R v Madhoji
[2016] QDC 171
•8 July 2016
DISTRICT COURT OF QUEENSLAND
CITATION:
R v Madhoji [2016] QDC 171
PARTIES:
THE QUEEN
v
SANDEEP MADHOJI
(defendant)FILE NO/S:
1516/14
DIVISION:
Criminal
PROCEEDING:
Sentence
ORIGINATING COURT:
District Court at Brisbane
DELIVERED ON:
8 July 2016
DELIVERED AT:
Brisbane
HEARING DATE:
18 and 21 March 2016; 26 and 29 April 2016; 30 June 2016
JUDGE:
Smith DCJA
ORDER:
1. I find that the losses to a number of the complainants as a result of the fraud counts amounts to $3,251,281.35.
2. The other factual findings are set out in the judgment.
CATCHWORDS:
CRIMINAL LAW- SENTENCE- CONTESTED SENTENCE- Findings of fact for the purposes of sentence
Evidence Act 1977 (Q) s 132C
Macquarie Bank Ltd v The Two Eagles Pty Ltd [2014] NSWSC 367
R v Lovell [2012] QCA 43
COUNSEL:
Mr M. Connolly for the crown
Mr L. Ackermann for the defence
SOLICITORS:
Office of Director of Public Prosecutions for the Crown
Raniga lawyers for the defence
Introduction
This is a contested sentence relating to the defendant Mr Madhoji. The defendant has pleaded guilty to 55 counts of fraud. The counts relate to his time as a part owner and director of Redwood Securities Pty Ltd.
The issues are as follows:
(a) What the defendant told others his qualifications were and his experience;
(b) Whether the procedures and practices engaged in by the defendant were endorsed by others;
(c) The way in which transaction were recorded and who compiled them;
(d) Whether this was a Ponzi scheme;
(e) Whether others acted actively to conceal his dishonesty;
(f) The losses suffered by the clients and the benefit received by the defendant.
Background
The evidence reveals that Redwood Securities Pty Ltd was incorporated on 17 November 2009 with the defendant being a director of the company. The incorporation of the company came about after negotiations between the defendant and Brook Monahan who controlled a company called Redwood Capital Group Pty Ltd which held an Australian Financial Services licence issued by ASIC and which could carry on business as a financial advisor and funds manager. At the time of these initial discussions the defendant worked for Advestra Capital Markets and was dealing in securities on behalf of clients of that company. It was decided that Redwood Securities would offer investment advice and trade on behalf of clients.
A number of clients came across from Advestra Capital Markets with the defendant. The defendant had each of the clients open an account or multiple accounts with Macquarie Bank on which he was given authority to operate. The clients also set up accounts with brokers such as Pension Financial and later with First Prudential Markets (FP) on which the accused could also operate on their behalf. It appears the defendant initially actively traded in securities on behalf of the clients.
The first fraudulent transaction occurred in late 2010/early 2011 when the defendant transferred funds from the Macquarie account of Two Eagles Pty Ltd, a company controlled by Mr Monahan’s family, to a number of associated clients. Around 16 February 2011 a client, Michael Sherlock, requested a return of $910,000 from his investments. $910,000 was transferred from Michael Sherlock’s FP account to his Macquarie account on 16 February 2011 and from there to Michael Sherlock’s benefit on the following day. After this time a number of transactions occurred whereby funds were transferred between clients’ accounts and sums were paid out to clients from these transfers. Between September 2011 and July 2012 $977,558.48 was transferred from various clients’ Macquarie accounts to a Westpac Bank account of Redwood Securities and from there used to make distributions to the defendant, Mr Monahan and others and to pay for operating expenses of the company.
Also, in the latter part of 2011, the defendant transferred large sums of clients’ funds into accounts with MF Global, both in Australia and in Singapore. In October 2011 MF Global was placed into administration and the funds held by it were frozen. From at least October 2011 the accused used the funds of clients, both existing and newly introduced, to make payments to other clients leading to the scheme and provided investors with false statements of returns generated. He also received some brokerage fees for services not performed which funded primarily the business.
By mid-2012 the defendant became difficult for clients to contact and they had difficulty getting information from him.
By July 2012 the defendant admitted to Mr Monahan that he had engaged in the activity the subject of the charges. ASIC and the Police became involved and the defendant was arrested. I now turn to the particular evidence given in this case.
Evidence
As at 2009/2010 Brooke Monahan operated the Redwood Capital Group. He met the defendant in mid-2009 when the defendant was employed with Advestra Capital Markets (“Advestra”) as a stockbroker. They established Redwood Securities Pty Ltd (“Redwood Securities”) in late 2009. The defendant came across to be the sole stockbroking advisor. It was planned that he would grow the business. The initial clients were clients he brought across from Advestra. The defendant told Mr Monahan he had a Diploma of Financial Planning and a Bachelor of Economics degree with Honours from a Brisbane university.[1] Mr Monahan said that the defendant only provided “wholesale” advice. The reason for this is that wholesale advice requirements were not as extensive under the financial services regulations. It was later discovered the defendant never provided a copy of his degree[2].
[1]Transcript day 1, p 25.20.
[2]Transcript day 1, p 25.35.
In terms of his position at Redwood Securities, the defendant was the sole client advisor and placed trades on behalf of the clients. He was a 50% owner of the business. He also had a corporate credit card and received wages. His wages came predominately from profit distributions. The profits came from commissions from trading.
In late 2010 Mr Monahan put some money into Redwood Securities though a family trust which his wife controlled. This included a contribution from his wife and father-in-law. It was in excess of $200,000.
In respect of compliance, from 2006/2007 Heather Richmond was a fulltime compliance officer. In late 2010 they appointed someone with greater experience as an external compliance consultant, i.e. Jenny Mulders. Mr Monahan claimed to have met with the defendant on a regular basis (minimum weekly meetings). Also, John Sharpe provided significant trading mentoring advice after the first twelve months. The defendant used the support of the broader group for compliance, administration, accounts and trading advice and also employed personal assistants. Kerry Croker became his personal assistant from 2011 and was involved with implementing directives concerning compliance.
A monthly performance report was to be sent to clients. In essence, each client had a discretionary account with Macquarie Bank in their own names. The clients were supposed to have received bank statements from Macquarie Bank and their own brokerage statements with respect to trades being placed on their account. In addition, the Redwood Securities performance report, which was to accompany the bank statements and brokerage statements, were put together by the assistants under the instruction of the defendant. The assistants had viewing access to the Macquarie Bank but did not have advisor access. The biggest issue in the formulation of these reports was that it was discovered in an audit by Jenny Mulders that the defendant had more access than the assistants. The assistants could only see cash balances and not the term deposits. The reports were reconciled by the personal assistant for the defendant but the defendant would make it very clear that he was the only one who could see the term deposits[3].
[3]Transcript day 1, p 32.14.
The audit concerning the accounts occurred from about March 2012 to May 2012[4]. There had been internal audits prior to that time but the audit in March/May 2012 was an external one. A significant recommendation which came out of the audit was that the defendant was supposed to be providing Macquarie Bank term deposit numbers but these were not independently verified by the assistant, so a request was made for accesses to be changed. There were a multitude of excuses as to why it was not changed and Mr Monahan demanded no further reports in May/June 2012 until all numbers could be independently verified. The defendant had confirmed this would be the position in July 2012. Mr Monahan himself had no authority or access to withdraw funds from the clients’ accounts in Macquarie Bank.
[4]Transcript day 1, p 32.27.
John Sharpe had joined Redwood Securities in 2005 and was responsible for reviewing all trading activity.
Mr Monahan was of the opinion that the defendant was resistant to anything that was compliance related.
On 15 July 2012 the defendant contacted Mr Monahan and they subsequently met on 16 July 2012 in Maleny. The defendant was distraught and upset and told Mr Monahan that he had “screwed me and everybody else and all of his clients over and that he can’t believe it and he wanted to kill himself”.[5]
[5]Transcript day 1, p 37.45.
There was a further meeting with members of the defendant’s family at one of their factories in Sumner or Carol Park. It seems that a confession was made. Mr Monahan then telephoned Ms Croker and told her of the confession and asked her to check the previous month to see whether what the defendant was saying was correct. She did check this and she told Mr Monahan that the reconciliations balanced.[6] Mr Monahan contacted the defendant about this who told him “it’s all bullshit mate all the statements are all bullshit, I created them”.[7] Exhibit 1 was an email sent by the defendant to Mr Monahan dated 18 July 2012.
[6]Transcript day 1, p 39.10.
[7]Transcript day 1, p 39.20.
Mr Monahan in cross-examination accepted he was involved in the draft document which related to the rebranding of Redwood Securities to Silverwood Securities.[8] He provided some of the information to the authors which inter alia was complimentary of Mr Madhoji. This document was dated June 2012. He also said that Mr Madhoji contributed to the draft. With respect to a holiday in Fiji, Mr Monahan said that the defendant demanded for them to stay at their villas at the Hilton as he had credit there. He denied requesting accommodation. He said they were there for about eight to ten days. There is an email in this regard, Exhibit 8, dated 5 April 2012. He denies contacting the defendant whilst in Fiji saying he was running out of money and did not instruct him to transfer money from M Investments Pty Ltd[9]. He denied that he instructed the defendant to transfer $40,000 into his personal account from M Investments Pty Ltd and, further, denied instructing him to pay for his expenses at the Hilton[10]. Mr Monahan had his own credit card at the time. He said that he did not receive any cash for the holiday.
[8]See Exhibit 7.
[9]Transcript day 2, pp 30-31.
[10]Transcript day 2, p 32.31.
Mr Monahan said that he put in more than $40,000 by way of start-up capital for the business[11]. Mr Monahan disagreed that there was poor compliance with respect to Redwood Capital and disagreed that training was poor[12]. Redwood Capital held the financial services licence. He said that the fee structures were created in consultation with the defendant. He said that he was not involved in the defendant’s trading for the first 18 months but became more involved after April 2011 when John Sharpe became involved[13]. He said that he did not manage every part of the defendant’s activities. He said that he had access to parts of the file server, i.e. the G drive, but not all folders. He said that there were a lot of documents on the defendant’s personal hard drive. He denied meeting with every new client, but with regard to the clients he did meet he told them to see him if they had any problems. He said that he only spoke to three clients. The bulk of the clients were the defendants. He claimed he did not use any passwords with FP. He said that both he and John Sharpe counselled the defendant. He denied receiving significantly more distributions than the defendant from the business. He was shown Exhibit 9, Ms Bundesen’s addendum forensic accounting report, in which it is alleged that distributions to Mr Monahan, or his entities, totalled $354,534 and distributions to Mr Madhoji totalled $245,000 but he denied that this was an accurate document[14]. He accepted he had a company credit card and accepted that a suit was bought for him on this.[15] He also authorised personal payments to the defendant.[16] He denied being in charge of the clients’ funds or the brokerage fees. He also denied receiving monthly FP reports and he said he did not determine the commissions[17]. He said that in the last six to 12 months after the new system was put in place some charts were provided to him by the defendant[18].
[11]Transcript day 2, p 34.20.
[12]Transcript day 2, pp 36 and 37.
[13]Transcript day 2, p 38.10.
[14]Transcript day 2, pp 41-42.
[15]Exhibit 10.
[16]Exhibit 11.
[17]Transcript day 2, p 47.40.
[18]Transcript day 2, p 48.20.
He agreed that until early August 2011 he was a director of 35 Ash Street Pty Ltd and P2WD Pty Ltd. He agreed that he asked the defendant to assume directorships in those two companies because he was concerned about an action by the Macquarie Bank and wanted to remove himself as director[19]. He removed himself until the matter was resolved, which it has been. He said it was the defendant who came to him at Maleny. He said the defendant told him his life was in jeopardy and that his grandfather would pay the missing money. Mr Monahan denied asking for $5 million[20]. He said that he met the Raniga family. The defendant said that his family would clear up the mess because clients were threatening him. After he and Sharpe looked over the books of account they determined there was about $3.3 million of loss[21]. He said that every cent could be traced. He denied calling the defendant a “dead man” if he did not come up with the money. He accepted being involved with emails, Exhibits 12 and 13[22].
[19]Transcript day 2, p 50.20.
[20]Transcript day 2, p 51.17.
[21]Transcript day 2, p 52.7.
[22]Transcript day 2, pp 52 and 53.
In re-examination Mr Monahan said that the villas in Fiji were available to them in credit. Mr Monahan paid the laundry, food and housekeeping. He did not run out of cash and did not request funds[23]. With respect to the emails, Mr Monahan said they had a good relationship but it did deteriorate in the last six to 12 months. He said that the meeting with the members of the defendant’s family were the defendant’s idea. He accepted that existing clients spoke highly of the defendant. Mr Monahan accepted that there should have been better auditing in the period before Ms Mulders commenced and the discrepancies may have been picked up if that had occurred[24].
[23]Transcript day 2, p 55.5.
[24]Transcript day 2, p 57.25.
Sally Douglas, a business manager with Redwood Capital gave evidence that she was the general manager of the Redwood Capital Group. She first met the defendant in January 2011. She gave evidence that John Sharpe was involved in the risk management process concerning compliance procedures. In early 2011 he overhauled a lot of the trading and risk management processes of Redwood Securities.[25] She also gave evidence that Jenny Mulders was involved in this process. In July 2012 she became aware of the matters involving the defendant. She seized the hard drives of the defendant’s computer.[26] In cross-examination she said that it was Brooke Monahan and her who looked at the business from the process perspective, i.e. a compliance and reporting perspective.[27]
[25]Transcript day 1, p 43.35.
[26]Transcript day 1, p 45.
[27]Transcript day 1, p 46.40.
Kerry Croker gave evidence that she was the assistant to the defendant from February 2012 with Redwood Securities. She reported to both the defendant and Mr Monahan. She had access to the FP Market trades and the CMA (Cash Management Accounts). She worked mainly for the defendant. She also worked with Ms Mulders concerning compliance. The clients would receive a monthly report with respect to trades as well as their own statements.[28] She would prepare the reports. The balance, i.e. the cash balance, would be seen in the CMA. She only had access to the CMA and the trading account. She would get the term deposit figure from the defendant.[29] An audit process was developed by Jenny Mulders in or about May or June of 2012. There was some clients that the defendant insist that he dealt with himself.[30] She was not able to obtain information concerning the term deposits despite a lot of asking.[31] She alleged the defendant would not allow her to have full access to the Macquarie Bank accounts.[32] The defendant was not supportive of compliance records being kept.[33] The defendant would be the person who sent the invoice to the clients.[34] She agreed that she received a telephone call from Mr Monahan and conducted an examination of the accounts and they all appeared to be authorised.[35]
[28]Transcript day 1, p 52.35.
[29]Transcript day 1, p 53.42.
[30]Transcript day 1, p 55.
[31]Transcript day 1, p 56.22.
[32]Transcript day 1, p 57.20.
[33]Transcript day 1, p 59.21.
[34]Transcript day 1, p 61.1.
[35]Transcript day 1, p 62.
Heather Richmond gave evidence that she worked at Redwood Capital between 2007 and 2012. She said that there was a monthly compliance report to comply with licence conditions for Redwood Securities.[36] The defendant was the person who signed the monthly reports. She was not able to say who was responsible for auditing the funds.[37] She checked monthly compliance reports between July 2010 and June 2012 and did not note any concerns in reports signed by the defendant.[38] She gave evidence that she requested from the defendant a copy of his Bachelor of Commerce degree but it was never provided. In cross-examination she said that the degree was referred to in his CV.[39] She conceded that it may be that he never told her that he had a degree qualification.[40]
[36]Transcript day 1, p 66.
[37]Transcript day 1, p 67.35.
[38]Transcript day 1, p 68.7.
[39]Transcript day 1, p 69.20.
[40]Transcript day 1, p 70.1.
Jenny Mulders gave evidence that she was engaged by Redwood Capital in May 2011 as the external compliance consultant. She met the defendant on a number of occasions. Her focus was on the licence of the Redwood Capital Group, not just Redwood Securities. She put together an audit schedule looking at risk focuses of the business. In October 2011 she commenced an audit of Redwood Securities looking at the trading and management structure.[41] John Sharpe took her through how the trading structures worked and verified any allocations and actual trading. A number of items were raised of need, particularly around record keeping and the reporting of CMA balances as well.[42] She discussed these issues with the defendant, Mr Sharpe and Mr Monahan and it was determined to rectify those deficiencies. The defendant frustrated this at a number of stages.[43] Ms Mulders gave evidence that from what she saw there had not been any relevant audits from 2009 until 2011.[44]
[41]Transcript day 1, p 72.45.
[42]Transcript day 1, p 73.12.
[43]Transcript day 1, p 73.25.
[44]Transcript day 1, p 73.40.
Kerry Croker was put there to be a second pair of eyes concerning the accounts and reconciliations. Ms Mulders stated that because this was wholesale rather than retail there was no financial requirement for an external audit.[45] I might say, in my view, this fact was a considerable contributor to what later happened in this matter. Ms Mulders said that Ms Croker was not able to access all information regarding the Macquarie Bank accounts, the defendant being the only person with such access. Ms Mulders spoke to the defendant and Mr Monahan as to Ms Croker needing access to the accounts.
[45]Transcript day 1, pp 74-75.
As at June 2012 the numbers did not reconcile to what was showing in the Macquarie Bank statements. Ms Mulders recommended that the reconciliations be independently verified and reconciled. As at 16 July 2012 she was advised of irregularities that had come to light. Exhibit 2 and 3 were emails tendered during cross-examination. As was Exhibit 4.
Mr John Sharpe, a consultant to hedge funds, gave evidence that he has known Mr Monahan for about 10 years. He had been involved in the trading side for that time. His role was to watch the trades. He also assisted the defendant develop a trading system[46]. He first met the defendant in about 2010 and assisted with refining his trading method. Mr Sharpe had access to all of his trades. He said there were discrepancies across the clients[47]. He thought that the account in the name of “Nameless” was an experimentation account. After speaking to Mr Monahan he sat down with the defendant one morning and found that his trading was flawed[48]. He would have to open 10 different accounts and buy shares for each account. In 2011 they changed the trading method to long and short trading. By mid-2011 this new system was adopted by him. Between May and August 2011 the trading went well. However, in August 2011 there was a Standard and Poors downgrade of the USA and things did not go so well after that[49]. After September 2011 he said that the defendant became “sloppy” and tended to engage in wilder trades outside the method. The method was a disciplined system whereby stocks would be sold once there was a 2.5% loss or 6% to 7% profit.
[46]Transcript day 2, p 8.42.
[47]Transcript day 2, p 9.30.
[48]Transcript day 2, p 10.5.
[49]Transcript day 2, p 10.32.
Mr Sharpe spoke to the defendant about this. The fact is that after the USA was downgraded, markets became volatile and after this he thought the defendant had become gun-shy and was reluctant to put some trades on. They also tried to move to bulk broking and developed some software so this could be achieved. He also thought there needed to be more “eyes on the trading”. The defendant and he put together a template once the software program was written and he needed the clients’ balances and was waiting on the defendant to provide these but they were not forthcoming. Mr Sharpe conceded that control measures had not been put in place between 2009 and Christmas 2011. He said this was because it was a lengthy process. He also said that when Kerry Croker started, the defendant did not provide her with the trading numbers. He also said that the trading got “sloppy”. In this regard he bought some Westpac Banking Corporation shares but did not split it up. The defendant blamed FP markets for this. Mr Sharpe alleged that the defendant was becoming more erratic, although he said the system was now more transparent. In July 2012 Mr Sharpe engaged in a detailed examination of company dealings[50]. They did not know at that stage where all the money had gone. He went through all of the trades. He spoke to the Macquarie Bank and had access to the trading accounts and the cash management accounts and observed that there were lots of transactions of money being moved from one account to the other. It was like a round robin[51]. He thought there were about 35 transactions. He thought things went downhill after the MF Global collapse[52].
[50]Transcript day 2, p 14.32.
[51]Transcript day 2, p 15.21.
[52]Transcript day 2, p 15.30.
In cross-examination Mr Sharpe conceded he had started at Redwood Securities in 2010. He agreed that he had limited experience as a responsible officer. His role was to assist in the trading, his role was not on the compliance side. Jenny Mulders was responsible for compliance. He had access to the trading portal, i.e. Iress. He denied executing any trades through this. He did not recall putting any trades through in June 2012 through his book, although he may have[53]. The problem with doing separate trades on separate accounts was that some clients would be paying more for particular shares. It was clear that the defendant was inexperienced with bulk buying. He explained what he meant by “wild trades”. He denied that the defendant seemed overwhelmed. He accepted that two pairs of eyes were needed in this sort of situation. He said that he did not have access to the cash management account data. He said that the software, called “virtual worker”, did work. He also said that after the MF global collapse the investors received a return of 100 cents in the dollar both in Australia and Singapore[54].
[53]Transcript day 2, p 17.32.
[54]Transcript day 2, p 24.12.
The defendant gave evidence that he never told Mr Monahan or anyone else associated with him that he had tertiary qualifications aside from the diploma of financial services.[55] Towards the end of 2009 the defendant commenced business with Mr Monahan, namely Redwood Securities.[56] The defendant’s role was to be a private client advisor like a traditional stockbroker. He was to take instructions from Mr Monahan. Mr Monahan assured the defendant that he was the one who would go about setting up compliance, administration systems and back office procedures.[57] Mr Monahan set up the company structure and also had dealings with Macquarie Bank.[58] Mr Monahan was in charge of managing all company expenses etc.[59] The defendant did not have access to Redwood Securities Westpac Bank accounts.[60] When the business first commenced it was a traditional stockbroking model but it started to change when they used contracts for difference (“CFD’s”). Mr Monahan was responsible for having managed discretionary account (“MDA”) agreements signed by clients (investors) and was also responsible for calculating company business expenses.[61] The defendant brought two clients from Advestra Capital Markets, namely Zenonos and Khakh Trading Company. The defendant said he was quite inexperienced at the time and relied on Mr Monahan to take him under his wing and he reported to Mr Monahan multiple times via phone and email and would be guided by him. He would speak to Mr Monahan seven to ten times a day.[62] He also had contact with Mr Sharpe and relied heavily on his experience.[63] Mr Monahan had access to the trading portals.[64] Mr Sharpe wanted to move Redwood Securities into a discretionary trading model whereby they would execute their strategy on behalf of clients which was between 2% and 7%.[65] The defendant said that his main priority as he understood it was to implement and execute the trading strategy and it was up to John Sharpe and Kerry Croker in consultation with Mr Monahan to ensure that the post trade allocations were done. In this regard they relied on their own trade data access including the cash management account.[66] He thought that Ms Croker had access to the term deposits. He alleged that everybody had access to the trade data.[67] He said that the data was gathered by John Sharpe and Kerry Croker and the defendant had input when they needed clarification and they would collate it into an Excel spreadsheet and then Mr Monahan would reconcile all of the source documentation provided by Mr Sharpe and Ms Croker.[68] As the business grew in terms of trading strategy it became more complex and as a result Mr Sharpe purchased software called Portfolio Tracker.[69] The defendant had concerns about properly analysing the clients’ accounts and alleged that he raised his concerns with Mr Sharpe and Mr Monahan.[70] He alleged that the software which was purchased never actually worked properly. The software was not on top of or in control of the record keeping.[71]
[55]Transcript day 3, p 3.42.
[56]Transcript day 3, p 4.7.
[57]Transcript day 3, p 4.22.
[58]Transcript day 3, pp 4-5.
[59]Transcript day 3, p 5.32.
[60]Transcript day 3, p 5.45.
[61]Transcript day 3, p 7.
[62]Transcript day 3, p 8.
[63]Transcript day 3, p 9.32.
[64]Transcript day 3, p 10.5.
[65]Transcript day 3, p 12.10.
[66]Transcript day 3, p 14.25-35.
[67]Transcript day 3, p 16.5.
[68]Transcript day 3, p 16.15.
[69]Transcript day 3, p 17.45.
[70]Transcript day 3, p 18.17.
[71]Transcript day 3, p 19.7.
On 31 October 2011 MF Global went into liquidation. They had client accounts with MF Global Australia as well as MF Global Singapore. S and P had downgraded MF Global (or its parent company) to junk status. He telephoned Mr Monahan and was told to move to cash so there was no exposure to CFD’s. Mr Monahan spoke to the managing director of MF Global.[72] His understanding was that the Australian and Singapore businesses were fine and were not exposed to any of the Greek debt that the American arm of the business had been exposed to. He did not believe the clients’ portfolios would be affected at that point. It became very difficult to get in touch with people at MF Global Australia and then the stocks were placed on hold, i.e. there was a trading halt.[73] The clients’ funds were then frozen and could not be accessed. At that stage the defendant panicked. He was contacted by some of the investors who had funds tied up with MF Global and the defendant told them that their funds were safe and would be okay.[74] Some of the clients demanded the return of their money and he used funds from other clients to pay those clients back.[75] These transfers were unauthorised.
[72]Transcript day 3, p 19.40.
[73]Transcript day 3, p 20.
[74]Transcript day 3, p 21.7.
[75]Transcript day 3, p 21.32.
With respect to the statements he agreed that $40,000 was transferred to his Westpac Bank account. Regarding the purchases with that money he did not know what CBD Gold was.[76] The sum of $6,020.89 he thought was for Mr Monahan’s Fiji trip and the $17,424.15 was for Mr Monahan’s Fiji holiday payment.[77] He accepted that the payment for Glen Road was for his personal benefit. There was an internet banking payment of $10,000 to Mr Apolakiatis.[78] Regarding the payment to Mr Monahan for his holidays he alleged that Mr Monahan called him and said he did not have enough funds on his credit card and asked the defendant to cover the cost for him.[79]
[76]Transcript day 3, p 22.
[77]Transcript day 3, p 23.
[78]Transcript day 3, p 24.3.
[79]Transcript day 3, p 24.25.
After the MF Global situation he continued to trade and he was hoping for MF Global to “come good so we could redistribute the funds correctly”.[80] As it turned out this did not happen. Ultimately the defendant sent the emails the subject of Exhibit 1 to Mr Monahan. The defendant said that he was extremely distressed and was intending to do the right thing by the clients. He alleged there was no intention to try and take the funds out for himself or for anybody in particular.[81] He alleged that Mr Monahan told him that he had to come up with $5 million or his life and his family’s life were in jeopardy and he wrote the emails in a distressed state.[82] He was shown particular emails and alleged that his statement that he had been lying to clients and had been reporting fake brokerage figures was a “poor choice of words”.[83] He also attempted to explain the use of his words “fabricated internal spreadsheets”.[84] He denied fabricating documents stating that there were errors instead. He said that he was not doing this to line his own pockets.[85]
[80]Transcript day 3, p 25.7.
[81]Transcript day 3, p 26.30.
[82]Transcript day 3, p 26.35.
[83]Transcript day 3, p 27.40.
[84]Transcript day 3, p 32.7.
[85]Transcript day 3, p 34.7.
The defendant was cross-examined on 30 June 2016. He said he did not recall Ms Richmond asking for his certificates and did not recall “fobbing her off”.[86] He then denied he represented to Mr Monahan that he had particular qualifications, namely a bachelor of commerce.[87] I did not find the defendant’s evidence on this point very convincing.
[86]Transcript day 4, p 3.40.
[87]Transcript day 4, p 4.7.
He alleged that he did not represent himself as having a fair degree of experience in financial matters. He said that Mr Monahan knew of his limited experience and this is why Mr Monahan introduced him to John Sharp.[88] There is probably some truth in that answer.
[88]Transcript day 4, p 6.25.
He accepted that he transferred clients’ funds without authority, acting dishonestly, and did this repeatedly.[89] In answer to the question as to whether he took steps to deceive clients he said, “I guess so”.[90] It was then put to him that he had told lies to clients and he was quite equivocal in his response concerning this.[91] He also did not want to distinctly admit that he had falsified documents. I found him relatively nonresponsive on these points. Indeed, his evidence in this regard is contrary to Exhibit 1, namely emails (in particular the email dated 24 July 2012) where he admitted fabricating false statements in June/July 2012. The defendant in evidence tried to suggest that Mr Monahan had dictated the contents of the emails, the subject of Exhibit 1.[92] I do not accept the defendant’s evidence on this. It is my view that the statements made in the emails are entirely consistent with the evidence. It is my view that Mr Monahan would not have been fully apprised of the details of what had happened prior to the time of the emails. I think it unlikely that the defendant’s evidence is correct. I do not find that Mr Monahan dictated the emails and the defendant simply wrote what was in them. I find that he made the admissions through remorse and was telling the truth at that stage. I have referred to the full details of these admissions later in this judgment.
[89]Transcript day 4, p 6.35-40.
[90]Transcript day 4, p 6.42.
[91]Transcript day 4, p 7.1- p 8.15.
[92]Transcript day 4, p 23.32-p 24.5.
The defendant disagreed that he had obstructed others from obtaining information. I do not accept the defendant’s evidence on this point.[93] In light of the fact he was involved in a significant fraud, I think it is likely, as claimed by the witnesses for the prosecution, that he did obstruct them from obtaining full information, in particular Ms Croker. He denied making false statements to his colleagues.[94] I do not accept this. Again, it is more likely that he would have been covering up his fraud, certainly by early 2012.
[93]Transcript day 4, p 17.45.
[94]Transcript day 4, p 18.45.
With respect to the emails, Exhibit 1, I do not accept the defendant’s contentions that he was forced to write the matters in those emails. At one point the defendant in evidence denied that he had fabricated spreadsheets but then admitted that he had fabricated an Excel document which recorded clients’ balances and profit and loss and then considered it was a spreadsheet.[95] He accepted that the transactions were complicated and he was unable to keep a track himself of all of these transactions which is consistent with that which is stated in the first email dated 18 July 2012.[96]
[95]Transcript day 4, p 35.20-p 36.19.
[96]Transcript day 4, p 34.30.
Despite his denials, I think this is a case where the defendant was remorseful at the start but over time has been trying to shift the blame from himself, at least in part, to Mr Monahan. He admitted manipulating files.[97] He denied he kept people from accessing files[98] but, again, I do not accept this in light of the admissions made in the emails. He agreed that he had confessed to his honesty in the emails. Ultimately, when asked about the details of the email dated 24 July 2012, he admitted that the answers he gave to the particular questions were correct.[99]
[97]Transcript day 4, p 36.30.
[98]Transcript day 4, p 36.40.
[99]Transcript day 4, p 40-47.
He was cross-examined about whether he paid for Mr Monahan’s holiday to Fiji to impress him. Exhibit 16 is an email concerning a Hong Kong trip in or about April 2012. The defendant admitted paying for other people’s overseas trips.[100]
[100]Transcript day 4, p 52.5.
Ultimately, I am persuaded that Mr Monahan’s evidence as to the Fiji trip is correct. He accepted that he had difficulty keeping track of matters for some months between April and June 2012 and matters had got “out of control”. He admitted it had become concerning and he was preoccupied by these matters.[101] He alleged his own financial position was not relevant and denied entering into any contract to purchase a house.
[101]Transcript day 4, p 54.25-45.
The defendant did not recall having any discussions for the purchase of the property at Glen Road. He was confronted with emails in this regard (Exhibit 17) but this did not refresh his memory.[102] I do not accept his denials on this- surely one would recall the negotiation of a significant contract concerning the purchase of property.
[102]Transcript day 4, pp 55-62.
In re-examination Mr Madhoji gave evidence that he had, through his lawyer, advised the Crown that he was willing to cooperate in any way.[103]
Accounting evidence
[103]Transcript day 4, p 64.37.
Mr Bennett
Mr Bennet an accountant employed by the Crown has provided a report dated 16 March 2014.[104]
[104]Exhibits 6 and 14.
Mr Bennett has prepared a summary of Mr Madhoji’s dealings with the client’s funds. He says that this goes into the background of matters disclosed in the statements and identifies relevant transactions, and a loss incurred or profit earned by various clients. He concluded that total fees paid to the company, Redwood Securities from the accounts of clients were $1,109,371.58 with $419,695.83 relating to fees earned from conducting trading. Between September 2011 and June 2012 a total of $155,000 was transferred from Redwood Securities to a Westpac account numbered 668283 in the name of the defendant. In addition to this on 20 April 2012 $40,000 was transferred directly to the personal account of the defendant from the Macquarie account of M Investments Pty Ltd.
He then as attachment C sets out a “listing of transactions in chronological order which totals $6,013,632.19”. Turning then to the summary of dealings with the client’s funds each of the complainants have been dealt with separately. Mr Bennett opines as follows:
(a) The net loss to entities associated with Mr Apolakiatis was $41,482.17.
(b) The benefit to Barlow was $182,925.29.
(c) The benefit to entities associated with Burdon was $525,925.93
(d) The loss to Kylie Deane was $98,995.39.
(e) The loss to entities controlled by Dimetriou was $405,498.45.
(f) The loss to KAKH Trading Company Pty Ltd was $21,974.62.
(g) The loss to entities associated with Mr Kilvert was $662,001.65.
(h) The loss to GMS Group Nominees is $459,096.32.
(i) The loss to entities associated with Joseph Mathews is $716,003.83.
(j) The gain for Mr Sherlock and his entities was $180,451.73 for J S Sherlock Super Fund and $161,359.09 for M Investments.
(k) The gain for Brooke Monaghan and Two Eagles was $83,204.68.
(l) The loss with respect to the gain for Stone Cold Pty Ltd is $376,297.35 estimated.
(m) The loss for Tapsall is $70,000.
(n) The loss for Oniviro Super Pty Ltd was $347,531.
(o) The loss for Kinghorn’s entities was $85,004.74.
(p) The loss for Agjit Viswilingan was $63,700.
(q) The loss for Paul Parker was $100,000.
(r) The loss for Kieran and Susan Burns was $90,000.
(s) The loss for Timothy Sherlock was $18,213.63.
(t) The profit for Michael Sherlock was $665,000 estimated.
(u) The benefit for Andrew Pavlou was $269,395 estimated.
(v) The benefit for Nicholas Pavlou was $235,464.84.
(w) The benefit for Dykstra was $70,000.
(x) The benefit Carolyn Berry was $19,000.04.
(y) The benefit for Gibbs Hurley & Co Pty Ltd was $25,000.
(z) The benefit for Gilbride Management Pty Ltd was $16,975.
(aa) The benefit for Paul Gedaun Construction & Development Pty Ltd was $46,000.13.
As I calculate it the net loss is $3,555,799.15 and the gain $2,489,701.73.
After the two experts met Mr Bennett agreed with Ms Bundesen’s supplementary report (Exhibit 9).
In the attachment to Exhibit 6 Mr Bennett opined that it would seem from at least October 2011 the defendant ceased to operate an investment scheme and began to operate more as a “Ponzi” scheme in that he used the funds of clients both existing and newly introduced, to make payments to other clients leaving the scheme and providing investors with false statements.[105]
[105]Exhibit 6 p 2.5.
Mr Bennett, in evidence, said that he had access to all of the Exhibits to prepare his report[106]. He said that the total transfer of funds from clients’ accounts to other clients or other parties totalled $6,013,632.19. He said that a number of transfers were to cover up earlier transfers. He said that with respect to the “gains” by some clients some of those clients have “double dipped” but a number of clients remain out of pocket[107]. He had seen the revised report of Ms Bundesen[108] and conceded that the net gains and net losses balanced out[109]. With respect to the Ponzi scheme issue he conceded that legitimate trading was going on[110], but in other cases clients’ funds were used to pay back other clients. He said that the major difficulties seem to have commenced after the MF Global problem in October 2011. He said that the only direct benefit the defendant seemed to have received was $40,000[111]. His director fees totalled $265,000, therefore a total benefit of $305,000. He conceded that some of this was legitimate money. With respect to Exhibit 9, the $4,133 payment for Glen Road was to the landlord.
[106]Transcript day 2, p 65.42.
[107]Transcript day 2, p 68.7.
[108]Exhibit 9.
[109]Transcript day 2, p 69.11.
[110]Transcript day 2, p 70.42.
[111]Transcript day 2, p 71.30.
In cross-examination Mr Bennett conceded he had looked at further documents received on subpoena and conceded that also there was legitimate trading after October 2011[112]. With respect to Exhibit 5, Ms Bundesen’s first report, aside from her evidence concerning the “Ponzi” scheme he did not take issue with pp 34-35. He also noted that $816,000 remained to be distributed to the remaining clients.
[112]Transcript day 2, p 73.32.
Ms Bundesen
Ms Lisa Bundesen has provided a forensic accounting report dated 16 March 2016[113]. She has examined a number of the clients of the business and has determined the trading losses/gains.
[113]Exhibit 5.
(a) In respect of entities associated with Peter Apolakiatis there is a net loss of $41,480.70.
(b) With respect to Marcus Barlow she has determined that the net gain was $182,925.29.
(c) With respect to Andrew Burdon Entities she has determined a net gain of $525,925.93.
(d) With respect to Kieran Burns there was a net loss of $90,000.
(e) With respect to Kylie Deane the net loss was $98,995.39.
(f) With respect to Charlie Dimetriou Entities the net loss was $405,498.45.
(g) With respect to GMS Group Superannuation Fund the net loss was $459,096.32.
(h) With respect to the KAKH Trading Company Pty Ltd the net loss was $22,671.09.
(i) With respect to entities of Robert Kilvert the net loss was $664,737.73.
(j) With respect to Klint Dykstra the net gain was $70,000.
(k) With respect to Russell Kinghorn and his entities the net loss was $234,030.74.
(l) With respect to entities controlled by Joseph Mathew the net loss was $697,936.02
(m) With respect to entities involving Justin Sherlock the net gain was $109,381.09.
(n) With respect to the Two Eagles Pty Ltd the net gain was $83,204.68.
(o) With respect to Oniviro Super Pty Ltd the net loss was $347,531.
(p) With respect to the Parker Super Fund the net loss was $100,000.
(q) With respect to Vanessa Pavlou the net gain was $285,464.84.
(r) With respect to the Pavlou Superannuation Fund the net gain was $269,395.80.
(s) With respect to Timothy Sherlock the net loss was $18,213.63.
(t) With respect to Agjit Viswilingan the net loss was $63,700.
(u) With respect to Tapsall Pty Ltd the net loss was $70,000.
(v) With respect to Stone Cold the net loss was $440,978.
(w) With respect to Bahruz Bahram the net gain was $5,953.85.
(x) The net gain to CL Platinum Pty Ltd was $60,145.
(y) The net gain to CL Vitali Super Fund was $69,985.32.
(z) The net gain to Merryside Pty Ltd was $55,856.04.
As I calculate it the net loss is $3,754,869.07, the net gain is $1,718,237.84.
This was amended in Exhibit 9 to a net loss of $3,251,281.35 and a net gain of $3,251,281.35. Also $814,585.78 remains to be distributed proportionally as a result of Macquarie Bank Ltd v The Two Eagles Pty Ltd.[114]
[114][2014] NSWSC 367.
It is Ms Bundesen’s analysis that the funds from the investors had been used in one or more of the following ways:
(a) invested through FP Markets or similar trading facilities;
(b) transferred to MF Global;
(c) returned to the investor/used by the investor;
(d) transferred to another investor;
(e) paid as brokerage to Redwood Securities Pty Ltd;
(f) Transfers to the defendant;
(g) bank fees/withholding tax.
At [150] Ms Bundesen points out that a full reconstruction of the client accounts has not been possible as statements from various accounts are not available including MF Global and some Macquarie Bank accounts.
As to whether this is a Ponzi scheme Ms Bundesen refers to the various definitions of such schemes and notes at [164] that:
· a Ponzi scheme would involve funds being received into the scheme by investors and used either totally or a significant proportion to pay capital and returns to early investors. In my opinion this has not happened in this matter as funds had been used for investment purposes and have not in their entirety been used to repay earlier investors.
· There are no real investments in a Ponzi scheme. In my opinion based on the documents provided, real investments were made in this matter through accounts such as FP Markets and Pershing/Pension.
As to the financial benefits to Mr Madhoji her analysis is at paragraph [165]. In the 2009/2010 financial year $13,514 was distributed to Silver Lining Group Trust (Mr Monahan) and Karega Family Trust (Mr Madhoji). In the 2010/2011 financial year $135,696 was distributed to Silver Lining Group Trust & Karega Family Trust.
In the 2011/2012 financial year $243,835 was distributed to Silver Lining and the same amount to Karega Family Trust.
In addition, a review of the Westpac Bank accounts of Redwood Securities and of Mr Madhoji showed Mr Moynihan received $327,034; Mr Madhoji $225,000 and further deposits of $265,000. These amounts seemed to reflect the drawings of each of the parties although there is some discrepancy.
At paragraph [171] it is noted that $40,000 was deposited into the Westpac Bank account of Mr Madhoji on 20 April 2012.
Ms Bundesen has provided a further report, Exhibit 9. In the further report, after further examination, she has determined that the net gains were $3,251,281.35 and net losses were $3,251,281.35, leaving a difference of zero dollars.
She has also determined that distributions to Mr Monahan, or his entities, totalled $354,534; and distributions to Mr Madhoji were $245,000, including other deposits to his account. The total to the defendant was $265,000.
Particular transactions
There is no great dispute between the two experts as to the particular transactions in this matter. I have attached as Annexure A, a summary of the amounts involved with each count the details of which are discussed below.
Peter Apolakiatis[115]
[115]Exhibit 14, pp 4-5 and Exhibit 5 pp 2-3.
Mr Apolakiatis invested about $114,000 with Redwood Securities in December 2011/January 2012. With respect to count 26, on 19 January 2012 there were three transfers from his Superannuation Funds Macquarie account to other investors’ Macquarie accounts as follows:
(a) $68,891.08 to M Investments (J Sherlock);
(b) $1,096.48 to Khakh Trading;
(c) $1,004.61 to Kylie Deane.
Following the receipt of these funds into these accounts the following funds were transferred on 24 January 2012 to the Westpac Bank account of Redwood Securities as brokerage fees:
(d) $69,911.98 from M Investments;
(e) $1,096.48 from Khakh Trading;
(f) $1,004.61 from Kylie Deane.
These funds were primarily used to make a $30,000 distribution to the defendant and Mr Monahan and to pay monthly invoices owing by Redwood Securities ($14,513.20).
With respect to count 45, on 10 May 2012 $40,000 was withdrawn from the Superannuation Funds account and paid to M Investments. On the same day $40,000 was withdrawn from the M Investments account and paid to Zenonos. On 30 March 2012 a second account in the name of Apolakiatis was opened with Macquarie. The $10,000 deposit to that account on 30 March 2012 was sourced from the Macquarie account of M Investments. There were two subsequent withdrawals totalling $7,500 from this account. On 12 April 2012 a further $9,500 was transferred from M Investments and $11,600 was transferred from this second account. On 28 May 2012 a further $50,000 was transferred from M Investments and this sum was withdrawn on the same date with the notation “loan to atrium”. All of the withdrawals from this account were completed by Apolakiatis.
No brokerage was paid by him. The net loss to him was $41,482.17.
Marcus Barlow[116]
[116]Exhibit 14, pp 5-6 and Exhibit 5, p 4.
Mr Barlow invested $200,000 with Redwood in 2009/2010. There was considerable trading using Pension Financial in the early years, later with First Prudential markets (FP). In late August to early September 2010 there was a selling down of the investment securities of Barlow. The defendant transferred $21,665 from the Macquarie account of the Two Eagles Pty Ltd into Mr Barlow’s account so that when the equities were realised the balance of Mr Barlow’s account was $215,348.43. Without this sum from Two Eagles Pty Ltd the investment would have been in a loss situation (count 1). On 28 June 2011 $49,026 was transferred from Kinghorn’s Macquarie account to the FP account of Mr Barlow (count 10) and this sum, with the balance held for Barlow, were returned ($200,895.87) on 30 June 2011 to Barlow’s Macquarie account. On 5 July 2011 the $49,026 was returned to Kinghorn’s FP account from Barlow’s Macquarie account. During the period March 2011 to June 2012 Redwood withdrew fees of $27,528.23 from Barlow’s account. The balance was only $134,000. When Barlow asked to close his trading account in early July 2012 the defendant recovered $134,742.17 from FP and used $161,995.37 of Mathew’s funds (counts 54 and 55).
Brokerage of $27,528.23 was paid from Barlow’s accounts to Redwood Securities. The benefit to Barlow was $182,925.29.
Andrew Burdon[117]
[117]Exhibit 14, pp 7-8 and Exhibit 5, pp 4-7.
The first transaction on Andrew Burdon’s account occurred on 24 November 2010 when $6,000 was transferred from his Macquarie Bank account to the Commonwealth Bank account of Justin Sherlock (M Investments) (count 3). At the time of this transfer there were not sufficient funds in Sherlock’s Macquarie Bank account to make this transfer. Mr Burdon had an account called Pagoda Macro Plus with MF Global in Singapore. The sum invested was in excess of $500,000. It would appear that Mr Monahan also had an interest in this account but it not clear what the interest was. The defendant transferred funds on 1 November 2011 from the following clients’ Macquarie Bank accounts into an account with FP in the name of Zenonos (Stone Cold) who the defendant had advised he had invested considerable funds with MF Global in Singapore:
(a) Adam Kilvert - $500,000;
(b) Joseph Mathew - $270,000;
(c) Joseph Mathew - $57,000.
$700,000 was transferred from the FP account of Zenonos to the Macquarie account of Zenonos on 4 November 2011. On 8 November 2011, there were two withdrawals from Zenonos’ Macquarie account, namely $238,000 and $268,000. The funds were deposited to the Macquarie accounts of Burdon (count 18). The bulk of the funds in Burdon’s Macquarie account were returned to him on 9 November 2011. As to count 29, on 16 February 2012 the following funds were transferred out to Burdon’s Macquarie account into the Macquarie accounts of the following:
(a) Adam Kilvert - $776.92;
(b) Kurisummoottil - $9,899.34;
(c) Charlie Demetriou - $3,997.81.
All of these transfers were made so that brokerage payments could be paid to Redwood Securities on 17 February 2012, as there were insufficient funds in each of the above three accounts, to make the following payments:
(a) Adam Kilvert - $3,637.97;
(b) Kurisummoottil - $9,899.34;
(c) Charlie Demetriou - $6,995.05.
With respect to count 44, on 10 May 2011 $5,000 was transferred from Burdon’s account to the account of King Horn Holdings Pty Ltd. This transfer was made so that a brokerage payment of $5,013.78 could be paid to Redwood Securities on that day as there were insufficient funds in the account of King Horn Holdings Pty Ltd to make the payment. Burdon closed his super account with Redwood and wanted all funds transferred to him. On 25 June 2012 the balance of his Macquarie accounts ($39,174.41) was transferred to him. On 28 June 2012 two sums totalling $40,600 were transferred into the Macquarie account from two Macquarie accounts in the name of Demetriou, $13,800 was transferred from the Charlie Demetriou Family Trust, and $31,800 from the Sergios Family Trust (count 51). These funds and some interest paid by Macquarie were paid to Burdon on 2 July 2012 to close the Burdon Superfund account with Macquarie. Overall, Burdon benefitted from his trading with Redwood. The losses he incurred with MF Global were covered by other investors’ funds and he received funds from Demetriou to cover the alleged profits.
Brokerage of $47,538.03 was paid from Burdon’s accounts to Redwood Securities. The net gain appears to have been $525,925.93.
Kylie Leanne Deane[118]
[118]Exhibit 14, pp 9-10 and Exhibit 5, p 9.
Ms Deane paid $100,000 into the Macquarie Bank account on 31 August 2011. With respect to count 16, these funds remained in the account up until 4 November 2011. On that date the $100,000 was transferred to the Macquarie account of Two Eagles Pty Ltd. At the same time this amount was transferred, a further $135,000 was transferred from Kurisummoottil (Mathew). On 7 November 2011 $242,000 was withdrawn from the Macquarie account by Two Eagles. It would appear there was no trading undertaken on behalf of Deane. However, on 23 January 2012 $1,004.61 was transferred from the Macquarie account to Redwood Securities. These funds had been transferred into the account from Peter Apolakiatis’ Macquarie account on 19 January 2012 (count 26).
Total brokerage of $1,862.04 was paid from Deane’s account to Redwood Securities. The loss by Deane was $98,995.39.
Charlie Demetriou[119]
[119]Exhibit 14, pp 10-13 and Exhibit 5, pp 10-12.
Mr Demetriou had three Macquarie Bank accounts. The first was in the name of Gikos Pty Ltd as trustee for Tsiakos Superannuation Fund which commenced in September 2011. Various sums totalling $260,000 were deposited into this account in the period up to 1 November 2011.
As to count 20, the $260,000 was transferred from the account on 25 November 2011 and deposited into an account at FP. However, it was not deposited into an account in the name of Demetriou or his company but into an account in the name of Andrew Pavlou, who was another client of Redwood. Pavlou’s funds had been invested by the defendant with MF Global and were frozen after that company went into administration. The defendant arranged for Demetriou’s funds to be deposited into the FP account and then on 28 November 2011 the funds were transferred to Pavlou’s Macquarie account and from there deposited to Pavlou’s Ord Minnett share trading account. On 10 May 2012, Demetriou invested a further $150,000 through this account.
As to count 46, these funds were withdrawn from the account on 28 May 2012 with the notation “trading transfer”. They were in fact transferred to another Macquarie account in the name of M Investments Pty Ltd (J Sherlock). The funds were dispersed from M Investments as follows:
(a) 28 May 2012 – Apolakiatis – $50,000;
(b) 29 May 2012 – Kilvert – $4,000;
(c) 29 May 2012 – Kurisummoottil – $50,000;
(d) 29 May 2012 – Kinghorn – $2,500;
(e) 31 May 2012 – Behouz Bahrami – $5,953.85;
(f) 4 June 2012 – Christos Thomas – $4,500;
(g) 5 June 2012 – Christos Thomas – $4,500;
(h) 8 June 2012 – Redwood Securities – $29,598.90.
On 12 June 2012 Demetriou received an FP statement dated 8 June 2012 which showed an account balance of $577,914.70.
The second Macquarie account opened was styled Charlie Demetriou as trustee for the Charlie Demetriou Family Trust. It was opened with a deposit of $14,775.48 on 5 December 2011 from Pension Financial.
As to count 21, on 6 December 2011, $9,395.80 was transferred to FP to an account in the name of Pavlou. On 16 December 2011 $5,379.08 was transferred to Redwood Securities as fees.
On 16 February 2012 $3,997.81 and $2,997.27 was transferred to the account from the Macquarie accounts of Burdon and Kinghorn respectively. On 17 February 2012 $6,995.08 was transferred to Redwood Securities as fees (counts 29 and 30). On 14 March 2012 $14,627.01 was transferred into the account from the Macquarie account of Kinghorn and on the following day $14,627.34 was transferred to the Redwood Securities account as fees (count 34).
On 12 April 2012 $37,875.26 was transferred into the account from the Macquarie account of M Investments and on the following day the same amount was transferred to Redwood Securities as fees. On 20 June 2012 a deposit of $13,825.50 from Pershing Securities was made to the account.
As to count 51, on 28 June 2012, $13,800 was transferred to the Macquarie account of Burdon.
The third Macquarie account for Demetriou was styled Charlie Demetriou as trustee for the Sergios Family Trust. It opened with a deposit from Pershing Securities of $31,870.80 on 20 June 2012.
Also as to count 51, on 28 June 2012, $31,800 was transferred to the Macquarie account of Burdon. These funds along with funds from another client paid to Burdon’s account on 28 June 2012 were paid to Burdon on 2 July 2012 to close the Burdon’s Superfund account with Macquarie.
It seems to me that the audit procedures prior to Ms Mulders’ involvement were grossly deficient in Redwood Securities.
I find that after Ms Mulders devised the new scheme the defendant was very resistant to the changes and did not comply with requests for information to be accessed. This is most likely in light of the fraudulent activity. I accept the evidence of Ms Croker, Mr Sharpe and Ms Mulders. I also find that the voluntary admissions made in Exhibit 1 (summarised later) supports my conclusions.
The way in which transactions were recorded and who compiled them
From the totality of the evidence before me it seems that the defendant’s personal assistants only had access to the trading accounts and the CMA. The defendant himself was the only one to have access to the term deposit accounts. The reconciliations were created by the assistants but depended heavily on information which the defendant provided which was, on occasions, false.
My findings of particular transactions are set out earlier in this judgment.
I prefer the evidence of Mr Monahan, Ms Croker and Mr Sharpe to that of the defendant on this point.
I consider the defendant gave false information to Ms Croker to cover his tracks.
Whether this was a Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid into the scheme by subsequent investors rather than from any actual profit earned from monies invested. The scheme entices new investors by offering returns from legitimate investments which are abnormally high and consistent.
“The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever increasing flow of money from subsequent investors to keep the scheme going.”[145]
[145]R v Lovell [2012] QCA 43 at [30] per Chesterman JA.
I do not consider this to be a Ponzi scheme in the traditional sense. I consider, on the totality of the evidence, that Redwood Securities was a legitimate investment company and certainly at the start it was intended that legitimate and lawful investments and trading would be engaged in. It seems to me that things significantly fell apart when MF Global in Singapore went into liquidation.
It seems to me the defendant became desperate and started using the capital of others to pay returns to other members who had invested with Redwood Securities. To that extent there are some similarities with a Ponzi scheme but I do not consider it to be a scheme such as was unlawful from its inception which involved dishonest advertising.
Mr Bennett conceded in cross-examination that there was still legitimate trading going on after October 2011.
I find that the scheme did have the hallmarks of a Ponzi scheme in light of the transactions I have discussed, but I accept what Ms Bundesen says in her report on this point.
Still though the conclusion cannot be escaped that significant frauds were committed by the defendant which have caused significant losses.
Whether others actively concealed the defendant’s dishonesty
I accept the evidence of the witnesses called by the prosecution. I do not consider they actively concealed his dishonesty. On the other hand, it seems to me that the lack of audit and compliance before late 2011 early 2012 was negligent. I find that prior to that time there were no adequate measures in place to ensure that officers of Redwood Securities were acting lawfully.
I generally accept Mr Monahan’s evidence over that of the defendant. I do not accept all of his evidence though. For example I prefer Ms Bundesen’s evidence over his denials that he received 60% of the distributions. He also had an expense paid for by credit card and approved personal expenses of the defendant.
Admissions made by the defendant
For the reasons I expressed earlier, I do not accept the defendant’s evidence that he was forced to write the emails the subject of Exhibit 1. I consider that the emails, the subject of Exhibit 1, were voluntary confessions made by the defendant and accurately set out the nature of the dishonesty involved in this case. I consider they were written out of remorse at the time.
A summary of the admissions made are as follows:
Email dated 18 July 2012 at 11.13am
· He had been lying to his clients that their portfolios had been returning amounts well over of what was the true position.
· He had been reporting fake brokerage figures to Mr Monahan.
· He was ready and willing to cooperate fully and honestly. He had lost control and was not able to keep track of anything further.
· He was happy to turn himself into the Police.
Email dated 18 July 2012 at 12.16pm
· He had transferred funds from clients’ Macquarie accounts into another clients’ FP account and from that FP account back to the other clients’ CMA account.
· If client A wanted cash and this was not available he transferred the cash in from another client’s account but did not transfer the amount from client A’s Macquarie CMA because that would show up on the Macquarie statement.
· There had been occasions where he transferred from one client directly into another’s CMA.
· He had used the Kurisummoottil CMA and the M Investments CMA as a hub for funds to flow through to other clients’ accounts.
· He was able to keep this all from compliance and administration support staff as well as Mr Monahan because he fabricated internal spreadsheets.
Email dated 24 July 2014 at 7.44am
· This conduct started within the first 12 months of the launch of Redwood Securities but the bulk of it was in the last 12 months, especially after MF Global “went down”.
· The first account for which returns were fabricated was Michael Sherlock’s superannuation fund in about 2011.
· The first major unauthorised transaction took place when Michael Sherlock instructed him to liquidate his superfund and transfer $900,000.00 to an account of his so he could purchase a property.
· He fabricated the returns to make people think he was doing a good job for them. He received no personal financial benefit from this or any transactions.
· He told a few clients who questioned where their money was that some of it was in a fictitious brokerage account which they did not have access to.
· If he was asked where the balance of the funds were sitting he would say the client had a term deposit with Macquarie which the administration assistant could not see.
· In June/July he fabricated a statement which showed false client balances.
· When MF Global went bust in October 2011 he was overseas with clients at the time. Clients started asking whether their money was safe. He had emailed MF Global withdrawal requests for all client accounts in the two or three days prior to them “going under”. He received confirmation that MF Global had received the withdrawal requests but they could not transfer the funds in time before the liquidation.
· He told all clients their money was safe and that they would get it back but he panicked and did not tell the truth. The transferring of funds spiralled out of control because both the Pavlou accounts wanted their funds back and he could not get it so he proceeded to take the funds from other clients’ accounts and transfer it to them. Paul Pavlou, Vanessa Pavlou, Andrew Burdon and Andrew Gibbs received amounts which they should not have. Additionally, Michael Sherlock and Justin Sherlock received additional funds on the back of fabricated returns.
· Everything spiralled out of control.
· The Macquarie bank statements and online bank statement were not reconciled prior to June 2012. All figures were entered manually by he or via his direct instruction into an Excel spreadsheet from which clients’ performance reports were generated.
· He did not transfer monies to himself to live a lavish lifestyle, rather it had happened because he wanted to impress people.
· He was working to try and find a resolution/restitution.
The loss suffered by the clients and the benefit received by the defendant
On the evidence the losses to a number of the customers amounts to $3,251,281.35.[146]
[146]Exhibit 9, p 3.
As to the cause of the losses there is no doubt that funds in MF Global in Singapore were frozen but some of that money was recovered. I find that the losses were due to the dishonest transactions engaged in by the defendant.
As to the benefit gained by the defendant I think in effect the $40,000 was a benefit to him.[147] The $2,112 to CBD Golf can be inferred to be for his benefit. I have preferred the evidence of Mr Monahan concerning the Fiji trip. I think then it is likely that the flight centre amount was likely to be for flights for the defendant. Indeed I note in one of the emails the subject of exhibit 1 he says that he had been overseas. As to the $17,424.15 I find that the defendant told Mr Monahan that he was staying his family’s suit and that the defendant paid for this to impress Mr Monahan. The withdrawals of $2,500 were for his benefit. The $4,133 was for his rent. I infer the $10,000 payment was also for his benefit. I note that in one of the emails (exhibit 15) that he paid for Hong Kong accommodation for some people around that time.
[147]Exhibit 9, p 2.
As to the $265,000 in drawings this is relevant as he was continuing to draw these monies when significant losses were being sustained by some clients.
The $265,000 was received from commissions charged to the clients.[148] It is impossible to work out whether any of these were unlawfully derived.
[148]Exhibit 9, p 5.
I also find that Mr Monahan received distributions of $354,534.[149]
[149]Exhibit 9, p 5.
It is clear that due to the crediting of some funds and the payout by MF Global a number of clients have “double dipped” and have been unjustly enriched. It seems to me that some action should be taken by the receivers/administrators and/or the authorities[150] regarding the recovery of overpaid monies. In particular there are concerns about payments made to Michael Sherlock and Nameless Pty Ltd, Justin Sherlock, Stone Cold Pty Ltd, Andrew Burdon and the Pavlous.
[150]Arguably some of the funds are tainted property/proceeds of crime under the Commonwealth and State confiscation legislation although I do not express any concluded view on the point.
I also note that it would seem unjust if the $814,585.78 was distributed proportionally in light of the evidence[151]. It would seem to me there is a prima facie case of unjust enrichment.
[151]Exhibit 9, p 4.26.
Conclusion
In conclusion I find that the total loss as a result of the frauds to a number of the complainants is $3,251,281.35.
The other factual findings are specified above in the decision.
Annexure A – Schedule of Transaction Amounts
| Count | Charge | Money Taken From | Money Put Into | Amount transferred |
| 1 | Fraud of property subject to a direction | The Two Eagles Pty Ltd | Andrew Barlow | $21,665.00 |
| 2 | Fraud of property subject to a direction, to the value of $30,000 or more | The Two Eagles Pty Ltd | CL Platinum Pty Ltd | $60,145.00 |
| 3 | Fraud of property subject to a direction | M Investments Pty Ltd | Andrew Burdon | $6,000.00 |
| 4 | Fraud of property subject to a direction, to the value of $30,000 or more | The Two Eagles Pty Ltd | CL Vitale Super Fund | $69,985.32 |
| 5 | Fraud of property subject to a direction | Gisana Pty Ltd | Justin Sherlock | $14,295.73 |
| 6 | Fraud of property subject to a direction, to the value of $30,000 or more | Gisana Pty Ltd | Clint Dykstra | $70,000.00 |
| 7 | Fraud of property subject to a direction, to the value of $30,000 or more | Gisana Pty Ltd | Nameless Pty Ltd | $100,000.00 |
| 8 | Fraud of property subject to a direction, to the value of $30,000 or more | GMS Group Nominees Pty Ltd | Nameless Pty Ltd | $86,000.00 |
| 9 | Fraud of property subject to a direction, to the value of $30,000 or more | Kinghorn Holdings Pty Ltd | Nameless Pty Ltd and Another | $199,000.00 |
| 10 | Fraud of property subject to a direction, to the value of $30,000 or more | Marcus Barlow | Greenking Pty Ltd | $49,026.00 |
| 11 | Fraud of property subject to a direction, to the value of $30,000 or more | Stone Cold Pty Ltd | Justin Sherlock | $175,000.00 |
| 12 | Fraud of property subject to a direction, to the value of $30,000 or more | Vanessa Pavlou and Another | Justin Sherlock | $50,000.00 |
| 13 | Fraud of property subject to a direction, to the value of $30,000 or more | Robert Adam Hugh Kilvert | Stone Cold Pty Ltd and Others | $500,000.00 |
| 14 | Fraud of property subject to a direction, to the value of $30,000 or more | Joseph Mathew | Stone Cold Pty Ltd and Others | $270,000.00 |
| 15 | Fraud of property subject to a direction, to the value of $30,000 or more | Kurisummoottil Pty Ltd | Stone Cold Pty Ltd and Others | $57,000.00 |
| 16 | Fraud of property subject to a direction, to the value of $30,000 or more | Kylie Leanne Deane | The Two Eagles Pty Ltd | $100,000.00 |
| 17 | Fraud of property subject to a direction, to the value of $30,000 or more | Kurisummoottil Pty Ltd | The Two Eagles Pty Ltd | $135,000.00 |
| 18 | Fraud of property subject to a direction, to the value of $30,000 or more | Stone Cold Pty Ltd | Andrew Burdon | $506,000.00 |
| 19 | Fraud of property subject to a direction, to the value of $30,000 or more | Joseph Mathew | Vanessa Pavlou and Another | $285,464.84 |
| 20 | Fraud of property subject to a direction, to the value of $30,000 or more | Gikos Pty Ltd | Andrew Pavlou | $260,000.00 |
| 21 | Fraud of property subject to a direction | Charlie Demetriou | Redwood Securities Pty Ltd and Another | $9,395.80 |
| 22 | Fraud of property subject to a direction, to the value of $30,000 or more | GMS Group Nominees Pty Ltd | Stone Cold Pty Ltd | $241,000.00 |
| 23 | Fraud of property subject to a direction | Timothy Sherlock | Redwood Securities Pty Ltd | $11,061.33 |
| 24 | Fraud of property subject to a direction, to the value of $30,000 or more | Khakh Trading Company Pty Ltd | Christopher Zenonos and Another | $45,179.03 |
| 25 | Fraud of property subject to a direction | Timothy Sherlock | Gisana Pty Ltd and Another | $10,000.00 |
| 26 | Fraud of property subject to a direction, to the value of $30000 or more | Peter Apolakiatis | Redwood Securities Pty Ltd and Others | $70,982.17 |
| 27 | Fraud of property subject to a direction, to the value of $30,000 or more | GMS Group Nominees Pty Ltd | Stone Cold Pty Ltd | $240,096.32 |
| 28 | Fraud of property subject to a direction | Timothy Sherlock | Redwood Securities Pty Ltd and others | $4,169.42 |
| 29 | Fraud of property subject to a direction | Andrew Burdon | Redwood Securities Pty Ltd and Others | $14,674.07 |
| 30 | Fraud of property subject to a direction | Kinghorn Holdings Pty Ltd | Khakh Trading Company Pty Ltd and Another | $4,408.73 |
| 31 | Fraud of property subject to a direction | Timothy Sherlock | Redwood Securities Pty Ltd | $3,319.87 |
| 32 | Fraud of property subject to a direction | Timothy Sherlock | Khakh Trading Company Pty Ltd and Another | $3,432.55 |
| 33 | Fraud of property subject to a direction | Oniviro Super Pty Ltd | Gibbs Hurley & Co Pty Ltd | $10,000.00 |
| 34 | Fraud of property subject to a direction | Kinghorn Holdings Pty Ltd | Charlie Demetriou and Another | $14,627.01 |
| 35 | Fraud of property subject to a direction | Timothy Sherlock | Gisana Pty Ltd and Another | $2,736.08 |
| 36 | Fraud of property subject to a direction | Timothy Sherlock | Redwood Securities Pty Ltd | $279.55 |
| 37 | Fraud of property subject to a direction, to the value of $30,000 or more | Susan Burns and Another | M Investments Pty Ltd | $90,000.00 |
| 38 | Fraud of property subject to a direction, to the value of $30000 or more | Oniviro Super Pty Ltd | GMS Nominees Pty Ltd and Others | $312,000.00 |
| 39 | Fraud of property subject to a direction | Oniviro Super Pty Ltd | Kinghorn Holdings Pty Ltd and Another | $25,531.00 |
| 40 | Fraud of property subject to a direction | Timothy Sherlock | Gisana Pty Ltd and Another | $2,045.00 |
| 41 | Fraud of property subject to a direction, to the value of $30,000 or more | GMG Group Nominees Pty Ltd | M Investments Pty Ltd and Others | $65,000.00 |
| 42 | Fraud of property subject to a direction, to the value of $30,000 or more | GMS Group Nominees Pty Ltd | M Investments Pty Ltd and Others | $100,000.00 |
| 43 | Fraud of property subject to a direction | Stone Cold Pty Ltd | M Investments Pty Ltd and Another | $16,978.00 |
| 44 | Fraud of property subject to a direction | Andrew Burdon | Redwood Securities Pty Ltd and Others | $5,000.00 |
| 45 | Fraud of property subject to a direction, to the value of $30000 or more | Steven Tapsall | M Investments Pty Ltd and Others | $70,000.00 |
| 46 | Fraud of property subject to a direction, to the value of $30,000 or more | Gikos Pty Ltd | M Investments Pty Ltd and Others | $150,000.00 |
| 47 | Fraud of property subject to a direction, to the value of $30,000 or more | Kurisummoottil Pty Ltd | Merryside Pty Ltd | $55,856.04 |
| 48 | Fraud of property subject to a direction, to the value of $30,000 or more | Kurisummoottil Pty Ltd | Nameless Pty Ltd | $450,000.00 |
| 49 | Fraud of property subject to a direction, to the value of $30,000 or more | Stone Cold Pty Ltd | Kurisummoottil Pty Ltd | $450,000.00 |
| 50 | Fraud of property subject to a direction, to the value of $30,000 or more | Paul Parker | Kurisummoottil Pty Ltd | $100,000.00 |
| 51 | Fraud of property subject to a direction, to the value of $30,000 or more | Charlie Demetriou | Andrew Burdon | $45,600.00 |
| 52 | Fraud of property subject to a direction, to the value of $30,000 or more | Ajit Viswalingam | Kurisummoottil Pty Ltd | $63,700.00 |
| 53 | Fraud of property subject to a direction, to the value of $30,000 or more | Kurisummoottil Pty Ltd | Christopher Zenonos | $60,000.00 |
| 54 | Fraud of property subject to a direction, to the value of $30,000 or more | GMS Group Nominees Pty Ltd | Kurisummoottil Pty Ltd | $39,000.00 |
| 55 | Fraud of property subject to a direction, to the value of $30,000 or more | Stone Cold Pty Ltd | Kurisummoottil Pty Ltd | $120,000.00 |
| Total | $5,920,653.86 | |||
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