Vic De Zen and other executives of Royal Group Technologies Ltd. "defrauded their own company" and hid the evidence from auditors and the board of directors, according to the Crown's opening remarks at the trial of six former employees of the plastics company.
In court Wednesday, Crown attorney Damien Frost outlined details of two transactions at the heart of the case, saying evidence will show that the six executives shared in profits totalling $6.5-million at the expense of Royal Group.
"It is alleged that Mr. De Zen and other directors and officers of Royal Group defrauded their own company of millions of dollars," he said.
But lawyer Mark Sandler, who is representing Mr. De Zen, countered with his own opening remarks, saying "the evidence will disclose that no fraud by anyone occurred here."
Mr. Sandler said the company's directors knew about both o the transactions at issue in the trial, and the auditors knew or should have known about them because they were documented and not hidden.
"Mr. De Zen did not have a financial interest in defrauding the public company of which he was majority shareholder and founder," his lawyer said.
Mr. Frost said he intends to call 24 witnesses at the trial, which is expected to last at least until the end of June. They will include former independent directors, including former Ontario finance minister Greg Sorbara, Toronto lawyer Ronald Slaght and businessman James Sardo.
The Crown alleges that Mr. De Zen, former Royal Group president Douglas Dunsmuir and former chief financial officer Gary Brown shared in a $6.5-million profit earned in 1998 when a numbered company they co-owned sold a parcel of land to Royal Group for $27.4-million on the same day they purchased it for just $20.5-million.
Mr. Frost alleged that former vice-president of finance Ronald Goegan knew the property was being flipped "and assisted the other three accused."
Mr. Frost also detailed accusations that five of the accused - Messrs. De Zen, Dunsmuir and Goegan as well as former director of taxation Luciano Galasso and director of accounting Gordon Brocklehurst - shared a $2-million profit after a warrant owned by Royal Group was exercised in 2002 to buy shares of Masonite International Corp.
He said the share acquisition was not entered in the books of Royal Group and instead the shares were distributed to the five former executives.
Mr. Frost said the evidence will show that each of the accused took "elaborate steps" to receive and sell their Masonite shares. He said Mr. Galasso, for example, transferred his profit from the shares through a series of bank accounts and into a numbered company account.
Mr. Frost alleged Mr. Galasso also wrote an e-mail, which will be entered into evidence at the trial, explaining to "Brother Ed" where the funds could be located "in the event I get hit by a truck."
Mr. Sandler countered that it was always intended that the warrants would be used to provide compensation for senior executives, and their gains from the share sales were disclosed in the company's shareholder proxy circular.
Although the circular did not say the compensation came from exercising a Masonite warrant, Mr. Sandler said it did not need to, and "it was the amounts, not the sources," that had to be disclosed.
He also said Mr. De Zen was required only to seek board approval for transactions of more than $60-million, and neither of the two deals met that threshold. "This fact will figure prominently in our defence," Mr. Sandler said. "It is our position that there was never an intent to hide either transaction from the board."
He said the land deal took place at a fair market value and was "highly beneficial" for Royal Group. And he said there is evidence some directors knew about details of the deal at the time it occurred.
But Mr. Frost said directors will testify they only learned of "material" elements of both deals after a forensic accountant was hired in 2004.
Janet McFarland