Court of Appeal for Ontario
Judges: Pepall, Lauwers and Fairburn JJ.A.
Between
Her Majesty the Queen Respondent (Appellant on Crown Sentence Appeal)
and
Roger Schoer Appellant (Respondent on Crown Sentence Appeal)
Counsel:
- Paul Alexander, for the appellant
- Mabel Lai, for the respondent
Heard: September 18, 2018
On appeal from: The conviction entered on August 6, 2015 and the sentence imposed on February 12, 2016 by Justice Cory A. Gilmore of the Superior Court of Justice, sitting without a jury.
A. OVERVIEW
1The appellant was a registered investment advisor. Over the course of eight years he persuaded unsuspecting friends, acquaintances, neighbours and clients to make investments in return for what they believed were positions or shares in various companies. Fourteen complainants testified about their dealings with the appellant, what he had told them, and how they had been relieved of their money under false pretences.
2The trial judge rejected the appellant's claim that he had told the complainants the truth about their investments and that he should not be found liable for any misunderstanding on their part. She found the appellant to have been a combative, belligerent, disingenuous, and sarcastic witness. In her detailed reasons, she said that the appellant's evidence pressed the "limits of reality", had "no relationship to reality", and was "preposterous and nonsensical".
3In the end, the appellant was convicted of fraud over $5,000 in the context of what was essentially a large-scale Ponzi-type scheme and sentenced to four years in custody. Focusing on the fourteen complainants who actually testified, the trial judge concluded that they had been defrauded of $413,500. She ordered the appellant to pay restitution to five complainants, who she said had specifically asked for restitution, totaling $109,150. A fine in lieu of forfeiture in the same amount was also imposed.
4The appellant appeals against his conviction. He says that the trial judge erred by:
(a) misapprehending the evidence;
(b) improperly applying the rule in Browne v. Dunn (1839), 6 R. 67 (U.K. H.L.);
(c) wrongly relying upon hearsay evidence; and
(d) failing to properly apply the "single transaction rule".
5In addition, both the appellant and Crown appeal against sentence, the appellant claiming that the fine in lieu of forfeiture was too high, the Crown claiming it was too low. The Crown also objects to the failure to grant a restitution order to one of the complainants, Peter Edwards, who the Crown says specifically asked for an order of restitution.
6For the reasons that follow, I would dismiss the conviction appeal, grant leave to appeal sentence, dismiss the appellant's sentence appeal and grant the Crown's sentence appeal.
B. GENERAL BACKGROUND FACTS
7Although the Crown alleged that the fraud involved many complainants and over $1.8 million in loss, the prosecution focused upon the appellant's dealings with the fourteen complainants who testified at trial. They came from different walks of the appellant's life. Some were his long-time friends, some the friends of his father, some his neighbours, and some his clients from his time working with various investment firms. None were sophisticated investors. Each testified about the trust they had placed in the appellant. With the exception of one complainant, the trial judge accepted their credibility and the accuracy of their evidence.
8The appellant told the complainants that he knew of private companies that were selling positions or shares in order to raise money to go public, or improve their financial picture. He told the complainants that they would double or triple their money. He often promised quick returns, sometimes claiming that money would double or triple within a matter of months. After they "invested", the complainants were often told about how well their "investments" were doing.
9Though the appellant's pitch morphed over time and between complainants, he generally used the same types of lies to get the complainants to believe that they were making good investments. The complainants testified about how they made their "investments". At the appellant's direction, they were told to forward him cash, cheques made out in his name, cheques made out to him in trust, cheques given to him with the payee left blank, and cheques to third parties whom the complainants did not know. Although the complainants testified about their concern for the unconventional manner in which their investments were made, their trust in the appellant prevailed.
10Contrary to his promises, the appellant did not broker a sale of shares or positions in the named companies for his clients. No documentation was provided to the complainants confirming that they were entitled to shares or debt in the private companies. The private companies, in turn, had no record of the complainants buying their investments. Instead, the appellant converted the money to his own use. Much of it was intermingled with his own funds. Later, when some complainants were demanding an explanation, documentation, or a return of their money, he found new investors and arranged for them to write cheques that could be delivered to the early investors.
11The appellant testified at trial and maintained that he did not misappropriate the funds. Rather, the appellant maintained that he was himself the owner of shares or positions, and he was facilitating their resale to his clients. They may have misunderstood the nature of the transaction, but it was through no fault of his own. The complainants may have lost the value of their investment, but that was the nature of private investments. The trial judge did not believe the appellant when he testified that he had any right to the shares in either the various private companies, or the shell company Hyberlab. As mentioned, the trial judge entirely rejected the appellant's evidence, finding "his insistence on this fabricated reality to be disingenuous and not believable."
12The trial judge meticulously detailed the particulars of the appellant's fraudulent conduct in her reasons for conviction. I will address the facts as they arise in the conviction appeal.
C. CONVICTION APPEAL
(1) Alleged Misapprehensions of Evidence
13The appellant argues that the trial judge misapprehended the evidence in a number of respects, any one or combination of which he says had a material impact on the verdict.
14Misapprehensions of evidence must relate to material pieces of evidence that play an essential role in the reasoning process that results in conviction: R. v. Sinclair, 2011 SCC 40, [2011] 3 S.C.R. 3, at para. 56. They can involve failures to take into account items of evidence, mistakes about the substance of evidence, or failures to give proper effect to evidence: R. v. Morrissey (1995), 97 C.C.C. (3d) 193 (Ont. C.A.), at p. 218. Those kinds of errors can give rise to unreasonable verdicts under s. 686(1)(a)(i) of the Criminal Code or miscarriages of justice caught under s. 686(1)(a)(iii) of the Criminal Code: Morrissey, at p. 219.
15In explaining why I reject this ground of appeal, I will address the alleged misapprehensions under three categories. The first pertains to the appellant's arguments about evidence informing what I will refer to as the "Magnet transactions". I will then consider his arguments related to "other transactions" and conclude by addressing his arguments about alleged misapprehensions of evidence relating to "industry standards".
(i) Magnet Transactions
16I agree with the appellant's observation that the verdicts turned largely on the trial judge's findings relating to the transactions associated with the shell company Hyberlab. I disagree with his observation that the trial judge's reasons reflect six misapprehensions of evidence in relation to those transactions.
17Some background is required. The appellant testified that Gregg Galbraith, who did not testify at trial, was an executive within Hyberlab. Galbraith was said to hold a term promissory note with Hyberlab, dated January 5, 1999, entitling him to 9.15 million common shares or $183,000. The Ontario Securities Commission ("OSC") issued a cease trade order against Hyberlab on June 24, 1999, meaning that Hyberlab would need OSC approval before it could resume trading. Hyberlab was in significant debt.
18The appellant testified that in 2002, Galbraith asked him to help get Hyberlab trading again. The appellant maintained that he could accomplish that by merging Hyberlab with a private corporation by way of a reverse takeover. The appellant said that Galbraith and he entered into an agreement that, upon a successful merger, the appellant would receive the 9.15 million shares (one million to be returned to Galbraith) or $183,000. The appellant produced a signed agreement to that effect, dated February 17, 2003, something that was referred to as both a promissory note and a debenture. The agreement stipulated that should the merger referenced in the agreement not take place, the appellant's interest in the debenture would be ended.
19The Crown's position was that the merger referenced in the agreement did not take place, and the appellant did not have – at any material time – an interest in the 1999 Hyberlab promissory note. The appellant testified that the 2003 agreement was open ended and he was looking for a company with which to complete the merger since that time. The trial judge accepted the Crown's position and rejected the appellant's evidence.
20In 2005, Magnet Innovations was looking to go public and needed a "clean" shell with which to merge. Many of the complainants testified about their belief that the appellant had sold them shares and positions in Magnet.
21Although two letters of intent between Magnet and Hyberlab were signed in April and September, 2005, those letters had expired by December, 2005 and were never renewed. The lawyer for Magnet confirmed in evidence that nothing happened after the second letter of intent was prepared. Although Magnet continued looking for a viable shell company, there was no particular attachment to Hyberlab, and the appellant's former investment firm told Magnet that Hyberlab was not a viable clean shell company. The merger never happened.
22Magnet also decided to raise capital through promissory notes and loans. Magnet's lawyer testified that the appellant was to assist in raising capital, but that he was difficult to deal with and that his paperwork had concerning discrepancies. The lawyer said that Magnet was not able to rectify many of the discrepancies that arose from the appellant's transactions. Indeed, at the time of trial, the witness was still dealing with people who thought that they had loaned money to Magnet through the appellant. Yet, Magnet had no record of those people. In any event, at no time was the appellant authorized to sell shares in Magnet.
23The appellant makes several arguments.
24First, the appellant complains that the trial judge misapprehended the relationship between Hyberlab and Magnet, and the appellant's authority to sell positions in them. I disagree. The trial judge's comprehensive reasons demonstrate that she clearly understood that Hyberlab was a shell company that was subject to a cease trade order and that Magnet was a company looking for a "clean" shell. She also clearly understood the appellant's testimony that he was selling his own positions in Hyberlab and his position that his clients were confused through no fault of his own.
25It was open to the trial judge, however, to reject that evidence and find that it was actually the appellant who conflated Hyberlab and Magnet in order to effect the fraud, leading many of the complainants to believe that they were buying shares in Magnet. It was also open to the trial judge to find on the evidence that the appellant was not entitled to trade shares in Magnet, he did not have an interest in the 1999 Hyberlab promissory note, and in any event did not inform the complainants they were ostensibly sinking their money into the highly questionable 2003 Hyberlab debenture. Even if it was a legitimate debenture, it would never be realized if a merger with Magnet did not crystalize. I agree with Crown counsel that the fraud lay in the fact that the appellant did not reveal to the complainants the true state of affairs, misled them about what their money was directed at, and did not reveal to them the actual risks associated with their "investments". The reasons for judgment demonstrate the trial judge's clear understanding of those facts.
26Second, the appellant says that the trial judge erred in rejecting his evidence by noting that the letters of intent between Hyberlab and Magnet did not make reference to a portion of Hyberlab's debt being held by a third party. He also argues that she was wrong to suggest that the appellant claimed that the letters of intent were binding, when in fact he acknowledged that they were not.
27I need not get into this issue in any detail. While I see no problem with the trial judge's approach to the letters of intent, even if she was wrong, the letters played only a peripheral role in her rejection of the appellant's otherwise implausible evidence. The fact is that the appellant's evidence was rejected for a multitude of reasons that far surpassed the issue relating to the letters of intent.
28Third, the appellant argues that the trial judge erred by failing to consider that some of the complainants acknowledged that their investments would be illiquid and non-refundable and that, if the deal with Magnet did not succeed, another merger with Hyberlab would have to be sought. Although the appellant is right that some of the complainants acknowledged that they knew they were assuming risk, the trial judge found that the appellant diverted their funds to his own use and misled the complainants about the nature and extent of risk associated with their investment. In light of that factual finding, there was no need to repeat the minutiae of each complainant's evidence.
29Fourth, the appellant claims that the trial judge erred by finding that there was no possibility for a merger between Hyberlab and Magnet after 2005. He says that she ignored evidence of ongoing, good faith talks between the lawyer to Magnet and the appellant, long after that time frame. I do not agree. Read contextually, the lawyer's testimony does not support that position. While Magnet continued to look for a clean shell company to merge with after the letters of intent had expired, the appellant's former employer, the investment firm Standard Securities, discouraged Magnet from dealing with Hyberlab because it was not a "clean" shell.
30Fifth, the appellant takes issue with the trial judge's findings about letters that Magnet investors received from Gregg Galbraith, who owned the promissory note in Hyberlab. The letters said that Galbraith undertook to deliver shares in Hyberlab or any successor company upon the completion of a reverse takeover and financing. The appellant took the position that the letters confirmed that the complainants had made investments in his 2003 Hyberlab debenture.
31Leaving aside the fact that many of the complainants had been led to believe that they had actually bought shares in Magnet, the trial judge understandably questioned the authenticity of the Galbraith letters. She was skeptical for a few reasons, including that Galbraith did not testify at trial. She also questioned how Galbraith could promise his interest in the debenture to the complainants when he had already promised it to the appellant, and how he could give those promises while the cease trade order was still in place.
32I disagree with the appellant that the trial judge misunderstood his evidence about Galbraith. She understood his evidence, she just rejected it. The trial judge was not required to accept the appellant's explanations about the operation of the letters of undertaking and she was not required to accept the letters as authentic.
33In the absence of Galbraith's evidence, the trial judge showed understandable skepticism about the origin of the letters. Additionally, she was right to note the fact that any shares that Galbraith may have had, had already been promised to the appellant. The same shares were later being promised to the complainants. Having rejected the appellant's evidence as a fabrication, there was nothing precluding the trial judge from making those factual observations.
34Finally, the appellant argues that the trial judge misapprehended the evidence about promissory notes – from both Magnet and another company called ESSX – that he sold to some of the complainants, and wrongly concluded that this formed part of the fraud. These notes, he says, were acknowledged to be legitimate by Magnet's lawyer and some of them have been honoured. Any loss in value is due to Magnet failing as a business, not any misconduct on his part. Again, I disagree.
35The trial judge fairly summarized the evidence of the complainants, including where their dealings with the appellant involved these promissory notes. As Crown counsel points out, these complainants thought they were purchasing shares directly from the companies, and it appears that the manner in which the appellant dealt with these promissory notes was consistent with the appellant's practice of deliberately obfuscating the nature of his client's investments.
36There was no misapprehension of the evidence. The manner in which the appellant dealt with his clients was part of the narrative at trial. Most importantly, the genuine sales of promissory notes were not considered by the trial judge to be part of the fraud, as is made clear in her reasons for judgment and sentence.
(ii) Other Transactions
37The appellant had been hired by Paul Brent to raise funds for a corporate entity that resulted in a publicly traded company called Airesurf. Unfortunately, Brent died before trial. Accordingly, most of the information about Brent came from the appellant's testimony.
38The appellant's commission for raising funds for Airesurf was to come in the form of Airesurf shares. The appellant sold Airesurf shares to his clients. He said at trial that Brent owned the shares that the appellant was selling, but did not tell his clients this at the material time. When Brent died, the appellant testified that there was nothing the appellant could do to remedy the fact that many of his clients had not yet received their shares.
39The appellant says that the trial judge misapprehended the evidence when she concluded that the appellant had taken no steps to deliver the Airesurf shares to the complainants after Brent's death. He says that the trial judge misunderstood to whom the shares belonged. I disagree.
40The trial judge rejected the appellant's evidence. She found as a fact that the fraud lay in the appellant's efforts to have the complainants believe that they were purchasing positions or shares in Airesurf, when the appellant had no ability to complete the sale. The trial judge's reference to the appellant's failure to take any steps to have the Airesurf shares delivered to the complainants after Brent's death simply revealed one of the many reasons for why she rejected the appellant's explanation as to what had happened. After all, if the appellant had sold Brent's shares to the complainants, surely he would have taken steps to have those shares delivered after Brent's untimely death.
41The appellant also objects to the trial judge's allegedly mistaken conclusion that he had sold portions of the Hyberlab debenture in relation to a merger with a company named EnerBrite/ESSX. He says that there was no evidence about a proposed merger between EnerBrite and Hyberlab. I disagree. Read contextually, the trial judge was simply drawing parallels between the appellant's approach to Magnet and his approach to Enerbrite/ESSX. She was not saying that the appellant told investors that there would be a merger between Hyberlab and Enerbrite/ESSX, she was saying that the appellant's deceit in relation to Magnet and Enerbite/ESSX was of a similar nature.
(iii) Industry Standards
42The appellant claims that the trial judge misapprehended the evidence regarding whether he was under an obligation to report any business he was doing outside of the investment company that employed him, Standard Securities. He also complains that the trial judge misapprehended the expert evidence in the same way. I disagree.
43The trial judge understood that neither the witness from Standard Securities, nor the expert witness, could point to written policies or rules that prohibited the appellant from engaging in outside business or "off-book" trading. Even so, taken in context, the evidence clearly supported the trial judge's findings that outside business activities had to be disclosed and that off-book trading had to be reflected in the records of the brokerage.
44Regardless, I agree with the Crown that any potential misapprehension of evidence regarding industry or business standards would be immaterial to the result in this case. The trial judge's reasons turned on the overwhelming evidence that the appellant failed to disclose material facts to the complainants, took advantage of their trust in him, deliberately obfuscated what they were "investing" in, and directed the funds to his own use.
(iv) Conclusion
45There were no misapprehensions of evidence and, even if there were, they were not material in nature and did not play an essential role in the reasoning process that resulted in convictions.
(2) The Application of the Rule in Browne v. Dunn
46The appellant says that the trial judge improperly invoked the rule in Browne v. Dunn in her reasons for judgment.
47During the course of his examination-in-chief, the appellant produced for the first time his day planners and what he referred to as his "trade blotters". The Crown took no objection to the appellant making reference to those documents to refresh his memory or to the admission of those documents in evidence. The difficulty was that, as the appellant's evidence continued to unfold, the day planners and blotters were used to suggest that the appellant and complainants had engaged in discussions and that he had done transactions on their behalf, a great deal of which had not been put to the complainants when they testified.
48Crown counsel made an immediate objection to what was happening, raising a concern that the appellant was testifying to matters that could be seen to diminish the complainants' credibility, but to which the complainants had been given no opportunity to respond. Defence counsel responded that, although it was possible that he had failed to put certain matters to the complainants, it would have been an oversight on his part and the remedy was not to preclude the appellant from testifying about those matters. The trial judge permitted the appellant to continue and said that she would determine an appropriate remedy at the end. The appellant kept using the planners and blotters to testify about conversations and transactions that he said had taken place with the complainants and, where necessary, the Crown continued to voice an objection.
49It is against that backdrop that the trial judge made the impugned comments in her reasons for judgment. She recounted that the appellant had relied on his day planners and blotters to verify what he had described as a proper documenting of the transactions. She then identified the "problem":
The problem was that neither the accounting nor the circumstances related to it was ever put to any of the complainants. I accept that the Crown was left in a difficult position in not being able to respond to this documentary evidence.
I agree with the Crown that the reliability of the blotters and the day planners is therefore diminished considerably and that they can be considered no more than self-serving statements of Mr. Schoer that he only thought of at trial.
50The appellant maintains that the trial judge erred by concluding that the appellant was under an obligation to put the entries on his internal records to the complainants. He also maintains that the trial judge erred by finding that the appellant had fabricated the documents during the course of the trial and using that fabrication as circumstantial evidence of guilt.
51I see no error in the trial judge's approach.
52The rule in Browne v. Dunn is rooted in the principle of fairness. Although counsel are not required to confront a witness with every bit of evidence upon which he or she may be contradicted, fairness requires that the witness be confronted on contradictory matters of substance so that the witness can be given an opportunity to explain: R. v. Quansah, 2015 ONCA 237, 125 O.R. (3d) 81, at para. 81, leave to appeal refused [2016] S.C.C.A. No. 203; R. v. Vorobiov, 2018 ONCA 448, at paras. 42-43. A trial judge has a broad range of discretion in fashioning an appropriate remedy when the rule is breached and significant deference must be shown to that exercise of discretion: Vorobiov, at para. 43.
53Here, the trial judge exercised her discretion in an understandable way. She decided to place less weight on the reliability of the evidence arising from the blotters and day planners because they were used to partially advance a narrative that had not been put to some of the complainants. Although defence counsel initially raised the possibility of recalling the complainants, the trial Crown voiced a strong objection and the defence did not press the matter. There were simply too many witnesses and too many transactions to make recalling the witnesses practical. Against that contextual backdrop, the trial judge's decision to deal with the matter in her reasons for judgment was understandable. In these circumstances, it was entirely open to her to place less weight on the appellant's evidence arising from the blotters and day planners.
54Fairness required that the complainants be confronted with the appellant's version of what had happened between the appellant and complainants, including when, how and in what circumstances they had parted with their money. Moreover, prior to the impugned comments being made, the trial judge had already expressed concern about the credibility of the appellant's evidence and the authenticity of documents he had produced. In the circumstances, it is unsurprising that the trial judge said that the reliability of the blotters and day planners had been "diminished considerably". I see no error in that approach.
55Even if the trial judge had been wrong to approach the day planners and blotters that way, the appellant's evidence as a whole provided support for a complete rejection of his credibility. As previously mentioned, the trial judge found him combative and sarcastic, belligerent and intent on advancing a narrative that had no relationship to reality. The application of a remedy for a breach of Browne v. Dunn was only one small piece that led to that conclusion.
56Finally, it was open to the trial judge to conclude that the blotters and day planners were "self-serving" statements that were only thought of at trial. That was a finding of fact that was open to the trial judge to make. She came to that view based on the totality of the evidence and in the context of lengthy and considered reasons as they related to the appellant's credibility. I do not agree that the trial judge went further and used the finding as circumstantial evidence of guilt.
(3) The Hearsay Complaint
57The appellant suggests that the trial judge erred by relying on a hearsay statement in the form of an October 22, 2002 letter sent to the OSC by a lawyer involved with Hyberlab. The letter inquired into a number of things, including whether Galbraith could sell, transfer or assign his interest in the term promissory note to a third party purchaser, particularly in light of the cease trade order. The appellant introduced that letter into the trial record, claiming that he was told that the OSC had responded, saying that trading on a debenture was permitted. There was no documentary evidence to support that claim.
58The letter was tendered by the appellant, not for the truth of its contents, but to explain what he said was his "good-faith basis" to believe that he could trade on the debenture. The appellant argues that, rather than using the letter as he suggested, the trial judge used it for the truth of its contents, to find that he must have known from the letter that Hyberlab was under a cease trade order and, therefore, a debenture could not be traded upon.
59I do not agree that the trial judge used the letter for an impermissible hearsay purpose. Indeed, she used the letter for the very purpose the appellant asked her to use it for, to gain insight into the appellant's state of mind. The fact that she drew a different inference than the one the appellant asked her to draw does not mean that the letter was used for the truth of its contents. It was simply used as a piece of circumstantial evidence informing the appellant's state of mind respecting what he knew at the time that he was purporting to trade on the debenture. It was open to the trial judge to use the letter to draw a different inference about the appellant's state of mind than the one he asked her to draw.
(4) Single Transaction Rule
60The appellant contends that the trial Crown failed to prove the fraud as particularized as a single count on the indictment. Rather than proving a single fraud over $5,000, the appellant contends that the Crown proved at least three separate frauds involving Hyberlab, Airesurf, and Magnet and ESSX. To be clear, the appellant does not claim that he was prejudiced by the prosecutorial decision to proceed on a single count of fraud over $5,000. Instead, he argues that, having chosen to proceed on a single transaction, the Crown was duty bound to prove a single transaction. Because the Crown proved multiple frauds, the appellant says that he is entitled to an acquittal.
61I do not agree with those submissions.
62Each count on an indictment shall contain a "single transaction": s. 581(1) of the Criminal Code. A single transaction can include a single act, or circumstances that are "successive and cumulative and which comprise a series of acts" that have a sufficient connection: R. v. Kanagarajah et al., 2018 ONCA 121, at para. 31; R. v. Rocchetta, 2016 ONCA 577, 352 O.A.C. 130, at para. 44; R. v. Manasseri, 2016 ONCA 703, 132 O.R. (3d) 401, at paras. 71-73, leave to appeal refused, [2016] S.C.C.A. No. 513; R. v. Hulan, [1970] 1 C.C.C. 36 (Ont. C.A.), at pp. 44-45. The sufficiency of connection can be established in different ways, such as through proximity in time or place, identity of the parties, relationship between the parties, the similarity in conduct and any other factor that may demonstrate why the offence is properly construed as a single transaction: Rocchetta, at para. 44.
63The question is not whether the frauds could have been charged separately. The question is whether there is sufficient connection to charge them in a single count. As the Crown notes, the appellant's conduct, as found by the trial judge, was similar across all of his dealings with the complainants. In his capacity as an investment advisor, he actively and intentionally preyed upon people who trusted him, by deceiving them into thinking that their money was being used to invest, either in shares or some other position in corporate entities. Although the corporate entities changed from time-to-time, and his lies morphed according to the "story" being told, at its core, the deception remained essentially the same.
64Moreover, the appellant was well aware of the charge against him and the circumstances that made up that charge. He does not suggest otherwise. Even though he does not raise prejudice, I agree with the trial judge's observations that he was not prejudiced by the manner in which the count was framed. Demonstration of prejudice is a critical component in any determination of whether a count offends the rule. The remedies for breach of the rule – particulars or severance – are similarly grounded in alleviating that prejudice: Kanagarajah, at paras. 22-26. Finally, the appellant has not provided us with any authority for the proposition that an acquittal is among the remedies available for breach of the rule.
65This was properly charged as a single count of fraud over $5,000. Had the appellant been concerned about the trial he was facing, he could have asked for clarity. He stayed silent because the fraudulent conduct was a single transaction, connected by time, place, and similarity of conduct.
D. SENTENCE APPEAL
(1) Overview
66Even though both parties appeal sentence, I will continue to refer to Mr. Schoer as the appellant throughout this portion of my reasons, even where I am referring to his submissions in response to the Crown appeal. He received a four-year custodial sentence, combined with restitution and fine in lieu of forfeiture orders. There is no objection to the custodial term imposed.
67The sentence appeals relate to restitution and fine in lieu of forfeiture. The Crown appeals against the failure of the trial judge to impose a $17,000 restitution order in respect of one of the complainants, Peter Edwards. Both the Crown and appellant appeal against the fine in lieu of forfeiture order in the amount of $109,150. The Crown claims that it was too low and the appellant claims it was too high.
68I will start with the issue of restitution.
(2) Restitution Order: Peter Edwards
69The Crown maintains that the trial judge erred by failing to impose a restitution order in the amount of $17,000 in favour of Peter Edwards. The Crown says that Mr. Edwards addressed his loss in his victim impact statement and that the trial judge accepted that loss as a fact. Accordingly, she should have imposed a restitution order.
70The appellant contends that the trial Crown did not request restitution for Mr. Edwards and it is too late to do so now.
71I find that the restitution order should have been made.
72The sentencing hearing took place on October 30, 2015, shortly after certain amendments to the Criminal Code were brought into force by the Victims Bill of Rights Act, S.C. 2015, c. 13. These amendments included adding section 737.1 of the Criminal Code, governing how restitution requests can be made and creating Forms 34.1 ("Statement of Restitution") and 34.2 ("Victim Impact Statement") in Part XXVIII of the Criminal Code. Section 737.1(4) provides that, for purposes of restitution, the court may use Form 34.1 or "any other method approved by the court." Section 737.1(5) further provides that if a victim seeks restitution, and the court does not make a restitution order, it shall include in the record its reasons for not doing so.
73With the consent of the defence, the trial Crown filed a book of materials at sentencing that included various victim impact statements. Again with the consent of the defence, not all were read aloud, but it was indicated that all would be relied upon. The majority of complainants who filed victim impact statements and statements of restitution did so in the newly codified Criminal Code forms. Mr. Edwards filed a victim impact statement using a form provided by the Ministry of the Attorney General predating the amendments, and included in it his loss of $17,000. The new Form 34.2 contains a warning that it is "not an application for compensation or restitution." In contrast, the Ministry form that pre-dated the legislative change states that "providing information about the financial impact of a crime may not necessarily lead to payment for your losses or expenses through the criminal justice system."
74In fairness to the trial judge, this was a document intensive trial and sentencing. Certain complainants who testified at trial did not fill out victim impact statements and did not claim any restitution. The Crown indicated during the sentencing hearing that he was only seeking restitution for those people who had claimed it. In light of the Crown submission about what restitution was being sought, it is possible that the trial judge misunderstood the extent of the request.
75However, I accept – as did the trial judge – that Mr. Edwards did address his $17,000 loss in the victim impact statement he prepared. The victim impact statement was accepted as an exhibit and relied upon by the trial Crown. There is nothing in the form submitted by Mr. Edwards to suggest he was not claiming $17,000. The trial judge should have addressed it.
76The appellant has not identified any prejudice in his ability to respond to the appeal. Based on the findings made by the trial judge in her judgment and reasons for sentence, I have no doubt that she would have ordered restitution to Mr. Edwards had she turned her mind to the issue. She found him to be a credible witness and accepted his loss. It appears to have been nothing more than an oversight. Accordingly, I would order restitution in the amount of $17,000 to Mr. Edwards.
(3) Fine in Lieu of Forfeiture
(i) The Reasons of the Trial Judge
77As the trial judge noted, the appellant perpetrated a large-scale and complex fraud, making it difficult and, in many cases, impossible to locate the victim investors' money. Accordingly, while the trial Crown maintained that the amount of the fraud was just over $1.8 million, when addressing the fine in lieu of forfeiture, he limited his request to $413,500 or what he described as the "most conservative" transactions possible. Those transactions covered situations where complainants had testified about how they had been directed by the appellant to pay for their "investments":
(a) writing cheques payable to the appellant;
(b) writing cheques in trust to the appellant;
(c) giving the appellant cash;
(d) giving cheques to the appellant with the payee left blank, cheques that were later directed to and cashed by third parties; and
(e) writing cheques to other people at the appellant's request.
78The appellant took the position, repeated in this court, that the forfeiture provisions should not apply to any of the complainants' money that went to third parties. Excluding the payments to third parties, the appellant maintained at trial that the maximum fine in lieu of forfeiture would be $103,500.
79The trial judge found as a fact that the appellant's direction to the complainants to pay third parties constituted part of the fraud. On that basis, she agreed with the Crown that the total amount defrauded from the complainants who testified at trial was $413,500. She reasoned, though, that any fine in lieu of forfeiture had to be considered in the context of the "entire punishment." She found that the fine had to be "proportionate" because "it is a component of the punishment." As the appellant was receiving a sentence in the "mid-range" for the fraud (four years custody) and a $109,150 restitution order, the trial judge determined that a fine in lieu of forfeiture in the same amount as the restitution order was appropriate. Accordingly, she imposed a fine in lieu of forfeiture in the amount of $109,150.
80The trial judge refused to deduct any amounts from that fine in lieu of forfeiture. Although she acknowledged that the appellant had repaid a couple of the victims, those payments had been made from commingled property the appellant received from those and other victims. Consequently, the payments arising from the conclusion of civil proceedings were not taken into account. The appellant was given six years from the date of release from custody to repay the fine.
(ii) The Parties' Positions on Appeal
81The Crown maintains that the trial judge erred by applying sentencing principles to the fine in lieu of forfeiture. Having determined the value of the fraud, the Crown argues that the trial judge was duty bound to impose a fine in lieu of forfeiture in an equal amount.
82The appellant argues that the trial judge imposed too heavy a fine in lieu of forfeiture. He points to a few errors in the chart used by the trial judge to calculate the total amount of the fraud. In light of those alleged errors, and in light of his argument that the fine should not include complainants' money flowing to third parties, he maintains in this court that the most he should have been ordered to pay as a fine in lieu of forfeiture was $96,150, a slightly reduced amount from what he acknowledged at the sentencing hearing as his maximum exposure. He also contends that the fine in lieu of forfeiture should be decreased by the amount of $72,000 to reflect his payment of a complainant arising from a default judgment.
83Crown counsel on appeal fairly acknowledges the errors in the chart used at the sentencing proceeding. That position leaves the Crown on appeal suggesting that the defrauded funds total $403,750, and there should be a fine in lieu of forfeiture in that amount. Crown counsel does not agree that the $72,000 payment should be deducted from that amount.
84In light of the Crown concessions, the parties are apart on only two issues that this court must resolve: (a) should the fine in lieu of forfeiture have taken into account the funds that the complainants transferred to third parties; and (b) should the $72,000 be deducted from the fine in lieu of forfeiture.
85I will first explain why I conclude that the trial judge erred in her approach to determining the amount of fine in lieu of forfeiture. I will then address why I conclude that in the context of this Ponzi-type scheme, the funds that went from the complainants to third parties should be included in the fine in lieu of forfeiture. I will conclude by addressing why I find that the payment of $72,000 should not be deducted from the total fine in lieu of forfeiture.
(iii) A Fine in Lieu of Forfeiture is not Punishment for the Designated Offence
86At the time of sentencing, s. 462.37(1) of the Criminal Code allowed that where an offender had been convicted of a designated offence and the trial judge was satisfied on a balance of probabilities "that any property is proceeds of crime and that the designated offence was committed in relation to that property, the court shall order that the property be forfeited". [1]
87The term "proceeds of crime" is granted an expansive definition in s. 462.3(1):
"proceeds of crime" means any property, benefit or advantage, within or outside of Canada, obtained or derived directly or indirectly as a result of
(a) the commission in Canada of a designated offence ….
For the property to be the proceeds of crime for purposes of forfeiture"the offender must have had possession or control of the property in question at some point": R. v. Angelis, 2016 ONCA 675, 133 O.R. (3d) 575, at para. 35, leave to appeal refused, [2016] S.C.C.A. No. 484. See also: R. v. Dwyer, 2013 ONCA 34, 296 C.C.C. (3d) 193 (Ont. C.A.), at paras. 21 and 24; s. 2, Criminal Code.
88Where the sentencing judge is satisfied on a balance of probabilities that the property is the proceeds of crime, that the offender had possession or control of it at some point, and the designated offence was committed in relation to that property, a forfeiture order must be made: R. v. Lavigne, 2006 SCC 10, [2006] 1 S.C.R. 392, at para. 14; Angelis, at para. 35. As noted in Lavigne, at para. 15: "Parliament has made this provision mandatory by requiring forfeiture and making the provision apply to the widest possible range of property."
89Where a forfeiture order should be made, but the property is not available to be forfeited, the court "may, instead of ordering the property … forfeited, order the offender to pay a fine in an amount equal to the value of the property": s. 463.37(3).
90The use of the discretionary "may" connotes a discretion to impose a fine instead of forfeiture, a discretion that is only available where making an order of forfeiture is impractical or impossible: Lavigne, at para. 23. The exercise of discretion arising from the word "may" in s. 462.37(3) is restricted by the "objective of the provision, the nature of the order and the circumstances in which the order is made": Lavigne, at para. 27; Angelis, at para. 37.
91The objectives of the provision are twofold: (a) depriving offenders of the "proceeds of crime"; and (b) deterring offenders and others from committing designated offences: Lavigne, at paras. 16, 23, 26, 28; R. v. Khatchatourov, 2014 ONCA 464, 313 C.C.C. (3d) 94, at paras. 55-56; Dwyer, at para. 18. As noted in Lavigne, at para. 28, there may be "circumstances in which the objectives of the provisions do not call for a fine to be imposed." For instance, Deschamps J. provides the example of an offender who commits an isolated offence on his own and does not profit from that crime.
92The circumstances in which fines in lieu of forfeiture may be made are set out in s. 462.37(3) of the Criminal Code. Five examples are provided, three of which appear to be applicable in this case: ss. 462.37(3)(a), (b), (e). A fine in lieu of forfeiture may be imposed where the property:
cannot, on the exercise of due diligence, be located;
has been transferred to a third party; or
has been commingled with other property that cannot be divided without difficulty.
93Although pursuant to s. 673, forfeiture and fine in lieu of forfeiture orders are technically part of a "sentence", they are not to be considered in the context of the principle of totality. As this court held in R. v. Saikaley, 2017 ONCA 374, at para. 181, leave to appeal refused, [2017] S.C.C.A. No. 284, a fine in lieu of forfeiture is not punishment or part of the global sentence to be imposed upon the offender and, accordingly"it is not to be consolidated with sentencing on a totality approach". Forfeiture and fine in lieu of forfeiture orders are not a means by which to punish offenders, but a means by which to replace the proceeds of crime: Lavigne, at para. 25. As noted in Lavigne, at para. 26, the "objective of Part XII.2 of the Criminal Code is to deal with the proceeds of crime separately from, and in addition to, the punishment for committing a crime." While a term of imprisonment flows from a failure to pay without reasonable excuse, that term of imprisonment is a means by which to enforce the fine, not to punish the offender for the designated offence: Khatchatourov, at paras. 55-56.
94The error in this case arose from the trial judge having considered the fine in lieu of forfeiture as part of the sentence to be imposed. Attempting to align it with the mid-range sentence she had chosen was in error. Forfeiture does not fall within a "range". It is not meant to be measured by the gravity of the offence or the moral blameworthiness of the offender. Property that is found to be the proceeds of crime must be forfeited. Having found that the value of property being the proceeds of crime was $413,500, if that money had been available for forfeiture, the trial judge would have been duty bound to order it forfeited.
95Where the proceeds of crime are no longer available to be forfeited, the sentencing judge must determine whether a fine should be imposed in lieu of that forfeiture. Once that determination is made, the sentencing judge determines the value of the property that would have been forfeited had it still been available for that purpose. Once that value is determined, then the statute governs how to calculate the fine in lieu of forfeiture. As Deschamps J. held in Lavigne, at para. 34, the statute is "crystal clear", the fine is "equal to the value of the property". Because the fine takes the place of the forfeiture, the fine must be of an equivalent value: Lavigne, at para. 35. [2]
96Given that the property was not available to forfeit in this case, and having chosen to impose a fine in lieu of forfeiture, the trial judge was duty bound to impose a fine equal to the value of the property. Having determined that the value of the property was $413,500, an amount that the Crown now concedes is only $403,750, the trial judge should have imposed a fine in that amount.
97The appellant maintains, though, that the trial judge erred in her original calculation of what should be taken into account as constituting the proceeds of crime in this case. The appellant emphasizes that, in order to constitute the proceeds of crime, the property must have been in his possession or control at some point: Dwyer, at paras. 21, 24. He contends that the funds that went to third parties were never in his possession or control and, therefore, he cannot be held accountable for them from a forfeiture perspective. I disagree.
(iv) Should the money that went to third parties have been excluded from the fine in lieu of forfeiture?
98As previously reviewed, the appellant acknowledges that the money that he received from the complainants by way of cash, cheques made directly to him and cheques made to him in trust, should factor into the amount of fine in lieu of forfeiture. He disputes that the funds that went to third parties should form part of that calculus. Those funds travelled to third parties in two different ways.
99First, at the appellant's request, some complainants gave him cheques with the payee left blank. Although the complainants testified about the oddity of those requests, the appellant would always give them a reason that it had to be done that way. The appellant would later fill in the names of third parties and provide the cheques to those parties to be cashed. In some cases, those third parties were other complainants. When the complainants who provided the money received their cancelled cheques back, they would sometimes ask the appellant about the identity of the third party who had cashed their cheques. He would give them different answers. For instance, he would sometimes tell the concerned complainants that they had bought that third parties' shares in a company.
100Second, at the appellant's request, the complainants would sometimes write cheques made out to third parties. Inquiries about why they needed to pay someone whom they did not know would spawn answers similar to the last, that the third party was someone who was interested in selling shares to the complainant.
101In both cases, the benefit to the appellant was the same. The appellant had multiple balls in the air all at once. His initial fraudulent conduct led to the taking of money from unsuspecting friends, clients and acquaintances who thought that they were making investments. He deposited a lot of that money directly into his own personal bank account. To keep the scheme going for over eight years, he needed to keep the wolves at bay. When investors eventually became suspicious, he had to find money to pay them off. Through further fraudulent conduct, he would find new investors to do so. Those new unsuspecting investors would sometimes give the appellant blank cheques that would go to third parties and they would sometimes make those cheques out directly to the third parties.
102This had elements of a Ponzi scheme, described by Black's Law Dictionary (10th ed., 2014), and cited approvingly by the British Columbia Court of Appeal, in LLS America LLC (Trustee of) v. Dill, 2018 BCCA 86, 8 B.C.L.R. (6th) 1, at para. 11, as:
A fraudulent investment scheme in which money contributed by later investors generates artificially high dividends for the original investors, whose example attract even larger investments. Money from the new investors is used directly to repay, or pay interest to old investors, usually without any operation or revenue-producing activity other than the continual raising of new funds. This scheme takes its name from Charles Ponzi, who in the late 1920's was convicted for fraudulent schemes he conducted in Boston.
The appellant did not necessarily pay "dividends" but that distinction is not material here. The core of the fraud was that the appellant was not actually investing the money on behalf of his clients. He was misappropriating it, and when certain clients became suspicious and demanded a return of their money, he effected this not through liquidating an actual investment (none existed), but by misappropriating more funds from more clients.
103The appellant contends that he was never in possession or control of those third party monies and, therefore, should not be required to pay a fine in lieu of forfeiture when it comes to those funds. I disagree. The appellant was entirely in control. He was the directing mind of the fraud and of each individual payment. He controlled the writing of the blank cheques and redirecting them to pay his debt to third parties. He was also the one who was directing complainants to pay third parties. He took physical possession of the cheques and delivered them to the third parties. He did all of this under false pretences. He was in control of the transactions and the money was all the "proceeds of crime" as defined within s. 462.3. The appellant obtained an obvious benefit and advantage from that money that flowed to third parties, money that was "obtained or derived directly or indirectly" as a result of the Ponzi-type scheme.
104The appellant wanted to keep the fraud alive as long as possible. The longer it went, the more he could benefit from it. The whole scheme would come crashing down if the earlier investors who had developed suspicions had made a complaint to the regulator or the police. The appellant needed to make good on those debts in order to keep things quiet. Who did he get to pay his debt? New complainants. What was his benefit? The continuation of his fraud, avoiding detection, and the ability to continue to take as much money as he could.
105Nor should any of the individual payments be deducted from the fine in lieu of forfeiture on the basis that the appellant was defrauding one investor while making another whole. How the appellant decided to benefit from the proceeds of crime he controlled need not be the subject of the inquiry by the sentencing judge: R. v. A.S., 2010 ONCA 441, 258 C.C.C. (3d) 13, at para. 14. The amount of the fine is required to be equal to the value of the property which was possessed or controlled by the appellant, not the value of the benefit received by the appellant: Lavigne, at para. 34; R. v. Piccinini, 2015 ONCA 446, at paras. 18-19; R. v. Siddiqi, 2015 ONCA 374, at para. 6.
106Accordingly, I conclude that the fine in lieu of forfeiture must include the money that went to third parties. I agree with Crown counsel's concessions regarding the minor errors made in calculating that amount by the trial Crown below. I find that the amount that should have been subject to forfeiture is $403,750.
107This leaves the issue of whether the $72,000 paid to a complainant as a result of a civil judgment should be subtracted from the amount of the fine in lieu of forfeiture.
(v) Should the fine in lieu of forfeiture be discounted from the total?
108In this court, the appellant maintains that whatever the amount of fine in lieu of forfeiture, it should be decreased by $72,000. That is the amount that the appellant was ordered to pay to Mr. Dollenkamp after the appellant failed to defend against a civil action.
109Crown counsel does not dispute that the payment was made, or that it was appropriately deducted from the amount of restitution the appellant was required to pay. Rather, Crown counsel maintains that the appellant should not be credited that amount toward an otherwise appropriate fine in lieu of forfeiture because he paid that money from funds that had been commingled with other complainants' money. Specifically, the Crown maintains that a great deal of the money arising from the fraudulent scheme went directly into the appellant's personal bank account that was being used to pay his mortgage. After the charges had been laid, the home where the appellant lived with his wife was transferred into her name and was then refinanced. During the sale, $72,000 of the proceeds was used to discharge a lien that had been secured by Mr. Dollenkamp to satisfy the judgment.
110For the reasons given above, I would not reduce the fine in lieu of forfeiture. I defer to the trial judge's finding of fact that the payment to Mr. Dollenkamp came from commingled funds. It was not the appellant's money that paid Mr. Dollenkamp, but the commingled funds of complainants and other victims not before the court that furnished that payment.
111In the context of this Ponzi-type scheme, the use of complainants' funds to pay complainants does not reduce the amount of property that constitutes the "proceeds of crime". While paying the civil judgment properly reduced the amount of restitution owing to Mr. Dollenkamp, the sentencing judge was right to conclude that it should not reduce the fine in lieu of forfeiture. The value of the property that was in control of the appellant is the value to be attached to the fine. In this case, that is $403,750.
E. CONCLUSION
112I would dismiss the conviction appeal. I would grant both parties leave to appeal sentence. I would dismiss the appellant's sentence appeal, and grant the Crown's sentence appeal. I would impose a restitution order in the amount of $17,000 to be paid toward Peter Edwards. I would impose a fine of $403,750 in lieu of forfeiture. All payments toward that fine shall first go toward paying the restitution orders, until those orders are fulfilled. Like the trial judge, I would grant the appellant six years following the expiration of any term of imprisonment to pay the fine. In default of payment of the fine, I would impose a further term of imprisonment of three years, to be served consecutively to any other term of imprisonment the appellant may then be serving.
Released: February 13, 2019
"Fairburn J.A." "I agree. S.E. Pepall J.A." "I agree. P. Lauwers J.A."
Footnotes
1Section 462.37(1) has been amended to speak in terms of "proceeds of crime obtained through the commission of the designated offence": An Act to amend the Controlled Drugs and Substances Act and to make related amendments to other Acts, S.C. 2017, c. 7, s. 59
2Although the fine in lieu of forfeiture may be divided among co-accused, that is irrelevant in this case because the appellant stood alone: R. v. Dieckmann, 2017 ONCA 575, at para. 99.
