ONTARIO COURT OF JUSTICE DATE: 2021 12 14
BETWEEN:
HER MAJESTY THE QUEEN
— AND —
DOUGLAS DeBOER
Before Justice A.J. Camara
Heard on August 19 and November 4, 2021 Reasons for Judgment released on December 14, 2021
Michael Lockner................................. Counsel for the Ontario Securities Commission Douglas DeBoer............................................................................................ Self-represented
Camara J.:
[1] Mr. DeBoer comes before me today for sentencing. On August 19, 2021 he pled guilty to two counts of fraud contrary to section 122(1)(c) of the Securities Act and one count of trading in securities while subject to a temporary Cease Trade Order contrary to section 122(1)(c) of the Securities Act.
A. Circumstances of the Offence
[2] The facts that were acknowledged are appended to this judgment in Appendix A. I am not going to recite the facts in detail here. I will note that Mr. DeBoer exercised a great deal of control over the Hockley Energy Investment scheme, and the Rocky Point investment scheme. Together, both schemes received a total of $7.5 million from investors in both Ontario and Ireland.
[3] The fraud was perpetrated when Mr. DeBoer directed significant sums of investor money to purposes other than the extraction of oil which was what the investors were promised. Secondly, significant quantity of investor money was directed towards a third entirely separate investment scheme – Armadillo. Mr. DeBoer was subject to a cease trade order in relation to Armadillo during the time these funds were transferred.
[4] Hockley investors were led to believe that Hockley was producing barrels of oil. None of the Hockley projects were producing any oil. Investors were recruited by Mr. DeBoer to invest in the Par-5 Project – their recruitment and receipt of funds occurred after that project had defaulted.
[5] Investors in the Rocky Point scheme were sold barrels of oil that were in the ground. However, in reality, Rocky Point did not control any oil reserves and had no oil to sell.
[6] During the time that both Hockley and Rocky Point were sold to investors, Mr. DeBoer never disclosed to any of the investors in Ontario or Ireland or the financial advisors or brokerages he dealt with in Ireland that he was subject to a cease trade order which specifically barred him from selling the Armadillo security or any other security.
B. Circumstances of the Offender
[7] Mr. DeBoer is 64-years old. He is the second oldest of eight children. Mr. DeBoer outlined his family history and the challenges he faced in school in exhibit #4. As a young adult he and his brother ran a landscaping company which flourished until the recession of 1988. He is a self-described entrepreneur looking for undiscovered business models. Some ideas got off the ground; others did not.
[8] Mr. DeBoer is now divorced – having been married for 29 years. The dissolution of his marriage was one of the many consequences of these charges. That union produced 3 children who are all now adults. Since his divorce, Mr. DeBoer struggled with housing often sleeping in his car and on couches. He is currently in a new relationship and, as I understand, resides with his new partner and her children.
[9] Mr. DeBoer advised he now works in sales and marketing for agricultural equipment and water desalination and water purification products. An employment letter was not filed with the court. Mr. DeBoer also indicated that he enjoys horticulture and was involved with Canadian Living Magazine and says he was featured in 3 Canadian Living Magazines.
C. Position of the Parties
[10] The position of the counsel for the Ontario Securities Commission is that an appropriate disposition for this matter is a period of incarceration for 3-years.
[11] Mr. DeBoer is self-represented and did not indicate to the court what sentence he thought would be appropriate. He expressed remorse and vowed to work to redeem himself for the harm that he has caused.
D. Legal Principals and Analysis
[12] Mr. DeBoer has been found guilty of violating the Securities Act. In this regulatory space, the purpose of the act is to uphold a public interest goal. When determining the appropriate sentence, it is necessary to consider how the offence ties to the purpose of the act. The purpose of the Securities Act is set out in section 1.1.:
1.1 The purpose of this Act are,
a) To provide protection to investors from unfair, improper or fraudulent practices;
b) To foster fair, efficient and competitive capital markets and confidence in capital markets;
b.1) To foster capital formation; and
c) To contribute to the stability of the financial system and the reduction of systemic risk
The further a particular offence undermines the goal of the act, the stronger the sentence needs to be to achieve a strong deterrence message.
[13] The Ontario Court of Appeal held in R v. Tiffin:
Unlike criminal offences, regulatory offences are not prosecuted because they are inherently abhorrent, but rather because compliance is necessary to achieve the legislator’s public interest goal: Ontario (Environment, Conservation and Parks) v. Henry of Pelham, 2018 ONCA 999 (Ont.C.A.) at para 33. Consistent with the difference in purposes, while the sentencing of regulatory offenders remains multi-factorial, the principle of deterrence is the paramount consideration: Henry of Pelham, at para. 38 [1].
Similarly, Douglas J. stated in in R v. Wall:
Breaches of the Security Act that are not merely technical, but strike at the very heart of and the purposes of the Securities Act and the means chosen by the legislature to enforce those purposes, that is, means that are unfair, improper and fraudulent must be punished appropriately. [2]
There is a greater emphasis on general deterrence when sentencing an offender for a violation of the Securities Act. [3] If the purposes of the Securities Act are to be realized the sentences imposed must send a strong message that violations will be punished severely [4]. Imprisonment for regulator offences may sometimes be necessary to achieve this purpose [5].
[14] How a regulatory offence is classified can be a significant factor in sentencing. The more comparable a public welfare offence is to a criminal offence, the more favourable become the sentencing factors of denunciation, retribution, deterrence and moral blameworthiness [6]. Moral blameworthiness can be relevant to the sentencing of a regulatory offender, given that it is probative of the degree of responsibility of the offender, notwithstanding the fact that regulatory offences general involves less moral blameworthiness. [7]
[15] The conduct Mr. DeBoer acknowledged and plead guilty to is at the higher end of the scale of moral blameworthiness. The conduct Mr. DeBoer engaged, committing fraud under the Securities Act is a full mens rea offence and comparable to the offence of fraud contrary to the Criminal Code of Canada. The purpose of the Securities Act is to protect the public and to protect investors from unfair and fraudulent practices which was precisely the conduct engaged in by Mr. DeBoer.
[16] The schemes for which Mr. DeBoer exercised a great deal of control received $7.5 million US dollars from investors. All interviewed investors lost most if not all of their investments. The financial devastation that resulted was profound. The victim impact statements that were filed reveal how the significantly investors were impacted. Many lost their entire savings, retirement accounts and had their own reputations tarnished because they believed in the products that were being represented to them.
[17] Incarceration is necessary to achieve the purpose of the Act when, like in this case, the acts committed strike at the heart of the Securities Act and for which those acts caused significant harm to members of our community.
[18] In determining the appropriate sentence, it is helpful to consider any relevant aggravating or mitigating circumstances that are presently at play. Listing the applicable aggravating and mitigating features assists me in evaluating this case properly and imposing a sentence that is just and appropriate.
[19] In terms of aggravating factors, I take into account that Mr. DeBoer shoulders a high degree of moral blameworthiness. There were a variety of different ways this fraud was committed. Mr. DeBoer concealed the fact that he was bound by a cease trade order. Funds were misappropriated. Fictional reports were presented to investors to mollify the concerns of investors. Mr. DeBoer participated in raising money for cancelled projects. Money from new investors were redirected into unrelated investments.
[20] Mr. DeBoer was a central figure in the schemes. He exercised a great degree of control over the operations of the Hockley Energy project and the Rocky Point Energy project. Mr. DeBoer was relied upon and a trusted figure. He was the person others went to when things were going wrong for assurance that their investments were safe. Mr. DeBoer was at the centre of the scheme and that is a significant factor that distinguishes him from Ms. Dunk. The sentence Mr. DeBoer receives ought to be significantly higher to reflect his level of involvement and control in the schemes because he has a higher degree of moral blameworthiness.
[21] The Hockley Energy and Rocky Point Energy schemes are two frauds that grew out of the Armadillo. The Armadillo Energy company was not fraudulent, but Armadillo is what brought Mr. DeBoer before the Ontario Securities Commission. The Temporary Cease Trade Order made on July 27, 2011 specifically barred Mr. DeBoer from selling the Armadillo security or any other security. From Armadillo grew Hockley Energy and that grew into Rocky Point Energy. This was not a single fraud but was an evolving and persistent dogged fraud that took multiple forms.
[22] The quantum of this fraud is substantial; $7.5 million US dollars were invested into these schemes.
[23] It is aggravating that while Armadillo was under Ontario Security Commission scrutiny, money was being raised from investors for Hockley and Rocky Point and $2.7 million was redirected into Armadillo unbeknownst to investors.
[24] This was a sophisticated scheme of selling oil and funding promissory notes for acquisition of foreign entities. It was a complicated investment with a complicated structure. There were investors in Ontario and agents and investors in Ireland for projects said to be in the United States.
[25] This fraud has resulted in significant hardship to investors. Mr. Lodder and Mr. DeBoer took steps to allow Irish people to use their pensions and use their retirement savings. Ciaran Reilly’s victim impact statement speaks to the impact that has had on him and his family. These frauds impacted the people who were selling the product and who believed in the product; their reputations and standing in the community have been seriously tarnished. Mr. Foreman mentions in his victim impact statement that his reputation is ruined, and his entire community turned on him. Mr. O’Broin wrote the impact he suffered because he introduced a number of clients to Mr. DeBoer. Many believed and trusted Mr. DeBoer and they all suffered the consequences of the breach of that trust.
[26] Mr. DeBoer’s guilty plea is a significant mitigating factor. I take his guilty plea to be a sincere form of remorse and is a public acknowledgment of his actions and the harm caused. The guilty plea also saved this court from hearing a trial that was scheduled for at least 10 days. Trial time is a precious commodity and the fact that that time could be used to hear other cases is also important.
[27] Mr. DeBoer comes before me without a prior criminal record. That being said, Mr. DeBoer does have a history with the Securities Commission and at the time of this offence he was bound by a temporary cease trade order that had been issued in July 27, 2011 which he breached by promoting and selling the Hockley and Rocky Point investments.
[28] Mr. DeBoer filed 17 reference letters before the court to demonstrate and substantiate his submission that he is of good character. The letters speak to Mr. DeBoer’s ability to befriend others as well as offer advice and support to others who are in need. He is described by some as a “wise and godly man” and the type of person one could turn to for advice about anything – whether it be work, family or financial advice. I do not consider Mr. DeBoer’s reputation and good standing in the community as a mitigating factor in this case. As the court aptly stated in Drabinsky,
Second, individuals who perpetrate frauds like these are usually seen in the community as solid, responsible, and law-abiding citizens. Often, they suffer personal and financial ruin as a result of the exposure of their frauds. Those factors cannot, however, alone justify any departure from the range. The offender’s prior good character and standing in the community are to some extent the tools by which they commit and sustain frauds over lengthy time periods. Considerable personal hardship, if not ruin, is virtually inevitable upon exposure of one’s involvement in these kinds of frauds. It cannot be regarded as the kind of unusual circumstances meriting departure from the range [8].
In this case, Mr. DeBoer’s ability to befriend others and his reputation in the community as responsible, law-abiding, and someone who has experience and familiarity with the financial system were the very tools that he utilized to perpetuate this fraud.
[29] Counsel has submitted a number of cases to support his submission that 3 years in custody is a sentence that falls within the appropriate range. Sopkina J. imposed a sentence of 2 years less a day in R v. Dunk [9]. Ms. Dunk was involved in the Rocky Point investment scheme and had told one investor that the money was going to Rocky Point, but the money was directed elsewhere. At the material time, Ms. Dunk was prohibited from trading. The quantum of the fraud Ms. Dunk was involved was less than Mr. DeBoer and involved significantly fewer investors. Comparatively, there are more aggravating factors in the case at bar including that there were more investors, a larger quantum, involved international investors, two frauds were committed, and Mr. DeBoer was more centrally involved. The sentence Mr. DeBoer ought to receive should reflect those additional significant aggravating factors.
[30] In R v. Wall [10], the court imposed a sentence of 30 months for a $1.5 million fraud which resulted in losses to 56 people. The motive underlying the offence was greed. The court held that this was an abuse of trust situation. The quantum of the fraud and the fact that there were two frauds perpetrated in the case at bar pushes the sentence Mr. DeBoer ought to receive higher than 30 months.
[31] Mr. Tsatskin was sentenced to 3 years imprisonment following a guilty plea and Mr. Tsatskin’s substantial level of cooperation against co-conspirators. There was a $14.75 million dollar loss over a period of one year which is a higher quantum of loss than in the facts before me. The fraud was sophisticated, but Mr. Tsatskin’s involvement was not central nor directing. Mr. Tsatskin involved himself in the commission of the offence, but the offence was not commenced by him. Mr. DeBoer’s involvement in the commission of the offence was substantially more involved; he exercised a great deal of control over the operations.
E. Final Disposition
[32] Having carefully considered all the aggravating and mitigating circumstances, counsel submissions, the applicable jurisprudence, and the principles of sentencing in this regulatory regime, I have concluded that a total sentence of 3-years in custody is a fit disposition.
[33] The sentence will be noted as 2-years on count 1, 2-years concurrent on count 5 and 1-year consecutive on count 8.
Released: December 14, 2021 Signed: Justice Camara
[1] 2020 ONCA 217 at para 52 [2] [2000] O.J. No. 5447 at para 19. [3] R v Tiffin, supra, at para 56 [4] R v Tulsiani, 2017 ONCJ 430, [2017] O.J. No. 3304 at paras 25-27 [5] R v Tiffin, supra, at para 53 and R v. Wall, supra at para 130 [6] R v. Da Silva, 2012 ONCJ 279 at para 11. [7] R v Tiffin, supra, at para 54. [8] R v Drabinsky, 2011 ONCA 582 at para 167 [9] Released October 27, 2018 [10] [2000] O.J. No. 5447