Tax case violates charter, owner of Mossack Fonseca-linked firm says

Canada Revenue Agency’s pursuit of stock promoter put Corporate House on federal radar years before Panama Papers leak, documents reveal

An affidavit filed by Corporate House owner Fred Sharp challenges “all attempts made by the CRA to compel information from us during its investigation” | Submitted

During the high-flying days of the dot-com boom, stock promoter and venture capitalist Jamie King was said to have it all.

Barely in his 30s, he’d made millions from internet penny stocks and was married to socialite and philanthropist Christie Darbyshire, with whom he’d go on to have five children, living the high life in Point Grey and later Shaughnessy with leases on a Porsche, a Bentley and a Cadillac Escalade. The couple’s wedding reception in May 2000 was described in lavish detail in newspapers, the couple having rented out the Hotel Vancouver’s ballroom for 400 guests, flying in roses from Ecuador and Bryan Adams from London to provide entertainment at a reported cost of $500,000.

“I wanted to have a party,” King told the Vancouver Sun at the time. “My companies have been very successful. I’ve raised over $100 million U.S. in venture capital funding for companies in the last two years.”

But while the couple was the darling of newspaper social pages, King’s name would pop up in the business section as well, described by the Sun’s David Baines as the “erstwhile OTC internet stock king.”

“King made a fortune touting internet-related startups that promised much but delivered little,” Baines reported in February 2004. “Alas, when the internet tide went out, so did most of Mr. King’s money.”

A decade later, King was bankrupt and soon after separated from Darbyshire, but his problems were far from over. At the time, the Canada Revenue Agency (CRA) was after him for tax debts he and his companies had amassed, which eventually peaked at $7.9 million. While King’s bankruptcy effectively ended the CRA’s collection efforts, he did not fall off the agency’s radar. And it was the CRA’s pursuit of King that spurred the agency’s search of the Melville Street offices of an accounting firm and a financial services firm known as the Corporate House Group of Companies in March 2016. The search happened a month before the Panama Papers leak would reveal a connection between Mossack Fonseca, the law firm at the heart of the leak, that office on Melville Street and Corporate House’s owner, Fred Sharp.

Sharp and his wife, Teresa, are battling the Canadian government in the Federal Court of Canada over their own tax issues. The Sharps came under audit after it was revealed in the Panama Papers leak that Corporate House had helped wealthy Canadians incorporate more than 1,100 offshore shell companies as Panamanian law firm Mossack Fonseca’s Canadian representative since 1994.

Sharp and his wife, his brother and several associates claim the CRA is violating their charter rights by using the agency’s civil audit powers to bolster a criminal investigation spurred, they claim, by the Panama Papers.

Documents filed in connection with Sharp’s case reveal that Corporate House’s activities raised red flags long before the leak, with CRA officials visiting its offices in 2013 and 2014 to ask for information as they pursued King and a network of B.C. registered companies allegedly used to evade millions in taxes to support a “lavish lifestyle.” Sharp believes the CRA is unconstitutionally seeking information from third parties such as banks as part of its investigation, and introduced into evidence a February 2016 “Information to Obtain” (ITO) document from CRA investigator Donni Kerr, which lays out the agency’s findings about King and his connections to Corporate House. 

“This ITO names me, my brother Tom Sharp, and Yvonne Gasarch, all in connection with a CRA criminal investigation into tax evasion allegedly committed by Mr. James King,” Sharp states in an affidavit filed in Federal Court on January 5, 2018.

Between 2009 and 2012, King allegedly reported “only $31,969. 95 in taxable income for the entire four-year period,” Kerr wrote in the document. 

As King’s debts mounted, he was “in receipt of substantial sums of money before 2009 and between 2009 and 2012 and, during that period made substantial payments toward real estate, boats, leasing high-end luxury vehicles, vacations, jewelry, art, multiple nannies and private school for his children, as well as other expenditures to support his lavish lifestyle, while continually telling the CRA that he had no money to pay his taxes.”

Kerr also writes that King structured his assets to avoid debts, including putting his Shaughnessy home in the name of “an offshore corporation that does not file income tax returns, to keep the true ownership concealed to evade the payment of income taxes.”

In addition, King “arranged for private lenders to take a mortgage against his Whistler condominium to thwart the efforts of the CRA Collections Division,” the document states. King also allegedly sold a Richmond condo at a “substantial loss” and failed to report the sale to the CRA.

The CRA applied to search Corporate House’s offices and the offices of James Stafford Chartered Accountants to identify all payments made to King, his wife and several companies from Coventry Partners Inc., Quarry Bay Equity Inc. or Quarry Bay Capital LLC “to determine their taxability.”

“To date, my investigation has revealed that James King has used three complex schemes to evade payment of income taxes owing, beginning in 2009,” Kerr wrote.

“King purposely arranged his financial affairs, and provided misleading information to CRA Collections Officers, to deliberately put assets out of the reach of his creditors, including the CRA, and to evade the payment of income taxes assessed.”

The fate of the CRA’s case against King is up in the air because the investigation is still ongoing, according to agency spokesman David Morgan.

“This investigation is one of the 42 international/offshore tax evasion cases that CRA is currently investigating which involve complex structures and potentially multimillion dollars in taxes evaded, which is consistent with our priorities of focusing on sophisticated and well-organized tax evasion schemes,” Morgan stated in an email to BIV.

“As with any criminal investigation undertaken by law enforcement bodies, including the CRA, these can be complex and require months or years to complete. The duration is dependent on the complexity of the case, the number of individuals involved, the availability of information or evidence, co-operation or lack thereof of witnesses or the accused, and the various legal tools that may need to be employed to gather sufficient evidence to establish a case beyond reasonable doubt.”

While King has not been charged in connection with the tax evasion investigation, he faces charges of breaching a recognizance and “fear of injury/damage by another person” for alleged offences in March and October 2017, and he was arraigned on the charges in Vancouver provincial court on February 6.

According to court documents, King allegedly breached conditions of a peace bond prohibiting contact with his former wife, two members of her family, and her boyfriend, Goldcorp (TSX:G)CEO David Garofalo. Jamie King did not respond by press time to BIV’s request for comment placed through his lawyer, Rory Muldoon.

Christie Darbyshire, who sits on the board of the Face the World Foundation, could not be reached for comment, and the foundation’s president, Jacqui Cohen, declined to comment when reached by BIV by phone.

Meanwhile, Sharp and his lawyers continue to battle the CRA in Federal Court. The agency has since dropped its efforts for information from Sharp and his wife, instead opting to seek information from third parties such as financial institutions.

“We have had a continuing intention to challenge all attempts made by the CRA to compel information from us during its investigation, given the obvious interest the CRA and others appear to have in establishing my criminal liability,” Sharp states in an affidavit.

“Now that we are aware that the CRA is actually in receipt of information from third-party source, we are extremely concerned that our charter rights have been violated through the obtaining of this information and the possible transfer of this confidential information outside the CRA’s audit division.”

Sharp’s lawyer, David Martin, declined to comment on the case outside court on February 1. King’s next court appearance is slated for February 20.

Correction: An earlier version of this story incorrectly stated that the Panama Papers leak revealed a connection between Jamie King, Corporate House and Fred Sharp. The story has since been corrected.