Sheldon Zelitt Goes To Jail (Finally)

The man behind fraudulent VisuaLabs is extradited from Prague.

It's tough to speculate how Sheldon Zelitt felt on May 19, 2005, as he boarded a Czech Airlines jet in Prague, bound for Montreal. We know that he joined two strangers aboard the Airbus A310, who cordially introduced themselves and sat down with him for the seven-hour flight. Zelitt would have known that no friendly faces would be there to greet him in Calgary, his ultimate destination. But then again, he'd been less than thrilled with Czech hospitality during the past year. He could have delayed his trip further, but had decided against it.

Zelitt's seatmates were George Prouse and Eric Ampoma. For them, the flight was routine. “Other than it being a long flight, which required a little more vigilance on our part, it was pretty straightforward,” says Prouse. He politely declines to reveal what the three men chatted about as they wiled away the journey across the Atlantic. “We try to be as low-key as possible,” Prouse adds. “I would venture to say that the majority of passengers on our plane coming back didn't know there was a prisoner being escorted.”

The three landed in Calgary at 10 that night. Uniformed RCMP officers escorted an expressionless Zelitt past journalists and curious onlookers. His mustard coat draped over his handcuffs, Zelitt answered no questions. He got into an unmarked police car, which took him to an RCMP facility in nearby Airdrie. The next day, he began serving what he had long sought to avoid: a prison sentence.

As RCMP commercial crimes investigators, Prouse and Ampoma were intimately familiar with Zelitt's history. He was the man behind VisuaLabs Inc., a fraudulent Calgary-based technology company that imploded in 2001. For them, his return was a long-awaited triumph; they had been part of a multijurisdictional effort to have him extradited from the Czech Republic to face the music. That they succeeded sends a strong message to corporate miscreants: fleeing the country does not guarantee an easy life of pina coladas and palm trees in some distant tax haven.

Extradition, though, is a blunt instrument. It's a process governed by bilateral treaties that are difficult to negotiate and vulnerable to changing governments, diplomatic relations and other historical meanderings. And the world's legal systems can be as diverse as its languages. Meanwhile, global communications make it easier for criminals to plan and execute cross-border crime, and steady improvements in international travel make it convenient for them to evade justice. For all too many white-collar offenders, freedom can be just a flight and a few bank transfers away.

He had a ponytail. He was obsessed with security. He drove his family about in a large bus. These were just some of the signs that Zelitt was no ordinary CEO. But he told people he was developing leading-edge display technologies, and as investors eagerly awaited a commercial breakthrough, Zelitt's eccentricities were overlooked, ignored or forgiven. Behind them lay a more disturbing trait: a singular ability to deceive.

Zelitt claimed he'd developed a technology that would display three-dimensional images on modified TV screens, avoiding the bulky headgear employed by existing 3-D systems. With that claim, he took VisuaLabs public in 1997. Later, he unveiled GroutFree, another technology, which purported to “stitch together” smaller display panels to make large screens. Deals announced by Zelitt generally failed to materialize, but VisuaLabs nevertheless managed to win over about 3,000 retail and institutional investors, many journalists and even some in the scientific and engineering community. At one point, the company's market capitalization exceeded $300 million.

Zelitt's actual, more modest achievements came to light shortly after VisuaLabs' annual general meeting in July 2001, at which he showed investors a new GroutFree “prototype.” Some board members were suspicious, however, and upon investigation discovered that the device was nothing more than a barely modified plasma TV set that Zelitt had bought at a local electronics retailer. Board-appointed investigators quickly learned that the 3-D technology didn't exist, either: Zelitt was merely showing people a VHS tape of cleverly filmed images he'd acquired elsewhere.

VisuaLabs shares became nearly worthless overnight. Zelitt and his wife, Joy, who also worked at VisuaLabs, were promptly fired.

The following January, the Alberta Securities Commission charged Sheldon Zelitt with 11 violations of the Securities Act for making misrepresentations in VisuaLabs' filings to investors. The ASC took the unusual step of prosecuting Zelitt before the Provincial Court of Alberta, rather than its own tribunal–likely in part due to the severity of the penalties sought. (Securities fraud, after all, rarely results in prison.)

Zelitt hired lawyer Allan Shewchuk, through whom he protested innocence. Shewchuk entered a not guilty plea; he assured reporters that Zelitt planned to remain in Canada and prove his innocence. “My understanding is that he's trying to finish work on the GroutFree prototype so he can show it to people,” Shewchuk told me in September 2001. Actually, Zelitt adopted a different strategy: he ran like hell.

In 2000, the year before the fraud came to light, Zelitt's family moved from Strathmore, Alta., to the Czech Republic. The company guaranteed a $1.5-million loan so they could buy a mansion in Brázdim, a small town of 600 on the outskirts of Prague; the corporate justification for the loan was that Joy Zelitt could open a Czech office for VisuaLabs. The Globe and Mail observed in 2001 that Zelitt's family had, “by all accounts, set up another life” in Brázdim.

Nothing prevented Zelitt from joining them after his deception was discovered. The ASC's charges were all summary conviction offences–that is, offences typically deemed less serious than indictable ones. There was therefore no warrant issued for his arrest; he was merely served a summons to appear in court. Shewchuk could make that appearance on Zelitt's behalf; Zelitt was at liberty to come and go from Canada as he pleased. “I don't think there had been any indication of a severing of attachments with the jurisdiction,” said John Petch, the ASC's director of enforcement, in an interview last year. And so, Zelitt quietly slipped away. Nobody seems to know when or how he escaped. “I presume there would be some kind of travel record, but I don't know that anyone's looked into the precise date that he left Canada,” says Petch. “He may have chosen to holiday in the Czech Republic and then never returned.”

The ASC learned of Zelitt's absence in June 2002, when Shewchuk applied to the court to be removed from the case. Three months later, when neither Zelitt nor a legal representative appeared for a pretrial conference, the court issued a warrant for his arrest.

Since Zelitt showed little inclination to return, the ASC successfully applied to proceed with the trial ex parte–in other words, without the accused being present. Normally, prosecutors would prefer to pursue an arrest warrant rather than expend effort and resources on a trial that might be successfully appealed at a later date. But Zelitt, beyond the reach of his enemies, was settling into his comfortable existence as a fugitive.

The Zelitts sold their Strathmore home. They were said to have profited to the tune of $5.7 million from their tenures at VisuaLabs. Sheldon Zelitt made no efforts to conceal his identity or location. He indifferently thumbed his nose at the court proceedings. As he wrote to the Prague Post, “I was certainly not required to attend whatever is happening in Canada right now.” Adding insult to injury, he set up a website for his new company, Varied Light Corp., that made claims that would have been eerily familiar to former VisuaLabs shareholders.

Judge Gerald Meagher found Zelitt guilty on all counts in January 2003, and sentenced him weeks later to four years in prison and $1.85 million in fines. The sentencing judgment stipulated that if Zelitt failed to pay the fines within three months, he would be awarded an additional four years in jail. The sentence was intended to “send a strong message of deterrence,” Meagher wrote.

Zelitt didn't pay. And Meagher observed that there was little hope of enforcing the fine or prison term. Because the charges were for provincial offences, he wrote, “extradition proceedings are not available.” The ASC, meanwhile, said it had met its mandate to rid its jurisdiction of an offender. “In large part, the objective of your regulatory proceedings has been achieved by [an offender] taking flight,” says Petch. “It's probably somewhat practical, the old western sanction by the sheriff: get out of town by sundown.”

The game, however, was not over yet.

It's unclear why Zelitt chose Prague as his home away from trouble. Perhaps it was the comforting 7,800 kilometres that separated it from Calgary. Perhaps it was the fact that the country had never before extradited anyone to Canada. Maybe he just liked baroque architecture. He'd made one big mistake, however. Jane McClellan could have told him.

Before Zelitt, the Crown prosecutor had encountered another instructive extradition case. Robert Millward was a Calgary insurance agent who'd taken out improper policies on at least one of his clients. He collected about $350,000 from the death of Calgary oilpatch entrepreneur Henry Zutz, who expired in his presence in 1988. (Millward was never linked to Zutz's death.) Millward ran off to Belize before his trial in 1997. “He was smarter than Zelitt,” McClellan says. “He went to Belize, which doesn't have an extradition treaty with Canada.” Millward might have remained a free man had he not contracted hepatitis. He flew to Las Vegas for treatment and was quickly arrested. He was eventually extradited to Canada.

Extradition treaties are explicit reciprocal agreements governing the transfer of fugitives between countries. Though some multilateral conventions exist, most are bilateral agreements. The concept has existed for some time; the first recorded extradition agreement was signed between an Egyptian pharaoh and a Hittite sovereign in 1280 BC. Strictly speaking, treaties are not necessary in securing a fugitive–some countries allow for exchanges on a reciprocal basis. But in practice, they help. Without a treaty, there is no legal obligation to extradite.

Treaties spell out the crimes for which extraditions can take place. Newer ones typically stipulate that an individual can be extradited for any offence punishable by a minimum prison term in both the requesting and requested states–the model preferred by groups like the G8. But that isn't how things have always been done. Older treaties listed specific offences; if the accused's alleged crimes didn't match up with a clause in the treaty, a requesting state might be out of luck.

The treaty between Canada and the Czech Republic belongs to the older generation. In November 1924, Tomáÿs Masaryk, the then president of the Czechoslovak Republic, signed an extradition agreement with Britain's King George V. The treaty was extended to Canada, a British dominion, four years later. Extradition treaties, though difficult and time-consuming to negotiate, are typically only as durable as the states that sign them. Yet somehow–and to Zelitt's misfortune–the Canada-Czech treaty survived Nazi occupation, four decades of Communist rule and the partition of Czechoslovakia itself at the end of 1992.

Not surprising, the treaty's list of extraditable offences includes some peculiarities: “administering drugs or using instruments with intent to procure the miscarriage of women,” “dealing in slaves,” and “any act done with intent to endanger the safety of any persons traveling or being upon a railway.” It seemed a less than ideal mechanism with which to extradite Zelitt on the securities convictions: as one might expect, the treaty does not weigh in on how accurate press releases should be. What's more, there is no such thing as a provincial offence in the Czech Republic.

The prospects for Zelitt's extradition were to improve, however, as the ASC began to conclude that his escapades amounted to more than just making exaggerations in corporate disclosures: it eventually believed it was looking at criminal activity. Alberta's Securities Act permits the commission to forward matters to other authorities whenever appropriate. ASC officials met with RCMP commercial crimes investigators during the fall of 2002 and handed over evidence. RCMP officers then commenced a new investigation, this time under the auspices of Canada's Criminal Code. New witnesses and experts were interviewed, and more evidence collected. From the beginning, the RCMP realized that they were probably moving toward making an extradition request. After completing its investigation, the RCMP concluded that the facts supported fraud charges. They forwarded the file to McClellan at Alberta Justice. She agreed, as did her superiors.

Fraud: now there was a concept more readily understood by Czech authorities. The antiquated Canada-Czech treaty identifies “fraud by…a member or officer of any company” as an extraditable offence. McClellan thought that described Zelitt's alleged misdeeds exactly. A global count of fraud was laid against Zelitt in January 2004. Quietly. “We didn't want him to think that we were going to come and get him,” McClellan explains, “because he could leave and go someplace where there isn't an extradition treaty.”

According to Czech procedures, prosecutors from the Czech Ministry of Justice would argue the case for Zelitt's extradition. Canada's extradition request therefore had to be persuasive. McClellan prepared affidavits and other materials aimed at convincing a Czech judge. She invited the ASC to make its own submissions, so that Zelitt's conviction on securities offences could be included in the extradition request.

After McClellan finished compiling the documents, they disappeared into the murky world of international diplomacy. In Canada, extradition requests end up with the International Assistance Group, a tight-lipped cadre of about a dozen full-time prosecutors within the federal Department of Justice. Department spokesman Patrick Charette said IAG members typically declined to be interviewed. “Frankly, our experts are always reluctant to go public,” he said. “They work behind the scenes, and they like it that way.”

The IAG handles approximately 200 extradition requests a year, including ones both sent by and delivered to Canada. This one wound up on the desk of Candice Welsch; later, after Welsch was posted to Sierra Leone, lawyer Jennifer McKeen took over the file. The IAG's role is to ensure that extradition requests meet all legal requirements. In Zelitt's case, it forwarded the materials to its Czech counterpart through diplomatic channels, and then on to the Czech prosecutor.

The Regional Court was persuaded that Zelitt should be taken into “preliminary extradition custody.” Czech authorities arrested him on May 26, 2004. He was taken to a Communist-era jail near Prague's airport, a jarring change of venue from his Brázdim pile. “If he's held pending extradition for eight months,” Petch observed during an interview last year, “he'll have spent more unpleasant time than he's likely to see inside a Canadian jail.”

A state attorney would have examined Zelitt during a preliminary investigation. If Zelitt provided proof supporting his innocence during that interview–such as, say, a working GroutFree prototype–the state attorney would be bound by law to consider that evidence. Apparently, whatever evidence Zelitt provided was not deemed exculpatory, because the matter went before the Regional Court, which had to determine whether the extradition treaty's terms had been met. Czech Justice Ministry spokeswoman Iva Chaloupkova explained to the Prague Post: “Our courts need to re-examine the case and [decide] whether Mr. Zelitt's controversial activities in Canada would also be considered criminal in the Czech Republic.”

There are four major reasons why extradition requests could be denied. One is the grounds relating to the offence; that's particularly important in so-called political offences. Another is the nature of the individual sought; if he is a well known or controversial figure, for example, concerns may arise that he may not get a fair trial. The third is the penalty sought: Canada, for instance, refuses to extradite fugitives to countries where they might face the death penalty. Most relevant in Zelitt's case, however, was the fourth possibility: the nature of the charges or the manner in which they have been or will be prosecuted. An extraditing state must be satisfied that the offence would be considered a crime by its own standards. The securities convictions muddied the waters.

Zelitt's extradition hearing began in December 2004. McClellan knows of at least some of the issues raised at the hearing, because she was asked for additional submissions. One problem, she says, was that the Czech court had difficulty understanding the particulars of Zelitt's ex parte trial. “It was a translation and terminology problem,” she explains. “Their trial in absentia is a trial that occurs without the accused essentially even knowing there's a trial. That is different from what we consider an ex parte trial.” Finally, Zelitt's advocate argued that he was facing “double jeopardy” because the securities charges and the fraud charges were similar. Zelitt's pursuers believed that this was an issue for a Canadian court to decide. “Under the treaty,” McClellan argues, “whether there is double jeopardy or other defences available to the accused is not a reason to deny the extradition.”

On Jan. 27 of this year, the Regional Court ordered Zelitt's extradition. Notably, its decision also ruled that he could be shipped on the securities infractions.

Zelitt could have appealed the extradition order to the Czech Republic's Supreme Court. He didn't. He may have wearied of his Czech dungeon; McClellan says that he complained about the food and accommodations. And so, the final decision was passed to the country's minister of justice, who can kill extradition proceedings at any time he sees fit. He gave his blessing to Zelitt's transfer on April 19. A month later, Prouse and Ampoma went to Prague to collect him. After arriving in Calgary, Zelitt began serving his sentence.

Alberta Justice will now prosecute Zelitt on the fraud charges. He is currently represented by Tim Foster, a Calgary lawyer who specializes in impaired driving offences. (Foster declined interview requests.) Zelitt can still argue that he is a victim of double jeopardy. Another question is how much credit, if any, he should receive for his stay in the Czech slammer. While that's at a judge's discretion, McClellan will argue against it. “There's a line of case law from the Alberta Court of Appeal where in some cases no credit has been given for extradition dead time,” she explains.

Canada modernized its extradition processes with a new Extradition Act in 1999. Among other things, it provides human-rights safeguards to persons sought by other states, allows the use of different forms of evidence (which helps when requesting states are of a different legal tradition), and permits transfers of prisoners to the International Criminal Court. Further improvements, however, are apparently a low priority. Spokespeople from the Foreign Affairs, Citizenship and Immigration and Justice departments could not agree on which arm of government was responsible for negotiating and administrating bilateral extradition treaties, and were unable to provide any comments on the matter.

But Zelitt's escape was neither daring nor particularly novel. Those accused of infractions often find their way to other jurisdictions, a move that can severely complicate law enforcement and prosecution efforts. Recently, Portus Alternative Asset Management Inc. co-founder Boaz Manor headed for Israel after the Ontario Securities Commission placed the hedge fund firm under court-appointed receivership. He has since claimed that he is suffering from an undisclosed illness and is unable to travel. The OSC has been criticized for not seizing Manor's passport prior to his international excursion. “Only a blind person would conclude that Manor, whose company was out of business and under deep suspicion, wasn't a flight risk,” wrote the National Post's Barry Critchley in a column. “Not too many guys hang around when they have an escape alternative.”

The critics missed the point. The OSC hadn't (and still hasn't) charged Manor with any wrongdoing. Even if it had, it lacks the authority to seize passports. Like Zelitt before him, Manor was well within his rights to head out on an international excursion.

Should Manor be charged with an offence, however, Israel may prove a less than ideal haven. The country has an extradition treaty with Canada dating to the late 1960s. Eric Pelletier, an OSC spokesman, says that “there are avenues for us to seek extradition” when appropriate. Moreover, the RCMP announced in late July that it was conducting a criminal investigation into the Portus matter. Another wild global goose chase may be in the offing.