Toronto fraudster who ran $21M diamond scam is sent to prison in US

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A Toronto fraudster who was born into a prominent Ontario medical family has been sentenced to five years in a U.S. prison for a lofty diamond investment scam that stripped hundreds of victims of more than $21 million.

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Michael Shumak, who turns 55 next week, was one of the founders of a well-oiled fraud, using a telemarketing sales team in an office on Toronto’s Finch Avenue West to keep reeling in suckers who were then skinned by smooth-talking conmen.

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Starting in 2013 and running until it was shut by a Toronto police raid in 2018, the impressive sounding Paragon International Wealth Management Inc. convinced investors to send ever-increasing amounts of money for coloured diamonds, lying that they were worth far more than they were, and that a huge profit was just over the horizon — but customers always needed to invest more to reach it.

A payday never came for their victims, but it sure did for the conmen.

Shumak was one of several men arrested by Toronto police in 2018, but in a jurisdictional swap in 2022, instead of facing trial in Ontario, they were prosecuted in Ohio after the FBI found more victims were American than Canadian.

Shumak is among the first four Paragon scammers indicted by the U.S. Department of Justice who all pleaded guilty to conspiracy to commit wire fraud in separate plea deals, including Shumak’s partner in starting Paragon, James Gagliardini, and prolific conman and crooked silver-tongued salesman Jack Kronis.

The sprawling fraud, its unusual prosecution, and the colourful past of the conmen were revealed in August in a National Post investigative feature called Jack of Diamonds.

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Shumak was scheduled to be sentenced last month, but when he tried to get to his hearing in Cleveland he was stopped at the U.S. border for an unknown problem, and turned around.

On Wednesday, he had better luck at the border but bad luck in court.

His guilty plea ensured a deep discount from the maximum penalty of 20 years in prison, but Shumak’s lawyer, Eric Long, told court that even though a prison term was inevitable, Shumak shouldn’t really need prison at all because of how sorry he is.

The years of successful swindling was hard on Shumak, court heard, and getting caught and convicted “have prompted him to make a conscious effort to turn his life around,” Long told U.S. District Judge J. Philip Calabrese.

“His life has been forever changed as a result of his poor choices. The repercussions for his conduct are significant,” Long said in pre-sentence arguments. “He is completely remorseful and contrite for his misconduct and continues his efforts of being a productive and law-abiding citizen.”

The judge, Long said, should not look only at the long list of victims or the huge amounts of money that was taken.

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“A person cannot be judged, or their character defined, by a series of isolated acts or bad decisions,” Long said. Shumak is also “a father, husband, brother and son.”

Long told the judge his client had a “lucky childhood” growing up in a good neighbourhood in Toronto.

Shumak was born into a prominent family of doctors: his father, Kenneth, was president and CEO of Cancer Care Ontario who, as a professor of medicine at the University of Toronto, revamped the school’s medical curriculum prior to his death in 2001; Shumak’s mother, Rene, was chief radiologist with the Ontario Breast Screening Program and well-known for her cancer screening advocacy before retirement.

“While Mr. Shumak had a loving and supportive home, he struggled with substance abuse, something that has plagued his life for decades,” Long said. Court heard Shumak first drank alcohol at the age of four and ten years later started using cocaine and more recently opioid pills.

Before he co-founded Paragon he was a musician, playing guitar in a band in Los Angeles. While helping run the diamond fraud he used cocaine daily, but he went into rehab and has been drug-free since 2016, court heard.

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“Though Mr. Shumak’s drug abuse likely allowed his judgment to be clouded and played a role in the crimes that he committed, Mr. Shumak knows that only he is to blame for the position he is in,” Long said.

His lawyer’s plea was backed by letters of support from Shumak’s friends and family.

Chris Acchione, who said he and Shumak have been best friends for almost 30 years, described Shumak as the best a man could be.

“Michael has a heart of gold. He is kind, understanding and always available to talk and give advice. He is one of the smartest men I have ever met, he is extremely intelligent. Michael is also a very talented musician. He is generous to a fault,” Acchione wrote in a letter to the judge.

Calvin Beale, a friend and fellow musician, said Shumak always helped musicians in their circle when they needed it. “Michael is also very empathetic,” Beale wrote; Shumak “may not be perfect but none of us are.”

In contrast, U.S. prosecutor Brett Hammond, urged Calabrese to impose a sentence at the high end of the scale.

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Prosecutors identified just under 200 victims in the United States who lost the equivalent of more than $21 million in Canadian currency.

“The impact of this crime on Paragon’s victims was profound,” Hammond said in pre-sentencing arguments.

Court was sent written statements from some of Paragon’s victims.

One said he had to keep working even though he is 79 years old and ill because of the hit he took from the scammers. Another said: “I had to sell my company using the equity to pay off the debt as my failing health made work difficult. I was going to use the money to help retire with.”

A third called the diamond sellers “vicious and greedy scam artist(s).”

Vicious and greedy scam artist

A victim said he was played by Paragon for 18 months while being drained of about US$60,000, “before realizing that I had been swindled,” requiring him to remortgage his house and come out of retirement.

Shumak was given more time behind bars than two of his colleagues. Shumak’s sentence of five years is equal to 60 months. Gagliardini was sentenced to 56 months in October, and Kronis received 37 months, in November.

Toronto police Detective Kevin Williams, who led the investigation that shut Paragon down, was pleased to see Shumak punished for his fraud.

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“This was a positive outcome and a good example of a cross-border law enforcement investigation with our partners in the U.S.,” Williams said.

“It is also a good example of the criminal justice system holding those who perpetrate fraud accountable for their actions. In this case, the consequences of Mr. Shumak’s criminal actions netted him five years in jail.”

Shumak was not immediately taken into custody but forced to turn over his Canadian passport and live under monitoring at the home of a childhood friend in New York state. It is uncertain when he will be transferred to a prison.

A restitution order against Shumak has been postponed until after the trials end of still more Canadians accused in the Paragon swindle.

Antonio Palazzolo is scheduled to be sentenced in March. Two others linked by authorities to the Paragon fraud have not yet had their case heard.

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