R v Scott
[2017] NZHC 2510
•13 October 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CRI-2016-004-12534 [2017] NZHC 2510
THE QUEEN
v
SHANE RICHARD SCOTT
Hearing: 13 October 2017 Appearances:
N Williams and H Walker for the Crown
A Holland and K Simonsen for the DefendantJudgment:
13 October 2017
SENTENCING NOTES OF GORDON J
Solicitors: Crown Solicitor, Auckland
Counsel: A Holland, Auckland
R v SCOTT [2017] NZHC 2510 [13 October 2017]
Introduction
[1] Mr Scott you appear for sentence today having pleaded guilty to: (a) four charges of obtaining by deception;1
(b) 20 charges of theft by a person in a special relationship;2
(c) one charge of using a document with intent to defraud;3 and
(d) two charges of obtaining by false pretences.4
[2] The offending arose out of your operation of a Ponzi scheme between 2001 and 2014. It resulted in losses of approximately $2.1 million.
[3] I will begin by setting out those parts of the factual background which in my view are relevant to the sentence I will impose. I will then determine an appropriate starting point which reflects the culpability of your offending, before adjusting that starting point to reflect any aggravating or mitigating factors relating to you personally.
The offending
[4] Between October 2001 and 2014, you obtained money from friends and associates on the understanding that you were investing their funds in various investment schemes, namely:
(a) investment in diamonds through the Panzip Group; (b) investments run through associates in Thailand;
(c) investment in a chicken farm in New Caledonia;
1 Crimes Act 1961, s 240.
2 Crimes Act, s 220.
3 Crimes Act, s 229A (repealed as of 1 October 2003).
4 Crimes Act, s 246 (repealed as of 1 October 2003).
(d) investments in property development;
(e) investments with the Scoma Agency/exporting fertiliser; (f) exporting and importing tyres or heavy machinery;
(g)importing $2 shop products or providing finance to importers for the purpose of paying import duties and/or GST on products imported via the Ports of Auckland; and
(h) investment in an associate’s business involved in providing credit to
customers.
[5] The victims were people that you met through your local neighbourhood, your involvement in Auckland rugby clubs, and socialising in local bars. You promised them very high rates of return. In some cases you presented written agreements, proposals and other documents purporting to set out the terms of the investment. In other cases, when investors asked for further details about the investments, you simply said they did not need to concern themselves with the details, or that the details were confidential.
[6] As I have said, you were operating a Ponzi scheme. This meant you did not invest the money you obtained in any of the schemes I have mentioned. They did not exist. Rather you paid it to your personal account or used it to repay other investors.
[7] There are 13 victims of your offending. Some were repaid and suffered no loss, while others lost hundreds of thousands of dollars. The Crown estimates that you obtained a total of $5,425,875 from friends and associates for investing in your schemes, $3,633,255 of which was repaid. In total the victims have lost $2,164,820 (principal only).
Crown submissions
[8] The Crown submits that a starting point in the range of seven to nine years imprisonment is appropriate. The Crown cites a number of sentencing decisions which it says are comparable to your case, and relies on the following aggravating features of the offending: the extent of loss, damage and harm; the abuse of a position of trust; pre-meditation; and the lengthy period of offending.
[9] The Crown submits that a modest uplift may be required to reflect your previous convictions, or alternatively that you are not entitled to a discount for previous good character. It acknowledges that you stand to qualify for a discount of up to 25 per cent for your early guilty pleas. The Crown submits that no discount is available for reparation, this being a Ponzi scheme, and that it is up to the Court to assess whether you show genuine remorse.
Defence submissions
[10] Mr Holland submits on your behalf that a starting point of six years imprisonment is appropriate. He downplays the aggravating features put forward by the Crown, and distinguishes the majority of the decisions cited by the Crown largely due to the scale and sophistication of the offending in those cases.
[11] Mr Holland seeks a five per cent discount for your remorse and assistance to the Serious Fraud Office. He also seeks a further five per cent discount to reflect the disproportionately severe impact of a custodial sentence for you due to your poor health.
[12] Finally, Mr Holland seeks a discount of 25 per cent to reflect your early guilty pleas.
Purposes and principles of sentencing
[13] The purposes of sentencing that are particularly relevant in this case are denunciation and deterrence.5 As the Court of Appeal acknowledged in Arnott v R, it is a well-established sentencing principle that:6
… planned and repeated dishonesty for financial gain typically constitutes serious offending, warranting a clear element of denunciation.
[14] The Court of Appeal also pointed out in R v Rose that even if the risk of reoffending by the particular offender is not great, the safety of the community requires a sentence which will serve as a deterrent to others.7 It is also necessary to hold you accountable for your actions and the harm that you have done to the victims and to promote a sense of responsibility for that harm.8
[15] I also bear in mind the principles of sentencing.9 In particular I note the need to take into account the gravity of your offending in this particular case, including the degree of your culpability,10 and the information provided to the Court as to the effect of the offending on the victims.11
[16] I have read the victim impact statements of the investors. They speak of their deep regret at having trusted you, and the profound effect it has had on their lives and families. Some have lost their retirement savings and now struggle to make ends meet. They are hardworking people who will now have to continue working into retirement despite physical difficulties in doing so. Many have had to sell off their assets to keep up payments to you, which caused enormous stress and anxiety. Your offending has taken a considerable toll on the victims’ emotional health and
relationships with their spouses and children.
5 Sentencing Act 2002, ss 7(1)(e) and 7(1)(f).
6 Arnott v R [2015] NZCA 236 at [8].
7 R v Rose [1990] 2 NZLR 552 (CA) at 556.
8 Sentencing Act, s 7(1)(a).
9 Sentencing Act, s 8.
10 Sentencing Act, s 8(a).
11 Sentencing Act, s 8(f).
Multiple offences: sentencing approach
[17] Mr Scott you have pleaded guilty to 27 charges, all of which carry a maximum penalty of seven years imprisonment. The central principle in sentencing for multiple offences is that the total sentence must represent the overall criminality of the offending and the offender.12 The Court of Appeal has commented that it is not necessary that the total sentence be arrived at in any particular way, provided that the total period of imprisonment reflects the gravity of the overall offending.13 In some cases, where the imposition of concurrent sentences would be insufficient to mark the culpability of the offending, cumulative sentences are imposed.14
Starting point
[18] There is no tariff sentencing decision for the charges to which you have pleaded guilty. The Court of Appeal has held that culpability in the context of financial crime is to be assessed by reference to:15
(a) the nature of the offending;
(b) its magnitude and sophistication;
(c) the type, circumstances and numbers of victims; (d) the amount of losses involved; and
(e) any breaches of trust.
[19] Your offending involved the deception and abuse of trust of your friends and associates over a period of 13 years. It was highly premeditated. You made repeated false representations to the same victims, inducing them to make further payments towards investment schemes that did not exist. Although the offending was not
particularly sophisticated, in that you did not use elaborate or advanced methods to
12 R v Xie [2007] 2 NZLR 240 (CA) at [18].
13 R v Williams CA91/00, 31 May 2000 at [11]; R v Barker CA57/01, 30 July 2001 at [10].
14 R v Mackwood CA197/95, 28 March 1996; R v Xie, above n 12; R v Douglas [2012] NZHC
2271 at [105].
15 R v Varjan CA97/03, 26 June 2003 at [22], cited with approval in Arnott v R, above n 6, at [8].
carry out or conceal your offending, you did go to the length of providing multiple written documents and contracts to investors over the years. It was not “spur of the moment opportunism”.16
[20] Further, the amounts involved were not insignificant. You asked for individual investments in the sum of hundreds of thousands of dollars, and obtained a total of $5.4 million. Some investors were repaid, but I note that this was part of operating a Ponzi scheme and designed to encourage further investment. Investors ultimately lost a total of $2.1 million, and as I have already noted, this has had far- reaching consequences for their health, their finances and their families. Given the number of victims, the total sum of money lost, and the length of time over which the offending occurred, I consider that this was serious offending of its kind.
[21] However, I accept the submission of Mr Holland that the offending started after you had suffered heavy losses yourself in the property and investment market. You did not take investors’ funds simply to secure a lavish lifestyle for yourself. Nevertheless, this was a case, as Mr Williams points out, where you relied on complete fabrication from the outset.
[22] I turn now to the cases cited by the Crown.
[23] In R v Robinson, Mr Robinson pleaded guilty to five charges of theft by a person in a special relationship and one charge of dishonestly using a document.17
Mr Robinson was a financial advisor. When his clients began losing money on their investments, he repaid them using other clients’ funds. He also used his clients’ funds to cover his business and personal expenses, falsifying reports to conceal his misappropriation of funds. This continued over a period of two years and eight months. Allowing for certain recoveries, his clients lost a total of $2.3 million. There were 13 victims, most of whom were particularly vulnerable because they were elderly and placed their trust in Mr Robinson. Muir J adopted a starting point of seven and a half years imprisonment. The number of victims and the sums involved in the present case are remarkably similar to Robinson. Your offending
occurred over a considerably longer period of time. However, the fact that Mr Robinson targeted elderly victims and abused his position of trust as a financial advisor elevates Robinson in seriousness above the present case.
[24] R v Milne is a decision of District Court Judge Farish.18 Mr Milne had pleaded guilty to 20 charges of theft by a person in a special relationship and 14 additional charges of a similar nature. He was a lawyer who defrauded his clients of their funds by means of a Ponzi scheme. His offending spanned a period of 21 years, with 32 victims. The total losses suffered came to $2.38 million. Judge Farish considered the most significant aggravating factor to be Mr Milne’s breach of trust and abuse of his position. She adopted a starting point of nine and a half years imprisonment. Again, the element of abuse by a person in a professional position is not present in your case.
[25] In Ross v R, Mr Ross pleaded guilty to four representative charges of false accounting and a further charge of theft by a person in a special relationship.19 He was a financial advisor. Over a period of 12 years, he caused false security transactions to be entered into his firm’s computer systems, meaning that quarterly investment reports purported to show significant profits and hid losses from investors. There were at least 700 victims, who in total lost over $115 million. The
sentencing Judge adopted a starting point of 16 years. No issue was taken with the starting point in the Court of Appeal. Mr Ross’s offending is much more serious than in your case, in terms of the abuse of trust, the number of victims, and the total losses.
[26] In Cherry v R, Mr Cherry pleaded guilty to two charges of making a false statement by a promoter, one charge of theft by misappropriation and one charge of theft by a person in a special relationship.20 He was a financial advisor who took money from clients for investment on specified terms, and then misappropriated or stole those funds over a period of five years. A total sum of approximately $5.3 million was lost. It is not clear how many victims there were. The sentencing Judge
adopted a starting point of eight years imprisonment. The Court of Appeal was
18 R v Milne DC Christchurch CRI-2013-009-5761, 26 November 2014.
19 Ross v R [2014] NZCA 272.
20 Cherry v R [2013] NZCA 636.
satisfied that this starting point was appropriate. Given that a larger sum was lost (more than twice that in the present case) and Mr Cherry abused his professional position, the offending in Cherry is more serious than your offending.
[27] R v Bradley is a decision of District Court Judge Field.21 Mrs Bradley had been found guilty of 58 charges of theft by a person in a special relationship, one charge of theft by failing to account, and 16 charges of dishonestly using a document. She operated a Ponzi scheme together with her husband over a period of seven years. It appears that Mrs Bradley held herself out as a financial advisor, but the 24 investors were primarily friends and acquaintances of hers. Approximately
$15.5 million was invested in total, and very few of the investors were repaid. The Judge adopted a starting point of seven years and nine months imprisonment. Again I consider Mrs Bradley’s offending more serious than that in your case, as it involved a much higher sum of money and more victims. It also appears that some of the victims were in a particularly vulnerable position. I have not found that to be the case here, although all seem to have been of only modest means.
[28] Finally, Serious Fraud Office v Pickett is a decision of District Court Judge Mackintosh.22 Mr Pickett’s two finance companies went into liquidation owing large sums to around 220 investors. A contributing factor in the liquidation was Mr Pickett’s misappropriation of around $3.3 million of client funds over a period of
25 years, which he concealed using deceptive accounting practices. He was convicted of a number of theft and fraud charges as a result. The Judge noted that he held himself out as an experienced accountant and his clients trusted him. She adopted a starting point of nine and a half years. I question whether that was an overly stern starting point given the circumstances of the offending and the case law I have referred to. In any event I consider your offending less serious than that in Pickett, as you were not in the same professional position as Mr Pickett and your offending did not continue for as long.
[29] The cases cited by the Crown have starting points varying between seven and a half to nine and a half years imprisonment. I have found them to be all more
serious than in the present case, although Robinson and Bradley, which are at the lower end, provide useful guidance.
[30] The defence relies on Arnott v R.23 Mr Arnott was a stockbroker and options trader who pleaded guilty to five charges of theft in a special relationship and five charges of making a false statement by a promoter. Over a four-year period, he dishonestly used investments totalling $2.5 million for his own purposes. He also sent false statements to investors which did not reflect any trading losses. The Judge adopted a starting point of seven years, which was upheld on appeal. Arnott involved similar sums to your case, although your offending continued for many more years. On the other hand, you did not abuse a professional position and the breach of trust was therefore not so great.
[31] I bear in mind the Court of Appeal’s comments in Arnott that, while it is important to maintain consistency with other sentencing decisions for similar offending,24 a “rigid comparative analysis” between sentences is of questionable
utility in the context of financial crime.25 Rather, the leading authorities set the
applicable parameters and the precise starting point depends on the Judge’s
assessment of the particular culpability factors.
[32] In my view the appropriate starting point for the whole of your offending is seven years imprisonment. This reflects the fact that you were not operating as a licensed or otherwise qualified agent within a recognised profession, and your offending was lower in scale and sophistication than in the financial advisor cases. Nevertheless, you abused the trust of your friends and associates for a period of
13 years, with catastrophic consequences for many of them.
Features personal to Mr Scott
[33] Mr Scott, you are 60 years old. You have a limited criminal history, although your recent offending includes two convictions for obtaining by deception (in 2011
23 Arnott v R, above n 6.
24 Sentencing Act, s 8(e).
and 2012) and a conviction for obstruction or perversion of the course of justice (in
2014). You have not previously been sentenced to imprisonment.
[34] You have no formal qualifications, but have worked in various different roles including finance and lending, car importation and property development. The pre- sentence report advises that you acknowledge the consequences of your offending and that you express deep remorse. You have sold property in a bid to pay off some of your debts, and state that you intend to try to pay everyone back before you die. You were declared bankrupt in 2015.
[35] Physically, you are in poor health. Following a heart attack in 2007 you have developed severe heart failure, which means that you are generally fatigued and unable to walk uphill or climb stairs without becoming breathless. You also suffer from arthritis which affects your hands and wrists, meaning you require steroid injections. You are currently under review with orthopaedic surgeons for severe knee pain. Mr Holland has provided a letter from your doctor expressing concern about the potential effects of a prison sentence on your health.
[36] Mr Holland says that you acknowledge the harm your offending has caused to the victims, and that you are genuinely remorseful and I have received a letter from you to that effect. Since being charged, you have worked assiduously towards resolving this matter with the Serious Fraud Office. He submits that a discount of five per cent for remorse and co-operation with the Serious Fraud Office is appropriate.
[37] I accept that submission. The pre-sentence report assesses you as showing genuine remorse. You have demonstrated your remorse in a concrete way by selling off assets in an attempt to pay back victims. You deserve some credit for your efforts in this regard.
[38] I do not propose to uplift the starting point for your previous convictions, but nor do I consider that any discount is available for good character.
[39] Mr Holland also seeks a discount of five per cent to reflect the difficulties you will face in prison given your poor health. I am obliged to take into account any circumstances that mean a particular sentence would be disproportionately severe for you.26 You suffer from a range of medical conditions that would make imprisonment difficult for you, and I consider a discount is justified on account of your ill health. The Court of Appeal made the following comments on the quantum of such a discount in M (CA91/2012) v R:27
…the amount of discount given for that varies according to the particular circumstances of the offender and the offending. There is no discernible pattern, because both the circumstances of the offender and of the offending are so varied. Generally however the reductions given are limited. Whether a discount is appropriate and the amount of a discount is a matter of fact and degree and turns on particular circumstances of the case.
[40] In that case, the sentencing Judge had applied a 12.5 per cent discount to reflect the defendant’s age and ill health. He suffered from type 2 diabetes, coronary artery disease, some angina, hypertension, hearing loss and other degenerative health issues. Following an extensive review of the case law, the Court of Appeal considered this discount adequate. It cited the following passage from the English
Court of Appeal with approval:28
While the sentencing Court is always entitled to show a limited degree of mercy to an offender who is of advancing years because of the impact a sentence of imprisonment can have on an offender of that age, the word
‘limited’ is to be emphasised. The sentencer must not make too great an
allowance in this regard, thereby shrinking from their duty, however unpleasant it may be to perform.
[41] In the present case, the modest discount of five per cent sought by the defence is appropriate. Greater discounts have been allowed in some cases on account of very serious ill health,29 but there is significant variation in the health problems suffered by defendants in different cases. I bear in mind the Court of
Appeal’s emphasis that such a discount should be limited.
26 Sentencing Act, s 8(h).
27 M (CA91/2012) v R [2013] NZCA 325.
28 At [55], citing Attorney-General's References Nos 37 of 2003 [2003] EWCA Crim 2973 at [11]–
[12].
29 See for example Hastie v R [2011] NZCA 498.
[42] Finally, the Crown does not dispute that you are entitled to the full 25 per cent discount for your early guilty pleas.30
Totality
[43] Applying the discounts I have stated to the starting point of seven years, I reach an end sentence of four years and eight months. That sentence adequately reflects the gravity of your offending and the mitigating features relating to you personally.31
Result
[44] Mr Scott please stand.
[45] I sentence you to four years and eight months imprisonment on each of the
27 charges to which you pleaded guilty. Those sentences are to be served concurrently.
[46] The Crown offers no evidence on charges 17, 18 and 20. You are discharged pursuant to s 147 of the Criminal Procedure Act 2011 on those charges.
[47] Please stand down.
Gordon J
30 Hessell v R [2010] NZSC 135, [2011] 1 NZLR 607 at [75].
31 Sentencing Act, s 85.
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