N.W.T. judge freezes Denesoline boss's assets amid fraud allegations

An N.W.T. Supreme Court Judge has frozen the assets of a man accused of funnelling millions of dollars away from Denesoline theutsel K'e Dene First Nation economic development arm for which he is both director and CEO.

Justice William Grist also placed Denesoline and its related companies into the temporary care of Calgary-based accounting firm Rylie Farber Inc. amid allegations of fraud on Friday.

Both orders are "extraordinary," said Grist, but he said the applicants utsel K'eDene First Nation (LKDFN) and its chief, James Marlowe have made a strong case against Ron Barlas, who was hired to head up Denesoline in 2014.

The First Nation is accusing Barlas of diverting up to $14 million of Denesoline's money, which stems from impact benefit agreements it has with the territory's three active diamond mines, into one of his own companies, Northern Consulting Group.

It's just one example what they call Barlas's "blatant self-dealing."

They also alleged that he manipulated how Denesoline and related companies were run to protect his leadership position and prevent independent oversight, that he unilaterally appointed and removed directors, and that he failed to hold statutory annual meetings.

In an email on Thursday evening, Barlas said he denies any wrongdoing and will challenge the allegations in court. Barlas was represented Friday by Michael Kirk, who asked the court to adjourn the hearing so he could have time to prepare.

Kirk pointed out that he was representing a number of parties involved, that he couldn't attend in person because of a cancelled flight, and that he had only received the "voluminous materials" in the case the previous day.

"I'm short-handed, I don't necessarily have one hand behind my back, both my hands are tied behind my back. I'm at a significant disadvantage."

When it became clear the judge wasn't taking his side, Kirk said the orders being imposed were "unfair" because he hadn't had time to prepare.

The case for the orders

Matthew Sammon, one of the lawyers representing LKDFN, said freezing Barlas's assets and appointing someone else to lead Denesoline and its related companies was necessary because there was "very high risk of irreparable harm" to his clients and community of utsel K'e.

"There's a risk of dissipation of assets and potential destruction of evidence," he said.

Sammon told the court a private investigator had tailed members of the Barlas family the day before the hearing, and observed his wife, Zeba Barlas, spending "a long period of time" at a Yellowknife bank. A young woman believed to be Barlas's daughter was seen moving boxes and a binder to the family home.

"We don't know what was in the boxes, we don't know what transpired at the bank," explained Sammon. But, on the eve of an injunction to have Barlas's assets frozen, Sammon said the activities were a "concern."

But it was an affidavit from Diavik Diamond Mine CEO Angela Bigg that helped Grist make his decision. Bigg said Diavik was set to pay Denesoline $13.5 million by the end of the month through its impact benefit agreement, and she was "deeply concerned" the money wouldn't get to LKDFN members.

"That, I think, gives some considerable measure of urgency," said Grist.

'Years of oppressive conduct'

Although the First Nation has about 800 members, only about 300 people live in the community itself on the east arm of Great Slave Lake, 150 kilometres east of Yellowknife. utsel K'e is one of the closest communities to the territory's active diamond mines and it has some form of impact benefit agreement with each one.

LKDFN designated Denesoline as a business with rights to the benefits of those agreements, and as such, its main source of revenue comes from contracts to provide the mines with goods and services.

But it doesn't actually do the work itself it forms joint venture agreements with other businesses to carry out the work. One of those agreements is at the heart of one of LKDFN's allegations.

Barlas is accused of forming a joint venture agreement that diverts 49 per cent of all of Denesoline's revenues to Northern Consulting Group. The diverted funds from that contract alone, according to the LKDFN, amount to between $10 and $14 million.

Grist said thatdeal "seems to set the stage for years of oppressive conduct."

The interim orders to freeze Barlas's assets and to put someone else in control of Denesoline will be revisited regularly. Lawyers for LKDFN will have to tell a judge every 10 days why they think the orders need to stay in place.