Canadian arts-grant provider FACTOR alleges in court filings that almost $10-million of federal money was stolen from its Bank of Nova Scotia account last spring.
The funds had recently been deposited by Ottawa and were set to be distributed to the music industry in the near future. So far, FACTOR has used its savings to cover the loss and pay out its program recipients. But that funding is limited and Ottawa is not backstopping the alleged theft. The clock is ticking and FACTOR is hoping for a legal win.
Here’s what you need to know about the case.
What is FACTOR?
FACTOR, short for The Foundation Assisting Canadian Talent on Recordings, launched in 1982. The private, non-profit organization supports the English side of the music industry, using funds that flow through the Department of Canadian Heritage’s Canada Music Fund and private radio broadcasters. (Musicaction has a similar role on the Francophone side.) Musicians and the many people and companies that support them depend on FACTOR funding to get a leg up in the U.S.-dominated industry.
What does FACTOR do for Canada’s music scene?
FACTOR’s reach extends across the Canadian music industry. Musicians can apply for a range of programs, such as artist-development grants of up to $5,000 or funding of up to $67,500 over two years to cover some of the costs of recording, marketing and touring a specific album.
Tegan Quin, one-half of the Juno Award-winning duo Tegan & Sara and a director on FACTOR’s board, told The Globe and Mail that this kind of funding was crucial in her band’s early days. “I’d hate to imagine a world where FACTOR doesn’t exist or is downsized,” she said. “It’s the backbone of Canada’s music scene.”
In its 2022-23 fiscal year, FACTOR paid out more than $51-million across the music industry. In addition to musicians, Canadian artist managers, music publishers, record labels, music distributors and event organizers are also eligible for FACTOR’S 14 programs.
It’s not uncommon to find FACTOR’s name or logo stamped on the back of Canadian albums and at the bottom of websites, including for record labels. The organization has also provided funds to events ranging from the Polaris Music Prize to the International Indigenous Music Summit to the Canadian Country Music Awards.
Honey Jam, an artist-development program for women, has used FACTOR funding for 16 years for an annual concert and to produce workshops that help artists with their careers. “It’s essential to our ability to run this non-profit programming,” said founder Ebonnie Rowe. Its alumni include Nelly Furtado, Haviah Mighty and Jully Black.
With Honey Jam’s 30th anniversary celebrations coming up next year, “FACTOR’s support is something we were very much looking forward to and need,” Rowe said.
What’s the story behind the allegedly missing money?
Filings with the Ontario Superior Court of Justice Commercial List allege that someone gained access to FACTOR’s digital Scotiabank account in January, registering with a third-party e-mail address bearing the name of the grant provider’s former part-time chief financial officer. Until then, FACTOR’s accountant Marina Anianova was the only person who officially had access to the login credentials.
The bank, the filing alleges, did not make Ms. Anianova or FACTOR aware of the new user – even as the new user apparently accessed the account 25 times before mid-June.
At the start of that month, the federal government deposited $14.3-million into FACTOR’s Scotiabank account – the equivalent of about 40 per cent of the organization’s total government funding for the 2022-23 fiscal year.
FACTOR usually pays its program recipients 50 per cent of their annual funding in the early part of its fiscal year, which starts in April, said Meg Symsyk, FACTOR’s chief executive officer; this deposit was meant to pay out that chunk to recipients for the majority of its programs.
The foundation quickly moved about $5-million to a short-term investment account. But on June 12, just over a week later, the unknown user allegedly moved $9.8-million into a Scotiabank account belonging to a numbered company. Most of the money was then transferred to an ATB Financial account belonging to the cryptocurrency platform VirgoCX Direct. Filings stated it was converted into the USDC cryptocurrency and shifted between various wallets.
The sole shareholder of the numbered company, filings say, is a Quebec man named James Campagna, who claimed that the unknown user had contacted a company affiliate about ordering 2,800 bitcoin mining machines. He has told the court he and his company “vehemently” deny being behind the alleged theft, and that they are “are not in the business of, or required to, look into the type of company investing in the machines.”
How could FACTOR get its money back?
FACTOR said it immediately contacted the Canadian Anti-Fraud Centre and the Toronto Police Service, but that jurisdictional issues prevented the police from assigning an investigator immediately. The force says it is now investigating, though FACTOR told The Globe and Mail as of Tuesday afternoon it had not yet been assigned an investigator.
Before the court can solve the money mystery, the parties are arguing over how to approach the case legally. FACTOR filed what’s called an application, which it hopes will take a streamlined, cost-effective approach to determining how it can recover the lost funds. Both Scotiabank and Mr. Campagna are pushing for a more traditional, robust and likely costly legal process that could involve a trial. It would include a formal discovery process to disclose each party’s relevant documentation of what happened.
At the heart of the matter is who is legally responsible for the security breach that led to the alleged theft. Beyond seeking the recovery of its funds through Scotiabank and the crypto platform VirgoCX, FACTOR is also pressing Scotiabank on a “guarantee” on its website. It says that in cases of direct financial losses due to unauthorized activity, the bank would “fully reimburse you, provided you’ve met all of your security responsibilities as outlined in the terms of our customer agreements.”
Scotiabank’s lawyers referred to its legal filings when asked about the case. “Determining how the breach occurred is a complex factual question that is central to the issues in this proceeding, including whether FACTOR complied with the security obligations required by its agreements with Scotiabank,” the filing states. This, they say, is justification to force the case to become a more traditional legal action that could involve a trial.
Scotiabank has said that it had “no evidence” of wrong-doing by FACTOR or its employees, but has not ruled out that the compromise was FACTOR’s fault.
FACTOR has more firmly said that four independent investigations found no evidence that the alleged theft was caused by a vulnerability, action or failure on its end. “Only Ms. Anianova had a Scotiabank digital token,” FACTOR’s lawyers wrote in a filing earlier this month. “She did not share it with anyone. The token was on an old cellphone that she used solely to [for] this purpose. It would have been physically impossible for the thief to obtain Ms. Anianova’s token.”
A judge is scheduled to hear arguments about how to proceed on Friday.
