Court hears of ‘gaps’ in Scotiabank’s alert system in alleged $10-million music-industry theft | Canada Voices

The Bank of Nova Scotia does not have a standard alert system that could have flagged suspicious behaviour connected to the alleged theft of $9.8-million from the music-funding non-profit FACTOR last June, its lawyer told a Toronto court.

Justice William Black of the Ontario Superior Court of Justice Commercial List heard arguments Friday about how to proceed with the months-long dispute.

“Scotiabank as an institution is processing thousands upon thousands of wire transfers every single day,” said Scotiabank lawyer Paul-Erik Veel of Lenczner Slaght LLP. To add an extra security step to large wire transfers, Mr. Veel added, would drastically slow down the bank’s ability to process payments.

The Foundation Assisting Canadian Talent on Recordings (FACTOR) filed an application in July against Scotiabank and the cryptocurrency platform VirgoCX seeking to recover money that allegedly disappeared from its account in June. The money had been deposited by the federal Department of Canadian Heritage days earlier and was destined for the music industry, much of which depends on FACTOR funding to compete globally.

The Globe and Mail first reported on the alleged theft on Monday. Friday’s hearing was about how to proceed with the case. While FACTOR hopes it can recover its money with an abridged application process, both Scotiabank and the holder of the bank account to which FACTOR’s money was first transferred are pushing for a more detailed and lengthy trial process. (The bank account holder is a numbered company whose sole shareholder is a Quebec man named James Campagna; both have since been named in the court application.)

FACTOR has said that it had never previously made a transfer of this kind greater than $1-million with its Scotiabank account and received no notifications about the transfer or the events leading up to it – including, in January, when an alleged fraudster first gained access to its bank account.

Justice Black said that the lack of alerts “strikes me as completely out of the ordinary” for a massive financial institution such as Scotiabank. “Why couldn’t someone pick up the phone?”

Mr. Veel put the ball back in the non-profit’s court: “There are also alerts that FACTOR could have set up at the time.”

However, FACTOR lawyer Catherine Francis of Fogler, Rubinoff LLP said there were “shocking gaps” in Scotiabank’s wire-transfer system and its investigation into what happened. Her colleague Milton Davis said the lack of standardized alerts made little sense, given that much smaller credit-card transactions are often flagged as suspicious.

He said that no alerts were similarly given when FACTOR’s accountant Marina Anianova and chief executive Meg Symsyk had their access to the account removed by the alleged fraudster around the time of the transaction.

Both FACTOR and Scotiabank have insisted in legal filings and in Friday’s hearing that the other party has not submitted enough documentation in the case. Mr. Veel said Friday that revealing the full extent of Scotiabank’s alert system could impair its security infrastructure.

Justice Black said after Friday’s arguments that he would decide how to proceed soon, but did not provide a timeline.