The Queen v Willard Karaitiana Amaru

IN THE COURT OF APPEAL OF NEW ZEALAND

CA224/02

THE QUEEN

WILLARD KARAITIANA AMARU

Hearing:	23 October 2002
Coram:	McGrath J Chisholm J Gendall J
Appearances:	R M Lithgow for the Appellant K G Stone and K D Wilkinson for the Crown
Judgment:	20 December 2002

JUDGMENT OF THE COURT DELIVERED BY MCGRATH J

Introduction

The appellant was convicted following a jury trial in the District Court of six counts of false pretences, nine counts of theft by misappropriation and one count of wilfully attempting to obstruct the course of justice. He was sentenced to four years nine months imprisonment. The appellant appeals against those convictions and his sentence.

Background facts

The charges on which the appellant was tried relate to his conduct on behalf of two companies, IMI Pacific Group Ltd (IMI) and Walakahai Pacific Corporation Ltd (Walakahai). Along with his business partner, Mr Baylis, the appellant was said to have enticed investors to advance funds to IMI and Walakahai for eventual investment in what was represented to be a top secret international market known as either “prime bank instrument trading” or “bank debenture trading”. The appellant and Mr Baylis represented this to be a market strictly controlled by such major players as the United Nations, the International Monetary Fund, and the Federal Reserve which is the Central Bank of the United States, due to its inherent potential for large profits. IMI and Walakahai were said to have been given the opportunity to participate in this market as part of a UN programme to assist “third world peoples”, in this case the maori people of New Zealand. The maori support factor was strongly emphasised in seminars for investors conducted by the appellant. He is himself of maori ancestry and many of the investors he persuaded to invest in the scheme were Maori.
A typical pattern was that investors would receive one or two “profit” payments following their initial investment. The Crown said at the trial that this was to convey the impression to investors that their original investment was sound and to entice a further flow of investment funds. At a later stage investors were told that the investment fund capital would be held in a “blocked” account and that only interest raised from the funds, rather than the investment capital itself would be at risk in trading. This reported arrangement was represented as one which insulated the investors from any risk of loss of capital. The Crown case however was that the appellant and his colleague used the investment fund, less profit payments made to investors, to enhance the scheme’s credibility for their own purposes. At no time were any of the funds received by IMI and Walakahai invested in the kind of offshore bank debenture trades as promised. Investors put a total of $6,994,147.00 into the scheme.

The charges

There were seventeen counts in the indictment against the appellant. Count 1 charged him with conspiring with Mr Baylis to defraud the public. This charge covered investments in the bank debenture trading scheme, made predominantly by Maori persons in the North Island, in response to personal solicitation by the appellant. The Crown put its case to the jury on the broad basis that the bank debenture trading scheme was, to the appellant’s knowledge at all times, dishonest and his actions in the nature of theft. The jury could not reach a verdict on this count which subsequently was stayed by the Solicitor-General.
Counts 2 to 7 related to a total of $2,305,025 invested in a number of instalments by Mr Hobbs, an investment adviser, on behalf of a number of his clients who were largely Nelson based people. On each count the appellant was charged with false pretences in that, again with Mr Baylis, he had falsely represented that client funds would be pooled in an offshore trust account and applied in trading in bank debentures. He was convicted on each of these charges.
Counts 8 to 16 concerned a different type of alleged dishonesty. They charged that the appellant, with Mr Baylis, fraudulently applied funds that were the subject of a direction that they should be applied to investments, in particular in debentures, to other purposes. The funds concerned belonged to clients of Mr Ward, a Tauranga based investment adviser. A total of $845,000 was invested by Mr Ward on behalf of his clients who received no return from their investment. Their money was largely applied towards personal purposes of the appellant and Mr Baylis and also to making a profit payment to Mr Hobbs’ clients. The appellant was convicted on these charges. He was also convicted on one count of attempting to obstruct the course of justice. Mr Baylis had pleaded guilty to a number of similar charges prior to trial.

Appellant’s submissions

Mr Lithgow for the appellant invited us to treat the appellant as a person who had first entered into the investment scheme with Mr Baylis with a genuine belief as to its soundness and with the best of motives. In relation to the two categories of offending on which he was convicted counsel’s submissions were as follows.

Mr Hobbs’ funds

The charges in relation to the funds invested by Mr Hobbs on behalf of his clients were in each case of false pretences and were brought under ss264 and 66 of the Crimes Act 1961. Here Mr Lithgow submitted that had the moneys been applied as the appellant and Mr Baylis had told the investors they would be, they would have been entirely lost in the fraudulent overseas bank debenture trading scheme. The defence advanced by the appellant at his trial however was that the Nelson principals and their agent had prior experience with such schemes and in fact did not care how the returns were achieved providing they were continuing to receive a share of the action. Mr Hobbs was said himself to have been a believer in the existence of a bank debenture trading market. He knew of it prior to any involvement of Mr Amaru. The appellant and Mr Baylis had however told investors in this group, at the time they were receiving funds, that trading under the trading scheme was taking place, although overseas principals had said the money was not required at the time.

ii) Mr Ward’s funds

The charges in relation to the funds invested by Mr Ward alleged misappropriation of funds held under a direction. They were laid under ss224 and 66 of the Crimes Act 1961. Mr Lithgow submitted to us that the evidence at the trial did not establish that Mr Ward had given a direction in relation to these funds at all. Alternatively he submitted that if there was adequate evidence for the jury to find there was a direction as to application of the funds, knowledge of it was not sheeted home to the appellant at the trial. Counsel emphasised in his oral submissions that at no stage was there a direction that related to a particular investment project. A theme of Mr Lithgow’s submissions was that Mr Ward was in a muddle both as to what his requirements were for the funds he invested for his clients and as to what he understood would be happening to them in the hands of the appellant and Mr Baylis. In part this was due to Mr Ward’s focus on obtaining an interest stream to run on the investments. He had raised money for a rest home project through a group of lawyers and was under pressure to get the funds profitably invested because the scheme had become delayed. When asked to do so he had paid the funds into a private bank account in Sydney.
Mr Lithgow’s main submission on this branch of the appeal is that there was insufficient evidence of a direction from Mr Ward in relation to the funds, known to the appellant (as opposed to Mr Baylis), which could form the basis of the counts against the appellant alleging a breach of s224. Contact between Mr Ward and the appellant had been confined to two or three phone calls. Mr Lithgow also submitted that Mr Ward knew that there was no debenture security giving protection when he paid his clients’ monies into the Australian bank account. Indeed he apparently thought that the money would be used for speculation on foreign exchange movements between Australia and New Zealand.

Decision: Conviction appeal

We start with the appeal against conviction on the counts concerning the funds sourced from clients of Mr Ward. The ground of appeal is that the verdicts were unreasonable and unsupported by the evidence.
In the case of the appellant there was evidence from Mr Ward that in mid 1999 he telephoned IMI and spoke with a man who identified himself by the name of the appellant and said he was a director of IMI. The appellant accepted in his evidence he may have spoken to Mr Ward on the telephone. It was open for the jury to find that they plainly spoke by telephone on three occasions during which Mr Ward told the appellant that he had substantial cash funds of clients available for investment for a 12 month period and was told by the appellant that IMI was developing a first ranked debenture stock, paying interest at about 10%, which would be ready in June or July 1999 for such an investment. During the final call Mr Ward was referred by the appellant to Mr Baylis with whom discussions continued.
Some time later according to Mr Ward he was called by an administrative person in IMI’s office and told that the investment could now proceed. According to the appellant’s evidence the office staff comprised four people, namely the administrative person, a secretary, the appellant and at times Mr Baylis who largely however worked at home. Mr Ward was given the number of a bank account in Sydney which was in the names of the appellant and Mr Baylis. Mr Ward acknowledged he was told it was a trading account and that his money would be in Australia for three or four weeks. He inquired of the administrative person who called him if IMI was seeking to get a return on bringing the money back into New Zealand, but the person he was speaking to “did not know the full workings”. Mr Ward was later assured the money was coming back into New Zealand to be placed in bank accounts or on mortgage advances.
Although he had no direct dealings with the appellant after his third telephone call Mr Ward said he received certificates from IMI dated 19 August 1999 and 21 September 1999 recording investments of $700,000 and $145,000 respectively on which there was the appellant’s computer generated signature. Each was endorsed “Your Asset Has Been Allocated For Placement In The ‘Resolution’ Syndicate”. Mr Ward said that he understood this reference to be to the bank security debenture programme. He also received a letter carrying the computer generated signature of the appellant, dated 23 September 1999 which enclosed a “receipt” for the asset purchased and which referred to its allocation to the “Resolution” syndicate. Mr Ward enquired about signing application forms for the debenture but was told they were unnecessary. He said he was told at a much later meeting with Mr Baylis and the appellant at Wellington airport that all his money had come home to New Zealand. He had not authorised his funds to be drawn on for any other purpose while they were in the Australian bank account.
Mr Ward accepted, in cross-examination, that he had agreed to money being put into the Australian private bank account for the purpose of speculating on the exchange rate, unprotected by a debenture. He did not accept the funds were at risk because “At the worst, we’d get our principal back.”
The appellant gave evidence at his trial in which he denied having any face to face dealings with Mr Ward. He acknowledged that he came to know that Mr Ward had deposited a large sum of money into his bank account in Australia but said all arrangements for that had been made by Mr Baylis. In cross-examination he acknowledged that he was group trust manager and that the letters and certificates to investors went out in his name. There was evidence from an accountant employed by the Serious Fraud Office that five days after receipt of the $NZ700,000 deposit into the Sydney bank account of the appellant and Mr Baylis a sum of $A247,724 (NZ$301,450) was drawn from the account and applied in a payment to Mr Hobbs’ clients. That payment was effectively made from Mr Ward’s funds. The appellant responded to questions on that matter as follows:
Q    Did Mr Ward give you the money to repay Mr Hobbs, for instance?
A    Excuse me?
Q    Did Mr Ward give you money on the basis some of it would be used to repay part of Mr Hobbs’ money?
A    Well, again, the money that came into us, we – we did what we did with it. We believed that – that in time we would pay everybody out and that wasn’t going to be a problem.
In each of the nine counts, involving funds of Mr Ward’s clients, the appellant was charged under s224 of the Crimes Act according to which a person who receives money with a direction to apply it to any purpose, and who applies it to another purpose, commits theft. To obtain a conviction it is necessary for the prosecution to prove that the funds were the subject of a direction when they were received, the nature of which was known to the person charged with the offence at the time of applying the moneys for the unauthorised purpose: R v Bruges (1906) 9 GLR 66, 73 per Cooper J. Evidence of a direction may take the form of written or oral instructions but a finding may also be inferred from the circumstances in which the funds come to be held. What in particular must be established is that the funds were earmarked for a purpose different to that for which they were used.
From Mr Ward’s evidence it was open to the jury to infer that the appellant knew, first, that Mr Ward had substantial funds available for investment and, secondly, under such an investment the funds would have to be appropriately secured. The jury were entitled to infer that it was with this requirement in mind that the appellant had, during the telephone conversations, discussed with Mr Ward a first ranked secured debenture investment which would be available from IMI in July or August 1999. Although the details may have been later worked out with Mr Ward by Mr Baylis, and the request for the funds communicated to Mr Ward by the administrator in the office, the evidence which included the certificates sent out from the office, indicated the appellant’s awareness of the sums received in Sydney from Mr Ward and that they were received for investment purposes. It was also open to the jury to infer that the appellant knew the money had come into the Sydney bank account and that he was responsible with Mr Baylis for a substantial sum being paid out shortly thereafter to other clients as a “profit payment”. There was evidence also of payments of visa card debts incurred by the appellant.
This is more than sufficient to found a reasonable inference that when the funds were received they were subject to a direction that they were to be applied to a bona fide investment. The direction apparently was for a secured investment, although it is not strictly necessary to reach a decision on that aspect.
While the evidence indicated that Mr Ward knew the monies were being paid into a private bank account in Australia from which they might be brought back onshore by the company at a favourable time, it was open to the jury to conclude that in other respects they would only be applied for a genuine investment and that the appellant knew they were earmarked for that purpose. It is clear that they were quickly applied to different purposes and it was open to the jury to decide that step was taken by the appellant (or at his direction or with his connivance by Mr Baylis) and with fraudulent intent.
Turning to the appeal in relation to the false pretences charges concerning Mr Hobbs’ clients the Crown’s case was that the fraud consisted of causing monies to be paid by falsely representing that the funds would be pooled in an overseas trust account, protected by bank guarantee, and used to raise a line of credit which would fund the “bank debenture trading programme” at a 25% per month yield. Mr Lithgow accepted that there was evidence that the appellant along with Mr Baylis had told investors that trading was taking place when in fact, as the appellant had said in evidence, the money was not being accepted by the overseas principals at the time. As previously mentioned had the money been sent it would have been lost. Mr Lithgow emphasised that the verdicts did not turn on any question concerning the reality of the underlying scheme. It is perfectly clear however that there is no basis on which to challenge the jury’s verdicts on these charges, nor a basis for a challenge to the verdict on the count of obstruction of the course of justice.
Mr Lithgow in passing made some critical comments about the extent of the summing up to the jury by the Judge. We are satisfied that there is nothing in this point. The appellant’s case was more than adequately put before the jury.
For these reasons the appeal against conviction is dismissed.

Appeal against sentence

Mr Lithgow’s submissions on this aspect against sentencing were largely premised on the success of his submission that the convictions for misappropriation of funds held under a direction should be overturned. We have however dismissed the appeal against conviction. It cannot be said that a sentence of 4 years 9 months imprisonment was manifestly excessive for the offending on which the appellant was convicted. The Court cannot be distracted from the seriousness of the frauds involving the clients of Mr Ward by counsel’s criticism of his manner in which he did business, nor by criticism of the business decisions taken by Mr Hobbs. The sentence was an appropriate one. Accordingly the appeal against sentence, as well as that against conviction, is dismissed.

Solicitors

Crown Solicitor, Wellington, for Crown

[2002] NZCA 338

20 December 2002