An Update on Fraud Recovery through Criminal Restitution Orders
On July 28, 2015, investment fraudsters Garry Sorenson and Milowe Brost were sentenced in their criminal trial to 12 years in jail. The Reasons for Judgment were just released by the Court, which is what prompted this blog post. The Court declared the fraud perpetrated by Sorenson and Brost to be the “biggest fraud in Canadian history” involving potentially $200M and potentailly 850 victims. Despite the magnitude of this fraud, the Court did not impose the maximum sentence of 14 years prison or make a restitution or fine-in-lieu-of-forfeiture order. Remarkably, the Court held:
“The Criminal Court is ill-equipped to determine amounts to be payable to so many individuals [victims] in so many different circumstances. The amounts to be repaid are not readily ascertainable on the evidence before me. Accordingly, and with some regret, I leave the matter of recovery to the civil courts, and I decline to order restitution herein.
We have written in the past about our concern for fraud victims who intend to rely on the criminal justice system as a means to recover their fraud loss. In the Sorenon and Brost case, many of the fraud victims did not file civil claims within the statutory limitation period and they are now statute-barred from bringing a civil fraud recovery case as suggested by the criminal court.
This decision – in Canada’s largest investment fraud case – underscores why all fraud victims should engage civil fraud recovery counsel, if for no other reason than to preserve their right to recovery – even if the right is preserved until after the criminal process has run its course. The link to our prior blog post on Enforcing Criminal Restitution Orders and the Canadian Victims Bill of Rights is found at: https://investigationcounsel.com/post/enforcing-criminal-restitution-orders-and-the-canadian-victims-bill-of-rights/ . It more fully explains the law applying to criminal restitution orders.
This post relies on the decision in Sorenson and Brost to provide information to fraud victims on other aspects of criminal sentencing in fraud cases, such as the importance of Victim Impact Statements and the purpose, from a criminal law perspective, of criminal sentencing.
Victim Impact Statements
Fraud victims often require assistance in drafting Victim Impact Statements, especially if they wish to attend Court to have their statements read into the record. In most fraud cases the Court will allow fraud victims to read in their Victim Impact Statements. Because the Sorenson and Brost case was a five month criminal trial involving almost 600 Victim Impact Statements, the Court only permitted one Victim Impact Statement to be read into the record. The rest were simply filed.
The Court in the Sorenson and Brost case did provide some guidance to the public as to what Victim Impact Statements should and should not include. Victim Impact Statements should not speak to how the crime occurred, the character of the offenders, or the amount the victim is seeking by way of a criminal restitution order. Rather, as the title indicates, Victim Impact Statements are to be restricted to provide the Court with information on the impact of the fraud on the victims.
As such, Victim Impact Statements are intended to provide the Court with the following types of information:
- the percentage of net worth of the victim lost to the fraud;
- the loss of lifestyle resulting from the fraud;
- the necessity to continue or return to work because of the fraud;
- the postponement of retirement due to the fraud;
- the inability to pay for every day expenses, such as health care and children’s education;
- the necessity of selling assets to pay for everyday expenses because of the fraud;
- the emotional turmoil experienced because of the fraud;
- the shame, embarrassment, and rejection by friends and family resulting from the fraud;
- the marriage difficulties such as arguments, separation and divorce linked to the fraud;
- the thoughts of suicide resulting from depression linked to the fraud; and
- the physical illness resulting from depression linked to the fraud.
This list is not exhaustive, but it provides a guideline as to what to include in a Victim Impact Statement.
Victim Impact Statements are not given consideration technically as an aggravating factor when a Court considers length of sentence. That said, Victim Impact Statements are given consideration as part of the general list of issues a Court reviews when sentencing. For further information, see section 380.1(c.1) of the Criminal Code of Canada.
Factors A Court Considers in Criminal Fraud Sentencing
The factors a Court considers when sentencing a person for fraud are summarized as follows:
- general deterrence;
- specific deterrence;
- separation of the offender from society;
- rehabilitation of the offender;
- acknowledgement by the offender of responsibility for the crime the committed; and
- reparation by the offender to the victim from the harm they have done.
General and specific deterrence are the most important factors. General deterrence means a sentence serious enough to discourage others from committing a similar type of fraud. Specific deterrence means as sentence serious enough to discourage the convicted fraudster from committing another fraud.
Other factors may be reviewed as well. The Court will also consider aggravating factors and mitigating factors. The fundamental principle that guides the Court is that the sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender.
As mentioned above, the maximum sentence a Criminal Court can impose on a fraudster is 14 years per count. There may be multiple counts of fraud which may be ordered to be served consecutively as opposed to currently. That said, in Canadian law, it appears that no one has been sentenced to more than 12 years served concurrently. It appears that Canadian Courts are saving the maximum sentence for fraudsters even more egregious than Sorenson and Brost – such as Canada’s own version of Bernie Madoff.
Aggravating factors that a Court considers in sentencing for fraud include the following:
- the magnitude, complexity, duration and degree of planning of the fraud;
- the effect of the fraud on stability of Canadian economy or financial markets;
- the effect of the fraud on investor confidence;
- the impact of the fraud on the victims given their age, health and financial circumstances;
- the degree of trust that was broken to perpetrate the fraud;
- the non-compliance with licensing by the offender to perpetrate the fraud;
- whether the fraudster concealed or destroyed records upon discovery of the fraud; and
- the number of victims that were impacted by the fraud.
Again, this list is not exhaustive. As mentioned above, although Victim Impact Statements are not technically admitted as evidence for determining the existence of aggravating factors, evidence from the Crown can be led on these issues. Victim Impact Statements are not evidence as they are not subjected to the rigours of cross examination.
An automatic aggravating factor is if the value of the fraud is greater than $1M. Section 380.1 of the Criminal Code of Canada requires that incarceration be imposed when this aggravating factor is present. The motivation of greed is also an aggravating factor, which can be proven with evidence of lavish lifestyles or the use of funds for other business or wealth building purposes. In the case of Sorenson and Brost, there was some evidence that they were using the money to obtain shares (ownership) in a mining company in South America.
In the Sorenson and Brost case, the Court found that the aggravating factors listed above were present with two notable exceptions. The Court found that their fraud did not adversely affect the stability of the Canadian economy or financial markets. The Court also found that Sorenson and Brost did not engage in a form of professional breach of trust as they were not licensed financial dealers, lawyers or accountants. It would appear that because of these two factors the Court did not impose the maximum sentence.
Mitigating factors include the lack of a criminal record, guilty pleas, remorse, restitution paid, and individual characteristics of the offender such as ill health, education, “Robin Hood” type of motive (not personally profiting), and lack of a position of trust. The Court in the Sorenson and Brost case found that while they did not have prior criminal records, they had faced security commission licensing prosecutions before, they required the Crown to prove the entire case including basic evidence admissibility issues, and that they were in position of trust in the sense that they totally controlled the victims’ money. In other words, Sorenson and Brost could not credibly submit any mitigating factors to the Court.
Restorative Justice for Fraud Victims – Revisiting the Restitution Issue
Restorative Justice to fraud recovery lawyers incorporates public justice legislated provisions such as criminal restitution orders and fines-in-lieu-of-forfeiture. These Criminal Codeprovisions of restorative justice for fraud victims should be kept in mind by civil fraud recovery lawyers, especially when it is not possible to freeze assets prior to litigation, as the cost of private investigations and litigation often makes access to justice otherwise unachievable.
The Court in the Sorenson and Brost case noted that approximately 850 individuals were seeking restitution orders, but that the Court’s discretion to make such orders is limited to cases where the amounts taken were “readily ascertainable.” The Court held that the Crown could not prove in this case the precise amount that was wrongfully taken by the offenders – the amount proven was somewhere between $26M to $35M.
The issue of restitution was further complicated by the fact that some investors received discounts or incentives to make investments, and other investors had received all or some of their money back (as often occurs in Ponzi schemes such as the Madoff debacle). For these reasons, and likely because the Court did not wish to get second-guessed by an appellate Court on the nature and degree of restitution, and the Court chose not to make any at restitution order at all.
It is noteworthy that other Courts have taken a more creative approach to restitution orders. For example, in R. v. Sbrolla and Wong, 2003 CarswellOnt 6186, the Court ordered restitution on a percentage of an amount it determined the fraudsters were responsible for in the overall fraud and the degree to which they personally profited. The Court in R. v. Sbrolla and Wongwas not tied to a fixed liquidated amount as implied in the Sorenson and Brost case. A more detailed discussion of this issue is beyond the scope of this blog post.
The Bottom Line
The bottom line is that any fraud victim hoping to obtain recovery in the justice system should retain their own civil fraud recovery counsel to at least issue a claim and then monitor the criminal case. If a restitution order is made in the criminal case, this order can be registered as a civil judgment and also used for obtaining judgment for a higher quantum of damages in the civil system. If a restitution order is not made by a Criminal Court, at least the victim will have an avenue (the civil system) through which to pursue recovery.
As mentioned above, some of the victims in the Sorenson and Brost case no longer have a right to recovery because they mistakenly believed they could preserve their right to recovery through the criminal system. These victims likely did not have the information we are providing through this article. It may now be a hard lesson they learned in more ways than one – a lesson that others hopefully will not have to go through.
Norman Groot, LLB, CFE, CFI – September 28, 2015