CALGARY - A backbench MP for Prime Minister Stephen Harper's federal Conservatives is among those named in a lawsuit alleging a $70-million mortgage scam at the Bank of Montreal.
Devinder Shory, MP for Calgary Northeast, is one of more than 100 people -- including other lawyers, mortgage brokers and even staff at the bank itself -- targeted in the suit, filed in Calgary by the bank.
Shory, 51, said in a statement late Wednesday that he's "done nothing wrong."
He was elected to Parliament in 2008 after failing to gain a provincial Tory nomination seven years earlier. He currently serves on the Joint Security and Regulations Committee and the Natural Resources Committee.
The bank says it has been scammed in several schemes in Western Canada that were first flagged in a security check four years ago. It alleges the defendants found undervalued houses in upscale neighbourhoods, then paid someone a few thousand dollars to put his or her name on a mortgage application.
Documents were then forged to inflate the value of the property and to fool the bank into believing the buyer had the ability to pay. Once the mortgage was approved, the fraudsters pocketed the profit and the money was sent overseas, the bank alleges.
It says the mortgages were worth $69.5 million. After foreclosures, it expects the gross loss to be $30 million and hopes through the lawsuit and other means to reduce the loss even further.
According to the statement of claim, Shory was among a number of lawyers associated with a group of defendants that were allegedly identifiying property to be used in the fraudulent schemes. The group would then find and pay so-called "strawbuyers" to apply for the mortgage, the sums ranging between $3,000 and $8,000.
The allegations have yet to be proven in court. There have been no charges laid in connection with the allegations.
Shory said he hasn't yet been served with the statement of claim.
"When I am, I will defend myself vigorously against these accusations. I have done nothing wrong. As the matter is before the courts, I have no further comment at this time."
When asked if Shory would remain in caucus, the prime minister's office declined to comment, saying it was a civil matter, not a criminal one and the case is currently before the courts.
RCMP in Calgary confirmed Wednesday the bank laid a complaint within the last two weeks, and Mounties are now investigating.
"We're looking into it right now on a very preliminary basis to determine if there's enough information to go on and see whether there's some type of criminal act here," said RCMP Sgt. Patrick Webb.
"Once that preliminary look-see is completed, we can determine whether we can take it to our commercial crimes unit and see how far we can get on this investigation."
BMO (TSX:BMO) spokesman Ralph Marranca declined a phone interview, but in an email said most of the losses were recorded in the third quarter of 2007.
"We operate the bank prudently with a high degree of diligence. When we do discover something like this, we take appropriate action," he wrote.
"No customers have been directly impacted. We constantly review our processes and this experience has provided some learning that we have applied to further enhance our due diligence."
He also said: "We do not expect any material negative financial implications from the legal action."
Police now have to determine whether mistakes were simply made at the bank or whether there was a conscious attempt to deceive, Webb said.
"So much of that is the intent aspect of it, trying to determine whether this was poor business or there was an attempt to defraud."
Webb said there are no timelines on the probe.
"It's a very, very large investigation, so it may be some time before we actually reach a decision. Our investigators are coming in cold on this so far."
Greg Draper, a forensic accountant in Calgary, said his experience would suggest this is just the surface of an industry-wide problem.
"This is hitting the news because of the size of the operation and the fact a bank has decided to take such forward action on it," said Draper, who works with the firm Meyers Norris Penny.
"But it's happening on a smaller scale to financial institutions across the country on a regular basis."
Draper said the scheme was ripe for Calgary in 2006, when a booming oil and gas industry dropped the city's vacancy rate to near zero and homes were bought and sold within hours of being put on the market.
Taking action can put banks in a bind, he suggested.
"Banks have to look at the cost-benefit of taking the action that they do, and whether it's in a public forum or something more discreet, and what they're likely to recover for their shareholders.
"The way you stop it is by doing exactly what the Bank of Montreal has done. You can't prevent it. You put detector measures in place to identify it as early as possible and once a problem is uncovered you take swift and decisive action, as seems to be the case here."
