SmartHomeOwners

CALGARY: The RCMP has been called in to investigate allegations by the Bank of Montreal that it has lost $70 million in a massive mortgage scam involving more than a hundred people including lawyers, brokers and even its own employees.

``We're looking into it right now on a very preliminary basis to determine if there's enough information to go on and see whether there's some type of criminal act here,'' RCMP Sgt. Patrick Webb said Wednesday.

``Once that preliminary look-see is completed, we can determine whether we can take it to our commercial crimes unit and see how far we can get on this investigation.''

The bank, in a lawsuit filed in Calgary, says it has been scammed in several schemes that were first flagged in a security check four years ago. It alleges the defendants found undervalued houses in upscale neighbourhoods, then paid someone a few thousand dollars to put their name on a mortgage application.

Documents were then forged to inflate the value of the property and to fool the bank into believing the buyer had the ability to pay. Once the mortgage was approved, the fraudsters pocketed the profit and the money was sent overseas, the bank says.

The allegations have yet to be proven in court.

The bank says it hopes to recover about $30 million.

Webb said BMO (TSX:BMO) filed a complaint with RCMP within the last two weeks.

BMO spokesman Ralph Marranca declined a phone interview, but in an email said most of the losses were recorded in the third quarter of 2007.

``We operate the bank prudently with a high degree of diligence. When we do discover something like this, we take appropriate action,'' he wrote.

``No customers have been directly impacted. We constantly review our processes and this experience has provided some learning that we have applied to further enhance our due diligence.''

He also said: ``We do not expect any material negative financial implications from the legal action.''

Police now have to determine whether mistakes were simply made at the bank or whether there was a conscious attempt to deceive, Webb said.

``So much of that is the intent aspect of it, trying to determine whether this was poor business or there was an attempt to defraud.''

Webb said there are no timelines on the probe.

``It's a very, very large investigation, so it may be some time before we actually reach a decision. Our investigators are coming in cold on this so far.''

Greg Draper, a forensic accountant in Calgary, said his experience would suggest this is just the surface of an industry-wide problem.

``This is hitting the news because of the size of the operation and the fact a bank has decided to take such forward action on it,'' said Draper, who works with the firm Meyers Norris Penny.

``But it's happening on a smaller scale to financial institutions across the country on a regular basis.''

Draper said the scheme was ripe for Calgary in 2006, when a booming oil and gas industry dropped the city's vacancy rate to near zero and homes were bought and sold within hours of being put on the market.

Taking action can put banks in a bind, he suggested.

``Banks have to look at the cost-benefit of taking the action that they do, and whether it's in a public forum or something more discreet, and what they're likely to recover for their shareholders.

``The way you stop it is by doing exactly what the Bank of Montreal has done. You can't prevent it. You put detector measures in place to identify it as early as possible and once a problem is uncovered you take swift and decisive action, as seems to be the case here.''