More Supermarkets: defence turns guns on Medasia restaurateur over VAT carousel fraud

A witness giving evidence in money laundering proceedings against former More Supermarkets director Ryan Schembri accused businessman Darren Casha of taking over the company and cleaning out its assets, directing them into his own pocket.

Investor Edmond  Mugliette from Hamrun, who is listed as the sole shareholder of We Media, is involved in litigation with Casha over an alleged €2 million credit extended to the supermarket when it was still under control of Ryan Schembri.

Magistrate Donatella Frendo Dimech continued to hear evidence against Schembri, who was brought to Malta in April on the strength of a European Arrest Warrant, having fled the island 8 years ago, leaving behind a trail of creditors of the reported €40 million in debts from his collapsed supermarket business.

More supermarket debt: Schembri and ‘Maksar’ ruse to claw back millions

Mugliette was introduced to Schembri by Darren Casha in 2012 as a business associate at his Hamrun office, for a short loan on stock which had already been sold and which would be repaid once the stock was delivered. Schembri at the time was planning an international expansion of his supermarket.

Mugliette had inspected the More Supermarkets Hamrun outlet’s financial records and observed that it was a solid, profitable business. “When I disbursed the money, I made sure that assets were purchased,” said the witness.

“At first the results I saw were encouraging. But when I started looking into the operation and conducting due diligence, I started finding that the accounting books weren’t as they should be… I found that there were things which weren’t true. For example there were sales of ship chandling services using invoice factoring which never existed.”

Mugliette said he discovered that the supermarkets “were in a loss situation”.

The supermarket attempted to bring in a large Spanish brand at large orders of stock to drive prices down. “The problem was the overheads and rents were much higher than 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 in Schembri’s supermarket operation. He insisted that he would pass on the money and the stock would be bought and that he had seen the stock items.

After Schemrbi left the island over multi-million debts accumulating, Mugliette wanted to draw up a constitution of debt, but realised that Darren Casha had instructed the accountants to sell the holding company, Cassar & Schembri’s fixed assets to More Supermarkets Mosta, Fgura and Paceville – the individual supermarket subsidiaries. He also accused Casha of carrying out the transaction to claim the VAT on capital investments. This credit, some €300,000 in VAT, Casha placed into More, which was unable to pay salaries at the time. 

“I immediately realised what was happening,” Mugliette told the court. “They pulled the rug from under my feet. I said this was not acceptable and we made the constitution of debt. I garnisheed the fixed assets… then Darren Casha filed a case alleging fraud. We are still awaiting the outcome of that case.”

Mugliette accused Casha of withdrawing the money from the bank that had been earmarked for salaries, specifically €80,000 in cheques to his own company Copacabana Ltd. “He pocketed them, basically,” interjected Ryan Schembri’s lawyer, Roberto Montalto.

Mugliette said Schembri transferred his shares to Casha to prevent his personal problems from having an impact on the supermarket. “I told him that this could not be done.”

The witness recounted being told by shareholder Etienne Cassar of an incident where, as he was sitting in his car, Darren Casha approached him and spread a number of papers on the bonnet, telling him to sign them – which he did. “Casha told me that he had paid all the supermarket’s creditors… but the list of creditors I submitted with the constitution of debt didn’t mention Copacabana, it didn’t exist. Casha wrote the cheques behind our backs.”

Mugliette said Casha’s own origin into the business had not been explained. “One fine day I found him there... He told me ‘I will speak to the workers, because this is mine.’ I got very angry and went to speak to Schembri at Handaq... But it emerged that Schembri had transferred all of his shareholding to Casha, who then made himself director in all the companies.”

Casha’s actions were the “fatal blow”, as it led to the closure of the Hamrun outlet, Mugliette said.

Montalto asked whether the witness knew that the shareholder agreement had been signed when Schembri was in hospital. “I found this out later, when I went to visit him in hospital.”

Schembri’s business still had substantial value at that point, the lawyer suggested. The witness agreed, adding that the fixed assets were worth over €5 million and the stock €1.8 million. “Then Darren Casha came along and brought them down to zero,” observed Montalto.

Mugliette accused Casha of misappropriating around €100,000 in cash which had been earmarked for salaries, as well as VAT, the €5 million in fixed assets and the €1.8 million worth of stock. 

He also accused Casha had made a fictitious VAT claim taking €3 million, explained the witness.

Mugliette said he had resisted Casha’s attempt to do this and a constitution of debt was entered into. “If I sell €100 from Cassar and Schembri to More, no profit is made. But they sold stock, charged VAT but didn’t pay it.”

Montalto suggested to the witness that Casha was being helped by someone on the inside. “He had to,” replied Mugliette.

The magistrate asked whether Schembri had done anything after finding out about the VAT carousel. Montalto said Schembri had not been a shareholder at the time. The witness said he did not know whether this was the case.

Under cross-examination by lawyer Roberto Montalto, Mugliette said his involvement was limited to loaning money to Cassar and Schembri, and not investment. “I wouldn’t involve myself in the deals and so on, but he would approach me with cashflow problems and I would help solve them.”

The witness became a consultant to Cassar and Schembri. “I was against expansion in Libya, but it didn’t mean he couldn’t do it,” said the witness, adding that no stocks in the Libya arm of the business were sold during his time. “It could have been that the expansion happened too fast,” he said, referring to the supermarket business in Malta. Too many outlets were opening, too quickly, he explained, listing a number of outlets, and planned outlets.

Bail requested

After all of today’s witnesses testified, Montalto requested bail for Schembri. 

He summoned Schembri’s Latvian partner, Aviva Kushner, to the stand to testify about his ties to Malta. The woman said that she had 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 relocated the family to Malta from Dubai in order to support Schembri, she said, exhibiting copies of supporting documentation, showing the enrolment of the children in school and that she was gainfully employed. “When we arrived in Malta in 2017, I struggled and had to apply for social benefits.”

The woman said she hadn’t been aware of the details of Schembri’s predicament, besides the fact that he had problems in Malta and had left because of them. “We were struggling for money, so the agenda was that we will face the music when it comes. His intention was always to repay all his creditors,” she said.

“As Ryan’s lawyer and a friend of his since childhood, the defence has been cautious in requesting bail for Schembri,” Montalto said, after the witness stepped off the stand “But three months on from his arraignment, all the original complainants had testified bar one. During these three months, none of the witnesses have reported any attempts to suborn them, he pointed out.

“Besides, now we have a clearer picture of what happened,” Montalto said, submitting that it was also clear that the collapse of the business had been instigated by a third party.

The only possible offence 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 haul. Now, I can understand that creditors believe that he fled as a millionaire, but the truth is that he left with the clothes on his back and was living in social housing.

“He went to live in London. Yes he left Malta, but he didn’t try to hide. He surrendered to the EAW as soon as he was notified with it.”

Schembri was currently residing in accommodation that he was renting from his father, the lawyer said.

For the prosecution, Refalo pointed out that Schembri had “travelled halfway around the world in a bid to avoid extradition.” There were at least five more witnesses yet to testify, he said, amongst them victims.

The magistrate will deliver a decree on bail from chambers. The case continues on 12 August during which sitting Darren Casha has been ordered to testify.