Report finds millions in ‘unjustifiable’ spending by directors of insolvent real estate company

A court-ordered report into the spending patterns of a former child actor’s insolvent real estate empire in Ontario alleges a pattern of lavish personal spending and “a pervasive lack of proper record keeping” about how $144-million in loaned money was spent.

The case involves a real estate rental investment business, known as Balboa Inc. et al. in court filings, that sought insolvency protection in January, after it accumulated 407 homes and rental properties across Northern Ontario beginning in 2019 financed with private mortgages that later fell into default. The enterprise involved a network of companies with names such as Happy Gilmore Inc., DSPLN Inc, The Pink Flamingo Inc., Horses in the Back Inc. and Interlude Inc.

The companies are controlled by Robert (Robby) Clark, a U.S.-born actor who, as a 13-year-old, began starring in YTV’s The Zack Files, which aired between 2000 and 2002. He filed for creditor protection earlier this year on behalf of his companies and business partners.

KSV Consulting Inc. was appointed by the Ontario Superior Court as monitor for the reorganization of the business, but was also granted the unusual authority to comb through business records and create a report into the conduct of the insolvent companies.

The report, published Tuesday night, says KSV identified “numerous instances” of borrowed funds transferred by the companies to either Mr. Clark and his partners or other companies they owned or controlled.

Over 92 pages, it lays out expenses paid by the companies, including: $59,034 for luxury home rentals; $42,174 for private jet rentals; $38,500 for Instagram influencer messages; $25,000 in one night between a Miami Beach nightclub and separate strip club; $21,000 in a matter of days at luxury hotels in Paris and New York City; and even $4,700 sent by PayPal to a private chef named “CHEFRODRIGO.”

“These transactions totalled millions of dollars and accelerated the applicants’ liquidity crisis that resulted in these CCAA proceedings,” the report says.

In response to questions about these expenses, a statement provided Wednesday by Mr. Clark and fellow directors of Balboa Inc. et al. – who include Mr. Clark’s wife, Aruba Butt, and business partner, Dylan Suitor – said some line items related to “corporate retreats” and represent spending that was “nominal compared to the Applicants’ portfolio and equity at the time.”

Based on bank records and interviews with the people involved the business, the report alleges conflicts of interest, questionable capital controls and accounting, as well as personal spending with corporate funds by directors of the company.

The report says it appears there was “a pattern of unjustifiable defalcation of funds” from investors, many of whom were private lenders.

The KSV report and other documents filed as part of the creditor protection process contain allegations that have not been proven in court.

Sean Zweig, partner with Bennett Jones LLP and the lawyer for the applicant companies, submitted a letter on Wednesday to the other parties in the creditor proceedings refuting KSV’s findings.

“The applicants vigorously dispute the monitor’s findings in the report, and have very serious concerns regarding both the contents of the report, and the information omitted from the report without explanation,” the letter says.

“Based upon the applicants’ preliminary review, it appears that the monitor has either not reviewed, misunderstood, and/or ignored certain of the applicants’ responses.”

The letter says the companies were still in the process of responding to some of the data requests from KSV.

The monitor says it didn’t receive full access to all personal and business records, and noted that, in some cases, general ledgers were not kept or provided for the various businesses. The report says about $15-million in loaned funds were paid from the now-insolvent businesses to the directors.

The monitor also found $7.4-million was transferred to non-applicant corporations owned or controlled by Mr. Clark, Mr. Suitor and Ms. Butt.

George Benchetrit, partner with Chaitons LLP and the representative counsel for the secured lenders, said in an e-mailed statement that his clients are “shocked and appalled” with the conduct outlined in the KSV report.

“The monitor has identified misappropriations of funds lent by innocent investors who trusted these companies with well over $100-million of monies advanced to them, including retirement savings, and has concluded that funds were improperly used for personal benefits and extravagant expenses of the principals without any discernible benefit to the business,” the statement says.

According to the report, Mr. Clark and his colleagues used their personal credit cards for a large number of transactions relating to the business, which the monitor said meant it was difficult to disentangle what was legitimate or not. The report says KSV did not receive adequate explanations for millions of dollars that were transferred to the directors.

In an interview with The Globe and Mail in late March, Mr. Clark said the directors didn’t take salaries or charge a management fee to run the enterprise, and claimed that “98 per cent of the capital invested is directly related to expenses in the companies” for everything from operations, acquisitions and renovations.

“It’s easy to get misconceptions; Instagram lifestyle is, you know, very different from reality,” Mr. Clark said in response to questions about social-media videos of himself at private villas, on yachts and in private jets.

“I can understand how people would get the wrong perspective of how things were done.”