The co-owner of the quarantine hotel illegally appropriated about 16 million dollars of state funds, the accused in the court

The man who oversaw the Westin Calgary Airport hotel's time as a COVID-19 quarantine facility is facing trial on charges of misappropriating nearly $16 million in federal funds.

The new lawsuit alleges that Sukhminder “Sukhi” Rai and his PHI Hospitality corporation withheld money from the Public Health Agency of Canada (PHAC) to pay hotels to accommodate travelers for mandatory quarantine periods beginning in June 2020. October 2022.

CBC News has obtained and reviewed hundreds of pages of legal and financial documents related to a lawsuit filed by two hotel owners against a third.

Rai ran a “fraudulent scheme” targeting hotel and PHAC officials, according to the complaint, telling other owners that the government had taken over the entire hotel but would only pay for 100 rooms — while he negotiated government payments for all 247. rooms.

Sukhminder Rai denies the allegations and said he is taking legal steps in the interim, including court orders and additional hearings, to fight the claims. (Legal documents/provided)

He allegedly misappropriated the revenue difference from those 147 rooms: at least $15.7 million.

The documents show that Rai, a BC resident, opened a bank account with PHI Hospitality a month before PHAC began depositing the Westin invoiced funds. This account is not associated with Westin's PHI operation.

The federal health agency transferred a total of $27.74 million to $29.07 million into that account over more than two years, according to deposition records.

Affidavits confirm that the hotel was paid only $12.05 million for the quarantine facility contract.

RBC's financial documents, supported by affidavits, say the missing money was transferred to several Rai-related entities, received in cash or transferred to offshore accounts.

None of the allegations have been proven in court.

Rai denies the allegations and has said it is taking legal steps in the interim, including court orders and additional hearings, to fight the claims.

“We intend to defend ourselves vigorously in court,” he wrote in a statement to CBC News.

“Allegations of misappropriation in court documents are completely false. It is simply a business dispute over which parties are entitled to certain money, the amount of which is admittedly exaggerated in court documents, and it is simply a business dispute. It attracts attention with sensational and false allegations.”

In this 2021 photo, the roof, walls and floor of an “isolation hotel” in Calgary are sealed and taped. (Submitted by Angelo Vanegas)

Rai has not yet defended himself. Representatives for the plaintiffs declined requests for interviews.

The hotel is owned by three joint ventures, including a 50 percent stake held by Siksika Calgary Airport Limited Partnership. Some of Rai's companies helped build the Westin, after which his company PHI Hospitality took over day-to-day management in 2018.

“I can confirm that Mr. Sukhminder Rai has not provided a satisfactory or credible explanation for the discrepancy between the PHAC funds he paid to the Westin Hotel and the income reported by the Westin Hotel,” Shane Braker, representing Siksika, said in a statement.

Hoteliers say they were only notified when they saw media reports about federal hotel spending that didn't match their own financial records. They then confirmed that they had approached Rai for questioning but to no avail.

Satnam Rai, director of the numbered company that partially owns the hotel, said in a statement: “I am concerned that it will be impossible to track, trace or recover any cash taken.”

“I am aware that there is no business relationship between the Westin Hotel and the relevant entities to justify these transfers.”

PHAC, which is not a party to this lawsuit, declined to comment on the ongoing litigation, but said the Financial Administration Act has policies governing the administration of payments.

“All payments are made in accordance with this policy. The agency has a well-established system of internal controls designed to ensure effective control over financial management,” the department official wrote.

The entrance to the Westin Hotel, which served as a federal quarantine facility near the Calgary airport, is shown in a 2021 photo. Food and supplies are left in containers outside guest rooms. (Mitch Beaulieu)

The Westin was placed into 75-day receivership by PwC Canada (PricewaterhouseCoopers) in late August, along with two Edmonton hotels under PHI Hospitality management.

This allows PwC to monitor operations and assets to facilitate the transition of management to new management and maintain records for financial audits of those properties.

Quarantine hotels have faced controversy during their operation, as concerns about high costs, poor oversight and civil liberties have arisen from closed corridors inside the facilities. In February, this Calgary hotel was reported to have 15 rooms remaining in 2022 at a cost of $453,000 per person.

During the outbreak of the pandemic, the government contracted 38 hotels in 14 Canadian cities for quarantine facilities.

Rai is suing PHI Hospitality and 10 of its other subsidiaries, alleging co-owners misappropriated PHAC funds. A judge granted a motion to freeze Rai's assets in the interim.

The hoteliers are seeking at least $18 million for breach of contract, damages and conspiracy to defraud, or to return the wrongfully obtained amount.

BC RCMP and Calgary police have declined to confirm or deny that any criminal charges have been laid.