N.W.T. Supreme Court finds Ron Barlas 'engaged in egregious conduct and abused his position as CEO'

In a decision Wednesday, an N.W.T. Supreme Court Justice found evidence "replete with examples" of Ron Barlas using company resources for personal interests or to benefit his friends and family.

Justice Karan Shaner ordered that Barlas be removed as CEO of Łutsel K'e Dene First Nation's (LKDFN) business arm, Denesoline Corporation. He was previously suspended, but the order makes his removal permanent as Shaner found he had breached his fiduciary duties "in an extreme and egregious manner."

"Mr. Barlas engaged in egregious conduct and abused his position as CEO. There is no question he must be removed from any role in any of the LKDFN companies. Allowing him to continue in any capacity is untenable," Shaner wrote.

The decision comes as the latest development in the wide-ranging civil lawsuit LKDFN filed against Barlas, who for years ran Denesoline Corporation. The First Nation has accused him of diverting nearly $12 million from its companies for his own gain.

Larry Innes, legal counsel for LKDFN, said the First Nation is "obviously pleased" by the decision.

The case involved a large volume of evidence, which Shaner broke down in her decision Wednesday. The evidence shows how, over a decade, Barlas assumed more and more control over Denesoline Corporation and, along with his wife, Zeba Barlas, funnelled money into companies they fully controlled.

Shaner found Barlas misled Denesoline Corporation's board members and "worked to actively conceal his gains." 

Shaner's decision frees Denesoline Corporation from agreements made during Barlas's tenure that benefitted his own companies.

Shaner also ordered a trial to determine the level of damages for LKDFN.

In issuing her decision, Shaner dismissed Barlas's own request for a trial. His lawyers had argued there were "key facts in dispute" that could only be resolved through a trial.

Where the money went

Shaner's decision lays out how Barlas tied Denesoline Corporation to the Northern Consulting Group (NCG) and Equipment North (EN), companies whose sole director was his wife, Zeba Barlas.

Over that time, Barlas got Denesoline Corporation's board of directors to sign lucrative contracts with NCG.

Shaner pointed to documentation of the Barlas family's lavish lifestyle, tied to NCG's accounts.

Barlas, Zeba and their two children racked up hundreds of thousands of dollars of credit card charges in both 2021 and 2022 through that company for things like cosmetic and plastic surgery, travel, high-end clothing and jewelry.

It also paid for their daughter's college tuition, and gaming and rental expenses for their adult son.

Some other examples include how, in 2021, Zeba pocketed $1.1 million in dividends from NCG. It also paid $700,000 that year into the Barlas Family Trust.

As for EN, Shaner pointed to millions of dollars worth of real estate purchases made by the company for Barlas's own use, including the house he lived at in the Niven neighbourhood of Yellowknife. Some of the buildings they bought were then leased or sold back to Denesoline Corporation.

Shaner also lays out a pattern of threatening behaviour by Barlas toward anyone who questioned what was happening with LKDFN's companies. That included a cease and desist letter to LKDFN's now-Chief James Marlowe, when Marlowe became alarmed by reports from Diavik that the mine had spent $77 million with LKDFN-related companies.

During a deposition, Marlowe said he was concerned because the benefits the companies provided to the community — $1,000 annual cheques, food hampers and other donations — didn't match up if the companies had received so much money from Diavik.

LKDFN plans to sue firms

In a second decision also issued Wednesday, Shaner cleared the way for LKDFN to sue Reynolds Mirth Richards and Farmer LLP and KPMG.

The First Nation had alleged Reynolds Mirth Richards and Farmer was involved in preparing legal advice Barlas then used to defraud its companies and take control of those companies, as well as providing advice to Barlas on how to get around corporate governance procedures and get members to sign resolutions at annual general meetings, among other allegations.

The allegations against KPMG include that the firm was knowingly in a conflict of interest by acting for both the LKDFN companies and Barlas, personally; that it issued misleading financial statements; and that it gave misleading presentations to members.

"The LKDFN companies suffered substantive losses due to the actions of Mr. Barlas and, allegedly, the support of corporate counsel and accounting professionals," Shaner wrote.

Innes told CBC News his client would be filing a statement of claim Wednesday or Thursday. 

Both KPMG and Reynold Mirth Richards and Farmer told CBC they would be fighting any claim filed against them.

"The allegation that [the law firm] knowingly assisted Mr. Barlas is entirely without merit, and will be vigorously defended," wrote Julie Gagnon, a partner with Reynolds Mirth Richards and Farmer, in an emailed statement. "Given that the issue is before the courts, we are precluded from commenting further at this time."

Lee Reisch, the senior manager of strategic communications for KPMG's corporate affairs department said in an email that the firm "takes its role and responsibilities very seriously."

"The LKDFN companies have alleged that they have suffered damages caused by the actions of various parties, including KPMG. We deny responsibility for those damages and would like to be clear that there is no truth to the allegation that KPMG knowingly assisted Mr. Barlas in connection with any wrongdoing," Reisch wrote.

"We will be vigorously defending ourselves throughout any legal proceedings."

CBC has reached out to Barlas for comment.