R. v. Carmichael, 2025 ONCJ 300

Ontario Court of Justice

Date: 2025-06-02
Information Number: #1211-999-2299-02

Between:
Ontario Securities Commission
— and —
Kevin Carmichael

Before: Justice M.K. Wendl
Heard on: January 8 and May 1, 2025
Ruling Released: June 2, 2025

Counsel:
B. Gould — Counsel for the Ontario Securities Commission
S. Hutchison — Counsel for K. Carmichael

Judgment

WENDL J.:

[1] Kevin Carmichael pleaded guilty to several offences under the Securities Act including fraud. Essentially, Mr. Carmichael was operating a Ponzi scheme. Mr. Carmichael obtained approximately $32 million from investors, roughly $9 million was returned to them, around $5.5 million was paid in taxes. Mr. Carmichael and his company took close to $7 million, Mr. Aonso (the offender’s business partner) received $4.8 million, $377,000 went towards credit card payments, and $346,000 to Mr. Carmichael’s spouse. The investor’s combined loss is somewhere between $18 million and $23 million. The impact on Mr. Carmichael’s investors was devastating, some of the details of which I will set out below. He stole from some a comfortable retirement, from others the ability to support their family. He caused discord in marriages and ruined the hopes and dreams of hard-working people who put their trust in him.

[2] The Crown is requesting a jail sentence of 4 years. Mr. Hutchison, on behalf of the offender, is seeking that I impose 2 ½ years.

Victim Impact Statements

[3] The impact of Mr. Carmichael’s fraud has been significant. The following is but a highlight of some of the passages from the many victim impact statements I received at the sentencing hearing.

[4] Burl Mathias writes how the savings he had for his daughter’s education was wiped out. He believed that his retirement fund had increased to $500,000, only to find out that he now has nothing.

[5] Desiree Mathias states that the financial loss has caused her incredible stress and anxiety. A substantial portion of the investment came from her parents who were in their 80s at the time they loaned her the money. Both her parents now require full-time care, and the loss of money has impacted Ms. Mathias’ ability to provide for their needs. She concludes her victim impact statement by noting that the feeling of betrayal was immeasurable.

[6] Catherine Brennan writes that based on the fraudulent investment statements provided to her, she loaned money to her children. Her children are not in an economic position to give her the money back. Now at 68 years old, she cannot retire as she intended and will have to continue working as long as her employer will keep her on. When she can no longer work, she will have to survive on CPP and OAS, and hopefully some savings she may gain from future employment. Her dreams of travelling in retirement are gone and she has to count every penny. The stress of the loss has affected her significantly.

[7] Clare Brennan simply writes that the loss of her investment has become a nightmare. She is single and has no one to fall back on. The loss will affect her standard of living in retirement.

[8] Dale Barretto summarizes the impact succinctly: “The devastation they have caused is immense. My wife and I have lost a substantial portion of our hard-earned savings, money that represented security, stability, the peace of mind we worked for, has been stolen from us.”

[9] David Kun Wah Yeung, a foreign national who invested heavily in Canada, points out not only the harm to him that the investment has caused him, but it has shaken his faith in the integrity of Canadian financial institutions and Government agencies. He has stopped investing in Canada and told his friends not to.

[10] Douglas Chadder and Jennifer Borcsok, whose father was a friend of Mr. Aonso, write at the conclusion of their victim impact statement: “In closing, Your Honor, the impact of the fraud conducted by Michael Aonso and Kevin Carmichael has been felt in every corner of our lives. It has not only stolen our father’s legacy, but it has also stolen our ability to properly grieve and move forward. It has caused ongoing financial hardship and an unbearable burden that we continue to carry every day.”

[11] Ed Lobo who introduced friends to Mr. Carmichael, who then embezzled the money they invested, states that he will carry that burden of guilt with him for the rest of his life.

[12] Jeff Kerry describes how he had planned to use the money he lost to fund his retirement and support the education of his daughter, nieces and nephews. He feels cheated and embarrassed.

[13] Karen Ritter writes about how worried she is that when she retires she will not have enough money to pay for long term or nursing care for herself.

[14] Kurt McWilliams explains how he and his wife must now continue working instead of retiring, having lost the benefits of years of hard work and savings. He goes on to note that his wife now deals with feelings of financial insecurity. He also introduced his brother to Mr. Aonso and is grappling with feelings of guilt as a result.

[15] Patrick and Karen Burka write how this has not only taken their money but has also taken their peace of mind. They struggle with financial insecurity and have to continue working beyond their retirement age. They worry about how they are going to continue helping their daughter with her ongoing medical expenses and how their financial struggles could impact her quality of life.

[16] Ralph Berry talks about how the financial loss has robbed him of the ability to help his kids buy a home. He also writes about how this has stripped him of the ability to retire, which is particularly debilitating as he suffers from kidney disease. Instead of being able to focus solely on his health, he struggles to go to work just to survive. He also describes the personal relationships that have been affected by the fraud. He encouraged others to invest, and those relationships have been fractured as a result. He puts it concisely: “I have lost trust, closeness, and connection with people who once felt like my greatest support system”. He also writes: “This crime was not just about numbers on a screen or a piece of paper. It was about my future, my health, my family, and my faith in a system that was supposed to protect me.”

[17] Reid MacWilliams had to move away from Ontario due to the high cost of living. He had to leave behind family and friends made over a lifetime, friends that he cannot go see in the final years of their lives. Like many of the other victims, he notes that at the age of 76 this has ruined his retirement.

[18] These victim impact statements demonstrate that the loss is not purely financial. There is the loss of trust between friends who advised others to invest and the loss of faith in the Canadian investment system. The massive fraud has delayed, limited or destroyed retirement plans for most of those who invested with Mr. Carmichael and it has hampered their ability to care for loved ones. Without a doubt the loss inflicted by Mr. Carmichael has been tremendous. It is the loss of hope and the loss of dreams.

Personal Circumstances of the Offender

[19] Mr. Carmichael is 54 years old. He has no criminal record. He was gainfully employed his whole life prior to beginning Strike Holdings in 2012. He is currently unemployed and resides with his parents who support him. In his letter to the Court, Mr. Carmichael accepts responsibility and expresses remorse.

[20] He has two children. His daughter is involved in theatre and his son attends university in Halifax. His son describes Mr. Carmichael as a devoted father. His parents note how he helps them with their activities of daily living, given their age and physical limitations, and they continue to support him throughout this process. It is not lost on this Court that Mr. Carmichael benefits from the support of his parents, something the victims of this crime now have difficulty doing for their children now.

[21] I also received letters of support from Harun-Baha Celebi and Carl Krikorian. Mr. Celebi describes the offender’s professional acumen and Mr. Krikorian describes the offender as a trusted advisor. I have serious reservations about the content of these letters. Simply put, given the charges before the Court, I cannot put any weight on comments about Mr. Carmichael’s professionalism or trustworthiness, even if they relate to other business activities. Mr. Carmichael has pled guilty to a crime of dishonesty that resulted in over 40 people losing years of their savings. His actions have demonstrated that he is not a trustworthy advisor and he failed to act in a manner that could meet any definition of the word professional.

Law and Analysis

[22] Justice Camara thoroughly summarized the applicable principles for sentencing under the Securities Act in Deboer:

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.

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.

Similarly, Douglas J. stated in R v. Wall:

Breaches of the Securities 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.

There is a greater emphasis on general deterrence when sentencing an offender for a violation of the Securities Act. 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. Imprisonment for regulatory offences may sometimes be necessary to achieve this purpose.

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. 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 generally involve less moral blameworthiness.

The conduct Mr. DeBoer acknowledged and pled 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.

[23] In Mr. DeBoer’s case, Justice Camara imposed a sentence of three years. He received $7.5 million, the purpose of which was for the extraction of oil. The funds were instead directed to another purpose which constituted fraud. All interviewed investors lost most of their investments. The resulting financial devastation was profound. The victims were significantly impacted. Many lost their entire savings or retirement accounts and had their own reputations tarnished because they believed in the products that were being represented to them. Justice Camara found that the aggravating factor was the accused's high degree of moral blameworthiness. The accused's guilty plea was a significant mitigating factor. He had no prior criminal record. The accused had a history with the Securities Commission and at the time of the offence, he was bound by a temporary cease trade order which he breached by promoting and selling investments.

[24] In the unreported decision of Aikman, Justice Rondinelli imposed a 4-year sentence for fraud under the Securities Act. Justice Rondinelli found that the fraud was complex, the amount taken was “just north of 3.9 million dollars” and the impact on the victims significant. He highlighted deterrence as the main sentencing principle.

[25] In Heward & Wallace, another unreported decision, Justice McLeod imposed a sentence of 4 years on a securities fraud. The amount defrauded was $6,672,955. The fraud was described by Justice McLeod as extremely elaborate and sophisticated.

[26] In Singh, after trial, Justice Greene imposed a 3 ½ year sentence. The fraud was described as an elaborate one. The total loss to the victims was approximately $4.8 million. The fraud was complex and went on for a lengthy period of time. Many of the victims in that case were over 70.

[27] A majority of the defense’s casebook appear to focus on the significant weight that I should accord a guilty plea: Rosenberg paras 17-19; Berquas paras 33-39; Gamble paras 108-111; Bandali para 28.

[28] Rosenberg was a fraud case, prosecuted under the Criminal Code, where the accused defrauded $131 million. The accused was given a 5-year sentence, but Justice Watt noted at paragraph 26 of this decision that he was not the same person he once was. He was in declining health and neither deterrence nor rehabilitation were found to be factors in the case. Justice Watt specifically noted given the mitigating factors, “[i]t ought not be thought to be some sort of standard sentence imposed in respect of offences of such magnitude which occur over such a period of time and involve equivalent and egregious breaches of trust.”

[29] In Castaneda, also provided by the defence, the accused pleaded guilty to fraud over $5000 contrary to section 380(1)(a) of the Criminal Code, for trading in securities without being registered to trade in securities contrary to section 25(1) of the Securities Act and for trading in securities while being prohibited from doing so, also under the Securities Act. The fraud charges and the securities charges were interrelated. The outstanding amount in this case was $798,000 and the accused pleaded guilty. Justice Fairgrieve imposed a 6-month sentence on the Securities Act charges and 2 years less a day on the fraud charges. The fraud involved a breach of trust and the mitigating factors accepted by the Justice were the accused’s age, the lack of a record and poor health.

[30] In considering the range of sentence for fraud under the Securities Act I am mindful of the comments of Justice Greene in Singh:

With this factual back drop, I now turn to the range of sentence normally imposed for these offences. There is not a large body of case law on the range of sentence normally imposed for a conviction for fraud of this magnitude under the OSA. As a result, counsel for the OSC relied heavily on cases where offenders were sentenced for large scale, sophisticated frauds under the Criminal Code. The typical range of sentence for a large scale, sophisticated fraud that involves many victims is usually in the range of three to five years. When those frauds are a product of a breach of trust, it is not unusual to see sentences as high as eight to ten years. If I was to rely solely on the range of sentences for frauds prosecuted under the Criminal Code, a sentence of five years would be completely appropriate in this case. As I previously stated, however, it is my view that this is not the correct approach given the differences in the maximum sentences permitted under the Criminal Code and the OSA. Clearly lower sentences are contemplated for frauds prosecuted under the OSA. A sentence of five years less one day is the maximum penalty under the act. While Mr. Singh's offence is likely one of the most egregious ones prosecuted under this act, the maximum penalty does not take into account the numerous mitigating factors that exist in this case.

[31] Having reviewed the case law as it specifically relates to large scale investor fraud under the Securities Act, I find that the current range of sentence is 2 to 4 years. I will note that the case law in the area was very limited and may still be still evolving. The range of sentence could easily expand to include the maximum of 5 years less a day had there been a trial.

[32] The primary sentencing principle is general deterrence. The impact on the victims was devastating. This type of crime affects confidence in the Canadian financial system. The complex nature of the scheme, including false returns and elaborate investor meetings are aggravating factors to be balanced against the only significant mitigating factor in this case – the guilty plea.

[33] On the issue of parity raised by the defense, I will simply point out that Mr. Carmichael and Mr. Aonso pled to different offences and Mr. Aonso has yet to be sentenced.

[34] As for the character of the accused, I have already mentioned that the letters from Mr. Celebi and Mr. Krikorian are of little value to the court, and as it relates to his character generally, I adopt the comments of the Court of Appeal 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 circumstance meriting departure from the range.

[35] Given the high moral blameworthiness of Mr. Carmichael and the aggravating factors which far outweigh the mitigating ones, I find the 4-year sentence requested by the Crown must be imposed. To be clear, but for the guilty plea, to which I am giving significant weight, the maximum sentence would have been appropriate.

[36] Finally, I feel compelled to comment on the maximum sentence and the range of sentence for fraud under the Securities Act. To put it simply, it is too low in my view. Had the matter proceeded by way of a Criminal Code charge the range of sentence would have been 8 to 12 years as the Court of Appeal stated in Reeve. The Court of Appeal in Reeve imposed a sentence of 10 years on the facts of that case.

[37] Courts of Appeal in other provinces have imposed high sentences for large Ponzi frauds. For example, in Johnson the Alberta Court of Appeal reduced a 13-year sentence to 10 years for a $2.3 million Ponzi scheme involving multiple victims.

[38] While I am conscious of the division of powers between the federal and provincial governments in terms of their legislative purview, the different purposes of the Securities Act and the Criminal Code, and the fact that the maximum sentence is 5 years less a day so as to not run afoul of section 11(f) of the Charter, wherein an accused is entitled to a jury trial if the maximum sentence is over 5 years, I simply cannot reconcile the difference in the range of sentence between the two acts on the charge of fraud since both are full mens rea offences with the same essential elements. In fact, given that the purpose of the Securities Act is largely general deterrence and that the impact on the victims is so devastating – it robs them of their dreams, hope, the ability to enjoy their golden years, support their loved ones, and fruits of their years of hard labour, it certainly seems that the range of sentence should be higher under the Securities Act.

[39] Had this matter been brought by way of Criminal Code information, I could have imposed a sentence in the 8 to 10-year range. The provincial government should increase the maximum penalty for a first offence to at least 14 years or perhaps even 21 years given that the main purpose of the legislation is general deterrence. The provincial prosecutors under the Securities Act are highly specialized and there are significant benefits to having them prosecute such complex offences. These prosecutors should be given the tools to prosecute these offences to their fullest. If a jury trial is requested, the legislation can comply with the Charter by allowing the Ontario Court of Justice to do jury trials on securities act charges or they can simply refer the matter to the Superior Court. Ultimately, and in keeping in mind the purpose of the provincial legislation, I struggle with the disparity in the sentences for ostensibly the same offences.

[40] Despite my misgivings, I sentence Mr. Carmichael to jail for four (4) years.

Released: June 2, 2025

Signed: Justice M.K. Wendl

Appendix A: OSC v Kevin Carmichael

Agreed Statement of Fact – January 8, 2025

Overview

1. Strike Holdings Inc. ["Strike"] is an Ontario corporation and a non-reporting issuer which has a registered office address in Oakville, Ontario. Michael Aonso ["Aonso"] and Kevin Carmichael ["Carmichael"] were Strike’s two officers and directors between April 30th, 2012 and March 31st, 2021 ["the Material Time"].

2. KM Strike Management Inc. ["KMSM"] is an Ontario corporation and a non-reporting issuer which has a registered office address in Oakville, Ontario. During the Material Time, KMSM was a management firm that provided research, analysis, operations and administration services as well as directed the activities of Strike. Aonso and Carmichael were KMSM’s two officers and directors.

3. During the Material Time, Strike, KMSM, Aonso and Carmichael were not registered in any capacity under the Ontario Securities Act. In particular, Carmichael was not registered to sell shares as required by section 25(1) of the Act, nor was he exempt from this requirement.

Background to the investigation

4. In the late summer of 2019, TD Bank Group Wealth Compliance ["TD"] forwarded to the Ontario Securities Commission ["OSC"] a copy of a letter dated August 2nd, 2019 [the "TD Letter"] which they had previously sent to Aonso and Carmichael. The TD Letter was in response to several concerns raised by Aonso and Carmichael regarding what they maintained were inaccurate values and transactions reported in Strike’s TD Direct Investing ["DI"] accounts (along with other issues including missing wire transfers).

5. The TD Letter described how TD staff investigated the Strike accounts and found no irregularities or evidence of wrongdoing on the part of TD. It also described the investigation conducted by TD of the purported TD DI bank statements uttered by Aonso and Carmichael to TD staff. The letter described how TD staff found several irregularities in the purported TD DI account statements and concluded that the purported TD DI statements had not been issued by TD.

6. Upon receipt of the TD Letter, the OSC began an investigation which included executing a number of search warrants on banks, an accounting firm, a financial risk and advisory firm, as well as the residences of Aonso (4259 Garnetwood Chase, Mississauga, Ontario) and Carmichael (549 Hughson Street North, Hamilton, Ontario). The fruits of the execution of these search warrants allowed OSC investigators to piece together the story of Strike and KMSM during the Material Time.

7. In 2012, Aonso and Carmichael created Strike and KMSM to invest funds on behalf of members of the public, beginning with several friends and family members. They believed to have developed an algorithm that would be able to predict the optimum time to invest and sell certain securities. The investment was structured in a way that investors became shareholders of Strike and were issued Share Purchase Agreements. Among the many purported benefits of Strike that Aonso and Carmichael touted to investors was the transparency of Strike’s business practices and its enhanced documentation and system management protocols. The investors were enticed to invest based upon the predicted or reported success of the Strike investment strategy, and some of the investors contributed significant funds.

8. Aonso and Carmichael received investments from Ontario citizens and citizens of other jurisdictions like Hong Kong. Investors were issued share certificates and receipts for their investments. They had access to an online portal called StrikeNAV in which they could monitor their investments. As the following screenshots demonstrate, StrikeNAV was a user experience akin to an online portal one might find at a bank.

9. As the above screenshot of the StrikeNAV portal demonstrates, throughout the Material Time investors were paid out dividends on their investments. Shortly after launching the company, trading in the Strike accounts began to result in significant losses of investor funds. Despite that, the trading was portrayed as profitable by Carmichael and Aonso as they did not acknowledge to investors that Strike’s investing strategy was not as profitable and successful as they had predicted. Accordingly, these dividend payments were derived from the investments made into the fund from other investors. Investors could also redeem their investments, with profit. The evidence shows that redemptions were paid to investors in 2017, 2018, and 2019. Those who did redeem were paid using the funds of other investors into Strike rather than the trading profits Strike claimed they had earned.

10. Strike held annual general meetings ["AGM"] whereby investors could gather to hear from Aonso and Carmichael along with special guests. At these meetings, presentations prepared by Aonso were made to investors which reiterated the success of the fund and touted the redemption management tool of the StrikeNAV portal. Investors were also shown the clear dividend growth that Strike had produced, which the company represented was due to the purported gains of the fund. The following screenshots of the June 20, 2018 Strike AGM Powerpoint presentation demonstrate the nature of these representations.

11. In 2015, Strike retained Trinity Compliance Partners to consult with Strike as to whether their current business model and operations complied with the regulatory landscape. Trinity completed their assessment and produced the Trinity Report. It determined that Strike was not in compliance with the Act and advised them to stop operating. Following receipt of the Trinity Report, Aonso and Carmichael exchanged views concerning the report over email and through the track-changes function of a Word document where they agreed to ignore its conclusions, disregard the stipulations of the Act, and immediately cease any “evidentiary marketing”.

12. By 2017, Aonso and Carmichael were forming plans to move Strike from Ontario to an off-shore location in the Caribbean, such as the British Virgin Islands. The plan, referred to internally as Strike International, was to create a number of entities and trade owner seed capital to the Caribbean with client investments to follow a few months after this process. Plans for this development continued up until the events of the summer of 2019. In May of 2019, Carmichael emailed TD advising the bank that major changes were occurring to the Strike business that would require consistent multi million-dollar transactions.

13. In June of 2019, Aonso and Carmichael approached TD and claimed their DI account contained over $97,000,000 USD despite TD confirming that the balance of the account was $230,481.11 USD. In the remainder of the Material Time, Carmichael maintained that fraud and/or error had occurred in TD’s systems, not with Strike. He maintained that TD had lost their purported gains. He denied the veracity of TD’s bank statements and maintained that versions of the TD's statements that Carmichael had altered were authentic and correct.

Carmichael’s role at Strike

14. Carmichael was responsible for the trading that occurred in Strike’s trading accounts. He was also responsible for the movement of money between Strike’s banking accounts. It is Carmichael who provided Strike’s trading and banking statements to Strike’s bookkeeper, Ms. Lynn Aonso. He also provided Strike’s bank account statements to third parties. In many instances, what he provided to these parties were bank statements that he had faked or altered.

15. Carmichael had access to Strike’s account information from TD’s Web Broker system and so was privy to the correct statements issued by TD on the trading accounts throughout the Material Time. The banking documentation listed only Aonso and Carmichael on the account. No other party had access to Strike’s TD DI accounts.

16. Carmichael received trade confirmations to his email address, and was captured in voice recordings making trades, inquiring about trades, converting between currencies, and transferring monies between Strike accounts with TD staff over the telephone.

17. Carmichael claimed to be conducting trades using Strike’s methodology and algorithm, but in reality used investor funds to trade in stocks in a way inconsistent with this methodology. One of the TD telephone audio interceptions of June 30, 2014 reveals that TD staff informed Carmichael that the Strike account had pending trades to cover for Blackberry stock. Carmichael acknowledged this in the affirmative.

18. However, as Aonso indicated in his email to Carmichael of December 5, 2019, trades in Blackberry were an anomaly to the Strike trading methodology and yet they had been found in the authentic TD DI statements provided by the bank. As a result, Strike considered these trades to be evidence of fraudulent conduct in their trading account by parties unknown. In reality, Carmichael had made those trades himself.

19. In addition, Carmichael’s personal tax returns for 2017 and 2018 revealed that he traded in his personal account precisely those stocks which Strike found anomalous when they inspected the authentic TD DI statements, including Conatus Pharmaceuticals, Velocity, TetraPhase, Sarepta, etc.

Reporting false returns

20. Aonso and Carmichael reported to their shareholders that they were making impressive returns ranging from 32.7% to 81.8% per year. This was done through periodic investor reports known as “Strike Reports” which Carmichael assisted in preparing by providing false information as to the returns being produced by Strike’s trading. An example of the claims found in the Strike Reports is the following which shows fiscal year-to-date results for the period 2012 to 2019.

21. The Strike Reports also contained comparisons between the Strike fund and other major market indices to demonstrate Strike’s purported runaway success by way of comparison.

22. No forensic audit of these results was ever undertaken. This despite two investors, Dale Barretto and David Yeung, signalling to Aonso and Carmichael that an audit of these results was warranted, or that they could not reconcile the trading with the documentation provided.

Altered banking and trading statements

23. Throughout the Material Time, Carmichael, or through his co-accused Aonso, uttered altered banking and trading statements. These were statements that had been manually altered by Carmichael to make them appear to contain totals and transactions that were not true. These statements were uttered on multiple occasions to multiple parties both internally to Strike and externally to third parties.

24. Between April 10th, 2015 and June 8th, 2015, Carmichael uttered two different versions of Strike’s USD chequing account statement for the month of August 2014 to Lynn Aonso, the bookkeeper of the firm. During this interaction, Ms. Aonso noticed that certain inter-account transfers between Strike’s USD and CAD chequing accounts that she had seen from the CAD account were not featured on the first version of the USD account statement that she had been provided by Carmichael. Carmichael then provided a second version of the USD account statement with the missing transfers now appearing. Between October 10th and October 17th, 2014, Carmichael uttered altered Strike’s USD banking statements again to Ms. Aonso that removed personal transfers from Strike’s bank account to his personal account for the fiscal year ended April 2014.

25. Mr. Aonso received all of the Strike TD CAD and USD chequing account statements that were altered by Carmichael from Carmichael. Mr. Aonso uttered them directly to investor Patrick Burka in emails in 2020. Staff analysis reveals that these statements included many errors and alterations, including but not limited to:

• Over $29,000 CAD in net transfers to Mr. Carmichael’s personal account was understated or omitted in the CAD account statements for the year ended April 30, 2013; and
• Over $90,000 USD in net transfers to Mr. Carmichael’s personal account was understated or omitted in the USD account statements for the period from May 2012 to November 2014.

26. Carmichael emailed inconsistent trading account statements for the month ended April 2013 to separate parties. The first version was to Ms. Aonso, the other was to a representative of the accounting firm PriceWaterhouseCoopers.

27. Carmichael emailed inconsistent information relating to Strike’s trading accounts, namely a bank statement and an Excel spreadsheet purporting to record transactions in the same account. This related to the opening statement for May 2012 in the US DI account. Again, the inconsistency was only revealed by comparing the two documents sent to two separate parties. The first version was the TD bank account statement. This was sent to Ms. Aonso on September 25th, 2015. The second version was an Excel spreadsheet produced by Mr. Carmichael which purported to calculate capital gains for fiscal year 2012/2013 in the US DI account. This was sent to a representative of Price Waterhouse Coopers.

28. Carmichael and Aonso also uttered the altered trading account statements he made to a representative of the financial risk and advisory firm Duff & Phelps on July 8th, 2019, as well as July 11th, 2019.

29. Having received the altered trading account statements from Carmichael, Aonso also uttered them to investors through email exchanges. This included directly to investor Patrick Burka, as well as in a mass email to investors interested in investing in the subsequent debenture raise. As noted above, when Aonso and Carmichael approached their branch of the TD Bank in June of 2019 and claimed to have $97 million USD on deposit, their representations to the bank included uttering to TD the TD DI statements Carmichael had altered.

The subsequent debenture raise

30. TD Bank staff did an internal audit and confirmed that there were no missing funds and that their records were accurate. Nonetheless, in the latter part of 2020, Aonso approached some of their existing shareholders to raise funds in order to proceed in a civil action against TD Bank to recover their purportedly lost funds. Carmichael participated in the meetings in which this further investment was developed, including the drafting and sending of correspondence to investors soliciting additional funds, though he did not approach investors to raise funds himself. Carmichael was also aware that investors were told that Carmichael would be trading on the raised funds to increase the profits for the lawsuit and submitted documentation and took other actions consistent with this role. Carmichael did not at any time inform anyone about the prior forged statements or that the basis of the potential lawsuit against TD was fraudulent.

31. Between January and February 2021, Aonso and Carmichael raised over $934,000 from 20 investors through a debenture offering. In April of 2021, the OSC won an order to freeze the remaining funds from this distribution. As a result, over $730,000 of the funds were frozen. Carmichael and Aonso convinced the debenture investors that it was TD who had absconded with the money in their account, when in reality it was lost through Strike’s trading activities and otherwise paid out to various entities, including Aonso and Carmichael. Carmichael thus raised these debenture funds from investors for the purpose of litigation against TD, despite knowing that their claim of wrongdoing against TD was false as he had altered the statements at issue himself.

Forensic accounting

32. The OSC’s forensic accounting of Strike’s accounts during the Material Time discovered that Strike did not produce profits of 30% to 80% as investors were promised, but rather generated no profits and lost marginal amounts from its trading activities, contrary to the Strike Reports sent to their shareholders and the altered trading statements they uttered to third parties.

33. In its analysis, OSC staff identified 24 relevant bank and trading accounts. The forensic accounting analysis determined that, between 2012 and 2019, Strike’s TD accounts received over $31 million CAD, and in 2021, Strike raised an additional $934,000 CAD from 20 investors in its debenture offering. The total amount of money raised from investors during the Material Time was over $32 million CAD.

34. A forensic accounting examination revealed that over $27 million of investors’ funds were disbursed directly or indirectly through corporations controlled by Aonso and Carmichael as follows:

• $8,984,383.62 of investor money was returned as profits or dividends;
• $5,688,401.95 in tax payments;
• $6,858,616.33 to Carmichael and his company (2602623 Ontario Inc);
• $4,782,524.72 to Aonso and his company (Servnet Enterprise Group Inc);
• $377,714.88 for credit card payments;
• $346,222.91 to Aria Tesolin (Carmichael’s then-spouse).

Summary

This decision involves the sentencing of Kevin Carmichael for operating a Ponzi scheme under the Ontario Securities Act, resulting in investor losses between $18 million and $23 million. The Court imposed a four-year jail sentence, emphasizing the devastating impact on victims, the high moral blameworthiness of the offender, and the need for general deterrence in securities fraud cases. The judgment critically discusses the inadequacy of the current maximum sentence under the Securities Act compared to the Criminal Code and calls for legislative reform to increase penalties for such offences.

Interesting Citations Summary

The case extensively references prior Ontario Court of Justice and Court of Appeal decisions on securities fraud sentencing, including DeBoer, Singh, and Drabinsky, highlighting the evolving jurisprudence on sentencing ranges and principles under the Securities Act. The judgment notably critiques the disparity between sentencing under the Securities Act and the Criminal Code for similar fraud offences, providing a strong judicial voice advocating for legislative change to better address large-scale investor fraud.

Keywords

• Kevin Carmichael
• Ontario Securities Commission
• Securities Act
• Ponzi scheme
• Securities fraud
• Sentencing
• General deterrence
• Investor losses
• Ontario Court of Justice
• Moral blameworthiness
• Regulatory offences
• Criminal Code
• Legislative reform

Areas of Law

• Securities Law