James Bagnall, The Ottawa Citizen
Tuesday, November 06, 2007
Cholo Manso's last hour of freedom yesterday featured a bit of dark humour. The former naval officer -- who pleaded guilty in September to his part in a fraudulent $146-million Department of National Defence invoicing scheme -- had trouble opening a door on the way to his sentencing hearing.
"I better get used to this," he said, with only a trace of a smile.
A few minutes later, Mr. Manso sat impassively in the provincial courtroom of Justice Ann Alder and listened as his lawyer, Robert Meagher, pointed out that Mr. Manso was not the main villain in this piece.
Mr. Meagher added a touch of theatre by noting that Mr. Manso had had to tell his 10- year-old daughter the night before that he was going to prison. "It was the hardest thing he's had to do," said Mr. Meagher.
However, the lawyer also acknowledged that Mr. Manso's moral compass "had gone askew here."
Then it was the turn of Judge Alder, a former federal prosecutor. Briefly she met
Mr. Manso's gaze, then explained why she was sending him to prison for two years.
"This was a very large fraud," she said, "and you had a significant role."
A short time later, Mr. Manso, 44, was escorted to the Ottawa-Carleton Detention Centre where today he awaits his transfer to a federal prison.
Mr. Manso thus becomes the first of three people charged early in 2006 to actually serve time.
Paul Champagne, the former DND employee credited with masterminding the scam, pleaded guilty in the summer and is awaiting a sentencing hearing scheduled for Jan. 16. The third businessman to be charged with criminal fraud, Peter Mellon, maintains his innocence and is preparing to take matters to trial if necessary.
Mr. Manso has stipulated he moved more than $10 million worth of fraudulent invoices through his company, Avemore International, between June 3, 1998 and March 24, 2003. He also received $1.6 million in lump sum payments directly from Mr. Champagne.
Mr. Manso, who has no previous criminal record, could serve as little as six months with time off for good behaviour. Nevertheless, Judge Alder maintained that Mr. Manso's sentence -- the product of a joint recommendation from the defence and the
Crown -- is a significant deterrent. Time in a federal prison was warranted, she said, because the crime involved huge amounts of money and took place over a period of years. This was not, she nodded toward Mr. Manso, "a momentary lapse in judgment."
Nor, the judge added, was Mr. Manso's behaviour to be excused because he played a relatively small role.
"This may not have been your (invoicing) plan," she told Mr. Manso, "but you went along willingly."
The judge added that people have a tendency to think that in cases involving theft from governments or corporations, no great harm has been done. She said she disagreed profoundly with this notion and wanted to send a message to other would-be white-collar criminals.
"You were doing business with the government of Canada," she admonished Mr. Manso. "That is a position of trust."
The length of Mr. Manso's sentence, she noted, was mitigated somewhat by the fact that he co-operated fully once the criminal investigation got under way. And, by pleading guilty, Mr. Manso has also saved taxpayers the considerable cost of a lengthy trial.
Mr. Manso was not required to make good on the money he stole -- in large part because DND was fully reimbursed three years ago by Hewlett-Packard, the computer maker duped by Mr. Champagne into issuing invoices for goods and services that were never delivered.
Hewlett-Packard likely reasoned it was better to pay the $146 million up front and then try to recover the money on its own. That way, it could continue to do business with the federal government.
HP sued Mr. Champagne, Mr. Mellon, Mr. Manso and several other businessmen in 2004 and 2005 for tens of millions of dollars in damages. Mr. Champagne settled out of court for an estimated $30 million -- turning over title to various properties in Dunrobin and Turks and Caicos as well as shares in publicly held companies such as Workstream.
HP is seeking $26.5 million in damages from Mr. Manso and his various corporate entities. It is also suing Mr. Mellon (and entities controlled by him) for $26 million in economic and punitive damages. Mr. Mellon is countersuing HP for at least $15 million in damages.
The invoicing scheme was complex, but simple in concept.
Mr. Champagne, as DND buyer, would instruct HP to issue purchase orders to third party contractors such as Avemore. These companies forwarded the purchase orders to RMC Systems, an independent firm. Mr. Champagne had convinced RMC to perform recordkeeping and invoicing services for an entity called Champagne Group.
In other words, Mr. Champagne not only ordered the goods and services, he certified they had been delivered. Meanwhile, his Champagne Group ultimately collected the cheques approved by DND.
Mr. Champagne kept people in the dark for roughly a decade, ending in 2003, by citing national security and instructing people to avoid using specifics on the invoices.
He also arranged for Mr. Manso to hire key DND employees, allowing Mr. Champagne to deal with less experienced personnel at the department.
Mr. Champagne funnelled $142 million into his bank accounts, according to the agreed statement of facts attached to his guilty plea. His personal benefit was "in excess of $100 million."
Given the disproportionate reward received by Mr. Champagne, along with his larger role, it seems reasonable that federal prosecutors will push for a stiffer sentence for him than the one meted out yesterday to Mr. Manso.
© The Ottawa Citizen 2007
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