R v Bigatton

Background

1. This is the third interlocutory judgment I have given in this matter. The general background to the Crown case and the legislative scheme were set out by me in R v Bigatton (No 3) [2023] NSWDC 290. I have tried not to repeat matters that are set out in those reasons. There is some considerable overlap between the arguments in support of this application and the arguments that were put on that earlier application to quash Count 2 on the Indictment. The charges arise out of the promotion in Australia of an opportunity to invest in crypto currency, known as "BitConnect".

Count 1

1. The Accused's submission is that Count 1 is "entirely without merit" so that I should conclude that the case is "foredoomed to fail".
2. This submission is based on the premise that "the Crown does not propose to lead any admissible evidence as to how the alleged managed investment scheme in fact operated - including - in particular, that it was an aspect of the alleged scheme that the contributions were to be "pooled" so as to produce financial benefits".
3. To properly understand and deal with this contention, it is necessary to analyse the definition of "managed investment scheme" in the Corporations Act 2001 (Cth), together with a number of authorities, with a particular focus on the authority primarily relied upon by the Accused, the decision of the Full Court of the Federal Court of Australia in National Australia Bank Limited v Norman (2009) 180 FCR 243 at [41] ("Norman"). At the heart of this application is a determination as to what that case stands for as a matter of binding legal precedent.
4. It is also necessary for me to make a judgment as to what "admissible evidence" is to be relied upon by the Crown. This must involve me identifying what evidence the Crown proposes to tender and then forming a view as to whether that material will be admitted into evidence and, if so, whether any limitations on its use will be made during the course of the trial. I also need to judge the question by having regard to the totality of the evidence.
5. The Accused, as an alternative also contends that Count 1 should be stayed because it says that the Crown is proposing not to call a witness which the Accused contends is a material witness (Glenn Arcaro) and material documents currently in the possession of the Federal Bureau of Investigation in the United States of America ("FBI"), which evidence if called by the Crown, so the Accused submits, will "significantly assist the Accused in his defence if not justify his acquittal".
6. For reasons I will explain, there is a degree of overlap between the two ways the Accused attacks Count 1. In my opinion, both depend at least in part on an understanding of Norman.

Count 2

1. The Accused contends that Count 2 is "unacceptably burdensome and oppressive" because of what he says is "the multiplicity of statements or recommendation together with the multiplicity of potential principles relied upon by the Crown". The submission is that the level of burden and oppression is at such a level so as to demand the conclusion that for the prosecution on Count 2 of the Indictment to go forward constitutes an abuse of process.
2. This submission has, at the very least, an echo of a submission that was not accepted by me in Bigatton (No 3).

Stay Applications - some general principles

1. This Court has an implied power to stay proceedings on the ground of an "abuse of process". That concept extends to all categories of cases in which the processes and procedures of the court are being used as instruments of injustice or unfairness: Walton v Gardiner (1993) 177 CLR 378 at 393 (Mason CJ, Deane and Dawson JJ); Subramaniam v The Queen (2004) 79 ALJR 116 at [26].
2. In criminal proceedings, the power is to be exercised in accordance with two fundamental policy considerations (as identified in Williams v Spautz (1992) 174 CLR 509 at 520). 1. That the public interest in the administration of justice requires that the court protect its ability to function as a court of law by ensuring that its processes are used fairly by State and citizen alike. 2. Unless the court protects its ability so to function in that way, its failure will lead to an erosion of public confidence by reason of concern that the court's processes may lend themselves to oppression and injustice.
3. The categories of factual situations which may call for a consideration of the possibility of an abuse of process in criminal proceedings are not closed: Jago v District Court of New South Wales (1989) 168 CLR 23 at 31 (Mason CJ), 74 (Deane J) and 77 (Gaudron J); Subramaniam at [26]. No narrow view of what constitutes an abuse of process should be adopted: R v WRC (2003) 59 NSWLR 273 at [54].
4. What constitutes fairness or unfairness in this context defies analytical definition and involves "an undesirably, but unavoidably, large content of essentially intuitive judgment": Jago at 57; Subramaniam at [27].
5. The test for whether a stay should be granted is the weighing process identified by Mason CJ, Deane and Dawson JJ in Walton at 395-396 (see Subramaniam at [33]): "… the question whether criminal proceedings should be permanently stayed on abuse of process grounds falls to be determined by a weighing process involving a subjective balancing of a variety of factors and considerations. Among those factors and considerations are the requirements of fairness to the accused, the legitimate public interest in the disposition of charges of serious offences and in the conviction of those guilty of crime, and the need to maintain public confidence in the administration of justice."
6. The weighing process is applied to answer the following question: "… whether, in all of the circumstances, the continuation of the proceedings would involve unacceptable injustice or unfairness or whether the continuation of the proceedings would be so unfairly and unjustifiably oppressive as to constitute an abuse of process: R v Edwards (2009) 255 ALR 399 at [23] (applying Walton at 392; subsequently adopted in TS v R [2014] NSWCCA 174 at [62])"
7. A decision as to whether a stay of a prosecution ought to be granted is essentially a factual determination with a discretionary or evaluative component: Subramaniam at [33]-[34]; see also TS v R [2014] NSWCCA 174 at [45].
8. Critically, stays are ordered only in "extreme" or "extraordinary" cases where there exists a fundamental defect which cannot be remediated: Jago at [33] - [34] (Mason CJ), [50] (Brennan J) and [77] (Gaudron J); R v Glennon (1992) 173 CLR 592 at [605] - [606] (Mason CJ and Toohey J); Dupas v The Queen (2010) 241 CLR 237 at [35]; RM v The Queen (2012) 221 A Crim R 465 at [47]; TS at [61]; Tony Strickland (a pseudonym) & Ors v Commonwealth Director of Public Prosecutions [2018] HCA 53.
9. In Strickland, Gordon J and Edelman J, citing Jago, observed at [203] and [265] respectively that to grant a permanent stay is a "drastic remedy".

The legislative scheme

1. At the risk of repetition of what I said in Bigatton (No 3), the statutory framework must be in part revisited.
2. For the Crown to secure a conviction on Count 1 of the indictment, it must prove beyond reasonable doubt that there was, in existence, a "managed investment scheme" that was required to be registered, and that scheme was operated by the accused.
3. For a scheme to be a "managed investment scheme" it must meet the requirements of the definition of that concept in the Corporations Act s 9. That definition states (relevantly) (my emphasis): "managed investment scheme" means: (i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not); (ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders); (iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); …
4. The application of the definition to an alleged "scheme" requires a two-step process: 1. First, the fact-finder must ascertain if there was a scheme and what the "scheme" is/was. The scheme must be capable of being objectively discerned (see Norman at [141]). 2. Second, the "scheme" must be assessed against the requirements of the definition.
5. This is the approach taken by Barrett J in Australian Securities and Investments Commission v Takaran Pty Ltd [2002] NSWSC 834 at [12], applied with approval in Norman at [141], and also in Burton v Arcus [2006] WASCA 71 at [54] (Buss JA, Steytler P and McLure JA agreeing).
6. The meaning of a "managed investment scheme" as defined is informed by the provisions of Chapter 5C including, relevantly, whether the scheme was "capable of complying with the requirements of a registered scheme": LCM Funding (2022) 292 FCR 169 at [134]-[136] and [156]; see also [10], [137]-[155], [165]-[166]; Norman at [183] and Australian Securities and Investments Commission v Great Northern Developments Pty Ltd 242 FLR 444 at [90], [2010] NSWSC 1087.
7. There are two aspects of the definition that require focus to resolve this application: 1. the requirement that contributions be "pooled" - this is the central issue in the "Foredoomed to Fail" submission; and 2. the question of whether a "scheme involving a programme or plan for the misappropriation of investors' funds", known colloquially as a Ponzi scheme, can ever be a "managed investment scheme" for the purposes of the Corporations Act 2001. The Accused contends that the answer to this question is No based on his reading of Norman.

Pooling / Use of funds in a common enterprise

1. The second limb of the s 9 definition of a "managed investment scheme" requires it to be proved that there was "pooling of investor funds" or "the use of funds in a common enterprise".
2. The Accused contends that the Crown has eschewed any reliance on that part of the definition, being "use of funds in common enterprise". His written submissions proceeded on that assumption.
3. The Crown does not accept that part of the definition will not be in play in the trial. I proceed on the basis that the Crown intends to rely on both limbs of the definition.
4. This is problematic for the Accused because no submissions at all have been addressed as to whether that second aspect of the definition can be characterised as "foredoomed to fail", rather, all of the energy has been directed towards the proposition concerning "pooling". In oral argument all I was told is that there is no relevant difference. I am not at all convinced that is a safe approach.
5. As to pooling, the Accused's submissions in writing were as follows: 1. "The second limb of the definition of a "managed investment scheme" requires the pooling of investor funds or the use of funds in common enterprise. 2. In Norman, Gilmour J (with whom Spender J agreed) analysed the authorities dealing with what it meant for contributions in a scheme to be "pooled" for the purposes of the definition in the Corporations Act. The following propositions can be distilled from his Honour's reasons: 1. On the question of pooling, the definition of "managed investment scheme" must be considered as a whole. The definition presumes that "prior to any contributions being made the programme or plan of action must have been articulated including the means by which benefits are to be produced; what those benefits are and what is the consideration to be paid to obtain interests in those benefits": at [139]. 2. It is not necessary that scheme members have any appreciation of the particular programme or plan or the details of it. Nor is it necessary that they appreciate that the funds contributed are to be pooled with those of other contributors: at [141]. 3. Pooling is not demonstrated where the contributions are unilaterally pooled by the recipient at some time after contribution of the funds, if the scheme did not contemplate pooling: at [147]. There must be an intention, objectively discerned, forming part of the "scheme" and formed prior to the making of contributions, that the contributions be pooled. The subjective evidence of investor intentions is relevant but not determinative of the question: at [148]. See also [151]-[152]. 4. The mere fact of pooling is not sufficient. The pooling must be for a purpose, namely, the production of financial benefits for the members as a whole proportional to the interest they acquired by making contributions: at [150], [155]-[158]. The purpose of the regulation of "managed investment schemes" is to regulate "collective investment schemes" allowing "individuals and groups with relatively small savings to get better returns by pooling their money, giving them more investment opportunities": at [156]. 5. Where money is placed into one bank account by a person with the intention that they be used according to the individual arrangements reached with each person who provided the moneys, the relevant intention is not present: at [153]. There must be a "single and corporate" purpose for the pooling: 6. … A fund made up of numerous payments from a number of individuals and used for a number of purposes pursuant to a particular arrangement made with each individual is different from a fund constituted by monies which were to be pooled to produce benefits for people who hold interests in the scheme: at [154]. 7. The placement of funds with a person for individual investment for the benefit of that investor alone does not involve a programme or plan under which funds are pooled for a common purpose, whether or not those funds were co-mingled: at [175]. 1. In Norman, the Court considered a scheme referred to colloquially (and imprecisely) as a "Ponzi scheme". The Court's evident understanding of such a scheme was one by which the operator of the scheme "rob[bed] Peter to pay Paul" (cf Graham J at [61]) or misappropriated funds from new investors to pay existing evidence interest that they had been promised (cf Gilmour J at [109]). However, the import of the Court's reasons are not limited to schemes which might be labelled as Ponzi schemes or which have the particular characteristics that were present in this case. 2. Gilmour J (with whom Spender J agreed) observed: [183] … As I have already explained, s 601EE allows managed investment schemes to be wound up where a person operates a scheme in contravention of s 601ED(5). Section 601ED(5) prohibits a person from operating a managed investment scheme that is required to be registered, unless the scheme is so registered. Section 601ED(5), accordingly, envisages that the unregistered managed investment scheme is of a kind which ought to have been, and could in fact have been, registered. In my opinion, a scheme involving, even in part, misappropriation as one of its features, is not a scheme of a kind which is capable of registration by the Australian Securities and Investments Commission under s 601EB of the Act. [184] Whilst in the colloquial sense it may be regarded as a scheme, it is not a statutory scheme withing the meaning of s 9 of the Act and, it follows, cannot be subject to a winding up order of the Court under s 601EE or otherwise. [185] Any scheme involving a programme or plan for the misappropriation of investors' funds could not involve contributions being pooled or used in a common enterprise to produce financial benefits "for the people… who hold interests in the scheme", as required by the second limb of the definition of "managed investment scheme". [186] As senior counsel for NAB put it, investors in a supposed scheme could not be taken to have intended to contribute money as consideration to acquire rights to benefits produced by a scheme in which they would be defrauded. (Emphasis added) 1. Given the requirement (identified above) to first ascertain objectively what the scheme (the "programme or plan of action") was, Gilmour J is clearly correct. If the scheme is in fact one where the nature of the programme or plan of action was to misappropriate funds from investors, that is flatly inconsistent (as a matter of fact, rather than as a matter of law) with any suggestion that the scheme was one by which funds were to be pooled for the generation of financial benefits for the members. The two purposes are mutually exclusive. 2. The point is this: the assessment of whether a particular programme or plan of action is a managed investment scheme occurs by reference to what the programme or plan of action actually was. If there is a divergence between what was represented to investors and how the scheme in fact operated, the Court must concern itself with how the scheme in fact operated. If the scheme in fact operated as a device to misappropriate funds from investors, then it was not (as a matter of fact) a scheme under which the funds of investors were "pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property" for members. 3. Insofar as Gilmour J suggested that a scheme involving misappropriation as one of its features could not be registered with ASIC, his Honour should be understood as referring (as he does two paragraphs later at [185]) to schemes in respect of which misappropriation of investor funds form part of the programme or plan of action; not schemes in which one-off or occasional acts of misappropriation might happen to occur. When Gilmour J's observations are understood as concerned with the programme or plan of action sought to be characterised as a managed investment scheme, the concerns expressed in Baskerville v Skene [2023] QSC 31 at [51]-[52] about the absurd consequence that might arise from (for example) single acts of employee misappropriation, fall away."
6. To this the Crown responded in writing as follows: 1. "The Accused places a lot of weight on the decision of National Australia Bank Limited v Norman (2009) 180 FCR 169. 2. That weight is misplaced chiefly because in Norman, the scheme there promoted, in the terms it was promoted was not a managed investment scheme. The scheme promoted in Norman involved individual investments, not investments that were to be pooled. 3. That point was identified and developed in Baskerville v Skene [2023] QSC 31, as follows: "[50] And so, the threshold question for the Full Court of the Federal Court was whether those facts were sufficient to meet the definition of 'managed investment scheme' in s 9 of the Act. The court found that there was insufficient evidence of the pooling of contributions to meet the definition. As Gilmour J said, the mere fact that the contributions were placed into one bank account by one person, with the intention that they be used according to individual arrangements reached with each contributor, did not constitute pooling or a common enterprise as required in the definition. [51]That demonstrates that the Full Court was concerned with a question of fact as to whether this particular conduct of the depositors and Mr McFarlane met the definition of 'managed investment scheme'. Thus, when Gilmour J said that a scheme involving misappropriation was not of a kind that was capable of registration, His Honour was saying that the misappropriation feature was another factor that took those particular facts outside the s 9 definition of 'managed investment scheme'. His Honour was not saying that a pooled investment of funds that otherwise fell within the definition was, by an act of misappropriation, disqualified from qualifying as a 'managed investment scheme'. In each case there is a question of fact as to whether the circumstances fall within the definition. It is inappropriate, in my view, to pull one factual consideration from a collection of facts in another case and to treat that fact as a disqualifying criteria for all future cases. … [54] In short, the fact that Mr Baskerville also pleads that there was misappropriation of some of the funds so received into the Fund does not disqualify the Fund as a 'managed investment scheme'. I do not read the Full Court's decision in National Australia Bank Ltd v Norman as compelling that result. That decision turned on its own rather special facts and, in particular, the absence of a common enterprise. On the peculiar facts of that case the only 'enterprise' was Mr McFarlane's intention to defraud the depositors." 1. The concerns raised in Baskerville are not only to do with potential absurd consequences arising from a single or isolated act of employee misappropriation. The language used is far more general than that. 2. The reading of Norman in Baskerville appears to be congruent with other remarks in Norman: "[151] That contributions are in fact pooled, in the sense that they are collected in the same bank account, after contributions have been made but without the requisite prior intention does not, in my opinion, meet the requirement under para (a)(ii) that contributions are "to be pooled". To conclude otherwise would be to ignore the prospective and purposive words "to be" in para (a)(ii). It is also inconsistent with the need for a scheme, in the sense of the programme or plan, to be in existence before contributions are made. [152] Accordingly, absent proof of such intention that they are to be pooled, I do not think that the mere fact that moneys are thereafter collected into one bank account meets the definition of a "scheme", for the purposes of s 9." 1. That passage further emphasises the factual difference of Norman from the instant matter. In Norman, there was no scheme. There was an individual, a bank account, and numerous individual investors. In this matter there was a scheme set up in advance, with a methodology and purpose, that purpose including that the funds deposited were to be pooled. 2. Inasmuch as the Accused submits that a scheme that involves misappropriation, including those that might be referred to as 'Ponzi' schemes, are incapable of amounting to managed investment schemes, he does so contrary to numerous authorities:

• ASIC v Dunjey [2023] FCA 361 at [96];
• ASIC v Marco (No 13) [2023] FCA 83 from [79]- [91];
• ASIC v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561;
• ASIC v Comcash Australasia P/L & Ors [2004] QSC 479;
• Australian Securities and Investment Commission v Atlantic Financial (Aust) Pty Ltd & Ors [2006] QSC 132;
• Australian Securities & Investments Commission v McDougall [2006] FCA 427
• Australian Securities and Investments Commission v Fuelbanc Australia Limited [2007] FCA 960;
• Idylic Solutions Pty Ltd - Australian Securities and Investments Commission v Hobbs [2012] NSWSC 1276;
• Australian Securities and Investments Commission v MyWealth Manager Financial Services Pty Ltd (No 3) [2020] FCA 1035. 1. In answer to an argument very similar to that now raised by the Accused, Douglas J in ASIC v Comcash stated: "[13] The funds provided by investors in this case were not invested in accordance with the "scheme" promoted to them or otherwise. Instead, the circumstances suggest that a fraud was committed. [14] It might be argued that the matter should, therefore, be treated by the court as a fraud rather than a "scheme", "programme, or plan of action" in relation to a managed investment. In other words it would not be a case where the contributors actually acquired rights to benefits produced by the scheme in spite of the objective effect of the scheme documentation. The use of the words "whether the rights are actual ... or not" in para. (a)(i) of the definition is against such an argument and the authorities suggest that schemes run by promoters who deliberately squander the investments trusted to them are nevertheless treated as "managed investment schemes"; see, for example, ASIC v Hutchings [2001] NSWSC 522 and ASIC v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561. Similarly, where schemes appear to be nonsensical, see ASIC v Young (2003) 173 FLR 441, 445-446 at [22]-[25]. [15] As the Court of Appeal said in ASIC v Enterprise Solutions 2000 Pty Ltd [2003] 1 Qd R 135 , 143 at [6]: "The rights which the investors acquire when they pay money in are rights to have the scheme operate in accordance with the agreements they have made and to be paid monies due ... Of course, participation may produce no benefit for an investor, but loss only: it would, however, be perverse to read the expression "to acquire rights to benefits produced" as excluding from the definition any scheme of investment which is not bound to produce benefits." [16] The appropriate course, therefore, is to look at how the scheme was promoted and determine objectively whether it is a "managed investment scheme" as defined by the characteristics set out in s 9 of the Act. The operators' conduct whether fraudulent or not and their intentions are only of secondary relevance to this question." 1. Further, Derrington J picked up those remarks in Australian Securities and Investments Commission v MyWealth Manager Financial Services Pty Ltd (No 3) [2020] FCA 1035: "[71] An arrangement will be a scheme even if the promised benefits are ultimately illusory. If by misrepresentation the scheme's promoter asserts that the investor will acquire rights which are greater than are actually legally available and those asserted rights bring the arrangement within the definition of a scheme, the arrangement will nevertheless constitute be a managed investment scheme: ASIC v Emu Brewery [92]. So much was explained by Douglas J in Australian Securities and Investments Commission v Comcash Australasia Pty Ltd (2004) 59 ACSR 632. That case was not entirely dissimilar to the present in that persons were induced to establish their own SMSFs and to place their entitlements from other funds into them. The funds would be placed in a bank account which was operated by the promoters of the scheme. The promoters of the scheme represented that the funds would be invested in joint ventures in the Commonwealth of Dominica which would generate returns of around 6% to 11%. The investors were also told they could borrow a portion of their funds from the joint venture for a period of 25 years. As it transpired there were no investments made in the Commonwealth of Dominica or elsewhere and the money was dissipated by the promoters, including to themselves. Douglas J considered whether the matter should be treated merely as one of a fraud perpetrated on the investors rather than a scheme or programme of action in relation to a managed investment. His Honour said at 635 - 636 [14] - [15]: ... [72] As his Honour held, it is appropriate to look at how the scheme was promoted and ascertain whether the apparent object was for persons to acquire rights to benefits produced by the scheme. [73] As the facts detailed above reveal, the investors were offered the benefit of interest returns on the amount invested. Whilst it is more than probable that those involved in the promotion of the scheme at no time held the intention to invest the funds in a way that would result in such returns, that does not prevent a finding that the scheme had the feature that the investors contributed money as consideration to acquire rights to that benefit. In the circumstances of this case this requirement was also met." 1. There is a further ill in the approach urged upon the Court by the Accused, a species of circularity. 2. The Accused appears to submit that if a scheme is, for whatever reason, incapable of being registered, then the offence could never be made out. 3. There are numerous reasons why a scheme may not be capable of registration:

1. By way of reply, the Accused pointed out that many of the cases referred to by the Crown predate Norman and that those that postdate it either do not seem to have had the authority drawn to the Court's attention or the matter was not adequately argued. More to the point, the Accused's submission is that they are all judgments of single judges throughout Australia and therefore should give way to Norman if they are in conflict with it.
2. The Accused emphasised his submission that the "foredoomed to fail" submission does not depend on a resolution of the question of law posed by Norman but rather is simply based on an analysis of the available "admissible evidence".
3. The Crown's analysis of Baskerville v Skene was branded as no more than a "bare assertion". In oral argument, however, counsel for the Accused conceded that he was driven to submit that Baskerville is wrongly decided.
4. As to the Crown's "circularity" submission, the Accused says that in no way confronts the decisions in Norman and LCM Funding which had endorsed the notion that the "capacity of a scheme to be registered" is a matter that must be taken into account in determining whether a scheme meets the definition of a managed investment scheme, but in any event, so the Accused says, there is a distinction to be drawn between matters which make the scheme incapable of complying with the legislation because of the intrinsic nature of the scheme, as opposed to matters caused by voluntary decisions of the scheme operator.

National Australia Bank Limited v Norman

1. Absolutely fundamental to some, if not all, of the Accused's submissions is that for a "scheme" to be a "managed investment scheme for the purpose of the Corporations Act", it is necessary for it to have the features and only the features identified in the definition in s 9 of that Act. So much is accepted by counsel for the Accused, however, he submits it is not a necessary step to the "foredoomed to fail" submission because it turns on a question of admissible evidence. I do not agree. For my part, I consider this to be a very important issue when considering the question of "admissible evidence" in the "foredoomed to fail" submission. To understand what evidence might be admissible and what needs to be proved by the Crown, it is to my mind to critical to first identify what needs to be proved by the Crown as a matter of law. The next step is to see what the evidence might be.
2. The Accused's submission is that the decision in Norman drives the conclusion that, if in fact what was intended by the "scheme" was not to pool money people contribute to a scheme, but rather to steal those contributions and use them to pay out people who have earlier contributed to the scheme as fictional returns of capital or income - loosely known as a Ponzi scheme - then whatever else can be said about the "scheme" it can never be a "managed investment scheme" as defined because it is not capable of being registered as such, because it does not contain the features identified, ie "pooling". Nor, so the Accused would say, can it have the characteristics of "used in a common enterprise".
3. In other words, the Accused says that the law is that a scheme which is marketed and represented to the world as having all of the features required to meet the definition of a managed investment scheme, is in fact not a managed investment scheme, if behind that veneer, there is in fact a fraudulent enterprise to steal people's money. Presumably, it is accepted that the time for assessing the scheme is the time (times) it was required to be registered.
4. The Accused builds on that foundation to seek to support the submission that I should be satisfied that the Crown has no "admissible evidence" available to it to prove that the definition of managed investment scheme has been satisfied at any level, let alone beyond reasonable doubt. This is because the Accused says, firstly, that there is no admissible evidence of "pooling" and secondly, that because the Crown will not be able to prove the scheme might not have been a Ponzi scheme
5. Dealing with each step in the Accused's argument in turn.

The ratio decidendi of Norman

1. I am not persuaded that Norman is authority for the stark proposition contended for by the Accused.
2. Even if I am wrong, I would not be satisfied that the proposition of law contended for by the Accused is so clear-cut so as to justify a conclusion by me at this stage that to allow the matter to proceed would amount to an abuse of process.
3. In this regard I think that the analysis in Baskerville v Skene, ASIC v Comcash and ASIC v MyWealth are correct and mean that Norman, if it be a correct statement of the law for anything is to be read as confined to its own facts.
4. As the Crown has submitted, in Norman as a matter of fact it was found that there was no scheme at all. It was found that the scheme lacked any of the requisite statutory hallmarks.
5. The Crown in this case seeks to prove that there was a scheme set up in advance, with the methodology and purpose, including that "the funds deposited were to be pooled" and or used in "a common enterprise".
6. Because of that factual distinction alone, I am not satisfied to the requisite level of certainty that this case falls within that rare category of cases that can properly be described as "extraordinary" or that I can be satisfied with certainty that the case is bound to fail.
7. Moreover, if I approach the matter at a more theoretical level, that is, the general proposition that a Ponzi scheme can never be a managed investment scheme, I am not at all sure Norman says that, Baskerville certainly is to the contrary as is the preponderance of the authorities referred to by the Crown.
8. It does seem to me to be entirely incongruous in the context of a legislative scheme that has the obvious intention of protecting investors who invest monies thinking that they are to be pooled with other people's monies, that law can never apply at all to situations where investors are separated from their money, because they are told that what they are investing into has all the features of a managed investment scheme as defined, but in fact it is not.
9. I do not think Norman is authority for that surprising general proposition. Moreover, I think the analysis of Norman in Baskerville which I have set out above (at paragraph 33 is persuasive and correct. In particular, by reference to what Gilmour J said at paragraphs [183], [184], and [185], what Freeburn J said in Baskerville at paragraphs [50], [51] and [54] is to my mind clearly correct. I paraphrase (my emphasis): 1. In Norman, the Court found that there was insufficient evidence of the pooling of contributions to meet the definition. 2. The Full Court was concerned with a question of fact as to whether the evidence proved a scheme that met the definition of a managed investment scheme. 3. Thus, when Gilmour J said that a scheme involving a misappropriation was not of a kind that was capable of registration, his Honour was saying that the misappropriation feature was another factor that took those particular facts outside the s 9 definition of managed investment scheme. His Honour was not saying that a pooled investment of funds that otherwise fell within the definition was, by an act of misappropriation, disqualified from qualifying as a "managed investment scheme". 4. Every case will involve a question of fact as to whether the circumstances fall within the definition or not and no particular fact ought be treated as disqualifying. 5. Norman was an application to wind up an alleged managed investment scheme. So the context of the Court's consideration was different to that which will be before the jury in this case. Moreover, the fundamental reason the application to wind up in Norman was unsuccessful was because of a conclusion, confirmed by the Full Court, that the alleged scheme had not been proved as a matter of fact. This factual conclusion did not depend on the misappropriation finding.
10. I am left in a situation where I have on the one hand, what I consider to be observations by the Full Court of the Federal Court which were not a necessary step for it to reach its conclusion, and on the other hand, a carefully reasoned analysis by Freeburn J in Baskerville as to what Norman stands for.
11. As I have said, confronted with that choice, I prefer Freeburn J's analysis. For what it is worth, I think he is clearly and obviously correct.
12. Moreover, the cases referred to by the Crown in their submissions set out at paragraph 33 above are also a persuasive body of law against the Accused. This significant body of judicial opinion, a lot of which is from extremely respected and senior judges in the field of corporations law, is all contrary to the Accused's submissions. I find the analysis by Douglas J in ASIC v Comcash and Derrington J in SIC v MyWealth particularly persuasive (set out at paragraph 33 and (9) above).
13. I appreciate that many of those cases predate Norman and of those that are post-dated do not refer to Norman and some were argued by litigants in person, but in the context of what I have said about Baskerville, an application where I need to be satisfied almost beyond reasonable doubt as to the strength of the Accused's submissions, I do not accept that the law is clear enough for the Accused's submission in fact falls a long way short.
14. What that means is that I do not accept the proposition contended for by the Accused is so beyond doubt that for the case to continue on any basis contrary to that legal proposition would amount to an abuse of process. In fact, I think that the contention of law relied upon by the Accused is wrong. To summarise in my judgment, what is required to make out a "managed investment scheme" as defined by s 9 of the Corporations Act is a question of fact. It is a question of fact that needs to be judged in totality by reference to all of the evidence. If as part of that evidence it be demonstrated that the alleged scheme either was from its inception or became a "Ponzi scheme" (or that might be the position), whilst that fact would undoubtedly be relevant to the overall factual consideration, it is by no means determinative. In other words, such a finding or possibility is not necessarily fatal to the Crown's case.

No admissible evidence

1. It is against that understanding of the law that I turn to the Accused's attack on the Crown's evidence.
2. The Accused's point is that the Crown will not be able to prove the "pooling" requirement. As I have already said, even if that be right, I am not convinced it would be fatal to the Crown case. The totality of the evidence will need to be considered as a whole. To focus on a search for specific direct evidence may be productive of error. There is no reason why a conclusion of "pooling" could not be inferred by a jury from the totality of the evidence without there being any direct evidence of pooling.
3. I turn then to the Accused's argument in relation to Count 1, that is, that there is no "admissible evidence" available to the Crown to prove the existence of a managed investment scheme.
4. The forensic basis upon which the Accused puts this submission is a little unusual.
5. A submission is made to the effect that the Accused's counsel has seen all of the evidence proposed to be relied upon by the Crown (and therefore, by inference, all of the evidence that will be before a jury at the conclusion of a trial). The Accused's counsel then identifies some of the evidence which he says is relevant to that issue and makes submissions that it is not admissible.
6. All of this is occurring in circumstances where I do not have before me all of the actual evidence so I can judge particular evidence in context, nor submissions from both parties as to admissibility.
7. In other words, buried within this application is a series of attempts to have preliminary rulings as to the admissibility of evidence in circumstances where the evidence is not before me in any sort of satisfactory procedural way, and no application has been made for such rulings.
8. To my mind, that is an extremely unsatisfactory setting for me to conclude that there will be no admissible evidence before the jury at the conclusion of the trial.
9. I do not know what evidence the Crown seeks to tender, I do not know how any single piece of evidence interrelates with all of the other evidence that might be before a jury, and most importantly, I have not seen the evidence nor heard proper submissions in relation to the evidence.
10. I am left in a position where the Accused has identified the evidence which he contends might be said to be "admissible evidence" and has then made submissions that this evidence is not admissible. Based on that conclusion, it is said that I should conclude that there is no evidence of an admissible nature available to the Crown at all.
11. The Crown, does not accept the premise that what has been identified by the Accused is all the evidence which might be before the jury. That is probably fatal to this aspect of the application. Nonetheless, the Crown has argued the matter upon the basis of the evidence identified by the Accused so as to make the submission that, even on that limited body of evidence, there is some "admissible evidence" capable of going before the jury, which evidence either inferentially or directly is sufficient to prove facts that support a finding of a managed investment scheme.
12. In particular, there is the email written by the Accused to a person I am told was a promotor of the scheme, on 9 October 2017.
13. I set the email out below: "Hi David For lending 1. You exchange your BCC for USD which goes into an account 2. The BCC goes back to BitConnect a. 50% of the BCC goes into a Reserve fund for Capital Growth .. Jan 2017 0.15c today Oct 9 2017 US$149. That alone is sufficient to pay out the 6 month average of 0.89% per day b. The other 50% goes into a grading account where trades take place. This is where the comms and % is paid out from. The Reserve Fund is only used in cases of an emergency. 3. Your interest is paid in USD. 4. Your lend is paid back to you at the end of term in USD. You can cash this out by transferring into BCC, exchanging for BTC and withdrawing it from there. Thank you"
14. In my view, taking a common sense and not overly legalistic approach to what the Accused said in that letter, it would be open to a jury to infer not only that there was an intention to "pool" funds but also a "common enterprise" for the purpose of the financial benefit of members. The email is an explanation by the Accused as to how the scheme works provided to someone who was going to promote the scheme.
15. As far as I can see, that email would be admissible, if that inference is available, against the Accused as an admission. It is probably also admissible as a business record.
16. As to the "mission statement" document proposed to be tendered by the Crown, what I know about it is that it was found on a website of BitConnect. It contains the following statement: "For lending, we pool the members' funds for our volatility software and trading bot. This is in case we make a loss with trading as there is any technical failure of the platform or sudden drop in asset value that we are holding."
17. The Accused says that that document will not be admissible because it is "hearsay". The Accused has declined to engage in any discussion as to why it would not fall within one of the exceptions to the hearsay rule, being a business record. It is said that is a matter for the Crown to demonstrate on this application.
18. I do not think that is right at all. On this application the Accused has taken upon himself the burden of demonstrating that there will be no admissible evidence capable of going before a jury. In those circumstances, it is simply not good enough for the Accused to identify that a piece of evidence is prima facie hearsay without seeking to persuade me that none of the exceptions to the hearsay rule are applicable. Leaving aside the forensic game playing, on the little I know about the provenance of that document, and acknowledging that the Accused has declined to argue the point, it seems to me that it is a business record and thus admissible.
19. There are then the statements of the various investors which they have provided to ASIC under compulsion pursuant to s 19 of the Corporations Act. In various of those statements the word "pool" or "pooling" is used. Whilst the form of the evidence in those transcripts is perhaps problematic, I am not in the position at this stage to determine that the evidence actually given by those witnesses at the trial will not be admissible.
20. Accordingly, in relation to the "foredoomed to fail" submission in respect to Count 1, for the reasons I have given, I am not satisfied that there is no admissible evidence to prove the Crown's case on what I consider to be a correct understanding of the legal position.

Failure of the Crown to call a material witness

1. Finally, in relation to Count 1, there is the question of the foreshadowed failure of the Crown to call Glenn Arcaro and to produce material documents which the Accused says are in the possession of the FBI.
2. To this submission the Crown has pointed out that it does not "unilaterally" have the power to attempt to bring Mr Arcaro or related documents before the Court. It points out that it is just as much a request when the Crown, through potential channels, asks for such assistance, as it is when an accused person makes a similar request pursuant to s 39A of the Mutual Assistance in Criminal Matters Act 1987.
3. The Crown also emphasises that the offence provision - s 601ED of the Corporations Act, creates a prohibition against doing something "in this jurisdiction".
4. In the affidavit material relied upon by the Accused insofar as it concerns what evidence Mr Arcaro or the documents might be relevant to, there is no mention of the Accused, of Australia or of the regulatory environment of Australia. Not unsurprisingly, the focus of the FBI's enquiry concerning Mr Arcaro is what he did in the United States of America with respect to the business known there as "BitConnect". So the Crown contends it is singularly unlikely that Mr Arcaro would, even as a matter of speculation, be able to cast any light on the characterisation of things done in Australia by reference to the applicable law on Australia.
5. In my opinion, putting all other matters to one side, the potential relevance of Mr Arcaro's evidence could be only that there was a Ponzi scheme operating in relation to the BitConnect business in the United States of America. In this regard, I use the phrase "a Ponzi scheme" as a loose concept which may well have different meanings to different people in different circumstances, but for present purposes, I proceed on the basis that a Ponzi scheme is a fraudulent investment scheme, wherein monies invested by investors are stolen in part, but more likely used to repay fictitious returns to other investors the subject of the same fraud.
6. The Crown submits, as a matter of law, that it is not necessary for the Crown to demonstrate one way or the other whether the scheme was or was not a Ponzi scheme. I agree. Rather, what is necessary is to prove what the intention at the establishment of the scheme was. Moreover, the Crown says that the fact Mr Acaro may be able to say there was a Ponzi scheme operating in America under the same name cannot prove what was going on in Australia.
7. The question of the Crown's obligation of fairness within the context of an adversarial system of criminal justice was recently discussed and explained by the Court of Criminal Appeal in Ho v R [2023] NSWCCA 245 where Wilson J said as follows at [88] - [92]: "[88] The obligation of the Crown in bringing an accused person to trial does not extend to a duty to investigate an accused person's case on his or her behalf, or to present that case at trial. The Crown has an obligation of fairness within the context of an adversarial system of criminal justice, but that does not mean that it is bound to pursue every matter said by an accused to be relevant to the subject of the trial, or to secure the attendance of every person nominated by the accused as a potential witness. As the High Court said in Richardson v The Queen (1974) 131 CLR 116; [1974] HCA 19 at 120: "It is […] a misconception to speak of the prosecutor as owing a duty to the accused to call all witnesses who will testify as to the events giving rise to the offence charged." [89] The obligations on the Crown with respect to leading evidence and calling witnesses are well established, from decisions including Richardson, Whitehorn v The Queen 152 CLR 657, [1983] HCA 38, and The Queen v Apostilides (1984) 154 CLR 563, [1984] HCA 38. In summary, the principles to be drawn from these and other authorities, noting the fundamental obligation of the Crown to treat an accused person fairly, are these: (a) It is for the Crown and not the court to decide which witnesses the Crown will call in its case: Richardson at 119; Whitehorn at 663. (b) That decision is to be made in conformity with the dictates of the obligation of fairness to the accused, and having regard to other material considerations, such as whether the evidence is necessary to the unfolding of the Crown case; whether the evidence is truthful and credible; and whether it is in the interests of justice to subject the evidence to cross-examination by the Crown: Richardson at 119. (c) The Crown is not bound to call a witness, even an eye-witness, whose evidence is judged to be unreliable, untrustworthy or otherwise incapable of belief: Whitehorn at 674. (d) Criminally involved witnesses can be regarded prima facie as unreliable, and there is no principle of law that requires the Crown to call such a person in its case: Allchin v R; Skepevski v R [2019] NSWCCA 278 at [127]. (e) A judgment not to call a witness must be based on identifiable features, including the assessment made of the witness after a conference with that person where appropriate: Whitehorn at 664; R v Kneebone (1999) 47 NSWLR 450; [1999] NSWCCA 279 at [49] and [102]. (f) Tactical considerations can play no part in the decision to call a witness: Whitehorn at 664. (g) Where the Crown decides not to call a witness who has been nominated by the service of the brief of evidence as a Crown witness, the decision must be communicated to the accused at a reasonable time and the witness made available at trial to the accused: Whitehorn at 664. (h) The reasons for the decision not to call the witness should be disclosed if sought: Whitehorn at 665. (i) There is no authority for the proposition that the Crown has a duty to actively seek out material not in its possession so that the material might be made available to the accused: Marwan v Director of Public Prosecutions [2019] NSWCCA 161 at [45] to [50]. (j) Where a witness who might have been expected to be called by the Crown and to give evidence on a matter is not called, the jury may take the fact that there was no evidence from that witness into account when deciding whether the Crown has proved its case: Mahmood v Western Australia (2008) 232 CLR 397; [2008] HCA 1 at [27]. (k) A decision of the prosecutor not to call a particular witness will only constitute a ground for setting aside a conviction if, when viewed against the conduct of the trial taken as a whole, it is seen to give rise to a miscarriage of justice: Apostilides at 575. [90] Nothing in those principles suggests that the Crown has any obligation to investigate an accused's case on his or her behalf, or to take over the burden of presenting that case to the jury. It did not have that obligation or that burden with respect to the applicant at his trial. As the trial judge surmised in dealing with the application for a temporary stay, there was no basis to conclude that the applicant's trial would be anything other than fair. [91] A temporary stay of prosecutions may be granted by a court, but only where there is reason to believe that the trial of the accused is likely to be unfair: Dietrich v The Queen (1992) 177 CLR 292; [1992] HCA 57. To borrow from Gould v Director of Public Prosecutions (Cth) (1992) 359 ALR 142; [2018] NSWCCA 109 at [64]: "In the present case, the applicant did not establish, or even assay the task of establishing, that a trial, absent production of the [evidence] sought, would be likely to be unfair, or even (if a lower standard could be sufficient) that there was a tangible risk that it would be unfair." [92] On the material before this Court, including as it now does the record of the trial, no unfairness was occasioned to the applicant at his trial. He had access to all known material evidence, and he was able to use that evidence, either in cross-examination of the complainant and other witnesses, or by calling witnesses or tendering documentary evidence. Even without giving evidence himself, the accused advanced a substantial defence before the jury and the jury was able to assess the testimony of Ms Z in the context of the whole. He was not prejudiced or placed at any forensic disadvantage. His Honour was correct to dismiss the application and no error of law has been established, much less an error that led to a miscarriage of justice."
8. Applying those principles to the present case, counsel appearing for the Crown has told me that he has decided that it is not necessary as a matter of fairness to call Mr Arcaro.
9. He has provided reasons for that decision including that Mr Arcaro is, for the reasons set out in the preceding paragraphs, extremely unlikely to be able to give relevant evidence as to what was going on in Australia and is also likely to be unreliable because he was criminally involved in what he himself describes as a Ponzi scheme which he has accepted breaches the "wire fraud" criminal provisions in the United States of America. Moreover, he has pointed out that he has no direct ability to compel Mr Arcaro's attendance. That can only be achieved via diplomatic channels.
10. It is not for me to dictate what evidence the Crown must call. Nor is it appropriate, except in the most clearcut cases, for me to seek to second guess an evaluative judgment made by counsel appearing for the Crown.
11. Insofar as reasons have been given, it seems to me that they are entirely reasonable.
12. Moreover, and fundamentally, I do not think that there is any prospect of the trial being "unfair" if Mr Arcaro is not called. That, it seems to me, is the test. There is voluminous material available to the Accused which proves what Mr Arcaro is likely to say. Not the least of this is the "plea bargain" documents which he has signed and submitted to a United States Federal Court. Those documents, which as far as I can see would be admissible insofar as they prove Mr Arcaro's understanding of the overarching worldwide scheme (which may or may not be the same as whatever was happening in Australia), prove that Mr Arcaro considers what was going on was a "Ponzi scheme". They would be admissible as it seems to me that Mr Arcaro would be otherwise unavailable to give evidence, he being incarcerated in a Federal Penitentiary somewhere in the United States of America.
13. The fact that Mr Arcaro considers what he was doing in America is operating a Ponzi scheme is that the Accused wishes to have before the jury and as presently advised, I can see no reason why that fact (if relevant) would not be before the jury without Mr Arcaro coming to give evidence.
14. What I am being asked to do on this application is to make a decision well prior to a trial that the failure of the Crown to call Mr Arcaro or to tender documents in the possession of the FBI causes such a forensic disadvantage to the Accused so as to constitute the proceedings as an abuse of process.
15. For the reasons I have given, I am not satisfied at this stage of the proceedings of that mixed question of fact and law.

Count 2

1. I dealt with an application by the Accused in this matter to quash the Indictment (in R v Bigatton (No 3) [2023] NSWDC 290).
2. It seems to me that the submissions being made on this application concerning Count 2 squarely replicate the submissions that were made in support of that application. Albeit the Accused now has fresh particulars for the Crown which by an arithmetical exercise allows him to contend that he is being asked to answer 768 separate cases.
3. As I understand it, a Notice of Appeal has been filed in relation to my earlier judgment and no suggestion has been made as to why I should revisit my earlier conclusions of principle. In the circumstances, I do not think it appropriate for me to again consider that same question, if for no other reason that it is close enough to inevitable that I will come to the same conclusion and the Court of Criminal Appeal is already seized of the question.
4. There has been a moderate change in circumstance since my earlier decision. The accused now has particulars from the Crown which allows him to perform an arithmetical exercise the result of which he says supports the proposition that it would be oppressive for him to be required to answer the case.
5. The Accused's submissions is as follows: "The width and breadth of a Crown case is capable of being oppressive such that it should be stayed: see, eg, DPP v Johanes Shirvanian [1999] NSWSC 53. It is respectfully submitted that a prosecution where the accused is required to anticipate and meet 768 different potential Crown cases (32 statements of opinion/recommendations x 24 different permutations of the principal). This prejudice can be cured by the Crown electing as to the precise formulation of the "principal" that it relies upon."
6. This arithmetical exercise does lead to a rather startling number. However, I think as a matter of real-world and common sense practicality, in defending the case, the Accused is not being asked to defend 768 potential Crown cases. It strikes me that the way the Crown puts its case falls within easily understandable silos which do not need to be considered on a "line by line basis". I do not see any oppression or unfairness in the way the case has been particularised that would justify a permanent stay.
7. Nothing that has been said on this application causes me to depart from what I said in my earlier judgment and in particular paragraphs [69] - [72].

Conclusions

1. For the reasons I have given, I am not satisfied that there is no alternative but to grant the relief sought by the Accused, being a permanent stay of the proceedings.
2. I am not satisfied that Count 1 is "foredoomed to failure" so as to proceed would be oppressive and therefore an abuse of process in the sense explained in cases such as Williams v Spoutz (1992) 174 CLR 509 at 522, and Walton v Gardner (1993) 177 CLR 378 and most recently in R v Blackett [2018] NSWCCA 114 at [43].
3. I am not satisfied that the foreshadowed "failure" of the Crown to call Mr Arcaro or indeed any other person involved with the scheme in the USA, or to tender documents from the USA about a scheme operating under the name "BitConnect" in that jurisdiction will create such a level of forensic disadvantage to the Accused so as to lead inevitably to the conclusion that the proceedings are an abuse of process.
4. Finally, I am not prepared to revisit my decision in R v Bigatton (No 3) in which the underlying premise in relation to the attack on Count 2 being that that decision is wrong. Nor do I find the arithmetical exercise performed by the Accused demonstrates anything of substance.
5. For all these reasons I dismiss the Accused's application.

Amendments 17 May 2024 - Publication restriction lifted. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 May 2024