R v Weaver
[2015] QDC 65
•13 March 2015
DISTRICT COURT OF QUEENSLAND
CITATION: R v Weaver [2015] QDC 65 PARTIES: THE QUEEN
and
IAN JOHN WEAVER
DefendantFILE NO: No. 178 of 2014 PROCEEDING: Sentence DELIVERED ON: 13 March 2015 DELIVERED AT: Southport HEARING DATES: 11, 12 & 13 March 2015 JUDGE: Judge C.F. Wall Q.C. ORDER: For each offence conviction recorded and sentenced to 12 months imprisonment to be released forthwith upon entering into a recognisance in the sum of $1000 conditioned upon good behaviour for a period of 2 years CATCHWORDS: CRIMINAL LAW – SENTENCING – COMMONWEALTH – FINANCIAL ADVISER – guilty plea – investment advice to potential investors – retail not wholesale investors – duty of financial adviser – providing personal advice without first making reasonable enquiries in relation to relevant personal circumstances contrary to s 945A(1)(a) Corporations Act 2001 (Clth) – providing personal advice without giving reasonable consideration to relevant personal circumstances contrary to s945A(1)(b) Corporations Act 2001 (Clth) – making misleading statements to investors likely to induce them to apply for a financial product contrary to s1041 E Corporations Act (Clth) – high risk investment strategy – margin loans - loss of investments by clients – offences committed as a result of recklessness rather than deliberately and intentionally – where defendant subject to a banning order for 5 years issued by ASIC – defendant aged 70, no criminal history – extent of monetary loss suffered by investors – cause of that loss not directly related to defendant’s conduct – where s 945A has since been repealed and replaced by civil penalties regime – comparison with similar factual situations where ASIC accepted enforceable undertakings or issued banning orders – LEGISLATION: Corporations Act 2001 (Clth) s 945A(1)(a), s 945A(1)(b), s1041 E
Crimes Act 1914 (Clth) s 16A(2), s 20(1)(b)COUNSEL: L Crowley for the Crown
I Weaver self-represented DefendantSOLICITORS: Commonwealth DPP for the Crown
HIS HONOUR: Mr Weaver, these are four serious offences. I take into account your plea of guilty. The offending occurred between November 2003 and May 2006. It involved three client couples: Mr and Mrs Davey; Mr Brown and Ms Young; and Mr and Mrs Berkeley.
In the case of each couple I accept the statements in exhibit one (para 26) that they invariably had little or no knowledge of investing other than some investment properties. They did not have any meaningful understanding of the share market or margin lending. (2) They were not high income earners and some were unable to work for health reasons. (3) They were all nearing retirement from the workforce. (4) They did not have substantial superannuation. (5) They were risk averse and did not want to lose capital by taking undue risk; and (6) They were in the situation where they needed access to large amounts of cash to meet commitments. They were, I have ruled, retail not wholesale clients.
Counts one and two are summarised this way in paragraph 10 of exhibit one. You provided retail clients with personal advice without making reasonable inquiries as to their relevant personal circumstances as you were required to do.
The facts in relation to count three are summarised in paragraph 11 of exhibit one. In that case you provided retail clients with personal advice without first giving such consideration as to the subject matter of the advice as was reasonable in all the circumstances having regard to the information you had obtained or been given by clients in relation to their relevant personal circumstances.
So far as count four is concerned, I accept the facts referred to in paragraph 12 of exhibit one that you made a number of statements that were materially misleading and which you ought reasonably to have known were materially misleading in the course of your dealings with two of the sets of clients and in relation to the subject matter of the advice you were providing to them. I take into account the facts as recited in exhibit one. Borrowing to invest is a high risk strategy and is only recommended where a client has – according to paragraph 22 of exhibit one:
… surplus capital and income and high risk tolerance. Before placing a client in such a high risk investment strategy a financial adviser exercising reasonable care and skill would always ensure that the client had a sufficient a safety margin. In order to make that assessment the financial adviser would require a detailed knowledge of the investment product and a detailed knowledge, understanding and recognition of the client’s and personal and financial situation.
In the present case the Crown concedes there is no direct correlation between your conduct and any out-of-pocket loss suffered by the clients. Rather, it is an indirect loss or connection. The precipitating factor was the decision of the CBA in relation to the Basis Yield Fund and I’ll refer to that again soon.
I accept what you say, Mr Weaver, that everyone would have been happy if they cashed out their investments the day before the CBA put a zero value on Basis.
I also accept the statement in paragraph 29 of exhibit one that you had a significant financial incentive to recommend that clients invest in Beacon and that they take CML margin loans to borrow to invest. You did not receive a salary or wages as an authorised representative but did receive commissions. The commissions, I am satisfied, which you received in respect of the funds invested relevant to the charges was $194,937.24.
In about July of 2007 the Basis Yield Fund failed and according to the facts stated in paragraph 34 of exhibit one the Fund refused to allow investors to redeem the value of their investments. CML then in turn reassessed the value of Basis investments as security for margin loans held by your clients and ultimately determined that the investments should be valued at zero. As a consequence, the amount owing under the margin loans far exceed the value of the security. CML made margin calls on the loans held by your clients requiring that they rectify the altered ratio of the loan value to the security value within a matter of days by providing further security, depositing large sums of money or selling down their investments or a combination of these actions.
Invariably the clients were not in a position to meet their margin calls through available income or capital. I accept what you say, Mr Weaver, that the CBA should never have lent on the basis of the Basis Yield Fund in the first place. It was not on the Bank’s approved product list. I also accept what you say that the behaviour of CBA and its margin lending division was reprehensible. They put a zero value on the Basis Yield Fund and then issued margin calls. And this, according to you, was a decision by an individual at CBA to go against lending policy.
Now, you are not responsible for the decisions of the CBA and its employees but had you complied with your statutory obligations the three sets of clients here may not have been a position that they found themselves in when the CBA put a zero value on the Basis Yield Fund.
Now, dealing with each of the clients, between the 12th of September 2004 and the 12th of September 2005 the Daveys on three occasions were advised to increase their margin loan by $120,000, $200,000 and $25,000 and invest those amounts as you advised. False or misleading statements, the subject of count four, were made to them. Those are referred to in paragraphs 65 of exhibit one. The statements were:
The bank cannot come on you for anything outside your portfolio. You are not liable on the loan for anything except what’s in your portfolio and the risk of a margin call is minimal. You need not be concerned about it.
Those statements were materially misleading for the reasons referred to in paragraph 66 in exhibit one. In the case of each of the amounts referred to you did not make reasonable inquiries as to the relevant personal circumstances of Mr and Mrs Dave which is the subject of count one. As a result, Mrs Davey, in her victim impact statement says:
My initial reaction was one of utter despair. I became very sick and my stomach knotted up with nerves. I felt total shock and disbelief losing all of our money and leaving us with a debt to the Commonwealth Bank of well over $1 million.
I’ll say more about that statement in a moment. The other effects on her and on her husband are referred to in their victim impact statements and I need not repeat them here. Suffice it to say that they were significant and caused much loss and personal consequences for them. However, notwithstanding the fact that they invested a total of $770,000, a final out-of-pocket amount cannot be quantified by the Crown. The Crown cannot exclude the fact that the amount borrowed was paid back when the investments were liquidated. It is not possible to take into account any quantifiable loss. All that can be said is that $770,000 was borrowed referrable to the charges.
So far as Mr Brown and Ms Young are concerned, between the 23rd of September 2006 and the 7th of February 2007 you recommended they invest $1.2 million and then $300,000, a total of 1.5 million. In each case, you did not first make reasonable inquiries as to their personal circumstances and that is the subject of count two. In paragraph 54 of exhibit one the Crown says:
On each of the occasions you provided the investment advice without first making reasonable inquiries as to the relevant personal circumstances of Brown and Young in relation to giving the advice.
And particulars are then provided in paragraph 54 which I not need repeat here. As far as their loss is concerned – their out-of-pocket loss – the Crown cannot establish that they were out of pocket at all. In their victim impact statements they referred to the consequences for them following the issuing of the margin calls and I need not repeat them here. Suffice it to say that the consequences for both have been serious.
So far as Mr and Mrs Berkeley are concerned, they didn’t want to take risks. In about July 2005 you advised them to invest $600,000 and in May 2006 a further $550,000, a total of $1.15 million. In particular from paragraph 64 of exhibit one, on each occasion you provided the investment advice to them without first giving such consideration to the subject matter of the advice as was reasonable in all the circumstances having regard to the information obtained from them regarding their personal circumstances. That was count three.
Initially on the 10th of February 2005 you made the false and misleading statements to the Berkeley’s referred to in paragraphs 67 to 70 of exhibit one which are the subject of count four. Those statements were:
Margin lending is low risk. The chance of margin call occurring is low. There is no way you will lose your home. Your exposure is limited to the value of the assets held in your Beacon account.
Well, in fact, Mr and Mrs Berkeley did lose their home. After the loan from the CML had been paid back on the sale of their investment portfolio there was not sufficient funds to repay a loan they had obtained from Macquarie Bank. In February 2008, $282.907.80 was owing to Macquarie Bank. That was repaid using Mr Berkeley’s superannuation and selling both of the family vehicles. The superannuation and the vehicles were realised at about $60,000. The family home was sold in 2009 for $560,000 of which $249,329.39 went to Macquarie Bank. The consequences for Mr and Mrs Berkeley are referred to in the victim impact statement of Mrs Berkerely and on page three of that statement she sets out what their position was before they went into the investments and what it was after failure of the investments and their life has been turned upside down as a result.
I do though take into account what she said, namely, that she received compensation from the Salisbury Group of $220,000 so in pure dollar terms their out-of-pocket loss was almost $63,000.
The maximum penalty for each offence is imprisonment for five years or a fine of $22,000 or both. Section 945A has since been repealed and the circumstances about that are referred to in the prosecution sentencing submissions, paragraphs 59 to 72 and I need not repeat them here. The sentence that I will impose on you will be of a severity appropriate in all of the circumstances of the offences. It will be one which I consider is reasonably proportionate to the objective seriousness of your offending and it will take into account, amongst other things, the totality of your offending. I also take into account relevant factors from section 16A(2) of the Crimes Act. In particular, I take into account firstly the facts and circumstances referred to in exhibit one. Secondly, the fact that you were an experienced professional financial planner and adviser and had been for some 30 years. I also accept that it was the CBA that encouraged you to believe you were dealing with wholesale and not retail clients.
Thirdly, the clients were non-sophisticated retail clients with little or no investment experience and little or no experience with margin lending for investments. They trusted you and, in my view, you abused their trust. You took advantage of them. Four, you didn’t observe or comply with statutory requirements designed to protect them. Five, you made several deliberately false statements which induced the clients to invest. Six, the requirements imposed by section 945A and 1041E are protective in nature. Seven, you were motivated by the prospect of receiving substantial commissions and I referred to the amount you received. Eight, you acted more in your own, in my view, rather than the interests of your clients. Nine, the offences were committed as part of the same course of conduct or, alternatively, were a series of criminal acts of a similar character.
Ten, the personal circumstances of the clients as outlined in their victim impact statements which I’ve already referred to. Eleven, each set of clients were adversely affected by what happened both emotionally and financially. Later civil settlements could not, in my view, adequately compensate them for their initial losses and their resulting change of position. In paragraph 30 of the prosecution response – exhibit three – the prosecution accepts that there were civil proceedings which resulted in a settlement of claims the clients had against the CBA and that these are generally relevant to the overall assessment of the injury, loss or damage that resulted to the clients which is a matter which I must take into account insofar as relevant and known and I do so.
Twelve, whilst you have pleaded guilty you did continue to maintain that the clients were wholesale not retail and on the 25th of November 2013 you said this – and this is set in paragraph 31 of the prosecution sentencing submissions, exhibit one, tab 2:
The only thing I’d like to, you know – Mr Crowley says that these people have been waiting in the wings for years for an outcome. We had a civil proceeding that included the Commonwealth Bank and all these people that are supposedly waiting for “justice” arrived at a settlement agreement with the Commonwealth Bank, the Salisbury Group and myself. They were adequately compensated and each of them signed deeds of releases. 50 I don’t know why these people would be sitting here wondering as to why or waiting for an outcome. They got their outcome two years and that was a return of capital plus interest plus contributions towards costs and the Commonwealth Bank withdrawing all outstanding writs against the clients and the Commonwealth Bank compensating as well.
Well, I don’t think that they have, in all of the circumstances, been adequately compensated for their personal and financial losses. Your guilty plea was at a very late stage – just prior to the commencement of the trial but on the other hand a compromise was reached in relation to the number of charges. Your guilty plea has assisted in the administration of justice and is evidence of an acceptance by you of responsibility but I agree it is perhaps little evidence of remorse in the circumstances subject to this: you say – and there is no evidence to the contrary – that your professional indemnity insurer instructed you to make no admissions or show any remorse to clients which may have been interpreted as an admission.
I am inclined to agree with Mr Crowley that your plea of guilty is demonstrative of recognition by you of the inevitable certainly following my ruling reiterated yesterday that the clients were retail not wholesale clients. But on the other hand I accept what you say that you endeavoured to assist them in their attempts to recover their losses from the CBA.
Thirteen, you have not cooperated with law enforcement agencies but on the other hand that may be as a result of what your professional indemnity insurer advised you to do or not to do. Fourteen, personal deterrence does not figure highly in sentencing considerations for you. Fifteen, I take into account the fact that you have just turned 70. You were 57 to 62 at the relevant times. You are now eligible for an aged pension. You were charged with the present offences on the 2nd of February 2012
and have had them hanging over your head since then. You were required to sell your house in January 2014 as a result of margin calls. You have also lost substantially as a result of personal investments which went under at the same time. You have been prevented from earning a living since a five year banning order was issued on the 11th of April 2011 and that is a significant punishment certainly when compared with the circumstances of the various people referred to in exhibits 18 to 22. You have had no prior problems with ASIC before the present.
Sixteen, your state of health. I accept that you have recently been diagnosed with Hashimoto’s disease, the symptoms of which are depression, reduced memory, chronic fatigue and low self esteem. The disease is permanent. You take medication to attack the antibodies which are attacking your thyroid gland. You have been referred to a specialist. I take into account the submissions you have made in relation to the effect on you and your health of the civil proceedings and the supporting evidence but that is perhaps an inevitable consequence of perhaps not the present offending but the decision to put a zero value on the Basis Yield Fund. It is, as I said, also related to your personal losses.
Seventeen, your absence of any criminal history. Eighteen, the need to impose a sentence which will have a general deterrent effect more so in the case of the count four offence rather than the first three as a result of the repeal of section 945A. Nevertheless, the sentence is likely to have a general deterrent effect in relation to counts one, two and three even though they are now civil offences.
Nineteen, the submission by Mr Crowley that a term of imprisonment is called for with a significant part to be served. Twenty, the absence of much assistance from some of the comparative decisions referred to by the Crown. On the other hand, I have been assisted by the documents you have provided – exhibits 18 to 22 and I referred to the circumstances of those various individuals when we started this morning and I need not repeat those details now.* I have had regard to the decisions particularly referred to by Mr Crowley this morning.
Twenty-one, the fault element – for the purposes of the offences in counts one, two and three – is recklessness, namely, you were aware that there was a substantial risk that the clients were retail clients but nonetheless did what is charged and in the circumstances then known to you it was unjustifiable to take that risk. I accept what Mr Crowley says in paragraph 12 of exhibit three, namely, that by your guilty pleas you have admitted that you were at least aware that there was a substantial risk that the clients were retail clients and you proceeded to deal with them in the course of providing them with personal advice without observing the requirements of section 945A(1) regardless of your awareness of that substantial risk. I agree that proof of recklessness does not make the offence less serious but it is less serious than offending committed deliberately and intentionally. In this respect I refer to what is said in paragraph 14 of exhibit three, namely:
It is to be noted that proof of recklessness in respect of this element of the offence does not make the offence less serious. Proof of recklessness by a
defendant simply proves the reckless element of the offence. Proof of a higher state of mind might constitute a more serious example of the offence or a circumstance of aggravation but proof of recklessness does not constitute a mitigating factor.
In this respect, the Crown concedes in paragraph 15 of exhibit three that you should be sentenced for these offences on the basis of recklessness as opposed to a higher state of mind involving knowledge or intention. In paragraph 27 of the prosecution response exhibit three, Mr Crowley says – and I accept this and this in relation to count four:
That offence is committed inter alia when a person makes a statement that is false in the material particular or is materially misleading and this statement need not refer to the financial product itself and the statement is likely to induce a person to apply for financial products.
You have submitted that there is no evidence that what you call the “alleged” statutory breaches – and that is relevant to what seems to be, to some extent, an absence of remorse – caused loss and in particular I refer to your submissions in exhibit two at paragraphs 94, 95 and 110 to 113. As to that, the prosecution says in exhibit three, paragraph 36 that they accept that there is no direct causal link between the criminal offences committed by you and the subsequent loss of investments by the clients because of the collapse of Basis. Nevertheless, the prosecution maintains its submission that the total loss of investments by clients is a relevant sentencing consideration. The clients invested in the investment product recommended by you and accepted the margin loan strategy you advocated based on your assurances and advice. The high risk nature of the Basis Fund together with the disproportionately large percentage of the clients’ investment portfolio Basis came to represent coupled with the risks of margin lending placed the clients who were not sophisticated investors and who relied heavily on the expertise of you in a vulnerable situation. The collapse of Basis exposed those vulnerabilities. The prosecution submits that there is an indirect link between the offences committed by you and the loss of the clients’ investments.
I’m not satisfied that the total loss of investments by the clients is as important a sentencing consideration as contended for the prosecution in circumstances where most of the amounts borrowed to invest were recovered one way or the other.
Generally, though, I do accept what is contained in the prosecution’s response, exhibit three.
When the margin calls were issued this had devastating consequences for your clients and also for you, more so in the years until they reached the settlements which have been referred to but those settlements, in my view, have only partially compensated them for the personal consequences which flowed from the collapse of Basis. Notwithstanding the settlements reached and the end results reached, they are
still emotionally and financially scarred by the investment strategy which you advised for them. The fact that they may have been wholesale clients had you used a different lender, for example, Westpac, referred to earlier in argument, that is, a non-associated lender, is of little consequence in the circumstances. An associated lender was used and you must accept the consequences of doing so but I do accept what you say about the involvement of the CBA in that decision.
In relation to exhibits 18 to 22, I accept that whilst there are significant similarities between those cases and your situation they do not involve pleas of guilty to criminal conduct. I am satisfied for the reasons I have given that a sentence of imprisonment is the only appropriate sentence I can impose in this case and that the sentence that I have arrived at is that which I consider to be appropriate in all of the circumstances. In fixing a release date I, again, have had regard to all of the circumstances of the offence and to your personal circumstances. I propose to impose the same sentence for each count to reflect the totality of your conduct. For each offence pursuant to section 20 subsection (1)(b) of the Crimes Act you will be convicted and sentenced to imprisonment for 12 months but I order that you be released forthwith upon entering into a recognisance in the sum of $1000 conditioned that you be of good behaviour for a period of two years. The sentence commences today and I must explain it to you, Mr Weaver.
I have sentenced you to imprisonment for 12 months but made an order that you be released forthwith upon your entering into a recognisance release order or bond. The purpose of the order is to enable you to be released today and to provide you with the opportunity to carry out your punishment within the community. Your bond will be conditioned that you be of good behaviour during the period of the bond which is two years. You will be expected to comply with this condition for the duration of the bond. If you do not, you may be brought back to this court to be dealt with. Depending on the nature of the breach of your bond, a monetary penalty may be imposed, the length of the bond may be extended, a community service order or an intensive correction order may be imposed. If the breach is more serious you may be required to serve the unserved balance of your sentence of imprisonment or the court may decide to take no action. The recognisance may be discharged or varied upon either party making an application to the court. Now, does that cover everything, Mr Crowley?
MR CROWLEY: Yes, your Honour.
HIS HONOUR: Mr Weaver, anything to add? All right. Thank you. That completes everything. I’ll just take a short break before I deal with the next matter.
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Extract of R v Weaver Day 3 Transcript
MR L. CROWLEY: Yes. If your Honour pleases. Crowley, initial L., counsel for the Commonwealth Director of Public Prosecutions, again.
HIS HONOUR: Yes. Now, Mr Weaver, you’re appearing, again, for yourself?
DEFENDANT: I am, your Honour.
HIS HONOUR: Thank you. Mr Crowley, overnight, I read the material handed to me by Mr Weaver, commencing ‑ ‑ ‑
MR CROWLEY: Yes.
HIS HONOUR: ‑ ‑ ‑ with exhibit 18, which is the enforceable undertaking of Christopher Baker; exhibit 19, a Hansard transcript; exhibit 20, the enforceable undertaking by Carey Fraser; a note about the AAT decision in the case of Julian Hayes; and the documents in exhibit 22.
Now, in the case of Christopher Baker, the conduct involved there included probable contraventions of the Corporations Act, including that he failed to determine the relevant personal circumstances and failed to make reasonable inquiries in relation to the personal circumstances of clients before implementing advice in contravention of section 945A of the Corporations Act. He acknowledged the concern about those matters. And, as an alternative to a banning order, an enforceable undertaking was accepted whereby he undertook to enrol and complete an approved financial planning compliance course. And that was it.
MR CROWLEY: Yes.
HIS HONOUR: The Hansard report seems to highlight that Baker had 699 clients, compensation was paid to them totalling more than thirteen and a-half million dollars.
In the case of Carey Fraser, there were possible instances of noncompliance with section 1041E of the Corporations Act by disseminating information, namely, financial-product advice provided by Storm that was materially misleading and likely to induce persons to apply for financial products when Mrs Fraser ought reasonably to have known that such information was materially misleading. And there was a suspension there for two years.
Julian Hayes failed to comply with the fundamentals of financial-services advice and had a banning order from three years reduced to one year. The AAT confirmed the importance of a banning order in relation to misconduct by financial-services representatives on the basis that it involves a degree of personal and general deterrence.
Exhibit 22, Jane Duncan failed to comply with the fundamental duties and obligations under the Corporations Act; a three-year banning order there.
Don Nguyen, a seven-year banning order. And his conduct was not isolated and persisted for a period of at least two years, between 2006 and 2008, with multiple clients. He failed to demonstrate a willingness to ensure the high standards of compliance with the financial-services industry.
Trevor Benson may have not complied with section 1041E of the Corporations Act by disseminating information that was materially misleading and likely to induce persons to apply for financial products when Mr Benson ought reasonably have known that such information was materially misleading. He may also have not complied with section 945A of the Corporations Act. He acknowledged ASIC’s concerns and entered into an undertaking to participate in certain continuing professional education.
Simon Langton, there were suspected contraventions of section 945A(1) of the Corporations Act. ASIC found that he failed to determine the relevant personal circumstances and failed to make reasonable inquiries in relation to the personal circumstances of clients before implementing advice, in contravention of section 945A of the Corporations Act. There was an undertaking entered into whereby he would enrol in and complete a graduate diploma course in financial planning.
David McCulloch, he gave financial-product advice to approximately 300 Storm clients. He may not have complied with section 1041E, by disseminating information that was materially misleading and likely to induce persons to apply for financial products when he ought reasonably to have known that such information was materially misleading. He entered into an undertaking to participate in certain continuing professional education.
And, finally, Joe Chan. There were suspected contraventions of the Corporations Act in relation to services provided by him as a representative of Commonwealth Financial Planning Limited, a Commonwealth Bank subsidiary. He may have made a statement which was false in a material particular or was materially misleading and was intended to induce a person to apply for a financial product in contravention of section 1041E of the Corporations Act. He entered into an undertaking. So, now, some of those seem to be more serious than Mr Weaver’s conduct. It’s not possible to say, in all respects ‑ ‑ ‑
MR CROWLEY: No.
HIS HONOUR: ‑ ‑ ‑ that’s so. But there’s a consistent thread running through there for admitted – effectively, admitted contraventions of section 945A and 1041E.
MR CROWLEY: Not admitted, your Honour. That’s ‑ ‑ ‑
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