TORONTO - Ontario's publicly owned liquor-control authority is suing a long-time clerk and others for $2 million he allegedly scammed by selling more than a thousand cases of vodka, rye and rum to bogus diplomats or by pocketing cash from legitimate sales.

In its statement of claim, the Liquor Control Board of Ontario alleges its former employee Francois Agostini received $1.6 million worth of products between April 2005 and December 2011 but never sent the proceeds on to the LCBO.

The statement of claim contains allegations not proven in court.

Agostini, who worked at the Crown corporation from 1981 until he was fired at the end of January, was the sole order clerk in Toronto for a program under which foreign diplomats and consular officials can buy tax-free alcohol -- a 40 per cent discount.

Payments under the program could only be made by cash, cheque or money order, but most were made in cash, court documents show.

The suit filed with Ontario Superior Court, which also names five other defendants, alleges Agostini either pocketed the cash or manipulated invoices and only remitted some of the money owed the LCBO.

Starting in 1997, Agostini -- who earned $55,000 a year -- gave cash, jewelry, gifts and loans worth hundreds of thousands of dollars to various associates, including other defendants, Andrea Smallwood and his wife Carol Agostini, the suit alleges.

"Mr. Agostini would often explain his lavish lifestyle by stating he received a large inheritance," according to court documents.

"These defendants knew or were wilfully blind to the fact that the funds by Agostini were obtained by fraudulent means."

In 2005, Agostini began ordering alcohol for a Ukrainian diplomat, Svitlana Petrovska.

In fact, the suit alleges, Petrovska was none other than Smallwood -- a waitress at a north-end bar -- who sold some of the product from her trailer in Stouffville, Ont.

The alleged scam unravelled when a woman called to complain that "a female she knows got booze from a big person at head office" and was "selling the booze to people at cheap prices."

Agostini's lawyer did not immediately return a call seeking comment.

However, Smallwood's lawyer, Lenny Hochberg, said Tuesday his client knew nothing about her much older friend's alleged fraud, and accused the LCBO of "shameful" behaviour in scapegoating the single mother of two.

It was "particularly troubling," Hochberg said, that the LCBO took no responsibility for its poor accountability systems and had not explained how the fraud could have gone undetected for so long.

Smallwood "naively" did not properly review documents she signed when she picked up the "minimal amount" of alcohol she bought from Agostini at what she thought was a legitimately discounted price, he said.

Provincial police searched Agostini's north Toronto home in February, and seized among other things $46,000 in cash.

The claim states that Agostini has already returned about $600,000 in cash and alcohol.

Also named are Action Air Events -- a company controlled by Smallwood -- and Agostini's sister Monique McNeill. An acquaintance, Ramona Giurgiucana, who could lose her house in Maple, Ont., allegedly took more than $200,000 from Agostini and sent some to relatives abroad.

The suit also seeks $500,000 in punitive damages.