Area of Law: Fraud and Fraud Recovery
Answer # 1519
Recover your money from fraudster's professionalsRegion: Ontario Answer # 1519
When attempting to recover their losses, fraud victims often learn that the person who defrauded them has no money, has declared bankruptcy, or has moved the money to another province or country. Any of these factors can increase the cost of recovering the money to such an extent that it may not be worth pursuing a claim. In such cases, where the assets taken by the fraudster cannot or have not been frozen immediately, victims should consider suing the fraudster’s professionals. These are professionals, such as accountants, lawyers, investment advisors and bankers, who were actively involved in the fraud, or benefitted from it in some way. For example, they were given fraudulently obtained property or other assets.
Requirements to sue fraudster’s professional
A fraudster’s professional can be sued by the victim in any of these three circumstances:
- Co-conspirator – where the third party professionals were actively involved in the fraud.
- Knowing assistant – where there is not enough evidence to prove a conspiracy, but where the professional knowingly assisted the fraudster.
- Knowing receipt – where the third party professional did not knowingly assist the fraudster, but did receive property that was acquired because of the fraudster’s breach of duty or trust.
Knowing Assistant claim
Knowing assistance is also referred to as “dishonest assistance”. To make a knowing assistance claim, the victim must first show that the fraudster acted as a trustee or fiduciary to the fraud victim. If this is proved, the victim’s funds are considered to be in a constructive trust. Although the funds may not have been put in a legal trust before the fraud occurred, the Court will consider the funds to be in a constructive trust because the person in charge of the money is a trusted fiduciary, such as an accountant.
A knowing assistant may be found liable in cases where a fraud victim provides the Court with evidence that:
- the victim is a beneficiary to a constructive trust;
- a fiduciary relationship exists between the victim and the fraudster;
- there was a dishonest and fraudulent breach of fiduciary duty or trust by the fraudster;
- a third party professional contributed to the fraudster’s dishonest and fraudulent breach of fiduciary duty or trust; and
- the third party professional had definite knowledge of the fiduciary or trustee relationship, and of the fraudster’s dishonest and fraudulent breach of the fiduciary duty or trust. This knowledge may include recklessness or wilful blindness of the fraudulent behaviour.
Knowing Receipt claim
In some cases, it may also be possible for a fraud victim to bring a claim of knowing receipt against the third party professional. This could be the only claim, or it could be in addition to a claim for knowing assistance. In a case of knowing receipt, the professional does not have to have actively conspired with, or assisted the fraudster. In addition, for a claim of knowing receipt to be successful, you do not require proof of the professional’s dishonesty.
The test for whether a professional is found to be a knowing recipient is:
- if the assets (money or property) that were received came from the fraudster’s breach of duty or trust, and if
- the professional knew of the circumstances which an honest person would see were connected to the fraud, or where the recipient professional had knowledge of facts which would make a reasonable person question whether the assets were a result of a breach of duty or trust.
If the professional is determined to be a knowing recipient, he or she will be responsible to return the property that was received.
Tracing funds used in fraudster’s defence
Fraud victims may believe that the fraudster’s lawyer has possession of the stolen funds, and that the victim’s own money is being used to pay for the fraudster’s legal defence. If there is evidence to support this belief, a victim can ask the Court for an order to trace the proceeds of any transactions involving the fraudster and the victim’s funds. Tracing may locate the money that is held in accounts owned, or controlled by, the fraudster’s lawyer.
If you discover you are a victim of fraud, it is a good idea to contact a fraud recovery expert for advice.
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