or expended lavishly on Mr. DeGroot’s money, acquiring through corporate entities, luxury cars, a private jet, apartments and charging over $2 million of personal expenses to Mr. DeGroot’s account, all the while acquiring and running gambling and casino operations in the Dominican Republic and Jamaica.
While it lasted, the money ride was nothing short of extravagant - $2.3 million was used to buy luxury cars; $405,000 was used for personal expenses for the girlfriend of one of them; someone bought a condo in St. Kitts but no one knows who it seems; and the Dream Corporation office at Tigi Court in the little area of Vaughn was renovated for an incredible $1.1 million.
In what appears to be just over one year (from 2011 – 2012), Dream Corporation blew through Mr. DeGroot’s US$111 million –> a whopping US$9 million per month.
US$21 million of it completely disappeared.
Beneficial ownership & criminal record
A deal between the Carbone brothers and Mr. DeGroot involving regulated casinos would have been complicated. Their criminal record was an impediment to owning or operating casinos in the Dominican Republic because gambling law prohibits anyone with a criminal record or criminal affiliations from owning, operating and managing a casino. The Carbones needed nominees from Canada to go be the face of the operation in the Dominican Republic.
It appears that, despite moving money for the mob, Pajak was one of the nominee faces of the Dream Group and became its CEO. Under gambling law even in a place like the Dominican Republic, that should have been prohibited because of his statements about moving money and working for the mob.
Pajak also became the beneficial owner of all of the shares of Dream Corporation so that, on paper for the banks and the gaming regulator, it looked like he was the sole shareholder when in fact there was a Shareholders Agreement pursuant to which Pajak was holding the shares for the Carbone brothers. Apparently, no gaming authorities thought to enquire about the beneficial ownership structure hiding the identity of the true shareholders. Perhaps no Toronto or Dominican banks did either, despite the requirement to do so under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and similar legislation in the Dominican Republic.
Kremblewski became the CFO, in charge of all of the financial matters of the Dream Group. Because of his association with Pajak, Kremblewski should also have been prohibited from being an officer of Dream Casinos under the gaming law of the Dominican Republic.
$111 million unpaid & red flags of organized crime
The loan agreements pursuant to which Mr. DeGroot lent US$111 million to fund Dream Casinos required that the Dream Group disclose certain financial, operational and accounting records to Mr. DeGroot and pay him his portion of any profits, as well as repay funds advanced. As it turns out, Mr. DeGroot didn’t receive complete or competent financial or operational records and never got his money back except for a small portion.
In late 2012, Mr. DeGroot eventually sued a number of corporations and individuals in Toronto to recover the debt owed and damages, alleging that they had defrauded him of US$111 million, including Antonio Carbone, Francesco Carbone, Austin Persico, DC Entertainment Corporation, Dream Corporation Inc., Dream Casino Corporation, Dream Kisok Solutions Inc., Dream Group Holdings Corporation, Dream Lotto DCC, Andrew Pajak and Edward Kremblewski.
He is seeking $213 million in damages from all of them and a complete tracing of all the loan.
In a preliminary Court proceedings, the Court found as a fact that Dream Corporation took $5 million from Mr. DeGroot for a gambling operation in Jamaica when the gambling regulator had never heard of or licensed them, the establishment was actually shut down, and its website had been closed by the FBI and the Department of Homeland Security.
By 2013, there were “many red flags” that members of a transnational criminal organization were involved in Dream Casinos and managing its affairs.
Prima facie case of fraud
As soon as the litigation started, however, it ground to a halt because, according to KPMG, no one from among the defendants would provide the complete financial, accounting or banking records. Mr. DeGroot obtained production orders and when the defendants failed to obey the Court’s production order, KPMG was appointed as a receiver to complete a forensic audit to inform the Court where US$111 million had been used, or parked.
Part of the saga of the lack of compliance with document production is here (Canadian Fraud Law).
Not insignificantly, the Court found that, at a preliminary hearing, there was a strong prima facie case of fraud by the defendants. The Court later strengthened that statement to say that Mr. DeGroot had established a “strong case in fraud” against the defendants.
Missing financial records
KPMG worked for a year to try to get financial records and cogent explanations from the officers of Dream Casino in the Dominican Republic and Toronto, to no avail, to establish where the US$111 million was, or how it had been used.
Because of the financial nature of the litigation, a lot of the material evidence involved statements sought from Kremblewski, one of the defendants sued by DeGroot, who was involved in the use of Mr. DeGroot’s money since inception.
According to KPMG, Kremblewski’s evidence was dubious, elusive or inconsistent.
In the quest for electronic records, both sides alleged that key financial documents were stored on the corporation’s computer server which was unavailable because it had allegedly been wiped clean by the other side - the Carbones said that Kremblewski’s son, Adrian Kremblewski, controlled the server and Kremblewski alleged that Francisco Carbone controlled it. In the end, KPMG obtained documents stored on the server from the Internet service provider directly. Some of the defendants, including Kremblewski, claimed not to be able to access his emails, however KPMG reported that emails sent to them after the date he alleged he no longer had access, were received by him yet not provided to KPMG pursuant to a Court order. In other words, it was untrue.
In a pre-trial judgment, the Court noted that there was a complete lack of accounting provide to Mr. DeGroot and not only that, the defendants “thwarted” Mr. DeGroot and his advisor from reviewing the relevant documents.
KPMG noted that Kremblewski and Pajak were key parties involved in the Dream Group while the loan for US$111 million was being negotiated and the proceeds used and that they continue to manage the entire affairs of Dream Group – Kremblewski mostly from the Dominican Republic and Pajak from Toronto.
When KPMG finally viewed the financial records obtained on its own, it reported to the Court that the financial records were “grossly deficient and inconsistent” and not in keeping with known accounting standards. An independent gaming consultant, Sonoco, tasked with completing a report of the assets of the Dream Group echoed KPMG’s findings.
In 2014, when the consultant asked Kremblewski why, as CFO he hadn’t created even a balance sheet for the casino properties, he “had no explanation.” The consultant recommended that Dream Corporation replace Kremblewski with a “qualified person” before putting any more money into the business.
In its report to the Court, KPMG found that US$21.7 million of Mr. DeGroot’s money was completely unaccounted for and had disappeared into thin air. The Fifth Estate called the findings in their report ”troubling.” Despite being the CFO and a licensed CPA/CGA and acting as such since inception of the loan, overseeing the flow of the US$111 million in investment funds, Kremblewski could not explain the whereabouts of the missing US$21.7 million.
Sonoco reported to the Court that Kremblewski was actually both the COO and the CFO, working on the ground in the Dominican Republic, reporting only to Pajak. Sonoco reported that under Kremblewski, “spending was out of control” and there were no controls in place, noting that he was unqualified and had no gaming expertise whatsoever. Despite all of this, he continues to run the operations in the Dominican Republic.
To get a sense of how the role, and continued involvement of a financial professional who a Court appointed expert testified is unqualified makes no financial or legal sense, consider this: an injection of US$111 million to start a business is akin to receiving an equivalent amount in revenues. By way of corporate comparison, Jessica Alba’s company this year had $150 million in revenues but her corporation has 275 employees and its officers are well-educated professionals with no apparent issues of financial competency who appear to be able to manage the affairs of a corporation with similar revenues without losing $21 million into thin air.
KPMG report troubling
Of the missing US$111 million:
- $21 million went to alleged renovations of a casino in the Dominican Republic but there are no invoices, records, contracts with any contractors or pictures to prove a renovation occurred.
- $5.3 million was given to an unknown entity for unknown purposes.
- There were $2.1 million in personal expenses billed to credit cards that the corporation paid for, which Kremblewski informed KMPG were for what he called “consulting entitlements” but according to KPMG, there were no consulting agreements in place to justify such “entitlements”. There is no such thing as a consulting entitlement in law or practice.
Mr. DeGroot, in his testimony released by the Globe & Mail, deposed that the characters bought a luxury apartment for $2 million with his money but did not put the title in his name. He also deposed that ”the CFO [Kremblewski] and his assistants were…nervous about some documents going through, and they already knew it was a fraud.”
Kremblewski informed KPMG that, despite being a CPA, he allegedly was told not to ever keep financial records of how the loan of US$111 million was used and allegedly, contrary to the standards of the profession, followed those instructions.
More lawsuits / more chaos
The Carbone brothers seem to have been temporarily ousted from Dream Corporation and the two remaining officers, Pajak, the self-confessed money mover for the mob and Kremblewski, the CPA who appears to have issues preparing financial statements, operate the entire business. Apparently, despite an injection of US$111 million, the business is out of money and is being sued by employees who were never paid in the Dominican Republic.
The Carbone brothers are suing Pajak, so far successfully, over his unilateral attempt to take their shares in Dream Corporation without their authority and without paying them anything in respect of those shares. Irrespective of the DeGroot litigation, their shares are bound to be of significant value.
Meanwhile Mr. DeGroot continues to sue them all for fraud and to recover his money, and the defendants launched lawsuits against each other.
Montreal Mafia at Dream Casino
At one point, the well-known Montreal Mafia godfather Vito Rizzuto, considered the most powerful Mafia man in Canada before his death, visited the casino in the Dominican Republic with its current management apparently with a view to fixing things. The video below shows some clips of his visit. Under gambling law, even in the Dominican Republic, Mr. Rizzuto should have been barred from entering the casino.
And as if there was not enough of a Mafia connection, Gianpietro Tiberio, referred to in the media in the Dominican Republic as the “representative of Mr. Pajak” and identified by the Quebec Charbonneau Commission as a member of the Montreal Mafia, worked at the casino in the Dominican Republic with Kremblewski (see Globe & Mail story).
As the Globe & Mail noted, it suggests that the Montreal Mafia is in place running things in the Dominican Republic (see Globe & Mail story). And indeed, the media in the Dominican Republic reported, as Kremblewski had told the Globle & Mail, that Tiberio was working at Dream Casino (with Kremblewski). Tiberio even appeared in a Court in the Dominican Republic, testifying in his capacity as the owner of one of the subs of Dream Casino here.
Where’s the de-risking?
It remains unclear how come individuals with close working relationships with a transnational criminal organization in respect of the Dream casino, are not in the World-Check database and have not been de-risked, and how it is that they are able to be involved in the regulated gambling business which is designed to bar anyone associated, or who has worked with, organized crime.
Everyone’s life is allegedly in danger
As it stands, no one seems safe in this case, even the people the media refers to as the “shady characters”.
The Fifth Estate reported the existence of a tape that threatens the current management of Dream Group, who switched sides and are no longer faithful to their former bosses, the Carbone brothers. And there is a second tape that threatens the Carbone brothers. The current management of Dream Casino, which seems to be just Kremblewski, is protected by armed guards in the Dominican Republic.
In early 2015, Antonio Carbone was arrested in the Dominican Republic on charges of the alleged attempted murder of the lawyer of Dream Casinos. The Fifth Estate reported that, despite his arrest, the evidence about which it was based was contradictory and tenuous.
In May, 2015, Sasha Kolic, aka Sasha Visser, aka Zeljko Zderic, aka Pavie Kolic, aka Alex Visser, aka Sasha Vujacic also from Toronto, was arrested in the Dominican Republic for the murder of a second lawyer who had argued with his wife. Visser has a long history of violent criminal behavior and worked with Kremblewski and Pajak at the Dominican casino properties under their management.
Earlier in December 2013, armed groups of men stormed the Dream Casino office and threatened to kill people, removing $500,000 in cash. A retired general connected somehow to the management, told the Court that people want to hurt him.
Debts piling up
Despite all the money they went through on a private jet, luxury cars, apartments, girlfriends and payments for undocumented consulting arrangements, this handful of dudes from Vaughn managing the affairs of Dream Corp. seem to have left a pile of debt – not just to Mr. DeGroot but to casino employees and the Dominican government.
And as for the Mafia or any organized criminal organization, bodies pile up when there is a betrayal – as the turf wars involving the Vito Rizzuto Mafia clan demonstrate, the people who pay the debt with their lives are children, parents, brothers and business partners.
The one saving grace may be an order tracing where the funds went, and to whom, from bank accounts in Toronto, the Dominican, St. Lucia, and St. Kitts and an order to recover Mr. DeGroot’s money and the $213 million he is seeking in damages from people who may have been unjustly enriched.
Visitors says the Dream Casinos are run by “criminals” who are extorting Canadian and American tourists – including at gunpoint
The Dream Casinos, as least as far as what tourists say in written reviews online, seem to be run-down and based on the pictures of them posted online, it appears unlikely that US$111 million was invested in renovating or improving them, even partially. Here is a picture of one of the casinos. More pictures are available on this website and this website. Some of the reviews online that are posted from Canadian and American tourists who have visited Dream Casinos say that they are operated by “criminals” and that tourists are ripped off. This review says: “These people should be in jail….they are nothing more than cons and criminals.”
At a second Dream Casino location, the reviews outright describe shocking criminality towards visitors from Canada and the US:
- In this review, a Canadian says Dream Casino cheated her and her husband into incurring an alleged large gambling debt and forcibly tried to get them to pay $4,000 they didn’t owe, which included a criminal interest rate, and describes how they were made to feel intimidated and harassed for payment.
- This woman’s boyfriend was physically beaten when he tried to leave with his winnings at the Dream Casino.
- Here is a third story of an American couple on their honeymoon who were incarcerated in their hotel room and held at gunpoint and forced to pay $2,000. This couple speaks to the fact that, according to their research, the extortion at gunpoint of tourists seems to be routine at Dream Casinos.
The Dream Casinos are not owned and operated by people in the Dominican Republic who are foreign nationals; it is a Canadian company managed and operated by a Canadian from Toronto which means that there is legal jurisdiction for Canada or the US to take action in respect of the harm being done to American and Canadian tourists.
The descriptions online of the violent ways in which alleged gambling debts are collected from Canadians and Americans at the Dream Casino would shock the consciousness of Canadians – a phrase our Courts use to describe conduct that is so reprehensible and abhorrent as to be irreconcilable with our values. In other words, a civilized decent person would not do things like this, or be associated with such people.
The debt collection methods described by tourists online in respect of Dream Casinos mirrors the way in which the notorious Triads gangs in Macau and Hong Kong collect fictitious debts. You can read here for how Triads collect gambling debts – they similarly involve incarcerating tourists in hotel rooms, forcing them to go to ATM machines to extract money for payment and physically harming them.
Where are the SARs/STRs?
From a purely anti-money laundering compliance perspective, this litigation has been public and: (a) the decision to hire an unqualified CFO; and (b) keep him in place acting as an officer of a gaming corporation in the face of evidence of him being unqualified by KPMG and Sonoco; (c) the continuing role of the two officers as managers of the operations with its connections to a transnational criminal organization; (d) the Court findings on two occasions of a strong case of fraud; and (e) the beneficial ownership situation of Dream Corporation (affecting all its subsidiaries) that the Carbone brothers are the actual majority shareholders, would, at the very least, trigger a STR/SAR filing every time the players complete a financial transaction in Toronto, Vaughn or the Dominican Republic.
There should be hundreds of thousands of STRs and SARs filed with FINTRAC, FinCEN and the Dominican FIU by banks, the Toronto Polish credit union, casinos, insurance companies, accountants and money services businesses. If there aren’t, a reporting entity may be facing a large compliance problem.
It isn’t that there is a finding of any wrongdoing – it is that the involvement of Kremblewski with a member of transnational organized crime at the Dream Casino and of Pajak as the person who moved money for the mob; the vast sums of money missing; the fraud findings; the findings of the Court-ordered receiver that banks were bribed; and the undisclosed beneficial ownership, all require the filing of STRs and SARs by law because there are reasonable grounds to suspect predicate offenses occurred. And at the very least, banks in Canada must have realized that there were wire transfers and deposits inconsistent with the salaries of key people and possibly transfers of funds to family members.
Where are the FBI? The DoJ? The CRA and IRS?
The two questions no one wants to ask are: if the gaming corporation’s activities are not aimed at running a gaming business and making a profit, then what are its aims; and given statements in the reports to the Court on bribery payments, including to banks in the Dominican Republic involving correspondent banking relationships in the US, and the involvement of transnational organized crime, why aren’t the FBI and DoJ involved, as least in respect of the corruption issue? Why isn’t the IRS involved, considering the nexus to the US financial system with correspondent banks and bribes to bank officials and why isn’t CRA involved to collect taxes associated with the US$111 million that showed up on multiple personal credit cards to buy a slew of luxury items, including a jet. Multiple people received a cash windfall of perhaps as much as US$111 million – no one actually knows – and yet since there are allegedly no records, no one could have declared any windfalls on their taxes.
It is against the law for officers (indeed any employees) to use corporate coffers for their personal expenses in the way that the Court-appointed receiver testified happened at Dream Corporation. For example, in this case, a man was indicted for stealing $275,000 from a corporation and using the funds to buy cars, clothing and travel. The US Attorney prosecuting noted the illegality of using the “company’s coffers like a personal bank, stealing from an employer to provide for a lavish lifestyle.” Here is another example of an employee who similarly used corporate coffers to fund personal expenses to the tune of $1.3 million.
And … nothing makes sense
There is nothing that makes sense about this whole story including:
- DeGroot is owed US$111 million pursuant to credit facilities, presumably secured, and yet hasn’t taken steps to assume ownership of any of the assets.
- The least qualified person in the whole picture, the CFO, is running the enterprise and DeGroot has taken no steps to require his removal, either by an application to Court or pursuant to the credit facilities, to protect his economic interests.
- No one, including DeGroot, has taken steps to install a person who has gambling experience to run the casinos.
- The majority shareholders of Dream Corporation are the Carbone Brothers and one would expect that the Shareholders Agreement gives them the right to be a director and/or officer yet no one seems to be enforcing the shareholder rights aggressively, even assertively.
- Kremblewski is still licensed as a CPA which seems inconceivable, considering the above and the statements in the Court-ordered report by KPMG.
- Despite a Court finding of a strong prima facie case of fraud, stories from tourists of getting extorted and physically harmed at the Dream Casinos, no one appears to be prosecuting anyone and yet this case negatively affects the integrity of the gambling and the banking sectors of the Dominican Republic (in the case of gambling) and of Canada, the US and the Dominican Republic (in the case of banking regulation and the role of the FIU).
The case is Michael DeGroot vs. DC Entertainment Corporation, King Software Solutions Corp., Dream Corporation Inc., Dream Casino Corporation, Dream Kisok Solutions Inc., Antonio Carbone, Francesco Carbone, Dream Group Holdings Corporation, Dream Lotto DCC, Coral Coast Entertainment, Dream Sport, Volcanic Reality Business, Andrew Pajak, Edward Kremblewski and Austin Persico filed at the Superior Court of Justice, CV 12-9886.