R. v. Briand

Date: 20100706 Docket: 09/78 Citation: R. v. Briand, 2010 NLCA 44 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN: REYANNE BRIAND AND EARL MATTHEWS APPELLANTS AND: HER MAJESTY THE QUEEN RESPONDENT Coram: Wells, Rowe and Harrington, JJ.A. Court Appealed From: Provincial Court of Newfoundland & Labrador, Judicial Centre at Grand Bank Appeal Heard: June 10, 2010 Judgment Rendered: June 10, 2010 (Orally) Reasons for Oral Decision Filed: July 6, 2010 Counsel for the Appellants: Derek Hogan Counsel for the Respondent: Vikas Khaladkar and Jeffrey Summers REASONS FOR ORAL DECISION Harrington, J.A.: [1] The appellants appeal their convictions in Provincial Court on June 24, 2009 for soliciting funds by fraudulent means for an investment scheme, contrary to s. 380(1)(a) of the Criminal Code, and for having in their possession a bank draft in an amount exceeding $5,000 obtained by the commission in Canada of an offence, contrary to s. 354(1) of the Criminal Code. The appellants also appeal their sentences of thirty-six months of Page: 2 incarceration on the fraud conviction and six months concurrent on the possession of illegally obtained property conviction. [2] The appellants seek a new trial on the grounds that the learned trial judge, in expressing certain of his reasons for decision, effectively shifted the burden of proof from the Crown to them. The Crown concedes that the trial judge erred in relying on his finding that the appellants had advanced “no evidence” confirming the truth of certain representations made on their internet website when soliciting funds for an investment scheme. Ordinarily, such an error would result in a new trial. However, the Crown submits that this Court should uphold the verdicts, relying on the curative proviso, s. 686(1)(b)(iii) of the Criminal Code, which permits this Court to dismiss the appeal if it is of the view that no substantial wrong or miscarriage of justice has occurred. [3] At the conclusion of the appeal hearing the Court indicated orally its decision that the appeal would be dismissed and the appellants would be taken into custody, in consequence of the sentence imposed by the trial judge. At the request of counsel for the appellants leave was granted to file further submissions respecting the appeal against sentence. The Court also indicated it would file reasons for the decision dismissing the appeal. What follows are those reasons. Background [4] In early 2007, the complainants, residents of the State of Iowa, viewed an internet website established by the appellants which invited parties to deposit funds into their investment fund named “Aid4Families”. The appellants intended to invest client funds in foreign exchange markets and promised to pay their depositors a 120% annual return with a guaranteed monthly payment of 10%. [5] The trial judge found that the complainants: found the website in February, made inquiries of the [appellants] but did not invest in the plan. Six months later, when the website was still on the internet, and there having been no adverse publicity about it, [the complainants] incorrectly assumed that the investment plan offered by the [appellants] was valid. Despite early misgivings, the complainants borrowed heavily, in the second half of 2007, from ten credit card accounts and forwarded the proceeds to entities as named by the appellants. The trial judge found that the Page: 3 complainants initially deposited the sum of $165,000 in US currency, in two deposits of $30,000 and $135,000 respectively, to an account designated as Aid4Families established by the appellants at a bank in Quebec. These funds were transferred to a credit union in that province after the bank closed out the account due to complaints from the provincial securities regulator. [6] The trial judge also found that in September, 2007 the complainants forwarded two money orders payable to Pay4Families totalling $178,500 in US currency, the first for $153,500 and the second for $25,000, to the appellants at an address in this province. The appellants presented the larger one of them to a credit union for deposit into an account they had opened. [7] The appellants also represented on their website that the fund had philanthropic goals and was aligned with a “Government Income Supplement Program” purported to be recognized nationally. Indeed, they used the acronym “G.I.S.P.” to describe the investment product they were promoting. [8] The complainants testified that prior to forwarding these funds, they received representations from the appellants that their deposits were insured with a private insurer called the Canadian Investment Protection Fund, (“CIPF”). There is such a fund but the appellants were not participants in it. The appellants were later forced to delete all references to CIPF on their website by virtue of a complaint by CIPF to the Quebec securities regulator. However, they continued to make representations to their handful of clients that their fund was “insured”. [9] Between the time of the initial review of the website by the complainants and their first transfers of funds, the appellants had run afoul of the Quebec securities regulator. The regulator issued a cease trading order because the appellants were attempting to sell unregistered securities through their internet scheme. It later placed a freeze on all funds on deposit by the appellants with financial institutions in Quebec which included the two initial amounts forwarded by the complainants totalling $165,000 US. [10] Subsequently, during the summer of 2007, Ms. Briand returned to her roots in this Province along with Mr. Matthews. Following that move, the two amounts of $153,500 and $25,000 respectively, forwarded to the appellants in this province, were made by money orders payable to a purported new fund named “Pay4Families”. The larger amount was placed for deposit with a local credit union in Marystown. While making the Page: 4 deposit, Ms. Briand falsely advised an employee of the credit union that the complainants’ money order represented the proceeds of the sale of property in the United States. The credit union initially advised Ms. Briand that the funds could not be accessed for twenty working days and this was later revised to a hold period of thirty working days. [11] The complainants had been guaranteed that an initial payment in the amount of approximately $16,500 would be made on October 1, 2007. They never did receive any monthly payments on any of their “invested funds”. Because of their need for money to service their substantial debt burden to US credit card issuers, the complainants were pressuring the appellants for their guaranteed monthly return. In response, in late October, the appellants returned the complainants’ second money order, in the amount of $25,000, which had not been deposited. The appellants, in an email dated October 27, 2007, advised the complainants that this transaction was “a partial payment of the monies due to be paid October 1, 2007 and was not a refund.” The complainants were never notified that the money order for $153,500 would not clear the credit union for thirty business days, i.e. until November 9, 2007. [12] None of the problems with the Quebec securities regulator, or the freezing of bank accounts in Quebec, or the delay in clearing money orders deposited in this Province, were disclosed to the complainants. Instead, the appellant Briand, using the alias “Jessica”, sent the complainants an email on October 5th stating: We have received your information and it was sent to the bank on Thursday once it had been entered into our system. The wire department said that it can run anywhere from 48-72 hours to be received. Thank-you for your patience and have a great weekend. [13] The trial judge found that the representations made by the appellants regarding the size of potential returns, guarantees of payment and the insurance protection against loss were false. The modifications of the representations in subsequent emails or website changes did nothing to remove that falsity. Rather, during the course of the appellants’ dealings with the complainants, the falsity was exacerbated. Following the removal of the reference to CIPF on the website, the appellants continued to falsely represent on its amended website that their fund was insured. This representation was also made in a brochure that the appellants circulated. Page: 5 The trial judge found that the appellants represented that they would, “Insure your deposit for nearly 10x’s as much as your other bank pay (sic) you…”. [14] In addition, the appellants were using depositor’s funds for their personal use. That is clear from the cross-examination of the appellant Matthews during which there occurred the following exchange: Q. Okay. So for example, the Sheik Boutique is a business you started down here, is that correct, you and your wife? A. That’s right. Q. Was Aid4Families – was it a point that Aid4Families was that gonna help for example fund the Sheik Boutique? A. Yes, Aid4Families, the organization. Q. Right, okay, and that would be part of its investments on top of the Foreign Exchange? A. That’s right. Q. Alright and so did the Sheik Boutique actually get money from Aid4Families? A. Well, most of our money was frozen up so we put what we could into getting some inventory to advertising and trying to get it off the road, but much of it was an expectation for what was gonna be made in the accounts from the Forex and things of this nature, but we had to keep adjusting as money kept getting, you know, taken from us. Q. Right, so you had a plan where you believed you would make so much money each month off of your investments and everything? A. Right. Q. Now – and Aid4Families, did they pay you and your wife? A. Yes, it was reasonable for everything. Q. Right, so your personal living expenses would come out of Aid4Families? A. That’s right. That’s where we worked… Q. Okay, so right, once the money came in you could do whatever you wanted with it and as long as you were meeting these payments, these 10% payments a month, you know, roughly that was fine? Page: 6 A. Right. Our understanding was we had the latitude to do whatever we needed to do to make the business successful so that we could meet our obligations. Q. And so keeping yourselves going was part of that what you needed to do to keep? A. Right. Relevant Criminal Code Provisions [15] Section 380(1)(a) of the Criminal Code provides that: Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service, is guilty of an indictable offence … where the value of the subject matter of the offence … exceeds five thousand dollars; Section 354(1) of the Criminal Code provides that: Every one commits an offence who has in his possession any property or thing … knowing that all or part of the property … was obtained by or derived directly or indirectly from (a) the commission in Canada of an offence punishable by indictment; Section 686(1)(b)(iii) provides that: On the hearing of an appeal against a conviction … the court of appeal … (b) may dismiss the appeal where … (iii) notwithstanding that the court is of the opinion that on any ground mentioned in subparagraph (a)(ii) the appeal might be decided in favour of the appellant, it is of the opinion that no substantial wrong or miscarriage of justice has occurred; Analysis [16] The errors by the trial judge, in effectively shifting the burden of proof to the appellants with respect to whether certain representations by them were true or false, were serious. That being so, the proper test for deciding whether the curative proviso under s. 686(1)(b) can be applied to dismiss the appeal is that affirmed by this Court in R. v. Pavlov, 2009 NLCA 44. There, Barry J.A. referred to the statement of Deschamps J. writing for the majority of the Supreme Court of Canada in R. v. Trochym, [2007] 1 S.C.R. 239 at para. 82 that the presence of “serious errors”: Page: 7 … will justify a new trial unless the properly adduced evidence is so overwhelming that a conviction is inevitable, or would invariably result. This standard should not be equated with the ordinary standard in a criminal trial of proof beyond a reasonable doubt. The application of the proviso to serious errors reflects a higher standard appropriate to appellate review. The standard applied by an appellate court, namely that the evidence against an accused is so overwhelming that conviction is inevitable or would invariably result, is a substantially higher one than the requirement that the Crown prove its case “beyond a reasonable doubt” at trial. (Emphasis added) [17] The appellants submit that the Crown cannot satisfy this Court that a conviction is “inevitable”. While conceding that one element of the actus reus of the offence, being deprivation, was established, the appellants contend that the second element of dishonesty cannot be established by proof of, in the words of s. 380(1), “deceit, falsehood or other fraudulent means”. [18] The appellants submit that the evidence on the record is not “overwhelming” within the meaning of Trochym. The appellants emphasize they were able to place some of the funding of other investors in the foreign exchange market and that this supports their position that this was not a mere “Ponzi scheme”. Further, the appellants submit that but for the regulatory and banking problems which they encountered, there was a continuing honest expectation that the foreign exchange investment returns intended to be made would yield sufficient funds to meet their financial commitment of a 120% annual return to investors. The appellants therefore contend that there was no subjective intent to defraud the complainants. [19] This submission is similar to that made by the appellant and rejected in R. v. Théroux, [1993] 2 S.C.R. 5. As the directing mind of his company, Théroux solicited deposits from prospective purchasers of a proposed residential development on the basis of a false representation made orally and in a brochure given to the depositors that the deposits were insured. The project became insolvent and most depositors did not recover their money. Théroux argued that since the trial judge had found that he honestly believed that the project would be completed, the mens rea of the offence of fraud was negated. [20] In that case, McLachlin J. reviewed the legal doctrines applicable to establishing both the actus reus and the mens rea of fraud. After that Page: 8 doctrinal review she summarized, succinctly at page 20, what is required to establish fraud in the following manner: These doctrinal observations suggest that the actus reus of the offence of fraud will be established by proof of: 1. the prohibited act, be it an act of deceit, a falsehood or some other fraudulent means; and 2. deprivation caused by the prohibited act, which may consist in actual loss or the placing of the victim's pecuniary interests at risk. Correspondingly, the mens rea of fraud is established by proof of: 1. subjective knowledge of the prohibited act; and 2. subjective knowledge that the prohibited act could have as a consequence the deprivation of another (which deprivation may consist in knowledge that the victim's pecuniary interests are put at risk). Where the conduct and knowledge required by these definitions are established, the accused is guilty whether he actually intended the prohibited consequence or was reckless as to whether it would occur. [21] Application of those principles to the facts of this case will be aided greatly by consideration of some of the comments McLachlin J. made during the course of her doctrinal review. With respect to the actus reus, at page 16, she wrote: …Just as what constitutes a lie or a deceitful act for the purpose of the actus reus is judged on the objective facts, so the “other fraudulent means” in the third category is determined objectively, by reference to what a reasonable person would consider to be a dishonest act… …In a number of subsequent cases, courts have defined the sort of conduct which may fall under this third category of other fraudulent means to include the use of corporate funds for personal purposes, non- disclosure of important facts … [22] With respect to the mens rea of fraud McLachlin J. first commented, on mens rea, generally, and at page 18 wrote that: Two collateral points must be made at this juncture. First, as Williams underlines, this inquiry has nothing to do with the accused’s system of values. A person is not saved from conviction because he or she believes there is nothing wrong with Page: 9 what he or she is doing. The question is whether the accused subjectively appreciated that certain consequences would follow from his or her acts, not whether the accused believed the acts or their consequences to be moral. Just as the pathological killer would not be acquitted on the mere ground that he failed to see his act as morally reprehensible, so the defrauder will not be acquitted because he believed that what he was doing was honest. The second collateral point is the oft-made observation that the Crown need not, in every case, show precisely what thought was in the accused’s mind at the time of the criminal act. In certain cases, subjective awareness of the consequences can be inferred from the act itself, barring some explanation casting doubt on such inference. The fact that such an inference is made does not detract from the subjectivity of the test. She then focused on mens rea in fraud and at pages 19-20 wrote that: The prohibited act is deceit, falsehood, or some other dishonest act. The prohibited consequence is depriving another of what is or should be his, which may, as we have seen, consist in merely placing another’s property at risk. The mens rea would then consist in the subjective awareness that one was undertaking a prohibited act (the deceit, falsehood or other dishonest act) which could cause deprivation in the sense of depriving another of property or putting that property at risk. If this is shown, the crime is complete. The fact that the accused may have hoped the deprivation would not take place, or may have felt there was nothing wrong with what he or she was doing, provides no defence. To put it another way, following the traditional criminal law principle that the mental state necessary to the offence must be determined by reference to the external acts which constitute the actus of the offence (see Williams, supra, c. 3), the proper focus in determining the mens rea of fraud is to ask whether the accused intentionally committed the prohibited acts (deceit, falsehood, or other dishonest act) knowing or desiring the consequence proscribed by the offence (deprivation, including the risk of deprivation). The personal feeling of the accused about the morality or honesty of the act or its consequences is no more relevant to the analysis than is the accused’s awareness that the particular acts undertaken constitute a criminal offence. This applies as much to the third head of fraud, “other fraudulent means”, as to lies and acts of deceit. Although “other fraudulent means” have been broadly defined as means which are “dishonest”, it is not necessary that an accused personally consider these means to be dishonest in order that he or she be convicted of fraud for having undertaken them. The “dishonesty” of the means is relevant to the determination whether the conduct falls within the type of conduct caught by the offence of fraud; what reasonable people consider dishonest assists in the determination whether the actus reus of the offence can be made out of particular facts. That established, it need only be determined that an accused Page: 10 knowingly undertook the acts in question, aware that deprivation, or risk of deprivation, could follow as a likely consequence. [23] This Court has earlier applied the principles identified in Théroux. In his reasons in R. v. Mercer (1998), 160 Nfld. & P.E.I.R. 174, Green J.A., as he then was, wrote at para. 13 that with respect to establishing the actus reus element of the offence, “the words ‘other fraudulent means’ include means which are not in the nature of deceit or falsehood but encompass all other means which are stigmatized as dishonest. The existence of dishonesty, for the purpose of determining whether the act falls within the category of ‘other fraudulent means’ is determined objectively, by reference to what a reasonable person would consider to be a dishonest act.” [24] Green J.A. also referred to the reasons of McLachlin J. for the majority in R. v. Zlatic, [1993] 2 S.C.R. 29 at page 44 where she stated that “other fraudulent means” can include “non-disclosure of important facts”, and “the use of corporate funds for personal purposes”. Referring again to the reasons of McLachlin J. in Théroux he noted that, at pages 23 and 24, she wrote: … the better view is that the accused’s belief that the conduct is not wrong or that no one will in the end be hurt affords no defense to a charge of fraud. ... Many frauds are perpetrated by people who think there is nothing wrong in what they are doing or who sincerely believe that their act of placing other peoples’ property at risk will not ultimately result in actual loss to those persons. If the offence of fraud is to catch those who actually practice fraud, its mens rea cannot be cast so narrowly as this. [25] In my view a more succinct guide as to what would constitute “other fraudulent means” is that expressed by McLachlin J. in Zlatic where, at page 45, she wrote: …The dishonesty of “other fraudulent means” has, at its heart, the wrongful use of something in which another person has an interest, in such a manner that this other’s interest is extinguished or put at risk. A use is “wrongful” in this context if it constitutes conduct which reasonable decent persons would consider dishonest and unscrupulous. [26] The appellants believed that but for their entanglement with the securities regulator and financial institutions they were operating a legitimate investment plan in foreign exchange that would yield the Page: 11 promised return to potential clients. However, even if by incredibly skillful investment and unimaginable good fortune that rate of return could be achieved, there were three main categories of fraudulent behavior manifested here which undermine the appellants’ position: (i) fraudulent representations to prospective investors; (ii) non-disclosure to the actual investors of material events detrimentally affecting the status of their investment funds; and (iii) wrongful use of pecuniary interests of others. [27] Details of the appellants’ fraudulent representations, non-disclosure and wrongful use include: (a) that the complainants’ deposits with the appellants would earn a guaranteed 120% annual investment return at the rate of 10% per month, when such promises were unrealistic and, more importantly, such promised rates of return could not be realized simply because the complainants’ funds were never invested; (b) that the funds were sanctioned as part of a “Government Income Supplement Program”, when they were not; (c) with respect to insurance, first, that funds were insured through the CIPF (the fund existed but the appellants’ scheme was never part of it), then failure to disclose that CIPF filed a complaint with the Quebec securities regulator reporting the false website representations of the appellants, and finally continued representations that the deposited funds were insured; (d) false representation of the size of the staff working for their fund by having Ms. Briand use at least two false names while communicating with the complainants and communicating information implying a substantial and sophisticated organization; (e) the misrepresentation that the appellants move from Quebec to this province was due to the global financial crisis and the imposition of tighter financial controls, when the move was motivated by the appellants’ desire to avoid regulatory and banking problems in the province of Quebec; Page: 12 (f) failure to disclose to the complainants that their bank and credit union accounts had been frozen in Quebec by the securities regulator; (g) failure to disclose that the first money order for $153,000 sent for deposit with the credit union in this Province in September 2007 was being held for thirty business days before clearance and thus the funds could not be invested before the second week of November; (h) failure to disclose any of the continuing regulatory and banking problems and the freezing of accounts at a chartered bank and later at a large credit union which prevented any investment activity of the funds deposited in Quebec; (i) failure to disclose that due to the freezing of accounts in Quebec and the thirty business day hold in this province none of the complainants’ funds had been placed in the foreign exchange market as promised; and (j) use of depositors’ funds to finance their personal business investments and meet their personal expenses. [28] The appellants contend that an important item of evidence relied upon by the trial judge to convict, being a copy of their website, was not relevant because it was “captured” after the complainants had lodged their funds with the appellants. They submit that the exhibit was secured in October 2008, and not twelve months earlier. They argue that there is no causal link between that exhibit and the inducement directed to the complainants. That argument has no merit in view of the similarity between the website as captured and the complainants’ evidence as to what they saw on the website, which caused them to invest. In any event, evidence of dishonesty from other sources, notably the testimony of the complainants, a brochure, email correspondence and the admissions of the appellants is “overwhelming” even when the burden of proof is placed totally on the prosecution where it should properly be, instead of on the appellants which is what the trial judge, it was conceded by all, did. By way of example, any one of: the continuing false representations that the complainants’ funds were “insured” when they were not; the failure to disclose what was actually happening to the funds deposited by the complainants; or, the use of depositors’ funds for personal Page: 13 purposes, would be sufficient to uphold the convictions of the appellants based on the facts and reasoning in Théroux and Zlatic. [29] The serious errors by the trial judge require that this Court must be satisfied regarding proof of guilt of the appellants on a standard higher than proof beyond a reasonable doubt, as articulated in Trochym. The evidence here is overwhelming and, that being so, supports affirming, pursuant to section 686(1)(b)(iii) of the Criminal Code, the convictions of the appellants. Disposition [30] Accordingly, the appeal is dismissed and the convictions of the appellants are affirmed. Leave is given to make submissions with regard to sentence. ________________________________ M. F. Harrington, J.A. I concur: __________________________ C. K. Wells, J.A. I concur: ________________________ M. Rowe, J.A. Page: 14