The City of Winnipeg says the contractor in charge of building the Winnipeg Police Service headquarters used the project to settle outstanding debts with subtrades for money owed on other construction projects, new court filings reveal.
They also say lead contractor Caspian Construction modified invoices to pay for “personal home improvement projects.”
“We see instances of subtrades being paid by [Caspian] for supposed work many months, and indeed sometimes years, after the work was completed (if ever the work was completed) and after subtrade invoices have been issued to the city,” City of Winnipeg lawyers Michael Finlayson and Gabrielle Lisi wrote in a brief filed in the Manitoba Court of Queen’s Bench on June 13.
The city launched a civil lawsuit against dozens of people and companies involved in the police HQ construction project, including lead contractor Caspian and its owner, Armik Babakhanians, in January 2020.
The city alleges a scheme to inflate and overcharge the city for construction costs through fraudulent quotes and invoices, altered quotes from subcontractors and kickbacks.
The project was completed in 2016, years behind schedule and more than $79 million over budget. The RCMP launched a criminal investigation into the project in 2014, which was closed in late 2019 with no charges laid.
The city’s latest court filing says it found many irregularities in invoicing and payment of subtrades involved in the police headquarters project by a group referred to as the Caspian defendants.
That group includes Caspian Construction, Caspian Projects Inc., and connected companies Mountain Construction, Jags Development, Brooke Holdings Ltd., Logistic Holding Inc. and Jaw Enterprises Inc.
It also includes Armik Babakhanians, his wife, Jenik, his son Shaun, and office manager Pam Anderson.
“They paid for residential projects and their own personal home improvement projects performed by subtrades by modifying invoices to make them look project-related,” wrote Finlayson and Lisi.
Write-offs ‘commonplace’ at Caspian: city
The city doesn’t specify which home renovations it’s referring to.
However, in 2014 search warrant documents, RCMP alleged a former accounting assistant employed by Caspian told police invoices were charged to the police HQ project that had nothing to do with the work being done. That included a $25,000 check for a swimming pool at a house that belongs to Shaun Babakhanians, RCMP alleged.
The Mounties also said that invoices for renovations to a private home owned by one of the members of the Babakhanians family were charged to police headquarters.
“Caspian at times called the companies back … [to] have them adjust or reissue the invoices” so it would show the police headquarters job code, the former accounting assistant told investigators. She also said Caspian asked contractors to “delete the house address,” the 2014 search warrant documents said.
The court filings say the Caspian defendants appeared to settle debts with subtrades from prior projects by altering invoices, “with or without subtrade involvement” and submitting them to the city.
In previous court filings, the city said it obtained an email exchange between Caspian employee Peter Giannuzzi Jr. and Shaun Babakhanians.
In a spreadsheet attached to that correspondence, Giannuzzi referred to, among other things, “minor home improvements [being] written off on projects” and “project profits” of approximately $12.5 million related to the police headquarters project.
“If Mr. Giannuzzi is to be believed, writing off personal home improvements on ongoing … projects was commonplace at [Caspian],” Finlayson and Lisi wrote in the June 13 brief.
It was in fact “so commonplace that Mr. Giannuzzi, astonishingly, then appears to complain that some of his personal home improvements were not allowed to be written off on [Caspian’s] ongoing projects,” they wrote.
None of the allegations have been tested in court.
HQ-related costs, non-related combined: city
The latest court filings also allege Caspian used the police HQ project to pay off outstanding debts owed to subcontractors for other jobs.
As an example, the city alleges that nine of 10 invoices from subcontractor Abesco which were claimed by Caspian and paid by the city “appear to combine [police HQ] project-related costs (approx. $800,000) with $1.55 million for non-project-related costs,” Finlayson and Lisi wrote. Those other projects included a Winnipeg Transit garage and a police canine facility, the city says.
The city’s brief says a handwritten notation on one of those invoices read, “This was generated as per Armik’s request so we could receive payment for Transit Garage.”
The new court documents I “a similar pattern can be observed” with a group of defendants collectively referred to as the “Garcea Group defendants.” In particular, the city points to an invoice from Color Design, one of the defendants in that group.
In that invoice, $230,000 relating to work on Soul Sanctuary — a church on Chevrier Boulevard that was built by a Caspian-controlled company at the same time work was conducted on the Winnipeg police HQ project — was claimed by Caspian and paid by the city as part of the police HQ project, the city alleges.
City wants financial documents
Getting a full picture of payments to subtrades is “essential” to understand the nature and extent of alleged fraudulent claims to the city, the court documents say.
The city is seeking a court order compelling the Caspian defendants and consultants that worked on the police HQ to provide personal and corporate income tax returns, banking records and financial statements.
“The Caspian defendants are now trying to use the tangled web that they created to defraud the city as a shield by which to keep relevant evidence from the city and this court,” wrote Finlayson and Lisi.
They say the city is now trying to “disentangle that web” and will require financial documents to do so.