Norman Groot, LLB, CFE, CFI
Investigation Counsel PC
On August 24, 2013, the Globe and Mail published an article entitled: Crime Without Punishment: Canada’s Investment Fraud Problem by Jeff Gray & Janet McFarland. In the article, forensic accountant Greg Draper of MNP LLP, a former RCMP investigator, is quoted as stating that often “fraud cases can be hard for police because it is not always clear whether someone is a victim of a fraud or a reckless investor … When things are everybody’s responsibility, sometimes they become nobody’s responsibility.” The article goes on to say that often fraud victims are reluctant to come forward because they are so embarrassed they can’t bring themselves to tell others or report it to police.
It has been our experience that contributory negligence (blaming the victim) is an allegation often made by a fraudster and his lawyers to deter fraud victims from bringing their case forward. As referred to above, a fraud victim’s contributory negligence, or reckless investing, is also a reason why the police and the Crown are reluctant to prosecute cases criminally. This issue of whether someone is a fraud victim or a reckless investor underscores the reason why consulting with civil fraud recovery counsel before reporting concerns to police should be the first recourse for victims of fraud who are embarrassed by what happened and are reluctant to come forward.
Fraud victims should be aware that the issue of their alleged contributory negligence has been addressed by the courts. In the case of Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce, 1996 CarswellBC 2314, [1996] 3 S.C.R. 727 (S.C.C.), at para. 31, the Supreme Court of Canada held that, with respect to torts of strict liability, such as conversion (theft), the claim itself “militates against the defence of contributory negligence”. In fact, “the notion of strict liability involved in an action for conversion is prima facie antithetical to the concept of contributory negligence.” To state it more plainly, a fraud victim’s lack of due diligence or reckless investing is not a defence available to some who made intentional fraudulent misrepresentations to obtain a fraud victim’s money. Just like leaving one’s house unlocked is not an invitation to a burglar to enter a home owner’s property and steal, a fraud victim’s lack of due diligence is not a defence to a fraudster who steals by lies. See also Siegel ats Hibbert, 2012 ONSC 2767.
The Globe and Mail article mentioned above also addresses other concerns commonly raised by fraud victims, such as that “those who bilk investors often suffer little more than a slap on the wrist, and that the police are often unwilling to investigate allegations of complex financial crimes, especially in cases of smaller financial frauds that don’t attract media attention”. Indeed, professional commentators such as Ermannao Pascutto, a former executive director of the Ontario Securities Commission (OSC), echoes that police forces sometimes lack the required expertise to handle complex frauds. Further, Douglas Hunt, a former Ontario Assistant Deputy Attorney General, suggests that part of the problem is the culture in the Crown prosecutor’s office in that Crown Attorneys often prioritize prosecutions of violent or sex crimes with their scarce resources before tackling complex white collar crime cases where the victims are not as sympathetic.
To address the lack of prosecution against those involved in smaller investment frauds (less than $10M), Mr. Pascutto, who now is the executive director for the Canadian Foundation for Advancement of Investor Rights (FAIR Canada https://faircanada.ca/, a shareholder advocacy organization, suggest that Canada needs a “central fraud clearing agency” to investigate and prosecute financial crimes. Such calls to action have resulted in the OSC announcing, in June 2013, that it is setting up a new fraud squad of lawyers and investigators to deal with investment frauds in the $5M to $10M range and prosecute them criminally outside the traditional OSC regulatory regime.
Even with such positive developments, however, we recommend to fraud victims that they consult their own private counsel to have their case assessed before reporting their loss to the police or the OSC. Notwithstanding that contributory negligence is not a defence to a fraud allegation, fraud victims need to have their cases organized and investigated. Further, fraud victims should assess issues that could cause embarrassment before they report their loss to police. It is when the fraud victim is confident with their case that consideration should be given to turning it over to the public authorities for prosecution and to seek restitution.