Lawyers Gone Bad

by Philip Slayton

  Shead was disbarred in June 1995 following disciplinary proceedings by the Law Society of Manitoba that lasted eight days, six days of which were devoted to hearing evidence.17 Shead took the position that the disciplinary proceedings should not take place before his criminal trial since they might prejudice that trial, and refused to take part. The discipline committee’s reasons referred frequently to Shead’s “clearly dishonest and disgraceful conduct.” His actions were “intentional, unprofessional and unethical.” In its conclusions the committee said this:

  Many of the investors relied upon the reputation of Shead and his law firm. They felt that it lent the investment proposals credibility. The actions of Shead in drafting documents, talking to investors and continuing to act in these schemes when he knew the true state of affairs facilitated the ongoing fraud that was being perpetrated by McLeod.

  Shead’s willful conduct was disgraceful, dishonourable, despicable and down-right disgusting.

  Ruth Krindle, the judge assigned to Shead’s trial, thought Shead was also a liar. At the beginning of her judgment18 (115 pages long, handed down on September 30, 1996), commenting on his two weeks of testimony, she says, “I came to the conclusion that Shead was not even attempting to recall or reconstruct with truth as his object.” Justice Krindle described Shead as “deliberately dishonest” and referred to “situations that cropped up during the trial with disturbing frequency in which Shead attempted to find an innocent explanation for his actions and quite simply created one to suit his purposes, attesting to it as though it were truth.” In the middle of her judgment she referred to the “basic dishonesty of Shead” and writes, “I continue to be astonished by the ability of Shead to play dishonest intellectual games.” And, at the end of her reasons, she says, “Shead was not a truthful witness on the stand. His testimony was characterized by manoeuvering and intellectual gamesmanship and, when no other avenue of escape presented itself, then by outright dishonesty. So apparently was his practice of law.”19

  Shead, wrote Justice Krindle, “developed a ‘niche’ dealing with ‘work-out scenarios’ for individual clients who were having cash flow problems.” Bruce McLeod had a “cash flow problem.” McLeod had lost a lot of money in the Florida real estate market and had huge debts. Following his failed deals in Florida, he came to Winnipeg, where he had once been a life insurance salesman, and made a series of highly leveraged real estate acquisitions, using Shead as his lawyer. In 1987, for example, one of McLeod’s companies bought the Brookside Building for approximately $1.5 million; McLeod quickly placed three mortgages on the property totalling more than $1.9 million. That same year, McLeod purchased, through a numbered company, 1180 Main Street in Winnipeg. He paid $500,000 for this building and immediately placed $600,000 worth of mortgages on it.

  Central to the case against Shead was the so-called Shead Mortgage on Winnipeg’s Midtown Building. McLeod bought the Midtown Building in 1986 through Graham Investments Limited, a corporation he controlled. The Shead Mortgage was a million-dollar mortgage, initially unfunded, that was intended to be in second place and was registered in Shead’s favour. The idea was that McLeod would sell participations in this mortgage to individual investors, like Hugh and Donna Skimming, with Shead acting as the agent for the participants.

  The first participant was the Capital Bank of St. Paul, which was owed money by St. Charles Development Corporation, a McLeod company that had been involved in the failed Florida ventures. Capital Bank was aggressively pursuing St. Charles and was handed a $500,000 participation to keep it quiet. St. Charles was insolvent, but Graham Investments had many creditors. Justice Krindle concluded, “I am satisfied that Shead, in issuing the certificate of participation in his mortgage to the Capital Bank for no consideration, was a party to a fraud on Graham Investments Limited.”20 Several other payments on behalf of St. Charles, and of another insolvent McLeod company (Stockton Financial Services Corporation), were made by Graham Investments, and Krindle found all to be fraudulent.

  The Shead Mortgage was supposed to be a second mortgage of the Midtown Building, but was postponed on three separate occasions to the disadvantage of those who had bought participations. Postponement required consent of the participants. Shead left that matter to McLeod. Said Justice Krindle, “Shead deliberately decided to circumvent his fiduciary responsibilities to the investors by leaving to McLeod all dealings with the participants concerning the postponements.”21 But Shead did prepare the legal documentation for the postponements, documentation that Krindle found to be materially misleading.

  Shead drafted the first postponement consent to suggest that the position of mortgage participants would actually be improved by the postponement. Justice Krindle said of the postponement:

  Shead dishonestly failed to disclose material information to the investors in the Mortgage at the time of their being asked to consent to its postponement, knowing that he had a duty to disclose. I am satisfied that Shead knew that the economic interests of the participants were detrimentally affected by the postponement to greater prior encumbrances. I am satisfied that Shead’s postponing the position of the Shead Mortgage …, an act based purportedly on those consents, was a fraudulent act which operated to the economic detriment of the investors.

  Similar circumstances surrounded the second postponement of the Shead Mortgage (to a new mortgage known as the Castor Mortgage). One difference was that the refinancing of the Midtown Building that required the second postponement was intended, among other things, to benefit Buchwald Asper Henteleff, Shead’s law firm. The firm had advanced $400,000 to Graham Investments and had guaranteed a $100,000 personal loan to McLeod from the Bank of Nova Scotia, and was due to be repaid out of the proceeds of the Castor Mortgage. Said Justice Krindle of Shead and his role in the second postponement:

  He deliberately and dishonestly, with knowledge of the relevant facts, preferred the interests of McLeod and Buchwald Asper and Henteleff to the fiduciary duty to the participants and left the risk with the participants.

  I find beyond reasonable doubt that Shead committed an act of fraud on the participants of his mortgage when he postponed the Shead mortgage to the Castor mortgage.

  The third postponement, also found to be fraudulent, was to a mortgage held by Sun Mortgage. Sun Mortgage was owned indirectly by Shead’s law partners. Said Justice Krindle, “The involvement of his partners in the mortgage that was being moved ahead of their interest is an obvious matter for disclosure.”22 No such disclosure was made. Krindle again: “Shead’s partners were positioning themselves so that they could survive the possibility of collapse and were getting their substantial interest payments and bonuses up front.”23

  On March 14, 1997, the Manitoba Court of Appeal dismissed Shead’s appeal of the five-year sentence given him by Justice Krindle.24 Justice Huband for the Court said:

  It should have been patently obvious that facilitating Mr. McLeod to the detriment of the victims was bound to end tragically for all concerned.… Yet Mr. Shead continued on an illegal course that was destined to ruin his career, place him in bankruptcy, destroy his marriage, and land him in prison. His participation is all the more incomprehensible because Mr. Shead is recognized to possess unique intellectual gifts and an enormous capacity for work.

  Huband noted Shead’s “total lack of remorse.” Shead had attended the hearing, three days before judgment was rendered, in leg irons.

  Robert Morrison of the Manitoba Department of Justice, who led the prosecution of Shead, said that Shead “did well” in prison. “He quickly figured out how to get along,” said Morrison. (Izzy Asper, his former law partner, visited him at Headingley Jail, near Winnipeg. By then, Asper, founder of CanWest, was one of the best-known people in Canada.) Then Morrison added, “Bruce McLeod didn’t do as well. His flamboyant personality got him into trouble.”

  Why did Richard Shead risk so much? Justice Krindle couldn’t figure it out. Referring to the Shead Mortgage, she wrote, “Shead owed a fiduciary duty t
o the participants. He chose to avoid its performance in order to accommodate the interests of McLeod.” Later she described numerous examples of Shead negotiating and drawing agreements for McLeod that Shead knew were incapable of being fulfilled, and said, “All of them seem to have had the same object in mind—to buy time for McLeod.” And, later still: “He gambled on McLeod.… He lost.” But devotion to McLeod doesn’t explain Shead’s actions, at least not according to Krindle: “Why did Shead do it? Not friendship, although friendship may have been part of it. Certainly his relationship with McLeod was not such that he would ever have said ‘I am willing to risk my professional career for you.’ Yet that was ultimately what he did.”25

  Justice Krindle suggested a “slippery slope” explanation for what happened. She talked about the “evolution” of Shead’s conduct, and how after a while “Shead was himself in so far that any attempt to extricate himself would have resulted in his being seriously exposed, both financially and legally.” She wrote, “At a certain point, as Shead became more involved and implicated in McLeod’s wrongdoings, Shead became more dependent on McLeod’s ultimate success. If McLeod could somehow have worked miracles and come up with enough money to appease his creditors, Shead’s exposure would have disappeared as would McLeod’s.”26 At the end of her judgment, Ruth Krindle simply said, “I do not know why Shead did the things he did.”

  Were Shead’s mistakes just technical legal errors—mistakes in drafting the Shead Mortgage postponements, for example—that could easily have been made in good faith by any lawyer? Was he a victim of shifting legal standards, being judged after the fact by standards more stringent than those in effect at the time he acted? Was Richard Shead, to use the words of his friend and one-time partner Doug Ward, “a wonderful human being, straightforward, honest”? (Another person who spoke very highly to me of Shead was Gavin Wood, a Winnipeg litigator and Manitoba bencher at the same time as Shead. “He was a brilliant and giving man,” Wood told me.27)

  The trouble is that McLeod and Shead took the life savings of ordinary people. To Justice Krindle, who spent eight months listening to the evidence about what happened, both Shead’s practice of law and his testimony in court were characterized by outright dishonesty. To the law society’s disciplinary committee, his conduct was “disgraceful, dishonourable, despicable and down-right disgusting.” To Marilyn Billinkoff of the law society, it was “as if part of his brain was missing.” The facts, found by people who took care in considering what happened, and the overwhelming weight of opinion about those facts, including the opinion of almost all Shead’s professional colleagues and peers, led to the conclusion that Richard Shead knew that what he was doing was wrong and did it anyway.

  Why did a respected lawyer, a leader of the local bar, become a fraudster? He was not in it for the money. McLeod paid his law firm about $435,000 in fees over several years (they were hard to collect), but only a small part of that, about $30,000, went to Shead himself as his share of partnership profits. Did the law school gold medalist believe that he was smarter than everyone else and that rules made by the less intelligent and accomplished shouldn’t apply to him? Did Shead live in an amoral legal world, where moving bits of paper around seemed unconnected to what happened to people? Was he under the sway of Bruce McLeod, a far more interesting person than himself?

  I went to see Kim Whiteside who (together with her father) had been an investor in McLeod’s schemes, and Richard Schwartz, the lawyer who had represented a large number of those who had been defrauded. (Ironically, most of the money recovered by investors came from a Manitoba legal insurance plan that Shead had helped create some years before.) We had lunch in the same hotel dining room where two years before I had dined with Richard Shead and Ken Filkow.28

  Whiteside earns her living as an interior decorator. Schwartz is an experienced litigator with the mid-sized Winnipeg firm of Tapper Cuddy. “When I was a new law graduate looking for a job, I interviewed with Shead at the Buchwald firm,” Schwartz told me. “They offered me a job, but I didn’t take it. I didn’t like Shead. He was cold, remote. He didn’t look you in the eye when he talked to you. I got the impression he didn’t like people, he just liked business deals.” Whiteside chimed in. “When you telephoned him, you’d say, just to be polite, ‘Hello Richard, how are you,’ and he would just ignore that and ask you what you wanted. He was an arrogant man.”

  “And thought he could talk his way out of anything,” added Schwartz. I asked Whiteside and Schwartz if Shead had fallen under McLeod’s spell, as Robert Morrison had suggested. “No,” said Schwartz. “Shead was too smart for that, although all the relationships were complicated.”

  “Part of the story here is about the Buchwald Asper Henteleff firm,” continued Schwartz. “They wanted to be the biggest firm in Winnipeg. A number of the partners had invested with McLeod through Sun Mortgage, and there was a ton of McLeod-related receivables. The firm had expensive new space, it was buying a new computer system—suddenly there is a scandal, uncollectible receivables—there was a lot of pressure on Shead and other people.”

  SOMEONE GAVE ME Bruce McLeod’s telephone number. I rang him, and right away he started talking in a rambling way. “I knew I was dead when Bob Morrison in his opening statement at my trial didn’t know the difference between a mortgagor and a mortgagee. It was okay in prison. I found the most psychotic prisoner and walked with him. You gotta walk with the lions and not the Thomson’s gazelles.” (McLeod had once spent some time in Africa.) I asked him if we could meet. “Sure, the Holiday Inn on Pembina Highway. There’re no suits there to eavesdrop. Tomorrow at 3 p.m.”

  McLeod, sixty-five years old, had a white beard and was wearing a jacket with “Bruce’s Marina, Gimli, Manitoba” on it. An undischarged bankrupt, he was doing a little property management for a friend. I asked him if Shead was under his thumb, as Morrison had suggested. He fell back in his chair and laughed a lot. “Well, why did Shead come round to your house all the time?” I asked. “That’s where my office was,” he replied. “We used to work by the pool, in bathing suits, with my secretary.” When I told McLeod that Robert Morrison said he had a bad time in jail, he got angry. “Most of the information you have is bullshit,” he said. “I thoroughly enjoyed my time in jail. My best friend was an axe murderer. I played chess and read a lot. I read The Joy of Yiddish.”29

  THE NEXT MORNING I was at the airport, leaving Winnipeg, and my cell phone rang. “It’s Bruce. Listen, I spoke to my guard at Stony Mountain, and he’ll talk to you, and tell you that things went well for me in prison. And by the way, I’m looking forward to working with you. I’ve been thinking about writing my autobiography.”

  TWELVE

  LAW PRACTICE TO PET FOOD

  Martin Wirick

  Martin Wirick facilitated the biggest legal fraud in Canadian history. He didn’t make any money out of it. According to his law society, the whole thing happened because Wirick was unfit to practise law in the first place. A judge thought it was attributable to “weakness of character.” What was Wirick’s explanation? “I did it because I was unhappy,” he said. “I didn’t care.”

  MARTIN WIRICK GRADUATED from the University of British Columbia law school in 1978. When he became notorious, twenty-five years or so later, newspaper reporters and law society officials spoke to his classmates, trying to find out something more about the person responsible for a massive fraud. No one remembered him. Today, his physical appearance and personality remain nondescript. It is hard, the day after meeting him, to recall exactly what he looks like. Talking to him is pleasant enough but leaves no great impression. He cannot easily be conjured up in the imagination.

  Wirick was born in Burnaby, a suburb of Vancouver, in 1954.1 His mother died when he was ten. His father, a supervisor at Burnaby’s Shell refinery, died at Christmas in 1993. He has one sister, Lynn, born in 1951. Wirick and his sister don’t see each other very much anymore. When they do meet, they are careful not to talk about what happened when Mart
in Wirick practised law.

  As a child and young adult, Wirick apparently led a happy and quiet suburban life in Burnaby. He did well in school. He went to the University of British Columbia for his undergraduate education and got good marks. Studying law seemed a natural thing to do once he finished his first degree. He says now that he did not feel a particular vocation for the legal profession, but in some vague way was attracted to a job that he thought would let him help people. As he remembers it, his marks in law school were a little above average.

  Wirick was admitted to the bar in 1979 and started a solo legal practice in downtown Vancouver. At first, he specialized in “whatever walked through the door.” In 1982, he moved his office to south Vancouver. After a while, his practice settled down to a mix of residential real estate conveyancing and bad debt collections. For most of his career he practised alone, sometimes sharing office space and expenses with one or two other lawyers, although for a time he was in partnership with a lawyer called David Klassen. That partnership ended, says Wirick, when Klassen decided to give up the law and go to the United States to study philosophy. In 1985, Wirick married Karen Nygaard, a legal secretary whose father was a senior executive with the Toronto-Dominion Bank.