WOOD v R [2020] NZCA 48

WOOD v R [2020] NZCA 48 [11 March 2020]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA439/2019[2020] NZCA 48BETWEEN KELVIN CLIVE WOODAppellantAND THE QUEENRespondentHearing: 26 February 2020Court: Clifford, Simon France and Lang JJCounsel: K H Maxwell for AppellantM R L Davie and M K Thomas for RespondentJudgment: 11 March 2020 at 12 pmJUDGMENT OF THE COURTA The application for an extension of time is granted.B The appeal against sentence is allowed.C The sentences of six years and three months' imprisonment are quashed.Concurrent sentences of five years and six months' imprisonment aresubstituted.D The minimum term of imprisonment of two years and 11 months isquashed. A minimum term of imprisonment of two years and six monthsis substituted.____________________________________________________________________REASONS OF THE COURT(Given by Lang J)[1] Mr Wood pleaded guilty in the District Court to representative charges ofobtaining money by deception1 and theft by a person in a special relationship.2On 24 July 2019, Judge Ronayne sentenced Mr Wood to six years and three months'imprisonment on those charges.3 He also made an order under s 86 of the SentencingAct 2002 requiring Mr Wood to serve two years and 11 months of his sentence beforebeing eligible to apply for parole.[2] Mr Wood appeals against sentence on the basis that the Judge adopted anoverall starting point that was too high and failed to give him adequate discount formitigating factors. He contends this resulted in a sentence that was manifestlyexcessive. Mr Wood also contends the Judge erred in imposing a minimum term ofimprisonment.[3] Mr Wood filed his notice of appeal nine working days out of time. The delayis short and no prejudice appears to arise. We therefore grant the necessary extension.The offending[4] At the time of sentencing Mr Wood was 70 years of age. Prior to his arrest forthe present offending he had been involved in the banking and finance industry hisentire working life.[5] In or about 1999, Mr Wood commenced a foreign exchange brokerage. For thenext 18 years he provided financial services to clients through two companies.One company offered retail foreign exchange services (the retail company) whilst theother accepted funds from clients for investment purposes (the investment company).The investment company began accepting funds for investment from about 2007.Two other persons, one of whom was Mr Wood's son, were also directors of theinvestment company at various times but neither was involved in the day to dayrunning of either business. Mr Wood was solely responsible for running bothbusinesses.1 Crimes Act 1961, ss 240(1)(a) and 241(a).2 Crimes Act, ss 220 and 223(a).3 R v Wood [2019] NZDC 14274.[6] Clients who deposited funds with the investment company did so afterproviding Mr Wood with instructions regarding the manner in which their funds wereto be invested. Options for investment included placing funds on term deposit,purchasing and holding foreign currency and investing funds in other ways.[7] Between 2008 and 2017, 21 clients deposited a total of approximately$22 million of funds with the investment company. All did so in reliance onassurances by Mr Wood that their capital would not be at risk. Mr Wood pooled thesefunds and did not separate them into different bank accounts or sub-accounts. As aresult, he became unable to keep accurate records of each client's investment.[8] During the same period the investment company suffered losses from foreignexchange trading activities. As a result, Mr Wood knew from December 2008 that itwas unable to repay the sums invested by clients. None of the clients was aware theircapital had been eroded by the foreign exchange trading losses. Rather than adviseclients of this situation, however, Mr Wood provided them with investment reportspurporting to show the current balances of their investments. The frequency of thereports varied depending on the requirements of each client.[9] The reports contained false information regarding the investment activitiesundertaken on behalf of clients. In some instances Mr Wood created fictitious returnson clients' investments. Other reports referred to foreign currency transactions thatdid not occur. As a result, the investment reports painted a false picture of the valueof clients' investments. This led clients to believe their capital was intact and theywere achieving a return on their investments when neither was the case.[10] Between December 2008 and May 2017 Mr Wood knowingly provided at least223 false investment reports to the 21 clients who had invested funds withthe investment company. This aspect of Mr Wood's offending led to the representativecharge of obtaining funds by deception.[11] The charge of theft by a person in a special relationship was laid because ofthe manner in which Mr Wood dealt with funds deposited by clients withthe investment company. From January 2010, Mr Wood began departing from theterms on which he had agreed to accept funds for investment. In particular, he beganusing funds obtained from new investments to repay interest and/or capital owingunder existing investments. The clients who provided the funding for thesetransactions did not know their funds were being used to repay other investors.[12] The use of investors' funds in this way meant Mr Wood was operating whathas now become known as a "Ponzi" scheme. Such a scheme relies on new fundsdeposited by investors to repay interest and principal owing to existing investors.Throughout this period Mr Wood caused the investment company to continue toengage in foreign exchange transactions in the hope that he could recoup the losses ithad already incurred.[13] In early 2017 Mr Wood instructed his solicitor to advise the Financial MarketsAuthority (FMA) that he wished to disclose fraud on his part. On 19 May 2017 hevoluntarily attended an interview with the FMA in which he admitted he had beeninvolved in fraudulent activity. He told the FMA he believed the investment companyowed 20 clients a total of approximately $8 million in investment capital. Thisprompted the FMA to refer the matter to the Serious Fraud Office (SFO) forinvestigation.[14] The investment company was placed in liquidation on 16 June 2017.The liquidators subsequently ascertained that it owed 28 unsecured creditors a totalsum of just over $9.7 million. Later the same month the retail company was alsoplaced in liquidation. The liquidators of that company ascertained it had fourunsecured creditors who were owed a total of just over $3 million. The liquidatorsacknowledge, however, that there is some duplication of claims between creditors ofthe two companies.[15] In July and August 2018 Mr Wood voluntarily attended interviews by the SFOin the company of his lawyer. During these he admitted that approximately$9.8 million of principal and interest was still owing by the two companies toinvestors. He also admitted providing false investment reports to clients between 2008and 2017 to enable the companies to continue to trade. He said he knew thecompanies' clients would have sought to withdraw their funds if they knew the truesituation regarding their investments. He said the investment company continued totrade during this period because he believed it could trade its way out of trouble.The sentence[16] The Judge noted that Mr Wood's offending contained numerous aggravatingfactors. First, it had occurred over a period of approximately nine years between 2008and 2017.4 Secondly, it involved a substantial loss to a large number of investors.5It also involved a significant breach of trust, because clients had entrusted their fundsto Mr Wood relying on his assurances that he would protect them from loss. The Judgepointed out that although Mr Wood did not gain personally from the offending,he nevertheless drew an income from the business.6[17] In addition, the offending had a major impact on those who lost the funds theyhad invested with Mr Wood. Many were elderly, and had lost their life savings as aresult of investing money with him. This meant they were deprived of the funds theyhad accumulated for their retirement. These victims were particularly vulnerablebecause they had no prospect of recovering their losses by returning to the workforce.7The Judge referred to several victim impact statements in which the victims describedthe devastation they had suffered as a result of the offending.[18] Finally, the offending was premeditated.8 It involved carefully orchestratedactions over a considerable period and using numerous different forms of deception.The Judge considered Mr Wood's offending was comparable to that in Ryan v R, inwhich a starting point of nine years imprisonment was selected.9 The offending in thatcase also involved the use of a Ponzi scheme. Taking these factors into account, theJudge selected a starting point of eight years and nine months' imprisonment.10[19] The Judge then applied discounts to reflect Mr Wood's previous good character(two per cent), his cooperation with the authorities (three per cent), remorse4 At [39].5 At [27].6 At [13].7 At [40].8 At [38].9 Ryan v R [2018] NZCA 586.10 R v Wood, above n 3, at [42].(two per cent) and his age and associated health issues (three per cent).11 This resultedin a total discount of ten per cent, or 11 months.[20] From the resulting sentence of seven years and ten months' imprisonment, theJudge allowed a discount of 19 months, or 20 per cent, to reflect Mr Wood's guiltypleas. This produced the end sentence of six years and three months' imprisonment.12[21] The Judge then considered whether to impose a minimum term ofimprisonment. He concluded the usual provisions as to eligibility for parole wouldnot be sufficient to reflect the sentencing purposes of denunciation, deterrence and theneed to hold Mr Wood accountable for his offending.13 He therefore made an orderrequiring Mr Wood to serve a minimum term of imprisonment of two years and11 months before being eligible to apply for parole. This represented slightly less than50 per cent of the sentence.The starting point[22] On Mr Wood's behalf Ms Maxwell submitted that the Judge erred in severalrespects when fixing the starting point of eight years and nine months' imprisonment.She contended Mr Wood's offending justified a starting point of no greater thaneight years' imprisonment.[23] First, Ms Maxwell contended the Judge erred in placing weight on the fact thatMr Wood had drawn an income from the business because his only income came fromthe retail business and none of the charges relate to that business.[24] Ms Maxwell contended the Judge was also wrong to conclude Mr Wood'sculpability was similar to that of the offender in Ryan v R. Unlike the present case,the offending in Ryan involved the creation of a Ponzi scheme from the outset to11 We think it likely that the Judge considered a global discount of ten per cent was appropriate formitigating factors other than the guilty pleas and then apportioned this between individual factors.It is very difficult, however, to assess the appropriateness of individual discounts when they areso small. A global discount reflecting all four factors is much more readily understood.12 At [43].13 Sentencing Act 2002, s 86(2)(a), (b) and (c).facilitate theft of funds by the offender. There were also approximately 900 victimsin that case.[25] Ms Maxwell contended a more relevant case for present purposes was Arnottv R, in which a starting point of seven years' imprisonment was selected for offendinginvolving the dishonest misappropriation of approximately $2.5 million over afour year period between April 2008 and May 2012.14 Ms Maxwell also referred usto Cherry v R, in which a starting point of eight years' imprisonment was selected foroffending involving the theft or misappropriation of approximately $4.7 million overa five year period between June 2002 and February 2007.15[26] Ms Maxwell pointed out, however, that in both Arnott and Cherry the offenderused at least part of the funds for personal gain when that is not the case here.In addition, she said care needs to be taken when comparing the sums involved inthose cases with those lost by the victims of Mr Wood's offending. Although the sumsinvolved in Arnott and Cherry were less than those in the present case, the passage oftime and consequential impact of inflation meant the sums lost through the offendingin Arnott and Cherry would now be worth considerably more.[27] Even taking into account the matters raised by Ms Maxwell, however, weconsider Mr Wood's offending was more serious than that in either Arnott or Cherry.Mr Wood offended for a much greater period and the victims of his offending sufferedconsiderably greater losses than was the case in either of those authorities.[28] We do not see value, however, in undertaking a detailed comparison betweenthe culpability of Mr Wood's offending and that of the offenders in Ryan, Arnott andCherry. As always, the appropriate starting point will fall within a range and the issuefor present purposes is whether the starting point selected for Mr Wood's offendingfell within or outside that range. We consider the most relevant factors for presentpurposes to be the length of time over which the offending occurred, the numerousforms of deception it required, the total amount lost by investors and the effect of theoffending on the victims. The fact that Mr Wood derived no personal gain largely14 Arnott v R [2015] NZCA 236.15 Cherry v R [2013] NZCA 636.reflects the nature of a Ponzi scheme, in which the primary motivation of the offenderwill generally be the need to use incoming funds to repay existing investors.[29] We consider these factors, all of which the Judge correctly identified, amplyjustified the starting point of eight years and nine months' imprisonment.Mitigating factors[30] As the Judge acknowledged, Mr Wood was able to rely on several mitigatingfactors other than his guilty pleas. The first was previous good character. He did notbegin to offend until he was in his late 50s. Prior to that he had led a blameless life,and the references provided to the Judge at sentencing make it clear he had undertakenmany worthwhile roles in the community. We consider a greater discount than the twoper cent allowed by the Judge was required to reflect this factor.[31] It is also difficult to see how Mr Wood could have co-operated more fully withthe authorities. He made the first approach to the FMA. He then franklyacknowledged his offending in voluntary interviews by both the FMA and SFO.Again, we consider this factor warranted more than the three per cent applied bythe Judge.[32] When combined with the remorse Mr Wood has demonstrated and his age andassociated health issues, we consider a discount of at least 16 months, or 15 per cent,was required. This reduces the sentence to one of seven years and five months'imprisonment before taking into account the guilty pleas.[33] The Judge applied a discount of 20 per cent to reflect Mr Wood's guilty pleas.As we have already observed, however, Mr Wood acknowledged his wrongdoing fromthe outset. He first appeared before the Court on 23 October 2018 and was remandedwithout plea until 13 November 2018. On that date he was remanded to6 December 2018, when a duty solicitor entered not guilty pleas on his behalf andelected trial by jury. The charges were then adjourned to case review hearing on20 March 2019. By March 2019 Mr Wood was represented by counsel and enteredhis guilty pleas at the case review hearing. These must obviously have been signalledto the prosecution earlier, however, to enable a summary of facts to be agreed.[34] This was undoubtedly a complex prosecution and we consider the entry ofguilty pleas at first appearance in such a case would be unusual. In practical terms wetherefore consider Mr Wood entered his guilty pleas at the earliest opportunity.Furthermore, the pleas saved the state the cost of a lengthy trial. In thosecircumstances we consider a discount of 23 months, or 25 per cent, was warranted toreflect Mr Wood's guilty pleas. This produces an end sentence of five years and sixmonths' imprisonment.Minimum term of imprisonment[35] Ms Maxwell sought to persuade us that a minimum term of imprisonment wasnot justified in the present case. She relied in support of this submission on Mr Wood'sadvanced age and the other mitigating factors to which we have referred. Ms Maxwellcontended that the sentencing purposes of deterrence, denunciation and the need tohold Mr Wood accountable for his offending did not require the imposition of aminimum term, and that the Parole Board is best placed to determine when Mr Woodshould be released on parole.[36] We do not accept this submission. If Mr Woods is not required to serve aminimum term of imprisonment he will now be eligible to apply for parole afterserving just 22 months of his sentence. That outcome needs to be considered havingregard to his overall culpability and the substantial losses he caused vulnerable victimsto suffer. When that is done we consider the usual parole provisions would beinsufficient to recognise the sentencing purposes of deterrence, denunciation and theneed to hold Mr Wood accountable for his offending.[37] Adopting the approach taken by the Judge, we consider Mr Wood should servea minimum term of two years and six months, or slightly less than 50 per cent, of hissentence before being eligible to apply for parole.Result[38] The application for an extension of time is granted.[39] The appeal against sentence is allowed.[40] The existing sentences of six years and three months' imprisonment arequashed. In their place we substitute concurrent sentences of five years and sixmonths' imprisonment.[41] The minimum term of imprisonment of two years and 11 months is quashed.A minimum term of imprisonment of two years and six months is substituted.Solicitors:Crown Law Office, Wellington for Respondent