Judge places Denesoline in temporary care over fraud allegations

A file photo of Łútsël K'é in February 2021. Sarah Pruys/Cabin Radio
A file photo of Łútsël K'é in February 2021. Sarah Pruys/Cabin Radio

An NWT Supreme Court judge has stripped Ron Barlas of control over the Łútsël K’é Dene First Nation’s business arm as a fraud case worth millions of dollars is brought against him.

Justice William Grist said the First Nation had set out “a strong prima facie case” regarding accusations of fraud committed by Barlas, chief executive of the Denesoline Corporation.

Barlas is alleged to have redirected revenue using a joint venture and mismanaged finances without appropriate oversight. A court order will now hand control to a third party.

Prima facie, a Latin legal term, means based on first impressions.



“The order is an extraordinary one and there has to be strong evidence,” said Grist. “What has been presented to me, in my view, meets that standard.”

He said the imminent payment of a substantial sum from the Diavik diamond mine to Denesoline, attested to in an affidavit from Diavik’s president this week, demonstrated a need for action.

The order is temporary and subject to review as the case progresses. It is considered a precautionary measure and isn’t the same as declaring guilt.

Grist also placed a form of freezing order on the assets of Barlas and his wife.



A lawyer for Barlas responded by saying: “The fairness is completely missing.”

‘Weaponization of bylaws’

Lawyers for the First Nation and Chief James Marlowe had asked that Denesoline – and related corporations – be urgently handed over to an accounting firm, Riley Farber, as a receiver that can independently manage and safeguard them while proceedings continue.

Barlas, Denesoline’s boss for most of the past decade, is further accused of manipulating the rules governing Denesoline and its parent corporation, Tsa, to limit First Nation members’ ability to scrutinize his actions.

For example, the court heard on Friday the accusation that Barlas masterminded the amendment of multiple corporations’ bylaws to install himself as one of only two directors – and the one with the casting vote in the event of a tie, in effect guaranteeing sole decision-making authority.

He is then alleged to have changed the rules to make nominating new directors or removing existing ones significantly harder.

Barlas denies any wrongdoing.

In an affidavit filed on Thursday, Barlas argued that he needed more time to respond as he had only been made aware of the case against him on Monday.

In his affidavit, Barlas said he did not misappropriate money or seek to exert undue control over corporations related to the First Nation – what Matthew Sammon, a lawyer representing the First Nation and Chief Marlowe, had called a “weaponization of the bylaws.”



Barlas said all actions taken were lawful, pointing to a range of documents signed by the other director, Tom Lockhart, that state Barlas had been up-front about his actions and the board (of two directors) had approved them. Lockhart also filed an affidavit in support of Barlas, saying he had seen no evidence of impropriety.

Sammon said Barlas’ defence “appears to be that because he obtained the signature of a nominal director, his conduct was lawful.”

“But that sidesteps a fundamental issue,” Sammon continued – that Lockhart’s signature alone does not absolve Barlas of alleged self-dealing and misappropriation.

Private investigator tailed Barlases

The First Nation sought immediate action from the judge, said Sammon, on the grounds that cases like this one sometimes lead to “efforts to shift or dissipate assets or sometimes to remove evidence.”

Sammon urged that an order stripping Barlas of control – and an injunction freezing his assets – “should be made today, because the weekend and the days that follow may well count in respect of the harm that may ultimately result, to the corporations and the community, if they are not granted.”

Jessica Kras, also representing the First Nation, told Grist that any asset somehow lost if no injunction were issued “thwarts the applicants’ ability to recover, potentially forever.”

The First Nation’s lawyers said they were trying to counteract what they termed a “sophisticated exit strategy developed over the course of several years” by Barlas, even involving an internal agreement that he would be paid more than $4 million if he were ever to be removed.

Sammon said private investigators hired to tail Barlas this week had taken photographs of his wife spending a “relatively prolonged period” at the Bank of Montreal on Thursday, then photographed a woman “believed to be Mr Barlas’ daughter” taking boxes and a container, plus at least one binder, out of a truck at the Barlas household in Yellowknife.



Sammon said those photographs were “purely circumstantial” – there could be any number of explanations for a bank visit or the movement of boxes and containers – but in the circumstances, he said, the private investigators’ report “supports an inference that there is a risk of dissipation of assets, and potential disruption of evidence, if actions aren’t taken by the court to prevent those steps.”

Most of Friday was spent by Sammon walking Grist through documents filed earlier this week.

Grist ultimately said the private investigators’ findings were not “very consequential” but acknowledged the severity of many of the allegations before the court.

While describing the First Nation’s application as “extraordinary,” Grist said the “long history of apparent malfeasance” set out by the First Nation’s lawyers had convinced him to grant both the request for a receiver and a freezing order.

Evidence ‘at the last second’

Michael Kirk, a lawyer representing Barlas and several related companies, asked how the “genie would be put back in the bottle” if Denesoline and others were moved into the hands of an accountancy firm but, later, the justice system were to decide the corporations should be placed back into Barlas’ control.

Kirk sought an adjournment in an appearance by phone. He said Barlas had only hired him on Wednesday afternoon, and a flight that would have brought the lawyer from Edmonton to Yellowknife in time for Friday was cancelled.

Referring to the private investigators’ affidavit submitted by the First Nation’s lawyers on Friday morning, Kirk said: “We’re getting affidavits at the last second before we come to court.”

“I’m unable to properly respond. There’s not an opportunity for me to respond,” Kirk later told the court, adding that numerous serious allegations “had not been tested” and should require cross-examination before any decision is reached. He questioned the “overall fairness” of any decision other than to adjourn.



Sammon said Kirk had “reasonable concerns” at the short notice of some developments, and told the judge he agreed that Barlas and his wife had the “right to respond and defend the matter on its merits” – once an order and injunction had been issued.

Friday’s appearance took place in a second-floor courtroom at Yellowknife’s courthouse. A third-floor room had been found too small to seat the two-dozen or so people who wanted to attend.

In an indication of the haste with which proceedings have come together, more than once the judge – trying to follow Sammon’s argument – had to swap out binders containing hundreds of pages that did not quite align with each other. Both the judge and lawyers had occasional difficulty mastering names such as Barlas and Denesoline.

The First Nation, which relies on an employee characterized as a whistleblower for some of its claims, alleges an estimated $10 million to $14 million was inappropriately acquired by Barlas, or companies in his name, since his employment at Denesoline began in 2014.

Denesoline attracts much of its revenue from nearby diamond mines and related industries. The First Nation alleges Barlas formed a joint venture between Denesoline and one of his own companies that was then used to syphon revenues that rightly belonged to Denesoline.

The Diavik diamond mine’s president, Angela Bigg, had earlier filed an affidavit expressing “concern” about the allegations, noting that the mine was due to pay some $13.5 million to “Denesoline-related entities” at the end of April and worrying that the money might not reach its intended destination.

Barlas, in his affidavit, challenged Bigg’s quoted figure and said she and Denesoline had an “adversarial” relationship.

Grist, dismissing Kirk’s adjournment request, said Bigg’s affidavit gave “some considerable measure of urgency to the orders sought here today.”

Łútsël K’é, a fly-in community east of Yellowknife on the East Arm of Great Slave Lake, has a population of around 350 people. The case is extraordinary for the sum of money allegedly involved, given the community’s size.