$150M lawsuit against Robert Giroux: Ponzi and irregular transactions, says expert

The forensic accountant mandated by the millionaires who are suing Robert Giroux for $150M in connection with the Huot Group debacle is categorical: the transactions carried out have all the characteristics of a Ponzi scheme, casting doubt on the fact that truly informed investors would have injected more money in such a model.

François Filion is not his first major case. The expert from the KPMG firm had notably testified for several days at the trial of Vincent Lacroix, convicted for the Norbourg scandal.

According to his analysis, it is clear that some of the transactions observed between the companies of Robert Giroux, the private investment funds Q-12 and FIISH as well as the companies of Stéphan Huot present “Ponzi characteristics”.

What is a Ponzi scheme?

“Ponzi fraud involves taking money belonging to one investor to pay false returns to other investors or simply to reimburse investors who want their money back. Fraudsters can thus give a false impression that the money invested brings good returns and that there are no problems getting back the money invested.”

Source: Financial Markets Authority

His analysis revealed that the Huot empire had been in deficit for several years and that it was struggling to repay the interest it owed to investors who had granted it loans. To compensate for this, Robert Giroux would have requested other injections of funds from millionaires, new money which was used according to the expert to repay certain interest.

“They were getting the money from their interest, so they feel like the wheel is turning. Except that they received the money brought in by the investors,” explained the forensic accountant during his testimony.

Illusion of security

This spinning wheel, François Filion described it during his testimony as “the illusion” that everything was going well for the Huot Group and by the same token, for the investors’ money.

“It’s an illusion because these are not sums that were generated by the activities of Stéphan Huot,” said the forensic accountant.

In total, nearly $120M was invested in the FIISH loan between 2017 and 2022 to finance the Huot Group’s projects. In his analysis, Mr. Filion determined that approximately 11% of this amount was used for Ponzi-type transactions, or approximately $10M.

“That’s $6.9 million in interest to investors that was paid from their investment money. All these payments maintain the illusion that the system is working,” insisted the financial expert.

And for the FIISH and Q12 loans combined, $40M in irregular transactions was unearthed by the latter.

If they had known

These maneuvers were necessary according to Mr. Filion to keep Stéphan Huot’s ship afloat. And since the illusion worked, no one looked any further when the time came to inject more money, the plaintiffs argue.

But the deficits were indeed there. (See box below)

Did the Giroux Group know about these setbacks? This is the question asked several times by M.^e François Valin, lawyer for the plaintiffs, to the KPMG expert.

“Well yes, that’s for sure. They were the ones who managed the loan and who generated part of the loan fee income,” explained François Filion, himself raising a fundamental question in this whole affair.

“If investors knew it was in deficit from the start, would there have been $58M added to the fund? We have to ask ourselves the question.”

Robert Giroux assured during his testimony that he had informed the sponsors of what he described as “Stéphan Huot’s temporary liquidity problems”. The millionaires, for their part, testified that they “fell out of their seats” when they learned of the debacle of the Huot Group, which culminated in a bankruptcy caused by debts of more than a billion dollars.

Huot Group: chronic financial problems according to the expert

If Robert Giroux repeatedly insisted in his testimony that Stéphan Huot’s problems were only “temporary liquidity difficulties”, the KPMG expert who analyzed the case for the cheated investors paints a very clear picture. other.

“For me, it’s not temporary at all. It was chronic, the financial difficulties [du Groupe Huot]», Repeated several times François Filion, forensic accountant mandated in the $150M lawsuit against Robert Giroux.

Since 2017

According to the expert’s analysis, Stéphan Huot and his companies have been experiencing liquidity difficulties since 2017. To compensate for this, the businessman requested several loans, for large amounts, which came with high interest rates and accumulating management fees.

Between 2017 and 2022, François Filion explained that the Huot Group had obligations of $98.4M in interest and fees on these loans. An amount much higher than what his activities brought in.

“That’s a lot of money. When you consider that your real estate operations generate $56M, there is a problem. You cannot have less income than expenses,” described the expert, specifying that what was “unprofitable” for the Huot Group was the weight represented by the obligations linked to its numerous loans.

“The FIISH loan was extremely heavy on Stéphan Huot’s operation in terms of its profitability and its ability to meet its obligations.”

Huot-Giroux partnership: one-way profitability

If we had to find an image to illustrate the effect that the loans from the FIISH and Q-12 funds, administered by Robert Giroux, had on Stéphan Huot, a lifebuoy with a ton of bricks attached would probably be it. Good.

Because the numerous loans that allowed the Huot empire to temporarily keep its head above water came with such fees that they ultimately caused its downfall. And Robert Giroux, he collected according to François Filion, forensic accountant.

“All of this is 100% to Robert Giroux’s advantage,” concludes the expert from the KPMG firm.

According to his calculations, 75% of the revenues of Robert Giroux’s various companies from 2017 to 2022 were attributable to the Huot Group, an amount of $71.8M. Of this amount, $44M came only from processing fees, financial services, management and administration of the various loans.

From 2017 to 2022, the personal assets of Robert Giroux and his companies would have jumped by nearly $50M, mainly because the Huot Group was paying for him.

The snowball effect

Several witnesses have spoken since the start of the $150M trial about the snowball effect. We now understand that this snowball transformed into the avalanche that engulfed the Huot Group.

“The snowball is the interest amounts,” explained forensic accounting expert François Filion in his testimony last week.

As the years passed and he accumulated deficits, Stéphan Huot had no choice but to take out new loans to continue his operations. And each of his loans came with new interest and management and service fees.

As the months passed, the snowball grew.

Ultimately, in 2022, Stéphan Huot owed a whopping total of $20M annually in interest and fees on the $118M FIISH loan.

“Each fee that we add reduces Stéphan Huot’s ability to reimburse,” concluded François Filion.

“One day, everything stops.”

Defense coming in the fall

The testimony of François Filion this week may seem damning for Robert Giroux, to whom the forensic accountant attributes part of the responsibility in the debacle of the Huot Group and the losses that resulted from it for the millionaires who lent large sums. But the businessman’s lawyers will have their own expert heard in the fall.

Luc Marcil, forensic accountant for the LMD firm, did the same job as his counterpart, but for the defendants. Obviously, his conclusions are likely to be different.

In cross-examination, M^e Sylvain Rigaud, lawyer for Robert Giroux, mentioned a few times that “we will see in the fall.” A Ponzi fraud? “We believe it is wrong, but we are going to plead it in the fall,” he stressed.

The $150M trial is scheduled for a total of about six weeks, three this spring and three more in the fall. Robert Giroux responded with a $25M countersuit.