1. Overview

[1] Mr. Nowack testified that he has a gift for making money. He certainly does have a gift but that is not it. His gift is the ability to deceive people into parting with their money. A jury convicted him of twelve counts of fraud over $5000.00. He now comes before the court for sentencing.

2. The Facts

(a) Circumstances of the offence

[2] Commencing in 2009, Mr. Nowack held himself out as a knowledgeable and skilled currency trader. He was never registered with the Ontario Securities Commission. He opened multiple trading accounts in London using an online trading platform provided by a company called FXCM. He told people the accounts were actually in New York. That was one of many lies. He also told people that FXCM granted him the ability to leverage his trading up to 400x. That was another lie used to induce investment from people who could not otherwise obtain that kind of extraordinary leverage in their personal trading. Between November 3 2009 and October 2013 several investors transferred funds to Mr. Nowack. Mr. Nowack was to trade currency. Most of the investors signed an agreement with Mr. Nowack. Some did not. Currency trading profits were to be split 37.5% to Mr. Nowack and 62.5% to the investors, although there were some variations. Mr. Nowack represented to the investors that 100% of their money would be invested in currency trading. That was untrue.

[3] There were several ways in which the jury could have arrived at a guilty verdict. Since it is unclear which route the jury took, I must make my own findings of fact in order to determine sentence: Criminal Code, s. 724, R. v. Punko, 2012 SCC 39 at paras. 11-12.

[4] According to the Crown theory, there were three aspects of the fraud: the diversion aspect, the misrepresentation aspect, and the “live trading” aspect. Members of the jury could have convicted Mr. Nowack any one of those bases, or on all of them. I find that Mr. Nowack committed the fraud in each of these ways:

The Diversion Aspect Of The Fraud:

[5] Mr. Nowack did not invest each investor’s money into foreign currency trading. Instead, he diverted some of their money for his own purposes. The fraud was also a Ponzi scheme: Mr. Nowack diverted some of the funds of some of the investors in order to pay other investors. He did not disclose the diversions.

[6] Between October 1 2009 and July 1 2013 a total of the $19,576,515.21 (combined Canadian and US dollars) was transferred to Mr. Nowack’s FXCM accounts from his Canadian bank accounts. Mr. Nowack’s trading losses amounted to US$19,249,162.82. FXCM shut down Mr. Nowack’s accounts in June 2013. The accounts were left in a deficit position of US$854,399.16. A total of US$1,905,002.36 was returned from FXCM accounts to Mr. Nowack’s accounts in Canada.

[7] During the course of the fraud Mr. Nowack used a total of $2,703,468.54 for personal purposes (combined US and Canadian dollars). Mr. Nowack, his wife, and his mother received $1,321,198.22 in cash. Mr. Nowack used $480,096.55 for legal fees. He used $479,528.30 for credit card payments. Mr. Nowack used $324,581.59 to pay personal expenses directly. He diverted $98,063.88 to his music business.

[8] Mr. Nowack testified that he did not perpetrate a Ponzi scheme. He simply moved money that he was otherwise entitled to in order to pay investors. He also believed he was entitled to take profits. He was therefore entitled to divert some investor money because he could account for it using the profits in the FXCM account.

[9] Mr. Nowack’s evidence was not credible on this point. If he was accounting for funds moved around by setting off profits in the FXCM accounts, where are the spreadsheets or working papers showing those calculations? None were found. In my view, the jury did not believe him.

The Misrepresentation Aspect Of The Fraud:

[10] Mr. Nowack told investors that he was making millions of dollars. That was a lie. He told investors that his investment fund had tens of millions of dollars in it. That was also a lie. Mr. Nowack sent out “account statements” that showed individual investors making excellent returns. Those account statements were works of fiction. He lied to investors when they asked for the return of their funds. He invented reasons for failing to pay profits or to return the original investment. He blamed banking or regulatory problems.

[11] At trial Mr. Nowack testified that he was making huge profits from trading currency “pairs”. Trading currency pairs is a zero-sum game: if one party makes money the other party must lose. He was trading billions of dollars. He claimed that large investment banks, such as Goldman Sachs and J.P. Morgan, were very upset about the massive losses he was causing them. The management of FXCM therefore decided to hide his profits in “demonstration” accounts. He said that he still had over US$146 million in these accounts, including the so-called 979 accounts. He said FXCM was still hiding his money. FXCM has manipulated the trading records in order to hide the fact that it has stolen his money. He pointed to FXCM’s very real regulatory offences in the United States and the U.K.

[12] Mr. Nowack’s evidence on this point was also not credible. In my view, the jury clearly rejected his evidence. The 979 account and other demonstration accounts did not hold real money. The trading records showed that Mr. Nowack lost all of the investor money – and those records balanced. Mr. Nowack used these demonstration accounts holding fake money to induce investors to put up real money.

[13] Mr. Nowack provided Mr. Auciello with an email, ostensibly from FXCM, indicating that he had over US$146 million in account 979. Nobody at FXCM sent that email. It was not sent from a recognized FXCM address. Moreover, it makes no sense that FXCM would send an email indicating that he had $146 million in an account when it was supposedly hiding those profits. That email was a forgery. Mr. Nowack quite obviously and deliberately created that email in order to mislead Mr. Auciello and his colleagues.

[14] Over the course of the fraud, FXCM charged US$10,811,268.95 in commissions. That amount represented just over half of the total amount invested by the investors. How did Mr. Nowack generate such enormous fees? Every time Mr. Nowack traded he did so at a furious pace. Every time he clicked on his mouse he generated a trade. He was constantly clicking his mouse. That is what Mr. Nowack testified to. That is what the investors who watched him trade testified to. Those investors watched Mr. Nowack generate trades in a demonstration account, but some of the trading was probably genuine.

[15] Because of Mr. Nowack’s high volume of trading, FXCM rebated US$11,260,684.20. Mr. Nowack did not disclose the rebates to the investors – he took the position at trial that he was entitled to the rebates and was not required to disclose them.

[16] The rebate scam meant that Mr. Nowack made money whether or not his investors lost. The investors were not aware of the rebates. The rebates were ploughed back into trading, but they represented pure profit for Mr. Nowack. Whether the rebates were a diversion or a misrepresentation (or both) they were part of the fraud.

The Live Trading Aspect Of The Fraud

[17] Mr. Nowack traded “live”. He let several investors watch him trade on his computer or on his mobile phone. I find that every investor who watched Mr. Nowack trade live on-screen watched him trade using demonstration accounts. A demonstration account is an account opened by an investor in order to practice trading or try out an investment strategy. No real money is used. Some investors may have seen real accounts at some point but Mr. Nowack presented the demonstration accounts as real accounts. He did that in order to induce the investors to invest. The investors, of course, did not know that the accounts were not real.

[18] Mr. Nowack never had more than US$5.7 million in his FXCM accounts at any one time. Therefore, any time an investor saw more than US$5.7 million in an account onscreen he was watching a demonstration account. The FXCM accounts were shut down in June 2013. Any investor who saw an onscreen account after that time was watching a demonstration account.

[19] Stephen Chan, Vito Galloro, Desi Auciello, Rino Montemarrano, Mark Rynties, Manuel DaCosta, and Anthony Montemarrano all watched Mr. Nowack trade live on-screen. I find that Mr. Nowack showed each one of them a demonstration account in order to induce them to invest. David Weenen, Vince Saragosa, and Joseph Greenberg never actually saw Mr. Nowack trade live on-screen. Instead, he told them that he was making vast profits. Those were also misrepresentations designed to induce them to invest.

[20] Mr. Chan took an undated photograph of Mr. Nowack’s trading screen showing account 381. The account showed over US$88 million in it. Mr. Chan took another photograph of Mr. Nowack’s trading screen showing account 981 on July 7 2013. The account showed over US$16 million in it. Those accounts were clearly demonstration accounts.

[21] Mr. Galloro took a photograph of one of Mr. Nowack’s trading screens in February 2013. The balance in the account was US$56 million. In July 2013 he saw a trading screen with a balance of over US$100 million. Those accounts were clearly demonstration accounts.

[22] Mr. Auciello testified that Mr. Nowack had more than US$10 million in the account he saw. Rino Montemarrano testified that he dropped by Mr. Nowack’s house to watch the trading with Mr. Auciello. Anthony Montemarrano also watched Mr. Nowack trade onscreen. I infer from the circumstances that Rino Montemarrano and Anthony Montemarrano watched at the same time as Desi Auciello and saw the same demonstration account.

[23] Dr. Rynties testified that he watched Mr. Nowack make US$750,000 over the course of four hours. Mr. Nowack only had 36 trades – among thousands in almost four years – where he made more than US$10,000. He had only one where he made more than US$20,000. I infer from that evidence that Mr. Nowack showed Dr. Rynties a demonstration account in order to induce him to invest.

[24] Mr. DaCosta testified that he saw Mr. Nowack trade live on a mobile phone. He did not testify to the number, but he did say that Mr. Nowack appeared to be very successful. In my view, it is unlikely that Mr. Nowack showed demonstration accounts to the other investors but a real account to Mr. DaCosta. I find that Mr. Nowack likely showed him a demonstration account in order to induce him to invest.

[25] Dan Cusimano and Joe Ferraro testified for the defence. Both saw Mr. Nowack trade live on-screen. Both saw balances as high as US$160 million. Both believe that they saw Mr. Nowack trade real money using a real account. I have no doubt that Mr. Nowack also lied to them about what was happening on-screen. Both men saw demonstration accounts, not real accounts.

The Losses

[26] Most of the investors lost all of their money. None of the investors received their original investment back. Those that received some money obtained it from other investors through Mr. Nowack. None of the investors received profits. The only person who came out ahead was Mr. Nowack.

[27] The total loss to the criminal complainants was C$15,679,087.59.[^1] Other investors did not make a complaint to the police. These other investors lost about $6 million.[^2] Thus, some $21.9 million (combined Canadian and US dollars) flowed into Mr. Nowack’s Canadian and U.S. dollar accounts from all the investors over the course of the fraud.

[28] Let me also say a word about three of the investors who testified for the defence: Joe Ferraro, Dan Cusimano, and Rocco Lamanna. Mr. Ferraro invested just over $1 million with Mr. Nowack. He received nothing back. Mr. Cusimano invested $2.15 million with Mr. Nowack. He received some money back. Mr. Lamanna invested C$580,000 with Mr. Nowack. He received nothing back. All three believe FXCM has stolen their money. All three believe that Mr. Nowack has millions of dollars that are still in FXCM accounts. All three believe that Mr. Nowack did not defraud them.

[29] In her submissions, Crown counsel was very hesitant to call these people victims. I am not so hesitant. I think it is very obvious that they were also victims of the fraud. To be clear, however, I am not treating the fraud on these other victims as a factor on sentencing. It is simply another illustration of Mr. Nowack’s gift for deception.

(b) Circumstances of the offender

[30] Mr. Nowack is 56 years old. He was born, raised, and educated in Toronto. He is married but separated. He has a 13 year old son and an 11 year old daughter. His son has autism and ADHD. His daughter has a severe learning disability, major anxiety, and ADHD.

[31] Mr. Nowack has no criminal record, in the sense that he received a conditional discharge for a prior offence. Justice Mara Greene of the Ontario Court of Justice convicted Mr. Nowack of breaching his bail conditions. His bail condition required that he not communicate with any investors. He did, however, knowingly communicate with Mr. Chan. He attempted to persuade Mr. Chan not to complain to the police.

[32] Mr. Nowack testified that he has been involved in several businesses, including T-shirts and other licenced goods and a restaurant. In the 1990’s he became involved in a hedge fund. Eventually Mr. Nowack became involved in equity trading and currency trading. He told the jury that at the time he was reading 12 newspapers per day and 30 magazines per month. He began to develop a view of how the markets operated. He described how he learned to trade equities and short stocks. He testified that at the time of the September 11 2001 terrorist attacks he had $40 to $50 million in stock but that through excessive hubris he lost the money. He then went into the music business but decided to get back into trading in 2008.

[33] Mr. Nowack lost his brother to cancer in 2018. He is a cancer survivor himself. I will have more to day about Mr. Nowack’s health later in these reasons.

(c) Impact on the victim and the community

[34] Several of the victims filed victim impact statements. Aaron Greenberg, the son of the late Dr. Greenberg, read his. David Weenen read his as well.

[35] Dr. Greenberg died in 2017. Aaron Greenberg spoke of Dr. Greenberg’s legendary reputation in the community as a kind, dedicated, and hard-working physician. Dr. Greenberg invested his life savings with Mr. Nowack. As Dr. Greenberg and his wife aged and deteriorated they were unable to access their savings. The impact has been very difficult financially for Mrs. Greenberg. The fraud took a monumental emotional toll on his father. Dr. Greenberg had known and cared for Mr. Nowack since Mr. Nowack was a teenager – as Mr. Nowack testified. Mr. Nowack’s betrayal left him in despair. It has burdened the family. They were forced to sell the treasured family cottage to pay for Mrs. Greenberg’s care. Mrs. Greenberg may lose her home as a result of the fraud.

[36] Mr. Weenen invested $100,000 with Mr. Nowack. That amount represented half of his life savings. He did receive $15,000 back ($20,000 according to Mr. Nowack). Mr. Weenen feels shame and embarrassment over what occurred. The fraud also seriously impacted his long-term relationship. His romantic partner ended the relationship as a result.

[37] Dr. Mark Rynties filed a victim impact statement. Dr. Rynties invested US$1 million with Mr. Nowack. He received nothing back. Dr. Rynties and his wife supported large-scale charitable efforts in Kenya and Uganda. As a result of the fraud, they are unable to continue doing so. They were forced to sell their home and postpone retirement.

[38] Vince Saragosa is Dr. Rynties’ brother-in-law. Mr. Saragosa invested US$275,000. Mr. Saragosa stated that this amount represented his life savings, or 80% of his net worth. He was unable to assist his children with college. The fraud put his home, vehicles, and livelihood in jeopardy. Dr. Rynties introduced Mr. Saragosa to Mr. Nowack. Their family relationship has been very strained as a result.

[39] Stephen Chan invested $5 million on behalf of members of his family. Mr. Nowack did not return any of it. Mr. Chan described the emotional and financial toll on him and his family. He dealt with Mr. Nowack on behalf of family members who invested money. This fraud has severely impacted his relations with his family members. He has lost weight and suffered from insomnia.

[40] Fraud has a wide impact. It erodes trust, the basic lubricant of a market economy. Fraud parts money from productive uses and directs it towards unproductive uses. Fraud also takes an emotional toll on its victims. I reject the notion that because this was only a pecuniary crime – and some of the victims are wealthy – the impact is not as severe as violent crime. Fraud is a crime of emotional violence. A person like Mr. Nowack cultivates a relationship with the victim in order to build trust. When that trust is breached the victim questions his or her judgment, stability, and intelligence. The victim feels shame and embarrassment. The financial and emotional impact can be devastating and change a victim’s life forever.

3. Positions of the Crown and Defense

[41] Crown’ counsel’s position is that Mr. Nowack committed a major fraud. The complainants lost, collectively, almost $16 million. While some of them were wealthy, others were more vulnerable. Mr. Nowack was in a position of trust. He committed the fraud in several different ways. As a major fraud, it is deserving of a significant denunciatory sentence. The sentence must serve as a general deterrent, and a specific deterrent to Mr. Nowack. Crown counsel asks for a sentence of 8-10 years, with a fine in lieu of forfeiture equal to the amount of the fraud. The Crown also asks for a DNA order, and an order prohibiting Mr. Nowack from ever handling money belonging to a third party.

[42] The defence position is that Mr. Nowack ran a legitimate currency trading business. The investors lost their money in a venture that they all knew was risky. Mr. Nowack’s crime was to misrepresent the amount of the loss and to divert funds to his own personal use. The amount of the fraud was actually C$1.9 million. Mr. Slansky argues that Mr. Nowack should serve two years, with credit for time served at 1.5:1 as well as credit for time spent on lockdown and house arrest.

4. Mitigating and Aggravating Factors

[43] There are very few mitigating factors in this case.

[44] Mr. Nowack filed letters of support. He enjoys the support of his former wife, Ms. Frishling. She says he is a good parent. She has described the difficulties of raising their two children alone since he has been incarcerated. The children need their father. She stated in her letter to the court that Mr. Nowack has been involved with several major charities. She also stated that Mr. Nowack is of “high moral character.”

[45] Mr. Nowack’s mother, Ms. Nowack, also wrote a letter of support. She tragically lost her other son to cancer and is now left with one child. She also described the hardships that Mr. Nowack’s former wife and children have suffered while their father has been in jail, as well as the hardship to her.

[46] I accept that Mr. Nowack is a good and caring parent and son. It is a mitigating factor. I note, however, that both Ms. Frishling and Ms. Nowack benefitted significantly from Mr. Nowack’s fraud. If they did not know it at the time, they certainly know it now – or ought to know it. Neither of them expressed any regret for the losses suffered by the victims. They seem oblivious to the irony of asking for leniency for Mr. Nowack because of the hardship to themselves.

[47] Mr. Nowack’s family friend Thelma Davidson also wrote a letter of support. She indicated that he was a handsome and charming boy who became a handsome and charming man. She has had no business interactions with him. Her letter mostly described the hardships faced by Mr. Nowack’s former wife, children, and mother as a result of his incarceration.

[48] Mr. Nowack provided letters from Joel Hock, the president of a charitable event planning company. He described Mr. Nowack’s contributions to charitable endeavours over the years. I accept that Mr. Nowack’s charitable efforts are worthy and are mitigating.

[49] Mr. Nowack also provided a letter from his close friend Michael Castaldo. Mr. Castaldo stated that the allegations against Mr. Nowack were not in keeping with the good and decent man he knows. Mr. Castaldo noted that Mr. Nowack has suffered immensely. He pointed out that Mr. Nowack lost his home. Mr. Castaldo also noted that Mr. Nowack has not been able to derive any sustaining income for the past six years. He also states that the Canadian justice system has “broken his soul”.

[50] Regrettably, I find that I can give Mr. Castaldo’s letter very little weight. Mr. Nowack lost the rental home that he had been paying for using money he defrauded from his victims. I also firmly reject any notion that the Canadian justice system has “broken his soul”. His victims clearly take the opposite view. Mr. Nowack did everything he could to delay a trial on the merits of this case. He has also done everything he could to prevent the complainants from finding out what happened to their money. Mr. Nowack has been jailed several times for contempt of court for failing to divulge financial information during civil litigation. Mr. Nowack is the author of his own misfortune in every respect. I hasten to add that I do not take into account that Mr. Nowack has been found in contempt as an aggravating factor. It is simply that these facts undermine Mr. Castaldo’s letter of support.

[51] Mr. Nowack also has a letter of support from Archbishop Desmond Tutu. Archbishop Tutu is, of course, a Nobel Prize-winning hero of the anti-apartheid movement in South Africa. He is recognized throughout the world as true voice of justice. Archbishop Tutu’s letter is addressed to Mr. Nowack rather than to the Court but I take nothing from that. He indicates that he is very distressed to hear that Mr. Nowack is in jail. Archbishop Tutu states:

My experience of you is completely different from anyone who would say the sort of things about you that are being said, and I want you to know that I am very, very sad that you are in jail and hope that you can be vindicated and set free.

[52] In his letter to the Court, Mr. Nowack’s friend Mr. Castaldo describes being present at a news conference in 2006 where Archbishop Tutu praised Mr. Nowack. Mr. Nowack indicated in his affidavit that he expected a more detailed letter from Archbishop Tutu. He stated that Archbishop Tutu’s health issues and Mr. Nowack’s incarceration have made that difficult. Mr. Nowack did state the following in his affidavit:

I have been involved in several international endeavours in the public interest that he could have attested to had circumstances allowed. Some of this is adverted to in the letter of Michael Castaldo. Other works about which Archbishop Tutu is aware include my efforts to assist peace efforts in the Middle East.

[53] The fact that Mr. Nowack’s efforts to achieve peace in the Middle East have been unsuccessful to this point is neither an aggravating nor a mitigating factor.

[54] Archbishop Tutu’s letter is very curious indeed. There is no context to the relationship between Mr. Nowack and Archbishop Tutu. Aside from the reference to the press conference in Mr. Castaldo’s letter, it is unclear how they know each other. It is unclear what Archbishop Tutu knows, if anything, about Mr. Nowack’s fraud. Neither Mr. Castaldo nor Mr. Nowack enlightened the court with details. Of course, in the absence of evidence to the contrary I accept Archbishop Tutu’s letter at face value

[55] Mr. Nowack has been an active and contributing member of Temple Sinai Congregation for many years. Rabbi Michael Dolgin wrote a letter of support. Rabbi Dolgin considers himself a close friend of Mr. Nowack and his family. He also noted the great stress and suffering that Mr. Nowack’s incarceration has caused to him and his family. He asked the Court to consider a lenient sentence.

[56] In fraud cases a court “shall not consider as mitigating circumstances the offender’s employment, employment skills or status or reputation in the community if those circumstances were relevant to, contributed to, or were used in the commission of the offence”: s. 380.1(2) of the Criminal Code.

[57] In my view, there is a nexus between Mr. Nowack’s reputation and the fraud. All of the victims testified that Mr. Nowack promoted his skills as a currency trader. That was clearly untrue but I accept that one could chalk that up to business puffery. Dr. Greenberg, however, knew Mr. Nowack from a young age as a patient. It is clear that he trusted him. Dr. Rynties testified that he got to know Mr. Nowack’s character through his mother-in-law and her partner. His text messages show that he thought highly of Mr. Nowack as a man of principle. Mr. Saragosa relied on Dr. Ryntie’s assessment of Mr. Nowack’s character to some degree. Mr. Nowack was able to present himself as an upstanding citizen. I do take the letters of support into account, especially the letters from Rabbi Dolgin, Archbishop Tutu, and Mr. Hock. I find, however, that in accordance with s. 380.1(2) of the Criminal Code that I can give only very limited weight to statements about Mr. Nowack’s good character.

[58] Mr. Nowack has had serious health issues in the past. In 2016 he was diagnosed with a malignant mediastinal tumor near his heart. The tumor was removed with surgery. Mr. Nowack required extensive post-operative radiation therapy. There is no indication, thankfully, that Mr. Nowack’s cancer-related issues have returned.

[59] I revoked Mr. Nowack’s bail upon his conviction. Since his incarceration, Mr. Nowack has indicated that he has had further health problems. He testified at length about his symptoms during an application for bail: R. v. Nowack: 2019 ONSC 3522. I dismissed that application. He also filed material regarding his health on a habeas corpus application. He indicated that he had lower back pain and a heart arrythmia. Madam Justice Copeland ordered that he be taken to the hospital. Mr. Nowack was admitted for two days for tests on August 8 and 9 2019. I have reviewed his discharge summary. An MRI of his spine showed no evidence of spinal cord compression. He has degenerative back pain which the hospital recommended continue to be treated with acetaminophen and ibuprofen. As for his heart palpitations, the discharge summary indicated that his ECG showed normal sinus rhythm. He was monitored for 24 hours. There was no sign of an arrhythmia.

[60] Mr. Nowack’s brother most unfortunately died of cancer. This horrible disease has obviously affected him and his family. Mr. Nowack’s health issues and the manner in which cancer has affected his family are mitigating factors.

[61] There are serious aggravating factors in this case including statutory aggravating factors. For the first part of the fraud, from 2009 to 2011, s. 380.1(1) of the Criminal Code set out several aggravating factors that I am required to consider:

380.1 (1) Without limiting the generality of section 718.2, where a court imposes a sentence for an offence referred to in sections 380, 382, 382.1 and 400, it shall consider the following as aggravating circumstances:

(a) the value of the fraud committed exceeded one million dollars;

(b) the offence adversely affected, or had the potential to adversely affect, the stability of the Canadian economy or financial system or any financial market in Canada or investor confidence in such a financial market;

(d) in committing the offence, the offender took advantage of the high regard in which the offender was held in the community.

[62] In 2011 that section was amended and the following factors were added:

(c.1) the offence had a significant impact on the victims given their personal circumstances including their age, health and financial situation;

(e) the offender did not comply with a licensing requirement, or professional standard, that is normally applicable to the activity or conduct that forms the subject-matter of the offence; and

(f) the offender concealed or destroyed records related to the fraud or to the disbursement of the proceeds of the fraud.

[63] This fraud was large-scale, complex, sophisticated, and lengthy. It encompassed a large number of victims: R. v. Johnson, 2010 ABCA 392 at paras. 35-36.

[64] Dr. Greenberg’s obvious vulnerability is an aggravating factor. He was in his 80’s. He was clearly under Mr. Nowack’s spell. Mr. Nowack callously used that vulnerability to drain Dr. Greenberg and his wife of their savings.

[65] It is also aggravating that Mr. Nowack continued to solicit funds from investors after his FXCM accounts were locked. Mr. Nowack convinced Dr. Rynties and Mr. Saragosa to invest another US$130,000 and US$75,000, respectively. He also solicited a further C$250,000 from Manuel DaCosta in October 2013. None of those funds were used for trading. The funds were used to pay Mr. Nowack’s rent, for his personal expenses, to pay other investors, to pay his criminal lawyer – and, ironically, for to pay civil counsel to fend off those same investors.

[66] It is also aggravating that Mr. Nowack was in a position of trust. He ostensibly traded other people’s money under his own name. People trusted him to invest their money, invested it as represented, and account for it honestly. That is the very definition of trust: R. v Khatchatourov, 2014 ONCA 464 at para. 40. Mr. Nowack brazenly breached it.

[67] Finally, Mr. Nowack attempted to conceal records, another aggravating factors. That was the whole purpose of using the Wells Fargo account in the United States. Isle of Man bank accounts were used. FXCM was outside Canada. This was not the worst case of concealing records – aside from the Isle of Man he did not use a bank secrecy haven and he traded in his own name – but the use of foreign accounts was still an obstacle to the investigation and prosecution of the fraud. That is what the provision strikes at.

5. Legal Parameters and Principles of Sentencing

[68] Fraud over $5000 is an indictable offence: Criminal Code, s. 380(1)(a). The maximum punishment is 14 years per count. The mandatory minimum where the fraud is more than $1 million is 2 years: Criminal Code, s. 380(1.1).

[69] The fundamental principle of sentencing is that a sentence shall be proportionate to the gravity of the offence and the degree of responsibility of the offender: Criminal Code, s. 718.1. The fundamental purposes are set out in s. 718 of the Criminal Code. They include deterrence, denunciation, rehabilitation, and reparation.

[70] Rehabilitation must always play a role in sentencing. There is no question, however, that in large scale frauds denunciation and deterrence play the predominant role: R. v. Drabinsky, 2011 ONCA 582 at para. 160. The Court observed in that case at para. 159:

… it would seem that if the prospect of a long jail sentence will deter anyone from planning and committing a crime, it would deter people like the appellants who are intelligent individuals, well aware of potential consequences, and accustomed to weighing potential future risks against potential benefits before taking action…

[71] That comment applies to Mr. Nowack. He is an intelligent man with business experience. He testified that he was sophisticated in the financial markets, although he is obviously considerably less sophisticated than he claims: see R. v. Dieckmann, 2017 ONCA 575 at para. 75.

6. Ancillary Orders

Forfeiture of Cash and Fine In Lieu Of Forfeiture:

[72] A court may order a fine in lieu of forfeiture where the proceeds of the crime cannot be located because the proceeds have been transferred to a third party, are located outside Canada, or have been rendered worthless: Criminal Code s. 462.37(3)(b), (c), (d). All three of those circumstances apply here. Where the fine exceeds $1 million, the default period is between 5 and 10 years. A fine in lieu of forfeiture is not a punishment when considered in the context of totality of sentencing. The purpose is not to punish the offender but rather to replace the proceeds of crime: R. v. Schoer, 2019 ONCA 105, at para. 93.

[73] This was a fraudulent scheme designed to part investors from their investments. All of the investor funds are proceeds of crime. The funds all passed through Mr. Nowack’s hands. He was the directing mind of the fraud and obtained or benefitted from the scheme. The fine in lieu is not limited to the direct profits. The fine in lieu is directed to the losses: Schoer at paras. 103 and 111; R. v. Angelis, 2016 ONCA 675 at para. 35; R. v. Piccinini, 2015 ONCA 446 at para. 18.

[74] Thus, the fine in lieu of forfeiture will be C$15,679,087.59 representing the total losses to the complainants. Mr. Nowack will have 3 years to pay upon his release from custody, and 7 years in default of payment.

[75] The cash that was seized from Mr. Nowack’s home is proceeds of crime. It will be forfeited in accordance with Exhibit 5 on sentence.

Restitution Order

[76] A court may impose a restitution order reflecting the value of the loss: Criminal Code, s. 738(1)(a). The Court of Appeal considered the nature and purpose of a restitution order in R. v. Castro, 2010 ONCA 718. A restitution order is not a methodical afterthought to a sentence. It is part of a sentence and general sentencing principles apply. Mr. Slansky argues that since some of the complainants have civil judgments, I should not order restitution for them. He also argues that I should consider the possibility of double collection and Mr. Nowack’s ability to pay.

[77] I respectfully disagree. Since Castro the Criminal Code has been amended. Mr. Nowack’s inability to pay does not prevent the making of a restitution order: Criminal Code, s. 739.1. Mr. Nowack is fully responsible for all the losses. He should be required to make the victims whole. Since sentencing principles apply, I would observe that a restitution order representing the losses is a form of denunciation. It lets the community know that the Court denounces fraudulent conduct that led to losses by the victim. A restitution order also serves the principles of general and specific deterrence.

[78] It is unknown what Mr. Nowack’s financial position will be in the future. He is young enough to earn money and he is an intelligent man. He is capable of earning a good living lawfully.

[79] There will be a restitution order in the total amount of C$14,468,682.20. It will be apportioned as set out in Exhibit 5 to the sentencing hearing. The fact that some of the complainants have civil judgments is irrelevant. The civil courts will ensure that complainants do not collect twice.

[80] Payment of the restitution order will reduce the amount of the fine in lieu of forfeiture by any amount paid towards restitution as well as the cash seized in accordance with Exhibit 5 on sentence. The order will state:

The restitution order shall take priority over payment of the fine in lieu of forfeiture ordered herein, and the fine in lieu of forfeiture shall be reduced by any amount paid pursuant to the restitution order.

[81] I take this language from the Court of Appeal’s decision in R. v. Waxman, 2014 ONCA 256 at para. 31.

DNA Order

[82] I decline to make a DNA order. I do not see how it is in the interests of justice in this case. Fraud is a secondary designated offence. I accept that today’s methods of taking DNA are not intrusive, but there are still privacy issues around the use of DNA. Identity and the provenance of documents were not issues in this case. I see no deterrent or law enforcement reason to make a DNA order.

Prohibition Order

[83] A court sentencing an offender for fraud may, pursuant to s. 380.2(1) of the Criminal Code, impose a prohibition order. The court may prohibit the offender “from seeking, obtaining or continuing any employment, or becoming or being a volunteer in any capacity, that involves having authority over the real property, money or valuable security of another person.”

[84] A prohibition order is appropriate in this case. Mr. Nowack is simply not to be trusted with managing or having control over other people’s money – ever. In my view this is not a hardship. There are many jobs – including lucrative jobs – in the world that do not require him to handle other people’s money. There are also arrangements to be made that would not require him to do so. For example, real estate agents do not personally handle their client’s funds. Cheques are always made out to the listing broker in trust. Mr. Nowack says he loves art. There is nothing to prevent him from working in an art gallery or museum.

[85] There will be an order in the language of s. 380.2(1) prohibiting Mr. Nowack from having authority over the assets of any third party for life.

Forfeiture of Property

[86] The property seized from Mr. Nowack’s residence is forfeited in accordance with the list that will be attached to the order.

7. Sentence To Be Imposed

The Nature Of The Fraud

[87] This was a fraud that was committed by a man who had an exceptional ability to manipulate people. Those manipulations live on in the case of some investors despite investigation, prosecution, findings of contempt, and convictions. Mr. Nowack learned the language of currency trading. He convinced investors that he was uniquely knowledgeable about a market that is difficult to understand, even for financial professionals. He did this to some very sophisticated people.

[88] Mr. Nowack perpetrated a scam designed to part people from their money. It was not a legitimate business where he simply cooked the books or tried to hide losses from investors. The currency trading was a fig leaf for the real business of fraud. Mr. Nowack may have hoped to make money from trading currency. Indeed, he likely did hope to make money, but he never intended to distribute any profits to his victims. His intent was to reap any benefits for himself. Any money he did distribute came from other investors – and was only distributed in response to threats and pressure. He never once distributed profits to the investors. Funds from FXCM went to his bank account and were used for his personal expenses. Mr. Nowack constantly and consistently lied to his investors about the state of the accounts and the amount of his profits.

[89] There were numerous badges of fraud. There are the misrepresentation and live trading aspects I have already described. Another is the Wells Fargo account. Mr. Nowack opened the account in Las Vegas on June 25 2013 –the day that FXCM shut down Mr. Nowack’s accounts. Mr. Nowack opened the account with a $50,000 deposit. He lied on the account opening documents – he said he was a resident of the United States. He used the account to deposit funds from Dr. Rynties and Mr. Saragosa. Legitimate financial professionals do not open up bank accounts in Las Vegas and solicit funds for trading after their trading accounts have been locked.

[90] Mr. Nowack and Dr. Greenberg opened a joint account in order to facilitate trading. Mr. Nowack’s very first withdrawal of US$20,000 went directly to his own bank account and was never sent to FXCM. Mr. Nowack continued to help himself to Dr. Greenberg’s money from time to time. He did not disclose that to Dr. Greenberg. For the first three months of the scheme all of the money that Mr. Nowack used to trade currency came from Dr. Greenberg’s account.

[91] The fraud was also very clearly a Ponzi scheme. In R. v. Samji, 2017 BCCA 415, the British Columbia Court of Appeal, quoting the trial judge, described a Ponzi scheme at para. 7 as:

… a fraudulent investment operation that lures investors by promising high returns. It pays investors with the money contributed by subsequent investors and not with profits earned by a genuine investment. It is named after Charles Ponzi, who famously perpetrated such a scheme in the United States in the early 20^th century.

[92] Dr. Greenberg sued Mr. Nowack for the US$4.1 million taken from his accounts. Mr. Nowack consented to a judgment for that amount. He paid $575,000 towards that judgment. All of those funds came from other investors, including the Auciello/Montemarrano group, Dr. Rynties and Mr. Saragosa. Vito Golloro received about C$690,000 back. Those funds also came from other investors, including Lee Sui Fun, Dr. Rynties, and Mr. Saragosa. Mr. Nowack used the funds deposited by Manuel DaCosta to pay David Weenen. Eileen Miller was Mr. Nowack’s mother-in-law. She introduced Mr. Nowack to Dr. Rynties. She invested with Mr. Nowack. She received back over C$200,000. Some of the funds that Mr. Nowack used to pay his mother-in-law came from Dr. Greenberg, Mr. Ferraro, Mr. Galloro, Mr. Cusimano, Simonec, Lee Sui Fun, Dr. Rynties, Mr. Lamanna, Mr. Saragosa, and Mr. Weenen.

[93] The one person who did not pay investors using his own money was Mr. Nowack.

The Effect Of A Lengthy Sentence On Mr. Nowack

[94] I am aware of Mr. Nowack’s position that a harsh sentence will crush him and be devastating to him and his family. That is most unfortunate indeed. Mr. Nowack has consistently portrayed himself as a victim and displayed not a moment of regret or even embarrassment for the losses caused to his victims. Indeed, Mr. Nowack is a victimizer, not a victim. I hasten to add that I do not take into account Mr. Nowack’s lack of remorse or his decision to have a contested trial. Those are not aggravating factors. The Court of Appeal’s comments in Drabinsky at para. 167 apply to him:

… 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.

[95] Despite Mr. Nowack’s health issues, there is no evidence that the federal correctional authorities cannot deal with them. Indeed, federal correctional authorities are required to provide health care to appropriate professional standards: Corrections and Correctional Release Act: s. 85-86. There is no evidence that jail is more of a hardship to Mr. Nowack than to other offenders. His health is a matter of monitoring at this point, rather than treatment. Ultimately, his health problems are a matter for the correctional authorities to deal with: Drabinsky, para. 170; R. v. Shanawaz (2000), 2000 CanLII 16973 (ON CA), 149 C.C.C. (3d) 97 (C.A.) at para. 34; R. v. Bokhar, 2018 ONCA 183 at para. 14.

A Fit Sentence

[96] In my view, the range of sentence for a large-scale and sophisticated scam involving multiple victims, cross-border transactions, and significant amounts of money can range from lower penitentiary to ten years.

[97] In R. v. Davatgar-Jafapour, 2019 ONCA 353 the main offender defrauded a non-profit organization of C$2.9 million. Most of the loss was recovered but the organization went bankrupt as a result of the fraud. All of the 150 employees lost their jobs. The Court found that in cases of large-scale fraud the range is 3-5 years. The Court of Appeal stated that the two-year sentence for the main offender was demonstrably unfit. An appropriate sentence would be four years.

[98] In my view, however, that range does not apply here. The Court also noted that other “large-scale frauds implicating loss or risk of approximately $2-40 million dollars have attracted sentences of 3.5 to 8 years.” Courts have differentiated between commercial frauds involving otherwise legitimate businesses and schemes or scams designed only to part victims from their money. Scams will usually call for longer sentences: Drabinsky, at paras. 173-174. In that case, the Court of Appeal stated that the fraud was not a “scam” because the offenders were running a legitimate business and did not set out to cheat the investors: para. 171. The trial judge found that it was a large-scale commercial fraud although not one of pure greed. She sentenced the offenders to seven years and six years. The Court of Appeal agreed with the characterization of the fraud but lowered the sentences to five years and four years.

[99] Several Court of Appeal and trial decisions have applied the 3-5 year range in commercial frauds. In R. v. Plange, 2019 ONCA 648 the Court of Appeal found that the sentence of 18 months for a $40 million fraud (the offender actually obtained only $15,000) was demonstrably unfit. In R. v. Dieckmann, 2017 ONCA 575 the offender was an accountant. She participated in a fraudulent tax scheme that diverted C$5.1 million from the CRA. The Court of Appeal upheld a four-year sentence and a fine in lieu of forfeiture of C$1.2 million.

[100] In R. v. Dobis, 2002 CanLII 32815 (ON CA), [2002] O.J. No. 656, 58 O.R. (3d) 536 (C.A.) an employee pleaded guilty to forging cheques to himself for C$286,636.50. He also sent $1.9 million of the company’s money to a scam involving the “Nigerian National Petroleum Corporation.” The Court of Appeal found that a conditional sentence of two-years less a day was manifestly unfit. See also the well-known case of R. v. Bogart, 2002 CanLII 41073 (ON CA), [2002] O.J. No. 3039, 61 O.R. (3d) 75 (C.A.). I note that Bogart and Dobis were decided before Parliament increased the maximum penalty for fraud to 14 years in 2004. These cases were also decided before Parliament enacted the list of statutory aggravating factors, and the lack of mitigation for previous good character set out in s. 380.1(2) of the Criminal Code.

[101] I have already mentioned Waxman. The offender was a director and senior officer of a large company. He defrauded the company of approximately US$18 million. The Court of Appeal upheld an 8-year sentence, a forfeiture order of US$18 million, and a fine in lieu of forfeiture of US$15.5 million. That was obviously not a scam case, but the quantum was very large – similar to this case. The court noted at para. 23 that the 8-year sentence was within the appropriate range.

[102] Several courts have imposed significant sentences for scam-type frauds similar to this one.

[103] In Khatchatourov, which I have already mentioned, the two offenders perpetrated a mortgage fraud. They duped recent immigrants. The profits of the scheme were about C$500,000 but the loss to the principal victim, the Canadian Mortgage and Housing Corporation, was C$1.2 million. The Court of Appeal upheld four-year jail terms.

[104] In R. v. Schoer, 2019 ONCA 105, the offender was a registered financial advisor. He perpetrated a Ponzi scheme. He induced the victims to invest by promising enormous returns. In fact, he diverted the funds for his own use. He also diverted later investor funds to pay earlier investors. The victims found it difficult to locate their money. The fraud totalled C$1.8 million. The four-year sentence was upheld. In R. v. Erez, 2019 ONCA 204 the offender perpetrated a large-scale and sophisticated Ponzi-like investment scheme. The investors lost C$6 million. He had a record for fraud. He committed the crime while on probation or serving a conditional sentence, but he pleaded guilty. The Court of Appeal upheld the eight-year sentence.

[105] In R. v. Lewis, 2014 ONSC 4188 the offender was a registered financial professional who perpetrated a Ponzi scheme. He lured victims by guaranteeing high interest returns. The victims – many of whom were elderly – invested approximately C$7.5 million with him. The offender diverted C$1.9 million to fund his lavish lifestyle. The rest was used to pay “interest” to other investors. It was a crime of pure greed and a breach of trust. Corrick J. imposed a 7-year sentence. She also noted that when the fraud began the maximum penalty was ten years. Parliament increased the penalty to 14 years during the course of the fraud, so the offender was entitled to the benefit of the lesser punishment.

[106] R. v. Vuong and Quach, 2018 ONSC 6298 has striking similarities to this case. The offenders – a husband and wife – perpetrated a Ponzi scheme. They lured victims with promises of high returns from investments in trading instruments. They used some of the investment money to trade in currency and options. They used some to pay out later investors. They diverted some to fund their lifestyle. They provided false account statements to the victims showing large returns. When the victims requested their funds the offenders offered lies and excuses. The victims lost C$5.2 million Shaw J. sentenced each offender to six years.

[107] In R. v. Scribnock, 2017 ONSC 1716 Maranger J. also found that the appropriate range of sentence for a large scale fraud is 2-10 years. He imposed a 7-year sentence for a C$2.8 million Ponzi-scheme by a financial professional.

[108] Courts of Appeal in other provinces have imposed high sentences for large frauds. For example, in Johnson, which I mentioned earlier, the Alberta Court of Appeal reduced a 13-year sentence to ten years for a C$2.3 million Ponzi scheme involving multiple victims. In R. v. Wilder, 2008 BCCA 370 the British Columbia Court of Appeal upheld a 9-year sentence for a $38 million fraud on CRA.

[109] In my view, the nature and magnitude of the fraud takes it out of the 3-5 year range. Erez, Schoer, Lewis, Scribnock, Johnson, and Vuong and Quach all involved similar schemes but considerably smaller losses. Indeed, this quantum of this fraud was more than double any of those other cases. The principles of general deterrence require a lengthy sentence to deter like-minded offenders. The Court must also denounce this crime in the strongest terms.

[110] When I weigh all of the aggravating and mitigating factors, including the nature of the fraud, the impact on the victims, the range of sentence, and the impact on Mr. Nowack, I find that an appropriate global sentence is 9 years in the penitentiary.

Credit for Pre-sentence Custody:

[111] As of today Mr. Nowack has now been in custody since April 26, for a total of 4 months and 3 weeks. The problem with crediting him with pre-sentence custody is that he could have had his sentencing hearing months ago. Instead, he used time set aside for the disclosure and abuse of process motions to bring fruitless bail applications. That said, I am still prepared to give him credit at 1.5:1. After reviewing the bail papers, I find that there is no basis to give him credit for time spent on bail. He was not on house arrest. He was not prevented from having a job or moving around. He was not under a curfew. He was only prevented from trading currency or otherwise using other people’s money.

[112] I am willing to give Mr. Nowack credit for lockdowns and triple bunking while in custody. When I consider all of the factors, I credit Mr. Nowack with 8 months of pre-sentence custody. He will therefore have a further 8 years and 4 months left to serve.

Dispositon:

[113] Mr. Nowack will serve 9 years in the penitentiary, with 8 years and 4 months left to serve after credit for 8 months of pre-sentence custody.

[114] The sentence is apportioned as follows:

Count 1: Fraud over $5000 in relation to Dr. Joseph Greenberg – 9 years, with 8 months credited for pre-sentence custody and 8 years and four months to serve.

Count 2: Fraud over $5000 in relation to Vito Galloro – 3 years.

Count 3: Fraud over $5000 in relation to Manuel DaCosta 3 years.

Count 4: Fraud over $5000 in relation to Minton Trading 3 years.

Count 5: Fraud over $5000 in relation to Simonec Finance – 4 years.

Count 6: Fraud over $5000 in relation to Lee Sui Fun – 6 years.

Count 7: Fraud over $5000 in relation to Dr. Mark Rynties – 4 years.

Count 8: Fraud over $5000 in relation to David Weenen – 2 years.

Count 9: Fraud over $5000 in relation to Cachet Homes Incorporated – 3 years.

Count 10: Fraud over $5000 in relation to One Three Five Wood Investments – 3 years.

Count 11: Fraud over $5000 in relation to Napa Cabarnet Holdings Incorporated – 3 years.

Count 12: Fraud over $5000 in relation to Vince Saragosa – 2.

[115] Counts 2-12 are to run concurrent with Count 1, and concurrent with each other.

[116] Mr. Nowack is prohibited for life from seeking, obtaining or continuing any employment, or becoming or being a volunteer in any capacity, that involves having authority over the real property, money or valuable security of another person.

[117] Mr. Nowack will pay a restitution order in the amount of C$14,468,682.20, with credit for the cash seized.

[118] Mr. Nowack will pay a fine in lieu of forfeiture of C$15,679,087.59, with credit for any amount paid towards the restitution order. He will have three years to pay from the day he is released from custody. He will serve a further seven years in default of payment. Any money paid towards the restitution order will be credited against the fine in lieu of forfeiture.

R.F. Goldstein J.

Released: September 17, 2019

COURT FILE NO.: CR-16-10000689

DATE: 20190917

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

HER MAJESTY THE QUEEN

– and –

STEVEN NOWACK

REASONS FOR SENTENCE

R.F. Goldstein J.

[^1]: Some of the investors provided US dollars to Mr. Nowack; some Canadian dollars. The funds were all converted into US dollars and sent to Mr. Nowack’s FXCM accounts in London. This total amount was calculated and converted into Canadian dollars by Lori Toledano, the Crown’s forensic accountant. I accept her calculations as accurate.

[^2]: This amount is combined Canadian and US dollars.

R. v. Nowack, 2019 ONSC 5344

Case Summary