In the Provincial Court of Alberta
Citation: R. v. Chan, 2012 ABPC 272
Date: 20121002
Docket: 110873130P1
Registry: Calgary
Between:
Her Majesty the Queen
- and -
Jason Yiu-Kwan Chan
Corrected judgment: A corrigendum was issued on May 23, 2013; the corrections have been made to the text and the corrigendum is appended to this judgment. |
Editorial Notice: On behalf of the Government of Alberta personal data identifiers have been removed from this unofficial electronic version of the judgment. |
Reasons for Sentence of the Honourable Judge A.A. Fradsham
Introduction
[1] Mr. Chan has pleaded guilty to:
(a) five counts under section 75 of the Securities Act, R.S.A. 2000, c. S-4 (trading in a security when not registered);
(b) five counts under s. 110 of the Securities Act (trading in a security when no prospectus had been filed);
(c) 16 counts under s. 92(4.1) of the Securities Act (making a false statement by commission or omission); and
(d) one count under s. 93(b) of the Securities Act (fraud).
Issues
[2] The overarching issue is the appropriate sentences to be imposed for these offences.
[3] The subsidiary issues relate to the principles to be applied in sentencing a person under the Securities Act, and whether cases decided under the Criminal Code have any application.
Facts
The Offences and the Victims
[4] The facts relating to the offences were set out in a document entitled “Admitted Facts”[1] which reads as follows:
The Accused, Jason Yiu‑Kwan Chan (Chan), admits the following facts and along with the Crown submits them to this Honourable Court for admission into evidence at the trial of the allegations contained in Information #110873130P1 (Information).
1. Chan is a resident of Calgary, Alberta, born [1969].
2. Chan sold mutual funds and insurance products for various employers in the 2000 ‑ 2010 time period. From approximately 2000 to 2004, his employers included Bank of Montreal, RBC Financial Group, and CIBC Investor Services (CIBC). After 2004, Chan was self employed. During a portion of this latter period, Chan was licensed through the Mutual Fund Dealers Association (MFDA). Among other entities, he sold mutual fund products through Investia Financial Services Inc. (Investia), and Apex Credit Union (now Servus Credit Union ‑ hereafter referred to as Servus).
3. Chan's relationship with Investia terminated on May 1, 2007.
4. Chan was not registered with the Executive Director of the Alberta Securities Commission (ED and ASC, respectively), at any time, to sell securities in Alberta.
5. Prior to the transactions discussed below, Chan had completed the MFDA course and the Canadian Securities Course.
6. Terra Nova Capital (Terra Nova) was a trade name Chan had registered in Alberta on February 25, 2003. It was a sole proprietorship.
7. Comdev Financial (Comdev) was a trade name Chan had registered in Alberta on August 9, 2006. It was a sole proprietorship.
8. Chan sold investment products (Investments) in Comdev and Terra Nova to the following individuals:
(a) Eileen Burton ‑ $485,000.00;
(b) Evelyn Jean Mann ‑ $315,000;
(c) Aileen Sinclair ‑ $150,000.00;
(d) Antonio Dourado ‑ $100,000.00;
(e) Tammy Nadine Deighton ‑ $31,000.00;
(f) Gina Avramenko ‑ $10,000.00.
Total: $1,091,000
9. The Investments were bonds, debentures, notes, or other evidence of indebtedness and thus 'securities' as defined in the Securities Act, RSA 2000, c. S‑4 (Act). The sale or disposition of these securities for valuable consideration were 'trades', as that term is defined in the Act. As trades in securities of Comdev and Terra Nova that were not previously issued, the sales were also 'distributions' by definition in the Act.
10. None of Chan, Comdev or Terra Nova filed a preliminary prospectus or prospectus with and received a receipt from the ED of the ASC for the distribution of any securities of Comdev and Terra Nova, and no exemption from the prospectus requirement was available for the majority of the Investments.
11. The Investment funds were deposited into Comdev or Terra Nova's bank accounts, and then immediately or shortly thereafter transferred to the personal bank account of Chan and his wife. Chan used the Investment funds, along with bank financing, to purchase, or to purchase and build, the following real estate:
253B Three Sisters Drive, Canmore, AB (Three Sisters)
Purchase Price: $961,330.38 September 8, 2008
#313, 150 Crossbow Place, Canmore, AB (Crossbow)
Purchase Price: $575,112.19 June 21, 2007
2940 Sophie Lake Road, Eureka, MT (Sophie Lake)
Purchase Price: $441,169.50 October 9, 2007 (land) (US Funds)
$445,457.80 December 2007 (build) (US Funds)
12. Upon purchase, or in the case of the Sophie Lake property completion of building, the real estate was registered in Chan's name, or in his wife's name, or in the name of a numbered company that he and his wife jointly owned (1439897 Alberta Ltd.).
13. All of the Investments and the representations made by Chan to the above investors, as detailed in the Information, took place at or near Calgary, Alberta.
Eileen Burton (Burton)
14. Burton is a 70 year old resident of Calgary. She is visually impaired, and was so from the time she first met and began investing with Chan in approximately 2001. He served as her financial advisor from that year onward.
15. Burton invested with Chan on three occasions, for a total of $485,000: August 18, 2006 ‑ $125,000, March 11, 2008 ‑ $175,000, and September 9, 2009 ‑ $185,000. Burton told Chan before making any investments that she wanted the money invested to be secure, and with no associated risk. Chan advised Burton at the time of her first investment he would put the money into a GIC or secure term deposit with Comdev, and that the investment would provide a fixed rate of return. He further advised her at that time the Comdev investment would be risk free and guaranteed.
16. Chan used Investia forms to document the investments, despite no longer being employed with Investia for the latter two transactions.
17. Burton understood from Chan at the time of the first transaction that Comdev was a company that raised money for construction projects. Chan did not tell her Comdev was his own registered trade name, and not a company. Chan always spoke to Burton of Comdev as if it were an independent entity, telling her on one occasion he had a conference call with Comdev later that day.
18. Chan did not tell Burton he was going to use her invested funds to purchase real estate properties, and Chan acknowledges that had she known that, and given her low risk tolerance, she likely would not have made the investments.
19. As a result of legal action, Burton has recovered $329,715.05. The funds were paid by insurance, not Chan.
Evelyn Jean Mann (Mann)
20. Mann is a Calgary resident and the mother of Judith Pohl (Pohl). She is 83 years of age, and lives in a seniors home. Pohl has had a Power of Attorney over Mann's affairs since February 17, 2007.
21. Pohl met Chan in 2006 while the two were working out of Servus. In mid 2007, Pohl and Chan talked informally at work about investing funds Mann expected to receive from the sale of a condo. On June 15, 2007, Chan attended Pohl's house near Calgary to meet with her and Mann. That day, Mann made a $200,000 investment in Comdev. Chan used an Investia form to document the investment.
22. Prior to making the investment, Pohl had advised Chan she wanted her mother's money to be invested in term deposits, with the principal 100% secure. They discussed that Mann was willing to forego a substantially higher interest rate in order that the principal investment not be in jeopardy at all. At the time, Mann was 81 years of age and the funds were her only asset. Chan informed Pohl and Mann that the Comdev investment was a secure term deposit which would provide a fixed rate of return.
23. On December 12, 2007, at the direction of Chan, Mann cashed in a $115,000 mutual fund and invested that money in Comdev in Calgary. An Investia form was used to document the transaction.
24. On September 30, 2008, Mann cashed in the $200,000 Comdev investment and placed those funds in Terra Nova. The investment was made in Calgary, at Chan's recommendation, as Terra Nova was offering a better interest rate. Prior to making the transaction, Chan told Mann and Pohl the investment was a secure term deposit which would provide a fixed rate of return.
25. Sometime after the investment Pohl asked Chan for statements showing the investment and its status. Chan responded to her, or words to the effect, that Comdev's customer service was really bad, and that they do not like to prepare statements.
26. At no time prior to the investments Mann made in Comdev and Terra Nova did Chan inform her or Pohl that Comdev and Terra Nova were his own registered trade names, and not independent of him or even companies.
27. As a result of legal action, Mann has recovered $216,116.5. The funds were paid by insurance, not by Chan.
Aileen Sinclair (Sinclair)
28. Sinclair is a legal assistant at a large Calgary law firm, and a resident of Calgary. She has little or no securities related training, and her investment knowledge is limited to some seminars.
29. Sinclair met with Chan in early 2008. She told him she wanted to invest some money in a low risk, safe investment. Chan informed her about Comdev, describing it as a company that invested in real estate. He gave her no other details concerning Comdev, including that it was his own registered trade name.
30. On February 15, 2008, Sinclair invested $150,000 in Comdev, in what was described to her by Chan as a secure 2 year bond debenture, providing a fixed rate of return of 6.09% per year. Chan used an Investia form to complete the investment. Chan advised Sinclair the investment was safe and offered a guaranteed return.
31. When the two year term of the investment came up in 2010, Chan rolled the investment over for another 6 months. He did so without speaking with or getting the approval of Sinclair. When Sinclair requested that the funds be liquidated, Chan responded that he had explained the situation 'to the investment company', and that the request had been acknowledged (see attached email dated March 12, 2010).
32. As a result of legal action and the sale of one of the real estate properties, Sinclair has recovered $128,832.95.
Antonio Dourado (Dourado)
33. Dourado is a Calgary resident, employed at an architectural and civil drafting business. He is college educated, but with minimal investment training or knowledge. He has no securities related courses or education.
34. Dourado spoke with Chan in approximately November 2008 about a possible investment. He had invested with Chan in the past, and knew Chan had worked with Investia. Dourado informed Chan he needed a secure investment. Chan recommended Comdev, stating it was a safe investment, a secure term deposit which would provide a fixed rate of return.
35. On November 20, 2008, Dourado signed an Investia form confirming an investment of $100,000 in Comdev. Dourado, from discussions with Chan, believed he had purchased a 24 month term investment, at 5.09% per annum return, payable monthly throughout its term. Chan recommended Dourado use the equity in his house to make the investment, and Dourado did so by taking out a line of credit secured against his house.
36. Dourado did not know at the time of his investment that Comdev was Chan's registered trade name. He believed Comdev was a mutual fund, related to Chan's work with Investia.
37. As a result of legal action, Dourado has recovered $88,097.80. The funds were paid by insurance, not Chan.
Tammy Nadine Deighton (Deighton)
38. Deighton is a Calgary resident, employed with an oil and gas engineering company. She has some university and college level education, but no securities or investment related courses. Her investment knowledge is limited.
39. She initially met Chan in approximately 2000, when Chan was employed with CIBC. At that time, Chan was a financial advisor. Chan became a family friend, on occasion bringing gifts to Deighton's children at the celebration of Chinese New Year.
40. In the Spring of 2007, Deighton was looking for a place to invest a portion of the proceeds she and her husband received from the sale of a condo. She told Chan she wanted a low risk investment, such as a GIC. On April 24, 2007, Chan attended Deighton's house and she completed an Investia form committing to invest $31,000 in Comdev Financial, for a 6 month term, with a return of 5.25%.
41. Chan told Deighton at the time she made her investment that the Comdev investment was a secure term deposit or guaranteed investment certificate which would provide a fixed rate of return. Chan did not inform Deighton that Comdev was his own registered trade name, and not independent or a company.
42. As the Deighton's were out of the country for an extended period, Chan informed them upon expiry of the term that the funds were automatically reinvested. Upon their return in late 2009, Deighton requested the release of the funds. Chan advised her the investment was "locked in until maturity".
43. On January 19, 2010, Chan sent an email to Deighton which copied the body of a letter he intended to send to 'Dealer Services' at Comdev requesting redemption of her investment (see attached email dated January 19, 2010).
44. On February 24, 2010, Chan informed Deighton he had sent in another request to Comdev for an update as to the status of her account. It was not until approximately August 2010 that Chan informed Deighton that he, Chan, was Comdev, and that he had used the funds to invest in properties.
Georgina Martha Avramenko (Avramenko)
45. Avramenko is a Calgary resident, formerly employed with the Alberta Courts for 20 years. She is a college graduate and paralegal. She has zero investment knowledge, and no training in securities related courses. Avramenko's investments with Chan were the first she had ever conducted.
46. In 2009, Avramenko was looking for a place to invest her pension from the Courts and was referred to Chan. She advised Chan she wanted low risk, but as much interest as possible. Chan said if Avramenko wanted low risk, he would get her into mortgages.
47. On June 17, 2009, Avramenko made a $10,000 investment in Comdev. Chan used an Investia form to document the transaction. Chan advised Avramenko at the time of the transaction that the Comdev investment was a guaranteed, secure term deposit, providing a fixed rate of return.
48. Chan described Comdev to Avramenko at the time of her investment as a computer company. He did not tell her Comdev was his own registered trade name.
Misrepresentations
49. Chan admits the representations made to the above investors regarding Comdev and Terra Nova, and the nature of the investments in Comdev and Terra Nova, were wrong. Specifically, he admits the statements attributed to him in Counts 11, 12, 14, 16, 19, 20, 24, 25, 28, 29, 32, 33, and 35 of the Information were not correct, and would reasonably be expected to have a significant effect on the value of the securities of Comdev and Terra Nova.
50. Chan admits his failure to state to the above investors that Comdev and Terra Nova were his own trade names, and not companies, as detailed in Counts 15, 18, 23, 27, 31 and 36 of the Information, was misleading, and would reasonably be expected to have a significant effect on the value of the securities of Comdev and Terra Nova.
[E-mails mentioned in paragraphs 31 and 43 of Admitted Facts]
From: Jason Chan [jchan[...]@gmail.com]
Sent: March 12, 2010 12:01 PM
To: Sinclair, Aileen
Cc: [...]@customplanfinancial.com
Subject: Investment
Attachments: Sinclair.pdf, Sinclair2.pdf, Sinclair3.pdf, Sinclair4.pdf
Hi Aileen,
Further to our telephone conversation earlier this week, I have explained the situation to the investment company that you do not want the matured funds locked-in for another six months and would like for the funds to be liquidated asap.
This request has been acknowledged and will be settled April 16, 2010 as they require 30 days notice and a couple days for processing.
Attached also are copies of the requested paperwork. Thank you.
Regards,
Jason Chan
Vanguard Financial Partners
T: (403) 383-[...]
E: jchan[...]@gmail.com
. . .
Date: Tue, 19 Jan 2010 08:38:29-0700
Subject: Exception Letter
From: jchan[...]@gmail.com
To: [address omitted]
Hi Tammy and Steve,
Take a look at the following context that I will be using for the body of the letter, and let me know your thoughts. Thank you. Jason.
ATTN: DEALER SERVICES
RE: COMDEV FINANCIAL CERT#[...] - TAMMY DEIGHTON
Our client Tammy Deighton purchased a six-month Comdev Financial Investment Certificate #[...] on April 24, 2007.
The Deightons and myself have a history dating back to 2003 from another financial institution. An engagement agreement dated March 16, 2006 is in effect for comprehensive financial advice.
The Deightons and their entire family have been away in Australia for a year due to a work teacher exchange program for Mr. Deighton.
Back in mid November 2009, Mrs. Deighton called and emailed me in regards to the status of this investment. They wanted access to it in January 2010 to pay off expenses incurred during their year away in Australia. During this time, the investment matured in October 2009 and the system re-invested the matured value into a two year GIC at 3.09%. My client notes dated September 10, 2008 show the client wanted the funds fully invested until their return from Australia. Due to the fact that they were out of the country and there were no other client instructions on file, they system auto re-invested their funds. This came as a surprise to the Deightons as they had understood that it was only a short term investment, which was true. However due to the system’s automatic rollover of this investment, this has now made the money inaccessible to the Deightons. On November 24, 2009, Mrs. Deighton inquired in an email to me to see if there was a way we could access the funds. I in turn called Dealer Services and was told that these funds were locked-in and not liquid; and communicated same to the Deightons in an email dated November 25, 2009. I met with the Deightons in person on January 14, 2009 for an annual update to their file. Due to the current circumstances, they are very upset and disappointed with the developments around this investment as it has now put them into a very difficult financial situation.
Regardless of the events, I am asking that we please consider this request on a one-off exception basis. I am recommending that we take [full] responsibility and action to remedy this for the Deightons. Kindly please review and advise. Thank you.
[5] Five victim impact statements were filed[2]. They speak poignantly of the victims’ loss of trust in others, depression, long-lasting financial hardships endured as the result of the loss of funds set aside for retirement, and lives significantly set off course by having to deal with the aftermath of Mr. Chan’s offending conduct.
[6] The total amount taken from investors was just under $1.1 million; approximately $128,000 has been repaid; and there is approximately $70,000 ready for distribution to creditors.
The Offender
[7] Mr. Chan is 43 years old, married, and is the father of an 11 year old girl. He has no criminal record.
[8] He has taken some post secondary education, but does not have a degree. In the past he has worked for the RBC Financial Group, CIBC, and BMO. For the past five years he has been self-employed. Since discovery of these offences, he has not been able to work in the financial services industry. From October, 2010, to early 2012, he worked as a Starbuck’s employee. He has now obtained employment at a printing company doing accounting work. This employment pays him $63,000 per year, and is the first well paying employment he has had since these offences became known.
[9] Mr. Chan expresses genuine remorse for his offending behaviour, and has pleaded guilty in a prompt fashion. Mr. Billington, Q.C., Mr. Chan’s legal counsel, described his client’s acts as “ a foolish, vain compromise to his [Chan’s] judgment.”
[10] By way of explanation, but not tendered as an excuse, Mr. Billington submitted that Mr. Chan had developed a level of knowledge of the financial markets which enticed him to leave his employment and become self-employed. At the time, global markets were strong, and the real estate market was rising. Mr. Chan “identified what he thought were sound investments.” He set up a numbered company to be used as a vehicle through which to purchase real estate. As noted, properties were purchased in that company’s name or in the names of Chan and his wife. Mr. Chan was the directing mind of the company.
[11] Mr. Chan was referred to seven investors, and, in the words of Mr. Billington, Mr. Chan “over promised and under declared the nature of the investments.”
[12] Mr. Chan used some of the invested funds to purchase properties and some of the funds to pay himself fees. I am told, and I accept, that Mr. Chan, at least initially, thought he could pay the rates of return promised, and would be able to repay the principal amounts to the investors. However, the markets went into a decline.
[13] Mr. Billington submitted, and I accept, that Mr. Chan retained counsel when he found that he could not pay the investment obligations. He did not flee the jurisdiction. He ceased his deceptions. He arranged to sell the “Three Sisters” property in Canmore, and the proceeds were used to retire some of his civil indebtedness (civil actions have been commenced).
[14] In June, 2011, the “Cross Bow” property was sold, and the $37,942.38 obtained from it has been deposited into a trust account for the partial benefit of the “investors”.
[15] Mr. Chan persuaded his wife to agree to the sale of the matrimonial home in DeWinton. It was sold in August, 2011. Proceeds of $32,493.26 were placed in trust; accordingly, $70,435.64 sits in trust for the partial benefit of the “investors”.
[16] There are exempt funds of $20,000 (from the sale of the matrimonial home), and they are in Mr. Billington’s trust account as the foundation for a proposal Mr. Chan wishes to make to his creditors, and for the payment of legal bills. There is also $52,493.26 which represents Mr. Chan’s wife’s share of the home equity. It sits in a lawyer’s trust account because there is a contingent claim against it, though that litigation is currently dormant.
[17] The restitution sought in relation to this matter is $62,167.05. While there is $70,435.64 in a trust account, there are claims to that money in addition to the restitution claims.
[18] Mr. Chan cooperated with the Alberta Securities Commission by giving a full statement.
[19] He says that with his new employment, he can make restitution payments of $2500 per month.
Law and Analysis
Crown’s Position
[20] The Crown submitted that counts 11-37 (the fraud and misrepresentation counts) should attract a global sentence of 3 years incarceration; that counts 1-10 (the unregistered trading and distribution counts) should attract a global sentence of 1 year (consecutive to the 3 year sentence), and that there should be the following ancillary orders:
1. An order under ss. 194(6) and 198 of the Securities Act directing Mr. Chan to permanently cease trading in or purchasing securities and exchange contracts with limited, stipulated exceptions, and directing him to resign all positions as a director or officer of an “issuer” under the legislation (except an issuer wholly owned by him and which does not issue securities to the public).
2. Restitution orders as follows: (a) in favour of Ms. Avramenko in the amount of $10,000.00; (b) in favour of Ms. Deighton in the amount of $31,000.00; (c) in favour of Ms. Sinclair in the amount of $21,167.05.
[21] The Crown submitted that the paramount sentencing objective is general deterrence because conduct such as that engaged in by Mr. Chan erodes confidence in the capital markets. The Crown submitted that a Conditional Sentence Order is not appropriate because it could not, in these circumstances, achieve the needed level of general deterrence, and that, if at home, the accused could commit the same type of offender behaviour. The Crown submitted that Mr. Chan is still a risk to the market.
Defence Position
[22] Counsel for Mr. Chan submitted that a gaol sentence was necessary, but that it should be 90 days global, and should be served intermittently to allow Mr. Chan to work and make restitution. He submitted that specific deterrence has already been achieved, though he did submit that in order to enforce responsibility, one needs to place a financial burden on Mr. Chan, and a sentence which permits him to work and make restitution does that. Counsel submitted that Mr. Chan’s offending conduct has not affected national markets.
[23] Defence counsel submitted that it must be remembered that these are summary conviction charges under the Securities Act, and not under the Criminal Code. He further submitted that the appropriate sentencing objectives would be achieved with 90 day sentence.
Court’s Analysis
The Securities Act
[24] Section 75 of the Securities Act states, in part, that:
75(1) No person or company shall
(a) trade in a security...unless the person or company is registered with the Executive Director as ...
(ii) a salesperson....
[25] Section 110 of the Securities Act states, in part, that:
110(1) No person...shall trade in a security...if the trade would be a distribution of the security unless
(a) a preliminary prospectus has been filed and the Executive Director has issued a receipt for it, and
(b) a prospectus has been filed and the Executive Director has issued a receipt for it.
[26] Section 92(4.1) of the Securities Act states, in part, that:
(4.1) No person or company shall make a statement that the person or company knows or reasonably ought to know
(a) in any material respect and at the time and in the light of the circumstances in which it is made,
(i) is misleading or untrue, or
(ii) does not state a fact that is required to be stated or that is necessary to make the statement not misleading,
and
(b) would reasonably be expected to have a significant effect on the market price or value of a security or an exchange contract.
[27] Section 93(b) of the Securities Act states, in part, that:
93 No person or company shall, directly or indirectly, engage or participate in any act, practice or course of conduct relating to a security or exchange contract that the person or company knows or reasonably ought to know will
(b) perpetrate a fraud on any person or company.
[28] Section 194(1) of the Securities Act states, in part, that:
194(1) A person or company that contravenes Alberta securities laws is guilty of an offence and is liable to a fine of not more than $5,000,000 or to imprisonment for a term of not more than 5 years less a day, or to both.
The Provincial Offences Procedure Act (“POPA”) R.S.A. 2000, c. P-34
[29] Section 2 of POPA reads:
2 Subject to any express provision in another Act, this Act applies to every case in which a person commits or is suspected of having committed an offence under an enactment for which that person may be liable to imprisonment, fine, penalty or other punishment.
[30] Section 3 of POPA reads:
3 Except to the extent that they are inconsistent with this Act and subject to the regulations, all provisions of the Criminal Code (Canada), including the provisions in Part XV respecting search warrants, that are applicable in any manner to summary convictions and related proceedings apply in respect of every matter to which this Act applies.
[31] Consequently, sections 718 to 718.2 of the Criminal Code apply in the case at bar.[3] The relevant parts of these sections are as follows:
The fundamental purpose of sentencing “is to contribute, along with crime prevention initiatives, to respect for the law and the maintenance of a just, peaceful and safe society by imposing just sanctions”[4] that have one or more of the sentencing objectives set out in section 718.
[32] In the case at bar, the sentencing objectives which apply are: (1) to denounce unlawful conduct; (2) to deter Mr. Chan and other persons from committing offences; (3) to assist in rehabilitating the offender; (4) to provide reparation for harm done to the community; and (5) to promote a sense of responsibility in the offender, and acknowledgment of the harm done to the community. The primary sentencing objectives are denunciation and deterrence, followed by rehabilitation of the offender (including the promotion in him of a sense of responsibility for his offending behaviour). The restitution orders sought by the Crown, and not opposed by Mr. Chan, will address the objective of providing reparation for the harm done.
[33] In concluding that general deterrence is one of the primary sentencing objectives, I am mindful that the offences to which Mr. Chan has pleaded guilty are regulatory offences. In R. v. Kreft (2006), 2006 ABPC 258 (CanLII), 407 A.R. 376, I had occasion to discuss the jurisprudence on the sentencing of regulatory offences. I continue to be of the view I set forth in paragraph 47 of Kreft:
47 In my view, the jurisprudence, including the cases of R. v. Wholesale Travel Group Inc., supra, R. v. Beach Motors Inc., supra, R. v. Virk., supra, and R. v Kirk (c.o.b B.A. Holdings), supra, when read together, lead to these conclusions:
1. One starts with the general proposition that:
"[t]he objective of regulatory legislation is to protect the public or broad segments of the public ... from the potentially adverse effects of otherwise lawful activity. Regulatory legislation involves a shift of emphasis from the protection of individual interests and the deterrence and punishment of acts involving moral fault to the protection of public and societal interests. While criminal offences are usually designed to condemn and punish past, inherently wrongful conduct, regulatory measures are generally directed to the prevention of future harm through the enforcement of minimum standards of conduct and care.
... [R]egulatory offences are directed primarily not to conduct itself but to the consequences of conduct. ... The concept of fault in regulatory offences is based upon a reasonable care standard and, as such, does not imply moral blameworthiness in the same manner as criminal fault. Conviction for breach of a regulatory offence suggests nothing more than that the defendant has failed to meet a prescribed standard of care" (R. v. Wholesale Travel Group Inc., supra).
2. However, regulatory offences form a continuum ranging from the less serious to the very serious. As one approaches the "very serious" end of the continuum, one is dealing with offences which are designed to address "inherently wrongful conduct" and for which there is a greater degree of moral blameworthiness on the part of the offending defendant. Those regulatory offences which "if not a species in the family of fraudulent conduct are a close cousin" are examples of regulatory offences which involve a greater degree of moral blameworthiness on the part of the offender, and the penalties for them will reflect that.
3. Having said that, regulatory offences which do not involve inherently wrongful conduct (with its attendant moral blameworthiness) can still attract significant penalties. Regulatory legislation has as its goal adherence to a particular standard of care by those involved in the regulated activity, and the severity of the consequences of a failure to meet the legislated standard of care will vary with the regulated activity involved and nature of the failure. A defendant who commits an offence under a regulatory statute may cause little, if any, actual damage as a result of his or her particular actions. In other words, the acts of the defendant, while violating a provision of a regulatory statute, may not in a particular case result in any significant actual harm . However, the provision of the regulatory statute which the defendant violated may be such that violations of it in general have the potential to cause serious harm to the public. Therefore, in the case of little, or no, actual harm arising from the offence, the penalty for the violation may still be substantial so as to deter others from violating the statute because the consequence of a future violation could be very serious. As noted earlier, regulatory offences are directed at the consequences of failing to abide by the legislated standards of care, not at the actual actions which constituted the violation. "Consequences" include not only actual harm resulting from the specific actions which constituted the offence, but also that which could potentially result from the commission of the offence. Sentences for regulatory offences must similarly take into account the potential consequences of committing the particular offence. Examples of this concept are often found in environmental law sentencing cases such as R. v. Van Waters & Rogers Ltd. (1998) 1998 ABPC 55 (CanLII), 220 A.R. 315 (Alta. Prov. Ct.) and R. v. Terroco Industries Ltd. (2005) 2005 ABCA 141 (CanLII), 367 A.R. 1 (Alta. C.A.).
[34] I also find support for my conclusion that general deterrence is one of the primary sentencing objectives in the case at bar in Judge Lefever’s decision in R. v. Boyle (2002), 2002 ABPC 136 (CanLII), 331 A.R. 273 (Alta. Prov. Ct.). At paragraph 29, Lefever, PCJ (as he then was) said:
I have concluded that the overarching sentencing principle that applies in imposing sentence for a breach of [the Securities Act] is that of general deterrence, to which must be added other factors such as remorse, restitution, and other relevant sentencing principles.
[35] Section 718.1 states that “a sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender.”
[36] Section 718.2 sets out a number of principles which must be considered by a sentencing court. The ones which are relevant to the case at bar are:
(1) a sentence should be increased or reduced to account for any relevant aggravating or mitigating circumstances relating to the offence or the offender”, and to be included in aggravating factors is “evidence that the offender, in committing the offence, abused a position of trust...in relation to the victim;
(2) a sentence should be similar to sentences imposed on similar offenders for similar offences committed in similar circumstances;
(3) where consecutive sentences are imposed, the combined sentences should not be unduly long or harsh;
(4) an offender should not be deprived of liberty, if less restrictive sanctions may be appropriate in the circumstances; and
(5) all available sanctions other than imprisonment that are reasonable in the circumstances should be considered for all offenders....
[37] With respect to the factor of involving an abuse of “a position of trust...in relation to the victim”, I rely on the Supreme Court of Canada’s comment in R. v. Audet 1996 CanLII 198 (SCC), [1996] 2 S.C.R. 171, at paragraph 35, regarding the meaning of the word “trust”[5]:
‘Trust’ must instead be interpreted in accordance with its primary meaning: ‘[c]onfidence in or reliance on some quality or attribute of a person or thing, or the truth of a statement’.
[38] I am of the view that Mr. Chan occupied a position of trust by taking on the role of investment advisor to clients whom he knew to be unsophisticated, but had been clear in their instructions to him that they wanted “no risk” investments. Those clients relied upon Mr. Chan to follow those instructions when investing the monies provided to him, and to use his investment expertise to select such investments.
[39] Since the sentencing provisions as set out above are applicable to the case at bar, and since the charge under section 93(b) of the Securities Act is, in the words of Justice Cory, “if not a species in the family of fraudulent conduct [it is] a close cousin”, sentencing cases decided under the Criminal Code’s fraud provisions can provide useful guidance.[6] However, when considering cases decided under the Criminal Code, it is important to bear in mind that the maximum penalty permitted under the Securities Act is a fine not exceeding $5,000,000, or imprisonment for five years less one day, or both. The maximum penalty permitted under the Criminal Code for fraud is a term of imprisonment not exceeding 14 years [s. 380(a)].
Aggravating and mitigating factors
[40] The aggravating factors are:
1. The amount of money involved (almost $1.1 million).
2. The specific knowledge Mr. Chan had about the complainants’ life circumstances and their aversion to risky investments.
3. The lengths Mr. Chan went to in order to avoid detection of his fraud (creating false e-mails to reinforce the false impression that there was an independent company involved in the transactions).
4. The length of time over which the offending conduct occurred.
[41] The mitigating factors are:
1. The prompt guilty plea and the genuine remorse it portrays.
2. The attempts to effect at least partial restitution and the willingness to continue making restitution.
[42] I am mindful that Mr. Chan has no prior record, but our Court of Appeal has said that in instances of embezzlement, the offender seldom has a record which is why he or she is in a position to effect the theft. In such cases, the offender’s lack of a criminal record is less of a mitigating factor. In R. v. Fulcher (2007), 2007 ABCA 381 (CanLII), 422 A.R. 329 (Alta. C.A.), at paragraph 35, the Court said:
35 Good character is far from a distinguishing factor in embezzlement cases. That the embezzler is otherwise a solid hard-working member of the middle classes, is almost always true. That is how he got employed in a position of trust: see R. v. McKinnon, supra (paras. 60-63). Therefore the presence of good character has less of a mitigating effect in crimes of this sort than it would otherwise.
[43] In my view, the same comment applies to the case at bar. When an offender is able to effect the fraud because the lack of a criminal record facilitates the offender occupying a position (such as an investment advisor) from which he or she can easily engage in the fraudulent behaviour, then the absence of a criminal record has reduced mitigating effect. In the case at bar, Mr. Chan had been a legitimate investment advisor, and consequently had contacts and a reputation upon which he traded. His lack of a criminal record helped put him in a position which facilitated the fraud he committed.
[44] There are a number of cases a review of which would assist in the task at hand. Though I have considered all the cases provided to me by counsel, I find the following ones to be the most helpful.
R. v. Johnson 2010 ABQB 546
[45] The accused was convicted, after trial, of fraud under the Criminal Code. The fraud involved a “ponzi scheme” which induced over 50 investors to place money with the accused. The amount involved in the fraud was $2,430,000. Justice Sullivan imposed upon the accused (who had no record) a sentence of 13 years in prison. While no specific guidance can come from that case as to what the actual sentence should be in the case at bar, his Lordship’s comment at paragraph 24 is helpful:
The nature of the crime is more important than the value of the fraud. Jerry Johnson engaged in scurrilous conduct by initiating and carrying out over a long period of time a fraud designed to deprive unsophisticated, risk-adverse investors of their hard earned life savings. The offence is so serious that it calls for a sentence at the high end of the range available.
[46] It should be noted that, in the case of Mr. Chan, his initial intent was not to deprive the complainants of their money (as it was in the ponzi scheme referred to in Johnson), but he certainly did intend to disregard his investors’ instructions about risk-avoidance, and lied about that intention.
R. v. MacDonald 2010 NSPC 33
[47] The accused pleaded guilty to seven counts of Criminal Code fraud. Thirteen elderly, unsophisticated investors entrusted approximately $200,000 with the accused who used the money for his own benefit. He was sentenced to 30 months in gaol and was ordered to make restitution. The learned sentencing judge noted that though the offender pleaded guilty, he did so when “the jig was well and truly up, and the array of aggrieved clients confronting Mr. MacDonald represented an overwhelming and compelling case of financial-services fraud.” (paragraph 22).
R. v. Boyle (2002), 2002 ABPC 136 (CanLII), 331 A.R. 273 (Alta. Prov. Ct.)
[48] The three accused persons were found guilty after trial of offences under the Securities Act. The offenders had induced individuals to invest a total sum of $1.29 million in a technology enterprise. As Judge Lefever put it: “The Boyles never possessed any product to sell. They had the right (upon payment of a large sum of money they did not personally possess) to acquire an unproven technology that was a long distance from a marketable product.” (paragraph 34)
[49] The offenders expressed no remorse, and failed to appear for their sentencing. They were sentenced in absentia to periods of incarceration of 30 months, 26 months, and 6 months, respectively.
[50] In the case at bar, Mr. Chan did invest most of the money he obtained in real estate properties. Mr. Chan’s egregious conduct was not in pocketing the investment funds, it was in deliberately overriding the instructions of the vulnerable investors for the sole purpose of investing money as he saw fit, regardless of the instructions of the investors, and with indifference as to their ability to withstand high risk investments.
R. v. Bassett 2009 BCPC 111 (CanLII), 2009 BCPC 0111
[51] Though it is not specifically stated, I infer that the accused was charged under the Criminal Code.
[52] The facts were set out by the learned sentencing judge in these words (paragraphs 2-5):
2 The sentencing proceeded on an agreed statement of facts establishing that in each case, Mr. Bassett took an individual's money for an investment that did not exist. In some cases, he used people's investment money to simulate a return on another person's investment. Counsel referred to the offences as a "Ponzi scheme."
3 It is important to note that the total amount of the transactions to which Mr. Bassett has admitted and to which the Crown has agreed to confine his responsibility on these charges is $670,000, of which approximately $124,000 was returned in the course of the scheme.
4 The balance left owing was in the range of $545,000 before Mr. Bassett's assignment in bankruptcy. It is a little bit less now after some amounts have been paid out in the bankruptcy, but counsel concede that for the purpose of compensation orders, the $545,000 odd is the appropriate figure to look at, and that is the amount of the fraud with which we are dealing in this case.
5 The events took place over a two‑year period ending in November 2004. Only one transaction in the amount of $20,000 occurred after September 15th, 2004, when amendments to the fraud provisions increased the maximum penalty and codified certain aggravating factors. The charges were laid in 2008.
[53] Judge Ellan said (at paragraphs 10-15):
10 As put in the defence submissions, Mr. Bassett and his family had become accustomed to a lifestyle reflecting his prior income. He had also accrued a significant debt relating primarily to his sons' education and sporting endeavours. Mr. Bassett's wife's health was also deteriorating significantly during this time due to Crohn's disease and arthritis.
11 The defence submits that in response to these significant financial pressures, not wanting to disclose their dire situation to his ill wife, Mr. Bassett became desperate to borrow money. In something, I find, of an opportunistic way, Mr. Bassett devised this scheme as a means of borrowing from his friends and colleagues, people he knew who were involved in the investment business.
12 It is asserted that he did so with the intent to repay all the money when his income returned to its prior level. He told those who invested that the money would be invested in a syndicated mortgage yielding 15 percent per year and he gave them his personal guarantee. The investment scheme offered the investors quick high rates of return, guaranteed by Mr. Bassett, whom they knew. Mr. Bassett had also told the investors there were no income‑tax‑reporting requirements, at least from the scheme's perspective.
13 It is submitted that these individuals were enticed by these representations to put up considerable sums of money, some in circumstances, I find, where they could not afford to lose them. The victim impact statements make it clear that it was not the fictitious attributes of the scheme, the get‑rich‑quick aspect, alone that enticed the investors.
14 It was, as well, Mr. Bassett's reputation, what they believed to be his adherence to an ethical standard applicable across the industry, and his personal guarantee. Of those, only his reputation had any substance behind it.
15 None of the money was ever invested by Mr. Bassett. He used some of it to falsify returns to some of the investors, but the balance went to pay Mr. Bassett's debts or interest on debts. The Crown alleged it went to support a lifestyle beyond his means. Whether that was its immediate application, it would appear at least that it was used to service debts arising from a long entrenched extravagant lifestyle that was not responsibly curtailed in response to his reduction in income.
[54] The offender was sentenced to two years’ imprisonment followed by a probation order, and a restitution order.
R. v. Landen 2009 ONCJ 261
[55] Mr. Landen had no record and was convicted of a Securities Act charge of insider trading. The offending behaviour occurred in two separate transactions (he used knowledge obtained from being an “insider” to avoid investment losses). The amount of loss avoided by the offender was $115,000. The Court classified the two trades as “an isolated incident”.
[56] Mr. Landen was sentenced to 45 days’ imprisonment.
[57] The differences between the Landen case and the case at bar are starkly evident, and emphasize how much more serious are the facts in Mr. Chan’s case.
Conclusions
[58] The sentencing objectives in this case require a period of incarceration. Regulatory offences are designed to protect the public, and a sufficiently strong and persuasive message of general deterrence is required. Such a message is necessary in respect of the fraud offence because it is at the “high moral blameworthiness” end of the spectrum of regulatory offences; such a message is necessary in respect of the offences of trading in a security when not registered and when no prospectus was filed, and in respect of making false statements to the Commission, because there is great potential danger to the public if those provision of the Act are not honoured.
[59] While restitution for the victims is important, Mr. Chan cannot be allowed to use his need to work in order to provide restitution as a shield to protect him from the sentencing consequences which must flow from the need to strongly denounce and deter others from similar conduct.
[60] The final analysis is that, in the circumstances of this case, that message can only be achieved through an actual period of incarceration.
[61] In determining the appropriate sentences, I have considered which sentences should be concurrent and which should be consecutive. I have also taken into account the totality principle as referred to above.
Sentences
1. Count 37 – Two years incarceration.
2. Counts 11, 12, 15, 16, 18, 19, 20, 23, 24, 25, 27, 28, 31, 32, 33, and 35 – 6 months incarceration on each count, concurrent one to the other, but consecutive to the sentence on Count 37.
3. Counts 1, 3, 5, 7, 9 – 3 months incarceration on each count, concurrent one to the other, but consecutive to the sentences on Count 37 and Counts 11-36.
4. Counts 2, 4, 6, 8, 10 – 3 months incarceration on each count, concurrent one to the other, but consecutive to the sentences on all other counts.
5. Orders pursuant to sections 194(6) and 198 of the Securities Act, in the form tendered by the Crown, are granted.
6. Restitution as follows:
(a) in favour of Gina Avramenko in the amount of $10,000.00
(b) in favour of Tammy Nadine Deighton in the amount of $31,000.00
(c) in favour of Aileen Sinclair in the amount of $21,167.05
These orders shall be in the form set out in s. 738 of the Criminal Code.
[62] The global period of incarceration is three years.
Dated at the City of Calgary, Alberta this 2nd day of October, 2012.
|
A.A. Fradsham A Judge of the Provincial Court of Alberta |
Appearances:
Don Young
for the Crown
Richard N. Billington, Q.C.
for the Offender
_______________________________________________________
Corrigendum of the Reasons for Sentence
of
The Honourable Judge A.A. Fradsham
_______________________________________________________
1. Under paragraph [1] (c) 19 counts has been changed to 16 counts.
2. On page 21 under Sentences, counts 14, 29 and 36 have been removed.
[1] Exhibit 1.
[2] Exhibit 2.
[3] I am aware that Justice Ray in R. v. Da Silva 2012 ONCJ 279, at paragraph 8, stated that: “The Securities Act pursuant to which Mr. Abel Da Silva is charged is provincial regulatory legislation. The offences with which he is charged are sometimes referred to as ‘regulatory offences,’ ‘quasi-criminal offences,’ ‘public welfare offences,’ ‘statutory offences,’ or ‘provincial offences.’ The sentencing options available to this court are found in the Securities Act and the Provincial Offence Act (Ontario) (hereinafter the POA). The Criminal Code including its statement of purpose and principles is applicable to federal but not provincial regulatory offences.” While that may be the case in Ontario, I am of the respectful view that the specific provisions in the Alberta legislation ( POPA) lead to a different conclusion in Alberta.
[4] Section 718 of the Criminal Code.
[5] Even though the Court in R. v. Audet, supra, was considering the word “trust” as it appeared in s. 153(1) of the Criminal Code, I am of the view that the Court’s comment is applicable to the use of the word “trust” in section 718.2(a)(iii).
[6] I am aware that in R. v. Rankin [2005] O.J. No. 4871 (Ont. C.J.), Justice Khawly declined to apply Criminal Code fraud cases when sentencing an offender under the Ontario securities legislation. However, in that case, the defendant was convicted of providing insider information (“tipping”), and, as Justice Khawly noted (at paragraph 78), “Mr. Rankin has not been found guilty of fraud. His actions may have been a betrayal of his employer and of his responsibilities to the market at large but there is no element of fraud here in its classical sense.”
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