A senior aide to both Mayor Rob Ford and Deputy Mayor Norm Kelly admitted almost a decade ago to participating in a kickback scheme that defrauded the federal government of hundreds of thousands of dollars.

Sheila Paxton, who transitioned to Kelly’s office when city council stripped Ford of his powers and budget, testified under oath that from late 1998 to early 2003, she funneled grant proposals to a friend in the HRDC — now Employment and Social Development Canada (ESDC) — who approved them in exchange for secret payments.

Paxton was part of a larger scheme that investigators alleged defrauded the government of more than $3 million and resulted in charges laid against 30 people. The Star was unable to determine how many of these people were later convicted.

Paxton, who cooperated with investigators and testified against her co-conspirators, was never charged.

Now, a decade later, she and a co-defendant are being pursued by the federal government, which has filed a lawsuit to try to recoup more than $330,000.

“It has absolutely nothing to do with city hall and nothing to do with my current job,” Paxton told the Star.

“Maybe (the Crown) just decided that I wasn’t the person that perpetrated it and that maybe what I was doing was correct: my actions that I took and the ways I tried to stop it,” she said. “Maybe they found that I was more of an innocent party than a guilty party. Have you ever thought of that?”

Paxton did not respond to a letter containing detailed questions about her involvement and whether she disclosed it when she was first hired at city hall by Councillor Mark Grimes in 2008.

Grimes told the Star he was not aware of Paxton’s past. Neither Ford, who brought her on to his staff in 2012, nor Kelly responded to detailed questions about Paxton.

In a 2006 criminal trial of three alleged co-conspirators, Paxton testified that while spending 20 years at the HRDC in Mississauga, she befriended and became a mentor to Joan Rowe.

After Paxton left the federal agency, she and Rowe co-operated to usher proposals through the approval process in exchange for a cut of the funding, according to a transcript of Paxton’s testimony obtained by the Star.

“Joan and I talked about my putting programs through her and that she would benefit financially if the programs were funded,” Paxton said on the stand during the trial. “It wasn’t overtly said. We were talking about paying Joan a fee for getting the projects funded — a kickback.”

For about three years, Paxton owned one business and co-owned another that wrote funding proposals for job retraining and other kinds of programs for the unemployed. If her project received government funding, Paxton would split her 5 per cent commission equally with Rowe, she testified. In cases where Paxton submitted a joint proposal along with someone else, they would divide the 5 per cent three ways with Rowe.

The transcript of Paxton’s testimony doesn’t make clear the total amount she paid in kickbacks.

Under cross-examination, Paxton claimed she did not keep track of how much money she received from the HRDC, but said her companies made $150,000 per year for the first two years that the scheme ran, and “probably less than that the third year,” almost exclusively from writing HRDC grants.

In 2006, Rowe pleaded guilty to fraud and accepting bribes. She was sentenced to 28 months in prison and ordered to pay $500,000 in restitution.

The kickback scheme was uncovered in 2004, shortly after the so-called “Billion Dollar Boondoggle” when the federal auditor general could find no justification for, and little paperwork on, almost $1 billion in HRDC grants.

Paxton testified that the corruption was ongoing and that some of her “excellent” and “successful” projects wouldn’t have been funded any other way.

Loading... Loading... Loading... Loading... Loading... Loading...

“The culture at the HRDC at the time was that you couldn’t get worthwhile projects funded unless you had somebody on the inside pushing it forward for you,” she testified.

Rowe ended the arrangement after about three years, when she grew “more involved with her church,” Paxton testified. Paxton then fell ill and stopped working for over a year.

“I became depressed and (developed) anxiety, because of the guilt over having given kickbacks. I knew what we were doing was wrong,” she testified. “I know that I paid secret commissions and that’s a crime.”

Paxton testified that when investigators began asking around about her, she consulted her lawyer and decided to co-operate. When pressed during cross-examination, she said that she wouldn’t have come forward had the police not put pressure on her.

“Paxton was right in the centre of this. Paxton was involved and she knew all of the players. And Paxton came to us knowing the jig was up,” said retired Det. Robert Lusty, who headed up the three-year Peel Regional Police investigation into the kickback scheme.

Lusty, who retired after 30 years on the force and now teaches at Sheridan College, confirmed that Paxton wasn’t offered a deal. Instead, when she came forward she was given what’s called a “proffer,” in which investigators promise nothing but agree to hear the person out.

“She came and gave us substantial information on the individuals involved in the fraud ring, and consequently a decision was made for her to be a witness in this case and not an accused, because the information she gave us was very, very useful. But there was no agreement with her: ‘You tell us and you won’t get charged.’ We don’t do that,” he said.

Paxton’s co-defendant in the government suits, Dr. Anthony Laws, was a onetime business partner who shared an office with her. Paxton testified that she worked as Laws’ property manager and wrote HRDC grant proposals for him. Laws paid her by putting a down payment on a Jaguar and then making several payments on the car for her, she testified.

An ESDC spokesperson confirmed that the government submitted two statements of claim against Paxton and Laws in November 2013, to attempt to recoup more than $330,000 in misspent funds.

In 2002, Laws was sent to jail for forgery and perjury after altering the medical records of one of his teenage patients, who died almost 10 years earlier.

Marco Chow Oved can be reached at 416-869-4892 and moved@thestar.ca