Miner left millions, but charities get the shaft

Paul Penna spent 33 years in the mining business and won a spot in the Canadian Mining Hall of Fame. But his final ambition was to donate his life savings to charity.

Mr. Penna founded Agnico-Eagle Mines Ltd. and gained almost legendary status in the mining world for his many colourful escapades, which included going broke at least once and brushes with securities regulators. While admired for his hard-driving management style, Mr. Penna was also a devoted Jew who set up a charitable foundation in 1982 and planned to give away most of his money when he died.

Today, a decade after his death from cancer at the age of 73, Mr. Penna's estate is far from building a legacy of giving. Instead, it has become mired in allegations of fraud, theft and illegal insider trading.

The estate, once worth roughly $24-million, has less than $600,000 and none of the money has gone to the charities specified in Mr. Penna's will.

Battle lines have been drawn between once close friends who are now suing each other over the disappearance of millions of dollars. Mr. Penna's best friend, Barry Landen, is accused in a lawsuit of using estate cash to buy a $1.2-million home, pay for $300,000 worth of renovations and lease several cars including a Porsche and Mercedes-Benz.

Joining the fray are a group of charities, including the Parkinsons Society of Canada and the Alzheimer Society of Canada, which are preparing their own lawsuit that could ensnarl a host of players including some brokerage firms and other non-profit organizations. Meanwhile, the Ontario Securities Commission has weighed in with charges against Mr. Landen over allegations he used insider information to illegally trade Agnico shares held in Mr. Penna's estate.

None of the allegations have been proven. Mr. Landen, who is in his early 50s, and his lawyer declined comment. He repaid some of the money in question and agreed to step down as a trustee of the estate. He also provided boxes of documents to show how the money was spent, according to documents filed in court.

"I'm very disturbed and very disappointed that what happened, happened," said Charles Langston, 86, a former Agnico chairman who is a trustee of the estate. "It hasn't been fun, and it's been very expensive, too."

The legal feuding is a sorry end for what was a remarkable career.

One of seven children

Mr. Penna was born Paul Phineas Osheroff, one of seven children in a family of Russian Jewish immigrants to Toronto. As a child, he developed a passion for golf and quit school at the age of 14 to caddy at an exclusive club, changing his last name to Penna to sound less Jewish.

The golf career didn't last, but his caddying put him in touch with a shady stock promoter who hired the young gun to flog shares of suspect mining ventures to unsuspecting investors. The job ultimately led to a sanction by regulators, but Mr. Penna was bitten by the mining bug and by the early 1960s he'd managed to win control of Agnico Mines Ltd., which had a silver operation in Northern Ontario. Within a decade he acquired Eagle Gold Mines Ltd. in Quebec and put the two companies together, winning control of Quebec's lucrative LaRonde gold find along the way.

Mr. Langston said Mr. Penna was a joy to work with and had a streak of generosity. He recalled the time Mr. Penna was approached by a homeless man on a Toronto street in the middle of winter. Instead of giving him change, Mr. Penna invited the man to return to the same place the next day at noon. He did and Mr. Penna arrived with a new overcoat, scarf, gloves and mitts.

Mr. Penna hired Mr. Landen as Agnico's controller around 1980. The two immediately hit it off and became close friends, so close one former colleague said they were like father and son. Mr. Landen rose quickly through the company ranks, soon becoming vice-president. "Penna trusted Landen with all his business and personal affairs," Mr. Langston said in an affidavit filed in court.

By the spring of 1996, Mr. Penna was succumbing to prostate cancer and he wrote a detailed will. He and his wife, Lorraine, didn't have children, so Mr. Penna drew up a list of 12 charities to share part of his estate. They ranged from a couple of small Toronto Jewish schools that cater to children with disabilities to the Parkinsons Society, the Alzheimer Society and two hospitals.

To oversee his estate, Mr. Penna appointed three trustees -- Mr. Landen, Mr. Langston and Mrs. Penna. Mr. Landen was also put in charge of Jakmin Investments Ltd., a company Mr. Penna set up in 1956 for his personal investments.

Mr. Penna died on Aug. 29, 1996. According to court filings, records are incomplete but they indicate that Mr. Penna left between $24-million and $27-million, most of which consisted of Agnico shares held in Jakmin.

Upon his death, the estate paid $7.2-million in taxes and split $2.7-million among a group of relatives including Mrs. Penna, who received $1-million, and Mr. Landen, who got $100,000, court filings show.

The remainder was to be donated to the charities and used to care for Mrs. Penna, who had Alzheimer's. After her death, in 2003, all remaining money was to go primarily to the listed charities. Mrs. Penna was replaced as a trustee by Ernie Sheriff, Mr. Penna's nephew and a prospector at Agnico. Mr. Sheriff and Mr. Langston were also directors of Jakmin. Mr. Langston and Mr. Sheriff declined to comment on the case. But in affidavits filed in court, both insisted they left everything to Mr. Landen. They trusted him so completely that, according to court filings, the trustees rarely met and never reviewed Jakmin's financial statements.

"I always assumed that Landen was dealing with the estate, including Jakmin, in an open, honest and transparent manner," Mr. Langston said in his affidavit. He alleged that Mr. Landen used a rubber stamp bearing Mr. Langston's signature to approve estate cheques.

Didn't receive statements

In his affidavit, Mr. Sheriff said his signature appeared on resolutions approving Jakmin's annual financial statements. "However, I did not receive a copy of any of those financial statements."

The first inkling something might be wrong came on Nov. 4, 2004, when the OSC told Toronto-based Agnico that it was investigating allegations of illegal insider trading by Mr. Landen through Jakmin.

According to Mr. Sheriff's affidavit, a company probe discovered that in October, 2003, Mr. Landen sold 32,237 Agnico shares for $571,652 on behalf of Jakmin. The trading was allegedly done during a "blackout" period, just before Agnico announced poor financial results, according to court filings.

Mr. Landen appeared before Agnico's board on Dec. 1, 2004, to explain his actions, according to Mr. Sheriff's affidavit filed in court. Mr. Landen allegedly admitted selling the shares during the blackout but said the trade was based on public information. He also allegedly acknowledged taking $20,000 from Jakmin but said it was partial repayment for a $320,000 loan he'd made to Mr. Penna in 1990. However, according to Mr. Sheriff's affidavit, he had no documentation for the loan and could not say how much was outstanding. The company fired Mr. Landen on Dec. 7, 2004, and Mr. Sheriff began inquiring about the status of the estate. He tried to get information from Mr. Landen, but it was incomplete, so Mr. Sheriff brought in the accounting firm LECG to conduct a forensic audit, according to his affidavit.

According to a report filed in court, LECG said the estate's documents were so incomplete it wasn't possible to explain how so much money disappeared. The report also raised questions about $4.5-million in transactions involving Mr. Landen. They included $1.2-million Mr. Landen allegedly took from the estate to buy a house and another $314,000 that was used for renovations, according to the report. He also allegedly used estate money to pay for leases and insurance on seven cars between 1999 and 2004. The insured drivers were Mr. Landen, his wife and two other family members, the report alleged.

Mr. Landen also allegedly received more than $1.4-million for various management fees and made regular cash withdrawals totalling more than $22,000 in one year, the report said. He also allegedly donated nearly $1-million to charities not listed in Mr. Penna's will, the report said.

Mr. Landen appeared to have paid back some of the money, but it was not clear, the report alleged.

With the LECG report in hand, Mr. Sheriff and Mr. Langston sued Mr. Landen in March, 2005, and won a court order freezing his assets. A few weeks later, they told the charities most of the money was gone. Many were not even aware that they had been named in the will, a sign that it may have never been probated.

"They said 'We have a problem here. You guys are named in this will and there's been a depletion of millions of dollars out of this estate,' " said Fred Tayar, a Toronto lawyer representing the charities.

Within weeks, Mr. Tayar filed a motion to replace the trustees so the charities could figure out where the money went and who is to blame for the debacle. The other trustees did not oppose the move.

Earlier this month, Madam Justice Susan Greer of the Ontario Superior Court approved the request and said the charities will have to adopt "an aggressive position" to recover the money. "This is not a matter of a few thousand dollars being lost on a bad stock transaction," she said. "This is a case where millions of dollars have disappeared without explanation, and where no accounts were ever kept by the estate trustees and where we do not even know if the will was ever probated and all charities put on notice of their interests under the will."

One lawyer connected to the case said he expects the charities will sue the trustees and possibly the brokerage firms Mr. Landen used. They may also go after other charities not named in the will that received donations from the estate. That could include a school Mr. Landen helped set up in 1998 in Mr. Penna's name -- the Paul Penna Downtown Jewish Day School. In a letter filed in court last year, lawyers for the estate said they have "serious concerns" about the arrangements made between Jakmin and the school.