The story behind an alleged fraud worth millions in Nova Scotia's lobster industry

In June of 2015, three men stepped out of a summer day thick with flies and into the Beaverdam Lake, N.S., cottage of lobster dealer Wayne Banks.

It wasn't a casual visit.

They had arrived unannounced at his doorstep, claiming that in the space of about 10 days, someone had ripped them off to the tune of $1.6 million.

"Have a seat, you fellas," said Banks. "I think I know why you're here. But there ain't nothing I can tell you."

The secret recording of that conversation, later provided to CBC News by one of the men, offers a glimpse into a large alleged fraud case, one that reveals the money and high stakes at play in Canada's most lucrative lobster industry.

Only later would local RCMP team up with the federal Serious and Organized Crime unit to launch a joint investigation into what they called a complex criminal operation, one some feared could have broader ramifications on the industry.

But on that June day two years ago, one name threaded its way through the conversation — Wayne Banks's younger brother, convicted fraudster Terry Banks.

"How many families get destroyed because of Terry f--king Banks again?" said one of the visiting men in exasperation.

"I don't understand why Terry's still alive. I don't."

Last week, RCMP charged Terry Banks, 51, with four counts of fraud over $5,000 and three counts of theft over $5,000 involving allegations he was part of a scheme that stole about $3 million from four different seafood companies.

His 69-year-old brother, Wayne, faces six fraud and theft charges. A third man — Chris Malone, 52 — is charged with one count of theft and one count of fraud. All three men return to court Aug. 24.

None of the allegations has been proven in court.

RCMP Supt. Martin Marin said Tuesday that those charged had a "substantial reach and influence on the local, national and international seafood market."

"Had this fraudulent activity continued, Nova Scotia's economy and seafood industry could have been negatively impacted," he said.

A multimillion-dollar operator

Through more than a dozen interviews and a review of hundreds of pages of court documents and other records, CBC News has pieced together details of the allegations and the story of the man who appears to be at the centre of them.

Over two decades, Terry Banks has bought and sold tens of millions of dollars worth of lobster, often through a plant he operated on Highway 3 in the fishing village of Shag Harbour, N.S. He's exported to China, Hong Kong, Taiwan, France, Italy and Spain.

Along the way, he's also defrauded one of Canada's largest banks out of $8 million, been convicted of stealing tens of thousands of pounds of lobster and has left a trail of creditors in his wake.

And yet, somehow, he has continued to operate.

A billion-dollar industry

Lobster used to be called the "cockroach of the sea," but those days are long gone. Nova Scotia lobster is now turned into frittatas topped with caviar that sell for $2,000 in New York City restaurants and packed into special crates to be flown live to Hong Kong.

Canadian lobster catches in recent years have been called the best in a century. Crews in million-dollar boats are setting traps 50 kilometres off the coast. In 2015, Nova Scotia fishermen hauled in more than 49,000 tonnes of lobster worth nearly $700 million.

But the flow of money hardly stops there. Dealers buy it off the dock and each lobster will likely pass through the hands of several middlemen before it finally reaches a grocery store tank or restaurant kitchen.

Each sale means a markup. Last year, the value of lobster exports from Nova Scotia was nearly $1 billion.

Which is why fishing villages in southwest Nova Scotia are a tangle of haves and have-nots — where fancy pickup trucks drive by mobile homes with sagging roofs and peeling paint.

Audie Harding is on the pickup side of life, driving a splashy orange one he calls the "flaming pumpkin" that speeds down the dirt road leading to his lobster pound in Little Harbour.

He's the guy on the secret 2015 recording who swears about Terry Banks and wonders why he's still alive. He has not changed his mind in the nearly two years since.

Harding's company, Independent Fisheries Ltd., buys lobster off fishermen at the wharf. The product is taken to the company's plant and then sold on to other lobster dealers.

During the 2014 season, Terry Banks was one of those dealers. Harding says he'd done business for several years with Banks and all had gone smoothly.

The problems started, according to court records related to search warrants, when post-dated cheques from Banks began to bounce.

The two met for lunch at the Sea Dog Saloon in Shelburne to discuss things, Harding says. Banks, he says, switched on his charm, told him the money was tied up in China and asked for a little time.

"He's the kind of guy who would talk you into believing that the money's coming tomorrow," Harding says.

It didn't, according to allegations in court records.

And that's why, when the next season rolled around, Harding says he put a rule in place at his lobster pound: Under no circumstances was anybody to sell to Terry Banks.

Two partners had bought into Independent before the 2015 season. Jody Newell was essentially a silent player, while Chris Malone was put in charge of sales. Harding, who also has a lobster fishing licence, would spend most of his days on the water.

Independent also had a new customer — Maine businessman Hugh Reynolds, who owned a plant about an hour away called D. Light Seafoods International.

Things moved smoothly.

Lobster flew out the door to D. Light Seafoods and hundreds of thousands of dollars a week poured into Independent's bank account. At the height of it, Independent's chain-smoking plant manager was working a crushing 100 hours a week to keep up with the pace.

The money stops flowing

In hindsight, it was all going too smoothly.

At the end of May, the secretary at Independent informed the partners of a troubling development. In the space of just 10 days, the company had shipped out $1.6 million worth of product but hadn't been paid a cent for any of it, according to court documents.

It was like four tractor-trailer loads of lobster had been driven out of Independent's yard and simply vanished.

Worse yet, D. Light denied it owed any money and said it had paid for every lobster that entered its facility over the course of the season.

Court documents related to several search warrants RCMP later obtained to seize banking and accounting records shed light on what's alleged to have happened.

During the lobster season, as the trucks loaded with lobster left Independent, the drivers would often get a call from the pound manager of D. Light, Wayne Banks. The drivers later told RCMP that Wayne Banks would tell them to take some lobster to the D. Light pound and the rest to another pound in Shag Harbour.

When the lobster arrived in Shag Harbour, the name D. Light Seafoods was scratched from the delivery slip and replaced with M&T Trading, according to search warrant records. 

M&T Trading had been incorporated just earlier that year. Its president and sole director — Terry Banks.

Some of the drivers balked at this. The secretary questioned Independent partner Chris Malone, who dealt with all sales and personally deposited cheques from buyers into Independent's account, about it. She told police Malone told her not to worry, that D. Light was buying the lobster and could send it wherever it wanted.

Later, RCMP alleged that dozens of payments into Independent's account over the course of the season appeared to come from Terry Banks or his newly formed company.

It was like the machine had been oiled. When the money suddenly stopped, the question of who owed what to whom became a murky mess.

Independent says there may have been a rule never to sell to Terry Banks, but that's exactly what's alleged to have happened. They just didn't know it.

"I don't know if he takes it as a game, or what," says Harding. "To [allegedly] lose $1.5 million, $1.6 million, to the same guy you're saying never sell lobster to, it's kind of embarrassing.

"But he's a very wicked man and he's got ways of doing things."

Facing financial ruin

For Jody Newell, the new partner in Independent, the timing of the alleged financial loss could not have been worse.

Just two months earlier he'd been lying in bed watching TV with his wife of eight years, Denise, when she suddenly gasped, fell unconscious and died. She was just 36.

Now he says he faced near financial ruin. He'd bought hundreds of thousands of dollars of lobster from fishermen in the Magdalen Islands to sell through Independent but didn't have a cent to pay them.

He says he re-mortgaged his house and borrowed money from his father.

"I came in the world bare-assed and I'll probably go out bare-assed," he says. "But I don't want to stick anybody."

When Terry Banks called CBC News in March after a reporter left a note on the door of his home, he denied any knowledge of an RCMP investigation into allegations he owed money to Independent Fisheries or other dealers.

"To start with, when somebody delivers lobsters to a person, wouldn't they send them a bill or an invoice or something saying they owed them for them?" he said. "I've never seen a bill from Independent Seafoods saying that I owe them for any lobster."

Banks said he would speak with his lawyer before commenting further, but promised to call CBC back the next day. He didn't. He texted several times to say he would call, but never did. CBC News has not been able to reach him since.

Both Wayne Banks and Chris Malone have declined comment.

Defrauded CIBC of $8M

A good place to start the story of Terry Banks is in 1999. That's the year he walked into the CIBC in Barrington Passage, N.S., and made a pitch for financing involving his fish brokerage business at the time, ESD Fisheries Ltd.

CIBC agreed.

There was one problem. It ended up becoming a scam, according to an agreed statement of facts in the case, one involving false invoices and other documents. Incredibly, the bank did not detect it for 13 months and by that time, Banks had defrauded CIBC of $8 million.

A Crown prosecutor later called him the "architect" of an elaborate fraud who relied on his superior knowledge of the lobster industry to dupe his local CIBC branch. In doing so, he somewhat "sullied" the reputation of Nova Scotia fish brokerages.

Banks was sentenced to four years in prison. But time behind bars didn't deter him from getting back into the seafood business — or crime.

Less than a year after he was granted full parole, Banks hauled away $390,000 worth of lobster owned by a U.S. seafood company from a pound run in Shag Harbour by his brother. He never paid for it.

When he was taken back before the parole board, he "totally denied" he had stolen the lobster and claimed he'd been instructed to move it. Later, he pleaded guilty to theft and was handed a 22-month conditional sentence.

On the eve of his 2008 sentencing for the CIBC fraud, Terry Banks described himself this way: "A generous guy who will always give to others in need."

Others who were interviewed by a probation officer preparing a report for the court said Banks was a "person who is good to people to a fault," "the best guy I ever worked for" and someone who has "trouble saying 'no' to people."

His life, as described in the report, was bland. He hadn't drunk alcohol in years, wasn't a gambler and his family said he was a good father to his three children.

He'd worked in the lobster business since he was 18, often for companies owned by his older brother, Wayne.

His father had owned a gravel trucking business where his mother worked as a secretary. He went to Sunday school every week when he was a child.

As for stealing millions from a bank and using the names of real seafood companies to write false invoices, the probation officer reported Banks seemed to "justify his behaviour" but said he did not feel good about it.

When CBC News visited Terry Banks's house recently, there were five vehicles parked in the driveway, including a Dodge pickup truck and a Volkswagen Beetle.

Nobody came to the door, however.

The unassuming house is assessed at $264,000 and is in the name of Banks's girlfriend. There's a two-car garage and a home office above it. His Facebook page notes a holiday to Jamaica this winter.

If he's a big-time roller, he doesn't seem to wear his cash. But he can allegedly produce a lot of it.

Last summer, an alert RCMP officer noticed Banks pulling into the parking lot of the Petro Canada in Yarmouth. The constable watched as Banks handed a plastic bag through his window to a manager of a well-known seafood company, Wedgeport Lobsters Ltd. Inside was $74,000 in stacks of $100 bills, according to search warrant records.

The cash was seized by the RCMP officer, but later returned to Wedgeport Lobsters when the company produced a lobster-sale invoice.

'We just make sure we get paid, that's all'

No matter his history, his tangles with the law, there are people still willing to sell lobster to Terry Banks.

Wedgeport Lobsters president Reg Leblanc is such an influential businessman in the area that the Acadian fishing village for which his company is named is jokingly called "Reg-port" by locals.

Leblanc says he's done business with Banks for about 10 years, but he won't ship him a pound of lobster until he gets the money first.

"With Terry, you don't trust him," says Leblanc. "It's either got to be certified cheque or cash. That's the only way I do it with him."

Which, Leblanc says, explains the $74,000 in cash. It all goes on Wedgeport's books, he says, like any other company income. And he doesn't care how Banks allegedly comes up with it.

"I can make money off of him. I just got to watch what I can do," Leblanc says. "We buy a lot of lobsters and we deal with everybody. We just make sure we get paid, that's all. So it doesn't matter to me who it is. Could be you. If you want to walk in here and you got your money, I'll sell to you. I don't care."

A dangerous business

One keen observer of the lobster industry in southwest Nova Scotia puts it this way: The business isn't rife with dishonesty, but it can be "dangerous."

Dangerous financially, but also physically.

As the fraud allegations emerged in 2015, and Independent was allegedly stuck with a $1.6-million hole, it meant the company could not pay some of its suppliers, including other dealers from whom it had bought lobster.

One of them, Jamie Atwood, is facing charges after a group of men allegedly beat Chris Malone, who has been charged with fraud in the Independent case.

Atwood is accused of extorting $200,000 from Malone, assaulting and threatening him, and stealing his forklift and trailer. He has not entered a plea and his preliminary inquiry is set for July 19.

Another person with knowledge of the alleged fraud case said police worried about the larger implications, particularly if it were to ruin the companies who allegedly fell victim. If seafood dealers went under, it could ultimately tarnish the reputation of the industry in the eyes of international buyers.

One of the companies Terry Banks is accused of defrauding is CRT Seafoods Ltd., which is owned by Leonard Nickerson, a Cape Sable Island dealer. Banks still owes him $450,000 dating to 2014, according to court records.

It started with some bounced cheques, Nickerson says, followed by excuses, like being "burned" in China.

"Personality, he's got a great one," says Nickerson. "But it's all an act. He's real good to you."

His company is in good financial shape today, he says, with the strong market. But he kept his losses largely to himself early on, worried that fishermen he bought from would believe he could not pay them and would refuse to do business.

Another alleged victim is Sure First Seafood Company Ltd., based in Taiwan. The Halifax broker for the company, Adrian Morgan, told CBC News his client is owed about $250,000 for lobster Banks never shipped.

Here's the thing: He knew firsthand about Banks's reputation before doing business with him.

Morgan had worked for him during the CIBC fiasco and spent the aftermath putting "Band-Aids on a bunch of crap because of him."

A few years ago, Morgan says he got a call from Banks out of the blue, wanting to do business. He was wary, of course, but surprisingly Banks had CFIA health certificates that meant he could export lobster.

Things went well. That is until Banks simply did not ship lobster the Taiwan client had paid for, according to court records. The excuses began, Morgan says, and he went to the RCMP in November.

"I just want my customer's money back."

A 'reverse pyramid scheme'

The gates at the lobster pound once run by Terry Banks are now padlocked.

About five minutes down the road, the D. Light Seafoods plant appeared dormant when CBC News visited recently. The door was unlocked, but the lights were off and there was nobody around.

Hugh Reynolds, the American owner of D. Light Seafoods International, says he shut down the operation when it emerged it may have been used as a conduit for fraud.

The RCMP have thoroughly audited his company's books, he says.

He had long trusted Wayne Banks, he says, but fired him as manager at D. Light Seafoods when the fraud allegations emerged. He calls him and his brother "pirates."

Despite the loss of $1.6 million, Independent carries on. And this year put it in perspective for owner Audie Harding.

In January, as he captained his boat Secret Sea while fishing for lobster, a good friend and crew mate, Jim Buchanan, fell overboard.

Harding swung the boat around hard and Buchanan was quickly pulled from the water. CPR was performed, but he could not be revived. The 44-year-old left behind a wife, three children and a granddaughter.

When Harding spoke with CBC News in March, he still hadn't returned to fishing. 

Instead, he's focused on starting a boat-building business and plans to name the first vessel after his friend.

"To bring a friend and a man in, and to have to bury him and tell his wife and kids, is the most horrific thing you could ever imagine," Harding says.

"Terry Banks [allegedly] stealing money from us is nothing compared to what me and my crew and this man's family went through in the last two months."