defense turns guns on Medasia restaurateur for VAT carousel fraud
A witness giving evidence in money laundering proceedings against former More Supermarkets manager Ryan Schembri has accused businessman Darren Casha of taking over the business and cleaning up its assets, running them in his own pocket.
Investor Edmond Mugliette of Hamrun, who is listed as We Media’s sole shareholder, is embroiled in a dispute with Casha over an alleged €2m loan given to the supermarket while it was still under the control of Ryan Schembri.
Magistrate Donatella Frendo Dimech continued to hear evidence against Schembri, who was brought to Malta in April on the basis of a European Arrest Warrant, after fleeing the island 8 years ago, leaving behind a trail of creditors of the 40 million euros in debt of his supermarket business collapsed.
No more supermarket debt: Schembri and “Maksar” trick to recover millions
Mugliette was introduced to Schembri by Darren Casha in 2012 as a partner in his Hamrun office, for a short-term loan against shares which had already been sold and which would be repaid once the shares were delivered. Schembri was planning an international expansion of its supermarket at the time.
Mugliette had inspected the financial records of the More Supermarkets Hamrun outlet and found it to be a strong and profitable business. “When I disbursed the money, I made sure the assets were purchased,” the witness said.
“At first, the results I saw were encouraging. But when I started to review the operation and do my due diligence, I started to see that the books of accounts weren’t as they should be…I discovered that there were things that weren’t true. For example, there have been sales of ship supply services using invoice factoring that never existed.
Mugliette said he discovered that supermarkets “were in a loss situation”.
The supermarket tried to bring in a major Spanish brand with large stock orders to bring prices down. “The problem was the overheads and the rents were much higher than the turnover. There was no profit, so it made no sense to offer a prospectus to potential investors.
Mugliette told the court that he had invested 2 million euros in the operation of the Schembri supermarket. He insisted that he would pass on the money and stock would be purchased and that he had seen the items in stock.
After Schemrbi left the island on several million debts, Mugliette wanted to write a constitution of debt, but realized that Darren Casha had instructed the accountants to sell the holding company, the fixed assets of Cassar & Schembri to More Supermarkets Mosta, Fgura and Paceville – the various branch supermarkets. He also accused Casha of carrying out the transaction to reclaim VAT on capital investments. This credit, of around €300,000 in VAT, Casha placed in More, who was unable to pay the salaries at the time.
“I immediately understood what was going on,” Mugliette told the court. “They pulled the rug out from under my feet. I said that was not acceptable and we made the constitution of the debt. I seized the fixed assets…then Darren Casha filed a fraud complaint. We are still awaiting the outcome of this case.
Mugliette accused Casha of withdrawing money from the bank that was intended for salaries, including €80,000 in checks to his own company Copacabana Ltd.
Mugliette said Schembri transferred his shares to Casha to prevent his personal issues from impacting the supermarket. “I told him it couldn’t be done.”
The witness recounted having been informed by shareholder Etienne Cassar of an incident where, while he was sitting in his car, Darren Casha approached him and spread a number of papers on the bonnet, telling them to sign them – which he did. “Casha told me that he had paid all the creditors of the supermarket… but the list of creditors that I submitted with the constitution of debts did not mention Copacabana, it did not exist. Casha wrote the checks behind our backs.
Mugliette said Casha’s origin in the business has not been explained. “One fine day, I found him there… He said to me, ‘I’m going to talk to the workers, because it’s mine.’ I got very angry and went to talk to Schembri at Handaq… But it turned out that Schembri had transferred all of his shareholding to Casha, who then made himself director in all the companies.
Casha’s actions were the “killing blow” as they led to the closure of Hamrun’s outlet, Mugliette said.
Montalto asked if the witness knew that the shareholders’ agreement was signed when Schembri was in the hospital. “I found out about it later, when I went to visit him in the hospital.”
Schembri’s business still had substantial value at that time, the attorney suggested. The witness agreed, adding that the fixed assets were worth more than 5 million euros and the stock 1.8 million euros. “Then Darren Casha came in and took them down to zero,” observed Montalto.
Mugliette accused Casha of embezzling around €100,000 in cash which was intended for salaries, as well as VAT, the €5 million in fixed assets and the €1.8 million in shares.
He also accused Casha of making a fictitious €3 million VAT claim, the witness explained.
Mugliette said he resisted Casha’s attempt to do so and a debt settlement was reached. “If I sell €100 of Cassar and Schembri to More, no profit is made. But they sold shares, charged VAT but didn’t pay it.
Montalto suggested to the witness that Casha was being helped by someone inside. “It had to be,” replied Mugliette.
The magistrate asked if Schembri had done anything after discovering the TVA carousel. Montalto said Schembri was not a shareholder at the time. The witness said he didn’t know if that was the case.
Cross-examined by attorney Roberto Montalto, Mugliette said his involvement was limited to lending money to Cassar and Schembri, not investments. “I wouldn’t get involved in transactions etc., but he would approach me with cash flow issues and help resolve them.”
The witness became a consultant at Cassar and Schembri. “I was against expanding into Libya, but that didn’t mean he couldn’t do it,” the witness said, adding that no shares of the company’s Libyan branch had been sold during his tenure. “Maybe it’s because the expansion happened too fast,” he said, referring to supermarkets in Malta. Too many outlets were opening, too quickly, he said, listing a number of outlets and planned outlets.
After all of today’s witnesses testified, Montalto asked for Schembri’s bail.
He called Schembri’s Latvian partner Aviva Kushner to the stand to testify about his links to Malta. The woman said she met Schembri in Dubai during a job interview. They became a couple and now have two children together, aged 2 and 5, she said.
She had moved the family to Malta from Dubai in order to support Schembri, she said, showing copies of supporting documents, showing the children’s school enrollment and that she had paid employment. “When we arrived in Malta in 2017, I struggled and had to apply for social benefits.”
The woman said she was unaware of the details of Schembri’s predicament, other than the fact that he had problems in Malta and left because of them. “We were fighting for the money, so the agenda was that we’ll face the music when it comes. His intention has always been to repay all of his creditors,” she said.
“As Ryan’s attorney and friend since childhood, the defense was careful in seeking bail for Schembri,” Montalto said, after the witness was taken off the stand. “But three months after his arraignment, all of the original plaintiffs had testified bar 1. During those three months, none of the witnesses reported any attempt to bribe them, he pointed out.
“Also, we now have a clearer picture of what happened,” Montalto said, saying it was also clear that the company’s collapse was caused by a third party.
The only possible offense emerging from the evidence was fraudulent bankruptcy, he said. “Not money laundering. He has no family abroad, rather his family came to Malta for the long term. Now I can understand creditors believing he fled as a millionaire, but the truth is he left with the clothes on his back and was living in public housing.
“He went to live in London. Yes, he left Malta, but he didn’t try to hide. He went to the EAW as soon as he was informed.
Schembri was currently residing in accommodation he rented from his father, the lawyer said.
For the prosecution, Refalo pointed out that Schembri had “traveled halfway around the world in an effort to avoid extradition.” There were at least five other witnesses to testify, he said, including victims.
The magistrate will issue a bail order. The case continues on August 12 during which seated Darren Casha was summoned to testify.