Quarantine hotel co-owner misappropriated almost $16M of public funds, lawsuit alleges

The man who oversaw the Westin Calgary Airport hotel's time as a COVID-19 quarantine facility is being sued for allegedly misappropriating nearly $16 million in federal funds.

A new lawsuit claims that part-owner Sukhminder(Sukhi)Rai and his PHI Hospitality corporation kept money from the Public Health Agency of Canada (PHAC) that was supposed to pay for the hotel to house travellers for their mandatory quarantine periods from June 2020 until October 2022.

CBC News has obtained and reviewed hundreds of pages of legal and financial documents related to the lawsuit, filed by two of the hotel owners against the third.

Rai led a "fraudulent scheme" targeting the hotel and PHAC officials, according to the statement of claim, telling the otherowners the government was taking over the entire hotel but only paying for 100 rooms when he had actually negotiated government payment for all 247 rooms.

It's alleged he misappropriated the revenue difference of those 147 rooms: at least $15.7 million.

Documents show Rai, a B.C. resident, set up a bank account under PHI Hospitality one month before PHAC began depositing Westin invoice funds there. That account was not affiliated with PHI's operation of the Westin.

The federal health agency transferred a total of between $27.74 million and $29.07 million over more than two years to that account, according to deposit records.

Affidavits attest that only $12.05 million was ever paid to the hotel for the quarantine facility contract.

Financial documents from RBC, backed up by the affidavits, allege the missing money was funnelled to several entities related to Rai, withdrawn in cash or transferred to offshore accounts.

None of the allegations have been proven in court.

Rai denies the allegations and said he is pursuing legal steps in the interim, including court orders and additional hearings, to combat the claims.

"We intend to defend ourselves in court vigorously," he wrote in a statement to CBC News.

"The allegations of misappropriation in the court documents are completely false. This is simply a business dispute about which parties are entitled to certain money, the amount of which has been admitted to be exaggerated in the court documents, and that has been dressed up to attract attention with sensational and false accusations."

Rai has not yet filed a defence.Representatives for the plaintiffs declined requests for an interview.

The hotel is owned by three joint venturers, including a 50 per cent stake owned by the Siksika Calgary Airport Limited Partnership. Some of Rai's companies helped build the Westin, then his PHI Hospitality assumed daily management in 2018.

"I can confirm Mr. Sukhminder Rai provided no satisfactory or credible explanation about the discrepancy between the PHAC funds, which PHAC reportedly paid to the Westin Hotel, and the revenue reported by the Westin Hotel itself," Shane Breaker, who represents Siksika's interests, said in his affidavit.

The hotel's co-owners said they were only tipped off when they saw media reports of federal spending at their hotel that didn't match their own financial records. They then swore in affidavits they approached Rai for answers, to no avail.

"I worry that it will be impossible to trace, follow or recover any cash withdrawn," reads an affidavit from Satnam Rai, the director of a numbered company with part ownership of the hotel.

"I know of no business relationship between the Westin Hotel and the related entities to justify these transfers."

PHAC, which is not a party in this lawsuit, declined to comment on the ongoing litigation, but said there are policies in the Financial Administration Actthat govern how payments are managed.

"All payments are made in accordance with these policies. The agency also has a well-established system of internal controls, designed to ensure effective controls over financial management," a department official wrote in a statement.

The Westin was placed in a 75-day receivership under PwC Canada (PricewaterhouseCoopers) at the end of August as a result of the allegations, along with two hotels in Edmonton also under PHI Hospitality management.

This grants PwC control over operations and assets to facilitate a transition of power to new management and preserve records for a financial audit of those properties.

Quarantine hotels were embroiled in controversy during their operation as stories of high costs, poor tracking measures and civil liberties concerns emerged from the tarped-up hallways inside the facilities.In February, it was reported that only 15 people stayed in this Calgary hotel in 2022 at a cost of $453,000 per person.

During the height of the pandemic, the government had contracted 38 hotels for quarantine sites in 14 Canadian cities.

The co-owners are suing Rai, PHI Hospitality and 10 of his other affiliated companies that allegedly received the misappropriated PHAC funds. A judge has granted an application to freeze Rai's assets in the interim.

The hotel owners are asking for at least $18 million for breach of contract, damages and conspiracy to defraud, or restitution of the amount misappropriated.

B.C. RCMP and Calgary Police refused to confirm or deny if there were any criminal investigations opened.