Ryan v R
[2018] NZCA 586
•14 December 2018 at 10.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA432/2018 [2018] NZCA 586 |
| BETWEEN | LANCE JACK RYAN |
| AND | THE QUEEN |
| Hearing: | 27 November 2018 |
Court: | Winkelmann, Ellis and Whata JJ |
Counsel: | T W Fournier and D Lotz for Appellant |
Judgment: | 14 December 2018 at 10.30 am |
JUDGMENT OF THE COURT
AThe appeal against sentence is allowed.
B The sentence of seven and a half years’ imprisonment with a minimum period of imprisonment of 50 per cent is quashed.
C Mr Ryan is resentenced to six years’ imprisonment to be served cumulatively on the existing sentence Mr Ryan is currently serving. We impose a minimum period of imprisonment of three years.
____________________________________________________________________
REASONS OF THE COURT
(Given by Winkelmann J)
On 3 July 2018, Mr Ryan was sentenced by Judge Farish in the District Court at Christchurch to seven and a half years’ imprisonment with a minimum period of imprisonment of 50 per cent, after pleading guilty to:[1]
(a)one representative charge of false accounting;
(b)two representative charges of reproducing documents with intent to deceive;
(c)one charge of obtaining by deception;
(d)one charge of forgery; and
(e)one representative charge of theft by a person in a special relationship.
[1]R v Ryan [2018] NZDC 13386 [Sentencing notes]. We note that the Judge appears to have erred in recording the charges to which Mr Ryan pleaded guilty, recording three charges to obtaining by deception when he had only pleaded guilty to one. However that does not seem to have affected the sentencing exercise and the appellant does not raise the error as an issue on the appeal.
Mr Ryan argues that the starting point adopted by the sentencing Judge was too high, because it was out of step with comparator sentences, and that the Judge also erred in failing to reconsider the impact of the overall sentencing in the context of the totality principle.
Background
The offending
In 2014 Mr Ryan and his co-offender, Mr McNicholl, set up a foreign exchange business, BlackfortFX. To give the appearance of legitimacy to the business the men applied for a Financial Services Provider certificate from the Financial Markets Authority (FMA). But the FMA and Companies Office would not give accreditation to the business with Mr Ryan involved. The pair then represented that Mr McNicholl would be in charge of the business, while in reality it was Mr Ryan in charge of orchestrating the planning, development and operations of BlackfortFX.
No trading of foreign exchange occurred. Through an elaborate scheme of deception, investors were fed false information to reassure them their investment was doing well. Mr Ryan set up a cloud-based accounting system that allowed investors to check on their investment and to track how much money or interest they had earned. But apart from the record of the initial investment, the information in their client account was false. Mr Ryan also created a series of false emails with foreign financial services providers and false account statements to suggest investment activity. He falsified a document using the letterhead of a solicitors’ firm to falsely claim BlackfortFX had threatened a Swiss Bank with legal action for failure to pay out or transfer funds he had falsely represented to investors was held by the Bank.
There were more than 900 investors in the scheme who invested a total of approximately $8.3 million. The liquidator of BlackfortFX anticipates losses for those investors will total $4.4 million.
Previous offending
This was not Mr Ryan’s first time before the court for dishonesty offending. He had 56 convictions for dishonesty offending between February 2000 and May 2003 under the name Lance Jared Thompson. This involved misleading Social Welfare Officers and unlawfully using documents for pecuniary advantage.
In November 2017 he was sentenced to two years and two months’ imprisonment for promoting and taking part in the management of a company while prohibited from doing so.[2] Mr Ryan was not the principal offender but was charged and convicted for knowingly assisting another in promoting and managing a company while banned from doing so. This was unrelated offending, but Mr Ryan was serving the sentence for this offending when sentenced by Judge Farish.
The sentence for the BlackfortFX offending
[2]R v Blake [2017] NZDC 28774 at [151].
The Judge analysed Mr Ryan’s culpability having regard to the criteria prescribed by this Court in R v Varjan.[3] The Judge said this was an “elaborate farce” which was a Ponzi scheme from the very inception.[4] As to aggravating features she identified:
(a)The extent of the loss, an estimated shortfall of $4.4 million.[5]
(b)The harm to the victims; this was not just the financial hardship caused through a lost investment but for some extended to feeling stigmatised by their (innocent) association with a Ponzi scheme.[6] Some also face clawback from the liquidator for payments they believed were interest payments, but that had in fact came from other investors capital.
(c)The offending involved an abuse of trust, particularly in the case of vulnerable victims.[7] Some victims had struggled to obtain payments from EQC and insurers, and had invested those payments in an attempt to recoup losses caused by the 2011 earthquake.
(d)The level of sophistication was high.[8] Some investors had conducted due diligence before investing, but such was the sophistication of the scheme that they were duped nevertheless.
(e)The creation and maintenance of such a sophisticated scheme involved extensive premeditation.[9]
(f)The deception depended upon obtaining a financial services provider certificate from the FMA.[10] Involving a regulator of the financial markets in this way would have harmed those markets.
[3]R v Varjan CA97/03, 26 June 2003.
[4]Sentencing notes, above n 1, at [42].
[5]At [20].
[6]At [21].
[7]At [23] and [25].
[8]At [24].
[9]At [26]–[28].
[10]At [29].
Taking into account all these matters the Judge took a starting point of nine years’ imprisonment.[11] She then addressed whether she should uplift the sentence in light of Mr Ryan’s significant history of fraud offending. The Judge said that while it would have been legitimate to uplift the starting point by 12 to 18 months, because of the totality principle she applied an uplift of six months, ending with a starting point of nine years and six months’ imprisonment.[12]
[11]At [29].
[12]At [31].
From that she allowed a five per cent reduction to recognise the hardship Mr Ryan’s offending has caused his family and remorse.[13] She then further reduced the starting point by 15 per cent as credit for the guilty plea, arriving at the sentence of seven years and six months’ imprisonment.[14] She imposed a 50 per cent minimum period of imprisonment.[15]
First ground of appeal: starting point too high?
[13]At [32]–[33].
[14]At [34].
[15]At [35].
In R v Varjan this Court said there is no established benchmark for fraud offending because the circumstances of, and culpability in, offences of dishonesty vary widely.[16] It said they must be assessed in light of the guidance to be found in previous decisions, guidance to be applied when assessing the culpability. As to that, the Court said:
[22] Culpability is to be assessed by reference to the circumstances and such factors as the nature of the offending, its magnitude and sophistication; the type, circumstances and number of the victims, the motivation for the offending; the amounts involved; the losses; the period over which the offending occurred; the seriousness of breaches of trust; and the impact on victims.
[16]R v Varjan, above n 3, at [21].
The Judge identified aggravating features in accordance with this suggested analysis, and Mr Fournier, for Mr Ryan, does not take issue with those. Rather he argues that comparator cases suggest the starting point should not have exceeded seven and a half to eight years. In written submissions, he referred us to a number of cases R v Rose,[17] Ludlow v R,[18] Watson v R,[19] Arnott v R,[20] and Cherry v R.[21] We address each of these in turn.
[17]R v Rose [1990] 2 NZLR 552 (CA).
[18]Ludlow v R [2013] NZCA 196.
[19]Watson v R [2012] NZCA 17.
[20]Arnott v R [2015] NZCA 236.
[21]Cherry v R [2013] NZCA 636.
R v Rose involved a fraud perpetrated against a company by the company secretary.[22] Mr Rose’s offending was over a five-year period and caused losses of around $10 million. To conceal his offending he made fraudulent accounts and false entries in the company’s records. This Court said that “for fraud by a person in a position of trust, sustained for so long a period and with such very serious financial consequences”, the starting point should be seven to eight years’ imprisonment.[23] A starting point of seven years’ imprisonment was adopted.
[22]R v Rose, above n 17.
[23]At 557.
In Ludlow v R the offending extended over 19 months causing losses of $2.8 million. A starting point of six and a half years was adopted.[24] Watson v R involved offending extending over a nine-year period and theft of $5.49 million.[25] A starting point of eight years was adopted.[26]
[24]Ludlow v R, above n 18, at [16].
[25]Watson v R, above n 19, at [4].
[26]At [11].
These three cases give little assistance in testing the appropriateness of the starting point in this case. The offending in each of these cases was of quite a different nature — in particular it did not involve the creation of a sophisticated scheme designed and executed from the outset to facilitate theft. We regard the offending in each of these cases as less serious than Mr Ryan’s offending.
The case of Cherry v R, relied upon by Mr Fournier, is more relevant in that it involved a Ponzi scheme.[27] The offending occurred over approximately a five-year period, and caused losses of approximately $4.7 million.[28] Mr Cherry was an independent financial adviser who received funds from clients, a high proportion of whom were retired people.[29] The Court said:[30]
The seriousness of the harm is increased by the fact that the misappropriated amounts were retirement savings for investors of modest means who clearly trusted Mr Cherry. It was a trust he grossly abused, particularly in those cases where he encouraged investors to borrow against equity in their homes to invest with him.
[27]Cherry v R, above n 21.
[28]At [4].
[29]At [6].
[30]At [23].
In that case a starting point of eight years was adopted.[31]
[31]At [21] and [24].
It is true the duration of the offending was greater in Cherry v R than in this case. But again we regard it as less serious offending. There was a significantly higher level of sophistication and premeditation to Mr Ryan’s offending, as the offending in Cherry v R did not involve the use of a Ponzi scheme from the outset.
The offending in Arnott v R involved the use of investor funds to repay other investors, and also for Mr Arnott’s personal use.[32] This occurred over a four-year period, and caused losses of $2.54 million. A starting point of seven years was adopted.[33] Again, this was not a Ponzi scheme from inception. In R v Robinson, a case the Crown identified for us, the offending occurred over nearly a three-year period and caused losses of $2.3 million.[34] A starting point of seven years and six months’ imprisonment was adopted.[35] The offending involved the use of client funds to cover undisclosed trading losses and repay some investors. This can be characterised as a Ponzi scheme, but again it was not a Ponzi scheme from conception.
[32]Arnott v R, above n 20, at [3].
[33]At [9].
[34]R (SFO) v Robinson [2015] NZHC 1673 at [13].
[35]At [33].
Overall, we regard the sentences the subject of the last three authorities we have referred to as consistent with the starting point of nine years (before the uplift for prior convictions) the Judge utilised when sentencing Mr Ryan. The fact that this complex and sophisticated scheme was conceived and executed as a means of defrauding others is a significantly aggravating factor. To that must be added the further aggravating factor that Mr Ryan traded on the standing of New Zealand’s financial markets to facilitate his offending, and in so doing, caused harm to those markets.
Totality
Mr Fournier submits that the Judge erred in failing to turn her mind to the principle of totality. She should have reduced the sentence to reflect the fact that Mr Ryan was already serving a sentence of imprisonment. He argues further that the offending in respect of which Mr Ryan was serving a sentence, was so close in time to the BlackfortFX offending that the Judge should have imposed concurrent sentences.
Mr Zarifeh, for the Crown, submits that the Judge had regard to the totality principle. First she treated the false accounting charge as the lead offence before imposing concurrent sentences for the balance of the BlackfortFX offending. Secondly, she referred to the offending for which Mr Ryan was serving a sentence. Commenting on Mr Ryan’s significant history of dishonesty offending she said:[36]
[31] In terms of any uplift, given the significant history here of fraud offending, it would be legitimate, in my view, to uplift that starting point of nine years’ imprisonment by 12 to 18 months, but I realise and recognise the totality principle overall and both the Crown and Mr Fournier say I should uplift the sentence by six months which, in my view, is generous in the extreme but I will do that. So, I take an overall starting point of nine and a half years’ imprisonment.
[36]Sentencing notes, above n 1.
We do not accept Mr Fournier’s submissions that a concurrent sentence was appropriate in this case. The offending for which Mr Ryan had earlier been sentenced was unconnected to the BlackfortFX offending.
There is more in Mr Fournier’s other point. The principle of totality requires that where an offender, already serving a sentence of imprisonment, comes to be sentenced for other offending, the sentencing judge must determine what the appropriate overall sentence would have been if the offender had been sentenced on all the charges at the same time.[37] The judge must then adjust the sentence imposed for the second offence or group of offences accordingly.[38] It is clear that having arrived at the starting point of nine years’ imprisonment, the Judge did not stand back and check whether that sentence, when added to the sentence Mr Ryan was already serving, was manifestly excessive for the two sets of offending viewed as a whole. Reducing the uplift for previous offending does not equate to this exercise. The uplift she applied resulted in a starting point of nine years and six months’ imprisonment.
[37]R v Nuku [1969] NZLR 343 (CA).
[38]R v Johansen (1997) 15 CRNZ 111 (CA) at 120; and Opetaia v R [2013] NZCA 434 at [33]–[35].
Approaching the sentencing exercise as we are required to do, and fixing a starting point that reflects the totality of the offending for which Mr Ryan had already been sentenced and the BlackfortFX offending, we are satisfied that a combined starting point of 12 years’ imprisonment (nine years and six months plus two years and six months) was manifestly excessive. We take into account that Mr Ryan was not the principal offender in the offending for which he already been sentenced, and it was not, compared to the BlackfortFX offending, serious. We consider a starting point of nine years and six months’ imprisonment is sufficient to capture the totality of the two sets of offending.
Having undertaken this exercise, we must then adjust the starting point for the BlackfortFX offending accordingly, which produces a starting point of seven years and six months’ imprisonment. To that we apply the discounts the Judge allowed; five per cent to take account of the hardship to Mr Ryan’s family and remorse, and then 15 per cent for the guilty plea. We arrive at a sentence of six years’ imprisonment which is cumulative on the existing sentence. There was no appeal against the imposition of a minimum period of imprisonment of 50 per cent, and we therefore impose the same level of minimum period of imprisonment.
Result
The appeal against sentence is allowed.
The sentence of seven and a half years’ imprisonment with a minimum period of imprisonment of 50 per cent is quashed.
Mr Ryan is resentenced to six years’ imprisonment to be served cumulatively on the existing sentence Mr Ryan is currently serving. A minimum period of imprisonment of three years is imposed.
Solicitors:
Crown Solicitor, Christchurch for Respondent
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