R v Hoy [2011] VSC 95

Supreme Court of Victoria|2011-03-23|Before: T FORREST J

CRIMINAL LAW - Sentence - Fraud -Continuing criminal enterprise - General deterrence - Good rehabilitation prospects - Age - Health

1 In May 2002 Rau Enterprises changed its name to Chartwell Enterprises Pty. Ltd. Prior to this time it was owned by Mr Ian Rau. You, Mr Hoy, took a half share at this time through your family company Black Swan Pty. Ltd., and you also became the sole director of Chartwell. Mr Rau continued as the company secretary.

2 Before May 2002 both you and Ian Rau had conducted share trading activities on your own behalves. Neither you, nor Mr Rau, had had any formal training in the running of business or in the handling and investing of other people's money.

3 Chartwell conducted a financial services business in Geelong. You assumed the role of attracting investors and Rau was generally responsible for trading. The business of Chartwell generally involved the receipt of funds from investors who were told that their funds would be pooled with other funds and then invested in financial markets with a view to generating substantial profits.

4 You have pleaded guilty to 34 charges of obtaining a financial advantage by deception (s.82(1) Crimes Act 1958 Vic), 10 charges of obtaining property by deception (s.81(1) Crimes Act 1958 Vic), carrying on a financial services business without a licence (s.911A(1) Corporations Act 2001 C'th), engaging in dishonest conduct in carrying on a financial services business (s.1041G(1) Corporations Act 2001 C'th) and dishonestly making improper use of your position as a director with an intent to gain an advantage s.184(2)(a) Corporations Act 2001.

5 The period over which these offences occurred extended from January 2007 until April 2008. All State charges except charges 8 and 44 of the Crimes Act charges are continuing criminal enterprise offences for the purposes of Part 2B of the Sentencing Act 1991 (Vic). Charges 1, 3, 4, 5, 9, 10, 11, 12, 15, 19, 20, 26, 30, 38 and 41 are rolled up charges involving more than one dishonest receipt of monies with the offending being expressed as having occurred between two nominated dates. As a continuing criminal enterprise offender you are liable to a maximum term of imprisonment of twice the maximum term prescribed for those charges. That is charges 1 - 7 and 9 - 43. The maximum term is potentially doubled to 20 years for each of these offences.

6 I have been assisted by an agreed statement of facts which sets out the circumstances of your offending in considerably more detail than will be found in these reasons for sentence. I shall annex that document to these reasons.

7 The bald figures that can be calculated from your offending are breathtaking. Over a period of 15 months the deceptions you practised upon the public garnered Chartwell nearly $16m of investor funds. During that period, and also as a result of your dishonesty, you procured for Chartwell credit from the Commonwealth Bank in the sum of $5.83m. Those figures alone give some indication as to the scale of your dishonest conduct but say little about the lives that you have diminished in the process.

8 The deception you practised on investors is sometimes known as a Ponzi scheme, named after the notorious criminal Charles Ponzi who operated an early example of it in the 1920's. In the agreed statement of facts it is so described at paragraph 9. You attracted money from investors by offering extraordinarily high interest rates. During the offending period the money was not used for investment at all. Some of it was used to make payments to existing investors of what was called 'interest' on their investments. Some of it was used to prop up the facade of Chartwell's prosperity and some of it was used to fund your lavish lifestyle. In the 15 month offending period Chartwell received nearly $22m from investors who were led by you to believe their money would be pooled and invested on financial markets. In reality only $429,130 was so invested. Ninety-eight percent of the funds Chartwell received were simply stolen from investors, and you, by your pleas admit responsibility for dishonestly dealing with nearly $16m of those funds.

9 It is apparent from the various witness statements that victims of your conduct were small family investors either attracted directly to the inflated returns offered or who were introduced to Chartwell through Syndicate Leaders who were so attracted. Typically a Syndicate Leader would be advised by you of even higher returns available if a really large sum were invested. He or she would then approach friends or family and their funds would be pooled in order for the investment to be made.

10 I have referred earlier to the returns that Chartwell offered. In cases where a fixed return was offered it was never less than 20% p.a.; more often 30% p.a. or more, and on several occasions 50% p.a. or above. These fantastic returns were given some verisimilitude by the outward signs of prosperity that Chartwell exhibited. The wages bill for a company that was not trading was enormous. During the offending period you employed approximately 40 market analysts who studied trends and made predictions. Charts were displayed on the walls. The room was alive with apparent activity. Prospective investors were shown through the trading room and they were told of the Chartwell system - that it was based on the methodology of W D Gann and that profits were high and assured regardless of market trends. In many cases investors were told that sophisticated risk management systems were in place. You made most of these representations. By your pleas you admit the falsity of the representations particularised in the indictment. I consider your conduct in this respect quite disgraceful.

11 I do not propose to set out the circumstances that surround each transaction or set of transactions. They are contained in the Agreed Statement of Facts. Throughout the offending period you knew that Chartwell was, in fact, not trading and yet your pursuit of new investment was relentless. To every new or return investor you made one core misrepresentation - the funds would be used for trading. To that core lie you would add, depending on the occasion, various other lies and inducements, not least of which were the astronomical returns available upon investment.

12 Mr Morrissey SC put on your behalf that throughout the offending period you encouraged investment in the hope that the company could trade its way back to profitability. This is an explanation that you also provided to your psychologist Dr Ball:

"Mr Hoy said that when he realised the parlous state of Chartwell's financial affairs he fell into a state of panic and set about deceiving investors in the hope of being able to trade Chartwell out of its financial crisis."

The financial crisis that you were referring to is mentioned at paragraph 8 of the Agreed Statement of Facts:

"In mid 2006 Rau placed a number of large trades which were unsuccessful. From August 2006 there was little money left in the trading accounts and consequently monies received from investors to be used for trading were instead largely used to pay purported interest payments, as well as to pay business expenses and personal expenses of Hoy and Rau."

13 The Administrators Report dated 20 May 2008 is behind Volume 1, Tab 6 of the materials supplied to the court by the Crown. At page 4 of that report (page 9 of the depositions) under the heading Trading Performance the administrator observes that the company had never prepared formal financial statements or lodged income tax returns. From incomplete management accounts that had been set up for 2004, 2005 and 2006 the company's performance was summarised as follows:

14 Whilst I accept that management accounts have their limitations, particularly incomplete ones, it is apparent that the company had incurred continuing operating losses and large net asset deficiencies well before 2006. I am prepared to act on the basis that Rau's unsuccessful trading in 2006 may have brought to a head the company's underperformance. I am unable to accept, however, that you held out any genuine hope in 2007 and 2008 that the company could trade out of difficulty. The company simply did not trade in any meaningful way during that period. Perhaps you may have hoped to raise by dishonest means sufficient investor funds so that you could attempt to trade the company out of trouble, but that is hardly a mitigating factor. The fact remains that you must have known of the company's hopeless financial state throughout 2007 and into 2008 and yet you continued to deceive investors, not just at the point of investment, but also when they enquired about their funds. You were present and complicit with Rau at the Riviera on Yarra dinner in December 2007 where concerned investors were told "the future looks great", Chartwell had a "disciplined approach to highly leveraged trading platforms" and a "consistent trade record of company growth." At this stage the company had not traded for at least 11 months and, if the management accounts are to be believed, had a net asset deficiency of over $28m. You assured an investor in January 2008 that things were fine and her funds were safe and intact and you assured other investors on 5 April 2008 (only days before the inevitable collapse) that their money was 'still very safe.'

15 As I have said, the victims of your offending were largely small investors, often investing their superannuation. In addition to their witness statements, five Victim Impact Statements have been tendered. They make for depressing reading. One man, Mr E, still with young children to bring up, has been all but bankrupted; his wife has been bankrupted. Their friends whom they introduced to Chartwell are gone. His marriage is under "huge stress". You explained to him how he could achieve a better interest rate if his investment were larger and his erstwhile friends pooled their money with him.

16 Another, Mr H, describes how at 71 he now is compelled to work for at least another four years. He and his wife trusted their savings with you and lost them all. The retirement that they looked forward to is no longer a reality. They will spend the rest of their days in reduced circumstances as a direct result of your dishonesty.

17 Mr M is a retired academic. Like the previous witness/victim he too looked forward to retirement only to lose it. You showed him around the trading room, put compelling arguments as to why he should invest with you, befriended him, discussed health issues and then took his money.

18 Mr S underwent a liver transplant in October 2005. His recovery was delayed and he was compelled to sell his house. He netted $80,000. He explained to you his circumstances, including his health problems. On 31 May 2007 he transferred his money to you. You had assured him his money was safe and that he should place his trust in you. In the days following your receipt of his money for investment in the share market, you disbursed approximately $68,000 of it, none of it whatsoever in the way you had promised.

19 It is unnecessary to recite the current or past circumstances of all the people you preyed upon. You have diminished the lives of all of them. You have stolen from them and you have humiliated them, and for that you must be held to account.

20 Your dealings with the Commonwealth Bank in 2007/8 display a similar quality of dishonesty. In September 2007 the Commonwealth Bank approved a business loan to Black Swan Pty. Ltd. (a company you part-owned and controlled) in the amount of $3.68m. The bank required, inter alia, Chartwell's financial statements for 30 June 2006 before it would approve the loan. You caused to be supplied to the bank a false Chartwell Unit Trust Balance Sheet which claimed total assets of $19.05m and net assets of $100.00. The Chartwell Enterprises Balance Sheet claimed falsely net assets of $3.176m. The Profit and Loss account claimed again falsely an operating profit after tax of $2m approximately. The true position in July 2006 was one that I have referred to earlier. Chartwell Enterprises Pty Ltd had a net asset deficiency of over $28m and its net operating loss for that year was $2.754m. $3.68m was procured from the bank by this deception.

21 In January 2008, unbelievably, the Commonwealth Bank extended you further funds in the form of an increased overdraft to Black Swan. This time the false Chartwell accounts had been updated to purport to represent the 30 June 2007 position. You supplied to your accountants information that again vastly overstated the net asset position and told of a $2.3m operating profit when in fact the true picture was of an operating loss of $2.9m. The Commonwealth Bank extended your overdraft by a further $2.150m after being provided with these lies.

22 Within the very large context of your offending, a relatively small percentage of the funds dishonestly obtained can be directly traced to a lavish lifestyle. At the time that the Administrator reported, your loan account with Chartwell had a book value of $522,000 which simply means that that was the accumulated balance of monies you had borrowed from Chartwell. This debt accrued over 27 months up to October 2007 and was mostly the result of relatively small withdrawals. It is impossible to say whether any of these monies advanced by Chartwell to you came from funds received from one or more of the offences to which you have pleaded guilty. What can be said with more certainty, however, is in the months leading up to the Chartwell collapse you became a very conspicuous consumer in Geelong, and the investors in and financiers to Chartwell underwrote that consumption.

23 Black Swan, your company, purchased an 87' Warner Sport Yacht in 2007. In April you transferred $700,000 of investors funds from Chartwell to Grant Torrens International Marine Pty. Ltd, as deposit on the yacht 'One Song'. In August CBFC finance loaned Black Swan $6.7m in what was styled as 'equipment loan' the equipment being the yacht. You used your position as a director of Chartwell dishonestly by executing a guarantee on behalf of Chartwell in respect of this loan. This occurred at a time when Chartwell was not trading and completely insolvent. This constitutes charge 47. It appears that a significant amount of these funds were indirectly repaid to Chartwell or directly to investors as interest. (See exhibit 3 ).

24 At about the same time you purchased a Rolls Royce Phantom motor car. This vehicle was leased for a relatively short time before being repossessed and the lease payments were made from Chartwell funds. Three lease payments of $14,323 were made. It is hard to avoid the conclusion that these conspicuous displays of wealth were designed to complement the false Chartwell image of great prosperity.

25 You have pleaded guilty to carrying on a financial services business whilst not being the holder of an Australian Financial Services Licence. Chartwell is the principal offender and your liability is accessorial via s 11.2 of the Commonwealth Criminal Code. In substance, Chartwell provided through you, and sometimes Rau, financial product advice, as a result of which people invested money with it. The purpose of this legislation is to protect the investing public from unskilled or unscrupulous advisers. Chartwell was both. By your actions you aided and abetted Chartwell to conduct its business whilst unlicensed. You were, in effect, a 50% shareholder in Chartwell. You knew that it was required to be licensed and that it was not. In November 2007, Chartwell purchased PGM (a holder of the relevant licence) with investors funds. You emailed investors at that time advising them that a reason for this purchase was so that Chartwell could come within the "regulated umbrella". Chartwell also referred to this purchase in this context in a Newsletter dated 18 December 2007 and Rau made statements to this effect at the dinner held for investors on 12 December 2007. I regard this as a serious example of this offence. You assisted Chartwell to practice without a licence at a time when you must have known that the affairs of Chartwell were highly irregular. The very people this legislation aims to protect were the targets of Chartwell's blandishments and inducements. This constitutes charge 45 of the indictment.

26 Charge 46 alleges a contravention of s.1041G (1) of the Corporations Act 2001 (C'th). You admit aiding, abetting, counselling or procuring Chartwell to engage in dishonest conduct in relation to financial service. This dishonest conduct involved providing false explanations to investors relating to reasons for the delay in interest payments, the security of their investments and the financial status of Chartwell and its future prospects. I have referred already to an occasion on 12 December 2007 at your then restaurant Riviera on Yarra. Mr Rau, prompted by you, assured concerned investors of the future health of Chartwell. Thereafter when investors inquired about the security of their investments you painted an entirely misleading picture. It was not until 22 April 2008 that you finally admitted certain realities to the administrator, Mr Secatore. You stated no funds had been invested for about two years and funds had been applied to running expenses, wages, research and development and as general returns on investment in the form of capital and interest payments.

27 Charge 47 relates to the guarantee you signed with Rau for the 'equipment loan' for the yacht. I have dealt with the circumstances relating to this earlier in these reasons. You dishonestly used your position as a director by signing this guarantee to acquire for Black Swan the loan necessary to purchase the yacht. The yacht was not for Chartwell's use and Chartwell had no chance of legitimately meeting the guarantee should it have been called upon.

28 You are now 58 years old. Since Chartwell collapsed you have lived with your former partner Ms Johns and your three stepchildren. I understand this to be emergency accommodation rather than any resumption of the relationship. I have read references provided by Ms Catherine Johns and her children. You were together for over twenty years having met as teachers at Deer Park High School. You have supported Ms Johns through a serious illness and have taken an active and loving role in bringing up your three stepdaughters. Ironically, it seems the catalyst for the breakdown in the relationship was your developing involvement with Mr Rau and the Chartwell business.

29 Your childhood was, I am told, a difficult one characterised by clashes with your mother. You were a good student who matriculated from University High School and subsequently completed an Arts degree and a Diploma of Education at the University of Melbourne. You have one older brother. Psychological evidence has been tendered on your behalf. You have been prone to depression over the years and have been prescribed anti-depressants around 1990 and more recently Aropax tablets from February 2003 until October 2004.

30 You had not received any formal psychiatric or psychological treatment in the years leading up to the Chartwell collapse. In late April 2008 (i.e. not long after the collapse) you were referred by your GP to Mr Martin, a clinical psychologist. You saw him initially on 5 May 2008 and thereafter on regular occasions until October 2008. Given the recent turmoil in your life it is not surprising that Mr Martin diagnosed an Adjustment Disorder with Mixed Anxiety and Depressed Mood (DMS-IV: 309.28). Your symptoms of anxiety and depression became chronic and persisted until Mr Martin ceased psychotherapy in October 2008. During this time your GP prescribed anti-depressant and anxiolytic medication. Your GP describes you as a shattered man. This observation seems to have been made at a time just after Chartwell collapsed.

31 Dr Tofler, a psychiatrist, took over your treatment in October 2008. In an unsigned report he states that you have consulted him for treatment on a total of six occasions, most recently early this month. You received legal advice that you had no defence to these charges which seems to have triggered a depressive relapse. Dr Tofler has expressed the opinion that you have developed some insight into your contribution to Chartwell's collapse and that you express an appropriate level of remorse. You have expressed some depressive symptoms at times but generally your affect has been reactive and your outlook positive. Dr Tofler is of the opinion that the inevitable custodial sentence that I must impose will be detrimental to your mental health.

32 Very recently your solicitors have commissioned a forensic psychological report from Mr David Ball. He saw you twice at the beginning of March for a total of two hours. Mr Ball agreed with the prior diagnosis of Adjustment Disorder and Depression but also concluded that you satisfy the diagnostic criteria for a dysthymic disorder. As I understand these criteria (set out in Appendix Two of Mr Ball's report) this condition manifests itself in a chronically depressed mood more on than off, but with a lower level of symptoms than is observed with major depressive episodes. Again, given the tumultuous events of the last couple of years, this diagnosis is hardly surprising. Mr Ball concurs with Dr Tofler's opinion that incarceration may trigger a recurrence of a depressive episode. On the issue of incarceration you offered the following to Mr Ball:

"I'm in a process of psychological rehabilitation and self discovery that will be adversely affected by the circumstances of incarceration. I do not yet feel that solid "core of being" that I have described that would facilitate dealing self-reliably with both the adversity of incarceration and any recurrence of major depressive illness."

33 On balance, I accept that you are prone to depressive illness and that any term of imprisonment that I impose may be somewhat more onerous because of this tendency.

34 It was submitted on your behalf that your moral culpability for the offending was reduced by your depressive illness. Of the four health professionals whose opinions have been tendered in evidence, none link any psychological or psychiatric illness to your offending. Whilst Mr Ball stands alone in diagnosing a dysthymic disorder stemming from a dysfunctional upbringing, it is of fluctuating chronicity and unlinked to the offending. I understand Dr. Tofler, Dr Grambas your GP and Mr Martin to be saying that any depression or anxiety that you were experiencing when they saw you was largely reactive to the collapse of Chartwell and your predicament. In fact, you reported precisely this to Mr Martin in your initial consultation. I do not accept that your moral culpability for offending is reduced by mental illness.

35 It was also submitted that your physical health ought act to mitigate the sentence I am to impose. I consider that your health is no better or worse than may be expected for a 58 year old man. I have been supplied with your GP's records from both the Geelong City Medical Clinic and medical reports from the Clifton Hill Medical group. High blood pressure has been a concern for a number of years and this has been treated with medication, recently more aggressively. In December 2007 you complained of sudden onset of dizziness and confusion. You described this at the time to investors as a mini-stroke. The clinical indications were of a "transient ischaemic type of attack". However, this diagnosis was not confirmed and tests on your carotid arteries did not disclose any significant interference of blood flows. You have experienced gout over recent years. I take the view that these ailments are essentially age-related and your age is a factor that I take into account in determining the appropriate sentence. I do not consider there is any unusual medical condition that calls for specific attention in the sentencing process.

36 You have no prior convictions, save for minor traffic infringements. As I have observed, you have been an admirable husband and stepfather. Prior good character in cases involving white-collar crime is of lesser significance than in other types of crime. That good character is often the reason why an offender is positioned so as to effect the crime and it is often also a reason why the offender is the repository of the very trust he has breached. That said, it is not completely irrelevant - it informs aspects of rehabilitation and the genuineness of any asserted remorse - and I will give it some weight in the sentencing mix.

37 I accept that your prospects for rehabilitation are excellent. You will be significantly older when released and I think it highly unlikely that you will re-offend. You are also entitled to some credit for your pleas of guilty. Those pleas were entered at a late stage. You pleaded not guilty at your committal on 10 March 2010. You indicated on 1 December 2010 before me that you would plead guilty and you were arraigned on 9 December 2010. Despite its lateness your plea has a utilitarian value. The community has been spared the inconvenience and expense of a lengthy criminal trial and the witnesses, particularly the investors, have been spared the task of giving evidence at that trial. I am also prepared to infer that there are elements of remorse that are demonstrated by your plea. Your counsel accepted that what remorse there was has been halting. I am also prepared to infer some remorse from your co-operation with the Administrator, Mr Secatore. Although you were keen to attribute Chartwell's failure to Mr Rau, you at least conceded that it had not been trading for approximately two years and that the funds received over that time had been diverted for unauthorised purposes. I do not consider that any remorse you have felt is complete or profound. I do consider, however, that you have exhibited some remorse and I take this into account.

38 You will be disqualified from holding office under the Corporations Act 2001 (s.206B Corporations Act 2001). This itself is a punishment which I am obliged to take into account. Given the circumstances of your offending and the need for general deterrence, this disqualification is not one, however, that weighs heavily in your favour.

39 I do not consider that the principles of parity have any real application in this exercise. Your co-offender Mr Rau was sentenced by me upon a different set of offences. He pleaded guilty to eight offences, two of which are common to your indictment they are (charges 45 and 46). The extent of your offending is so significantly different and more extensive than that for which Rau was sentenced that I do not consider you to be like co-offenders in any meaningful way. This proposition can be illustrated by reference to a number of distinctions between your respective positions. First, Mr Rau was not dealt with in respect of any monies received from the Commonwealth Bank of Australia. By contrast, you have pleaded guilty to two charges (charges 31 and 37) involving obtaining a dishonest financial advantage to your private company of nearly $6m. Secondly, Rau has pleaded guilty to one charge of obtaining property by deception. This involved Chartwell receiving $40,000 from an investor prompted by a deception practised by Rau. You have pleaded guilty to 44 deception related charges (contrary to s.82(1) or S.81(1) of the Crimes Act 1958) involving Chartwell receiving nearly $16m of investor funds and a further $5.8m being received by Black Swan. Finally, Mr Rau pleaded guilty and undertook to give evidence at your trial. Leaving aside the two common offences, I do not consider that parity principles have any application in this matter.

40 I consider that the aspects of general deterrence, punishment and denunciation must be given significant weight in this exercise. You have been responsible for fraud on a grand scale. You have practised it on the vulnerable and the gullible. You have caused incalculable damage to decent people whose only fault was to believe your lies. Those people have either been ruined financially or significantly financially impaired. You have humiliated them all. The sentence I am about to pass is designed in part to punish your criminality, denounce your conduct and deter like-minded others. Those contemplating fraud on this scale must understand that long terms of imprisonment await them.

Balancing these factors as best I can, I sentence you as follows:

I propose to treat the sentence on charge 31 of 9 years imprisonment as the base sentence. All other sentences are to be served concurrently save where I specifically direct cumulation.

• Charge 9 12 months cumulative on charges 31 and 37

• Charge 5 9 months cumulative on charges 31, 37 and 9

• Charge 1 6 months cumulative on charges 31, 37, 9 and 5

• Charge 28 6 months cumulative on charges 31, 37, 9, 5 and 1

• Charge 27 4 months cumulative on charges 31, 37, 9, 5, 1 and 28

• Charge 8 2 months cumulative on charges 31, 37, 9, 5, 1, 28 and 27.

That comes to an effective total sentence on the State charges of 13 years and 9 months imprisonment. I fix a non-parole period of 9 years.

On the Commonwealth charges I sentence you as follows:

On charge 45 I sentence you to 12 months imprisonment.

On charge 46 I sentence you to 9 months imprisonment.

On charge 47 I sentence you to 18 months imprisonment.

I declare that each of those sentences commence today. Given that these sentences are subsumed by the State sentences, it is not appropriate to impose a recognisance release order.

I declare that you have served 17 days of pre-sentence detention including today and it be reckoned as already served under this sentence and I so certify.

Pursuant to Section 6AAA of the Sentencing Act 1991 I declare that but for your plea of guilty I would have fixed a total effective sentence of 16 years and six months with a non-parole period of 12 years.

Pursuant to s.6F of the Sentencing Act 1991 I declare that in respect of charges 1 - 7 and charges 9 - 43 that you have been sentenced as a serious offender and that that fact will be entered in the records of the Court.

I have prepared a table of the sentences imposed and an explanatory note relating to the approach I have taken to cumulation. This will be incorporated into the reasons for sentence.

I have taken the following approach to sentencing on the State charges.

Amounts under $50,000. Not CCE offences - 12 months imprisonment.
Amounts between $50,000 and $100,000 - 30 months imprisonment.
Amounts between $100,001 and $250,000 - 48 months imprisonment.
Amounts between $250,001 and $500,000 - 60 months imprisonment.
Amounts between $500,001 and $1,000,000 - 72 months imprisonment.
Amounts between $1,000,001 and $2,000,000 - 84 months imprisonment.
Amounts between $2,000,001 and $3,000,000 - 96 months imprisonment.
Amounts over $3,000,001 - 108 months imprisonment.

Charge 9 is representative of the charges involving between $1,000,001 and $2,000,000.

Charge 5 is representative of the charges involving between $500,001 and $1,000,000.

Charge 1 is representative of the charges involving between $250,001 and $500,000.

Charge 28 is representative of the charges involving between $100,001 and $250,000.

Charge 27 is representative of the charges involving between $50,000 and $100,000.

Charge 8 is representative of the non-CCE charges below $50,000.

I have made no distinction between rolled up charges and single transaction charges.

Graeme Ronald Hoy ('Hoy') has been indicted on the following charges:
1. 44 charges of obtaining property/financial advantage contrary to s. 81/82 of the Crimes Act 1958 (Vic). 42 of the charges relate to the obtaining of a total of $15,904,756.61 from investors in the period 8/1/07 - 11/4/08 and 2 charges relate to obtaining a loan and overdraft from the Commonwealth Bank [charges 31 & 37].

All charges except charges 8 and 44 of the Crimes Act charges are continuing criminal enterprise offences for the purposes of Part 2B of the Sentencing Act 1991 (Vic).

3 charges contrary to the Corporations Act 2001 (Cth), namely:
- - Section 911A [charge 45] - relates to the carrying on of a financial services business without an Australian financial services licence ('AFSL'), between 1/1/07-21/4/08, during which period a total of $21,852,062.18 of investor funds was received;
- - Section 1041G [charge 46] - relates to the provision of false information to investors as to the reasons for delayed payments, the security of investments, and the financial status of Chartwell Enterprises Pty Ltd;
- - Section 184(2)(a) [charge 47] - relates to the execution of a guarantee to purchase a $6.93m yacht.

Rau Enterprises Pty Ltd ACN 098 112 791 ("Rau Enterprises") was formed and registered on 10 September 2001 [M01357203]. At the time Ian Stuart Rau ("Rau") was the sole director and company secretary of Rau Enterprises.

On 8 May 2002, Rau Enterprises changed its name to Chartwell Enterprises Pty Ltd ("Chartwell"). On that day, Rau ceased to be the director of Chartwell, but continued in his role as the company secretary. Graeme Ronald Hoy ("Hoy") became the director.

Chartwell conducted a financial services business in Geelong. Hoy was generally responsible for attracting investors and liaising with them, whereas Rau was generally responsible for trading.

The shareholders of Chartwell were Black Swan Holdings Pty Ltd ACN 007 394 354 ("Black Swan"), a company of which Hoy was its sole director and equal shareholder with his ex wife, and Uzzi Pty Ltd ACN 007 357 799, a company of which Rau was the sole director and shareholder. [M01357204 & M01357205]

The registered office of Chartwell was 18 Eastern Beach Road, Geelong. Its registered place of business was level 1, 229 Ryrie Street, Geelong and this was where it was based and conducted its financial services business.

The business activities of Chartwell involved the receipt of funds from investors who had normally entered into a loan agreement with Chartwell or Black Swan prior to providing funds. Investors were informed and understood these funds would be pooled with other funds which would then be used to trade on the financial markets in the expectation of generating profits. For Chartwell to trade on the financial markets it utilised the services of licensed brokers, namely Peter G. Moloney & Associates Pty Ltd ("PGM") and CMC Markets Asia Pacific Pty Ltd ("CMC").

In mid 2006 Rau placed a number of large trades, which were unsuccessful. From August 2006 there was little money left in the trading accounts, and consequently monies received from investors to be used for trading on the financial markets were instead largely used to pay purported interest payments, as well as to pay business expenses and personal expenses of Hoy and Rau.

ASIC conducted an investigation relating to the period 1 January 2007 to 22 April 2008, during which period Chartwell received $21,852,062.18 of investor funds. Only $429,139.00 was traded on the financial markets. In effect Chartwell was a Ponzi-scheme, on a grand scale, destined for financial disaster.

Ultimately Chartwell was placed into voluntary administration on 22 April 2008, and on 28 May 2008 it was placed into liquidation. In a report to creditors dated 20 May 2008 [M01376008] the administrators advised that as at 22 April 2008 Chartwell owed approximately $80.6m to various entities, including $68.19m to investors. Total assets were estimated to be $21,966.04.

Chartwell and Black Swan operated a number of bank accounts into which investor funds were deposited and then withdrawn, in particular:

Bendigo bank a/c no. 120892997 ("CEBB 997 a/c")

Bendigo bank a/c no. 115027617 ("CEBB 617 a/c")

Macquarie IML a/c no. 120366679 ("CEMB 679 a/c")

Bendigo bank a/c no. 127175784 ("BSBB 784 a/c")

Bendigo bank a/c no. 130052632 ("BSBB 632 a/c")

Macquarie IML a/c no. 119170520 ("BSMB 520 a/c")

Bendigo bank a/c no. 125867713 ("GHBB 713 a/c")

Bendigo Bank a/c no. 106625270 ("IRBB 270 a/c")

Bendigo Bank a/c no. 117937011 ("RRBB 011 a/c")

Bendigo bank a/c no. 125867978 ("DCBB 978 a/c")

ASIC FINANCIAL RECONSTRUCTIONS OF BANK ACCOUNTS

George Apostolos, Senior Financial Investigator, ASIC, conducted a number of financial reconstructions in relation to investor deposits through the bank accounts. In the period 8 January 2007 to 23 April 2008 a total of $21,852,062.18 of investor funds was received into the various accounts operated by Chartwell, Black Swan and a related entity Delaware Corporation Pty Ltd, a company in which both Hoy and Rau were directors. Of those investor funds, only a small proportion was used to trade on the financial markets on behalf of the investors.

- $349,139.00 net was paid to CMC;
- - $330,000 was paid to PGM, which included the $250,000 to purchase PGM. [Apostolos statement at pp. 54-56, M01295790 & M01295752].

Apostolos prepared reconstructions of the various bank accounts. A copy of five of those reconstructions, amended by the Crown so as to also include a reference to the relevant charge number on the indictment, is provided in a separate folder, volume 5 of the under tabs 1-5.

PGM is an Australian Financial Services Licensed company that provides financial broking services to clients wanting to access financial instruments such as options and the foreign and futures exchange markets.

On or about 23 July 2003 Hoy and Rau opened an account with PGM and traded on Chartwell's behalf.

When trading on behalf of Chartwell, the usual practice involved Rau contacting (by telephone) PGM and providing verbal instructions about which trades Chartwell wished PGM to place and execute. Once the trades were executed, PGM would contact (by telephone) Rau and verbally confirm the trade/s had been executed. Once the trades were executed, Macquarie Bank would generate and electronically send Chartwell and PGM daily statements to confirm the trade/s. At the end of each month, PGM would reconcile all the trading activity, and generate and electronically send Chartwell a monthly statement.

CMC is an Australian Financial Services Licensed company that provides 'over the counter' contracts for difference in the Australian retail market.

On 3 June 2003 Hoy and Rau, on behalf of Chartwell, opened an account with CMC. In the years thereafter, Chartwell opened a number of other accounts with CMC. Like PGM, after financial trades were placed and executed by CMC on behalf of Chartwell, CMC generated a daily statement, which was electronically sent to Chartwell, to confirm the trade. At the end of each month, CMC would generate and provide Chartwell with a monthly statement that detailed every trade executed during the month.

Chartwell raised funds from clients in two ways.
1. Syndicate Leaders - Chartwell engaged so-called 'Syndicate Leaders', who acted as intermediaries to raise funds, usually from family members, friends, associates or referrals. On the instructions of Hoy, Syndicate Leaders (in most cases) were required to execute a Loan Agreement with Chartwell. Hoy advised Syndicate Leaders that they should also execute Loan Agreements with their respective investors. This arrangement was known as a back-to-back loan arrangement. Until late 2007, when Hoy was absent, Rau had relatively minimal direct involvement with investors. Hoy was responsible for dealing with investors, and Rau was responsible for trading of investor funds on the financial markets.

Under this arrangement, Chartwell would have an agreement with the Syndicate Leaders about the interest rate it would pay to the Syndicate Leader on the capital invested. Once the interest rate had been negotiated, Syndicate Leaders could then determine what interest rate they could offer and pay to their respective investors. Usually, but not on every occasion, the interest rate negotiated between Chartwell and the Syndicate Leader was higher than what the Syndicate Leader offered his or her respective investors. The difference in the two interest rates was the margin or profit made by the Syndicate Leader. The interest rate offered to investors was also specified in the loan agreement that was executed between the Syndicate Leader and their respective investors.

Direct Investors - In many cases investors wanting to utilise the services of Chartwell bypassed investing through Syndicate Leaders and invested directly with Chartwell. The main reason for investing directly with Chartwell was that the interest rate offered by Chartwell was usually higher than that which was offered by Syndicate Leaders. Similar to investments that were made through the Syndicate Leaders, Chartwell executed loan agreements with the direct investors.

Whilst the loan agreements specified that Syndicate Leaders and direct investors were loaning funds to either Chartwell or Black Swan, based on the representations made by Hoy, all investors believed that they were investing in Chartwell and its business activities.

The loan agreements, amongst other things, generally:

Named the lender, which was either the Syndicate leader or the direct investors; 2. Named the borrower, which was either Chartwell or Black Swan;

Specified that Hoy had personally guaranteed the loan; 2. Specified the term of the loan (which was usually for a 12-month period); and 3. Specified the interest payable to the lender.

THE CRIMES ACT CHARGES - Charges 1-44

Before investors (Syndicate Leaders or direct investors) committed to making an investment in Chartwell, most first met and spoke with Hoy. On most occasions Hoy essentially made the same, or substantially similar, verbal representations about the business activities of Chartwell and how it would use the investor's funds to generate a profit. Hoy said to investors that Chartwell would pool their funds with other investors and then use those funds exclusively for the purpose of making financial trades on the Australian and global financial markets by trading in commodities, currencies, futures and options.

Hoy explained that Chartwell had developed sophisticated trading systems, and used the trading methodologies of WD Gann, to generate high profits for its investors, regardless of whether the financial markets were going up or down. Hoy said that the trading systems used by Chartwell allowed it to make profits that were not generally available to others. In many cases Hoy told investors that Chartwell had sophisticated risk management systems that identified when investments would be affected. It was asserted that these systems allowed Chartwell to take evasive action to minimise the prospect of making a loss on the trades.

In the majority of cases Hoy explained to investors that Chartwell would pay a fixed interest rate on their investments, which would be paid either monthly, quarterly or yearly. However, in some circumstances Hoy offered to pay investors a variable return based on the performance of the trading activity. Alternatively, investors could also roll over their interest payments so that interest they received on their investments was compounding. Hoy also represented that interest was paid on a sliding scale and was indexed according to the level of investment. That is, the more invested the greater the interest rate.

In addition to the verbal representations made by Hoy, most investors were shown the business operations of Chartwell. That usually included a tour of the Chartwell office in Geelong, where numerous staff were employed as market analysts and where numerous charts were displayed on walls depicting the financial markets in which Chartwell had purportedly invested. This tour reinforced the representations made by Hoy and influenced the decision to invest in Chartwell.

Contrary to the assertions by Hoy and the facade of success and systems, in reality Chartwell was a poorly run organisation, with a lack of proper systems and funds with which to trade. A number of former employees refer to the inadequate accounting systems and lack of an automated database to record and produce monthly reports for investors. Clint Sanders, Operations Manager stated that he complained to Hoy about the lack of such systems and Hoy told him that he used a calculator to prepare quarterly reports to be sent to investors. Sasha Melnik (a bookkeeper at Chartwell) referred to the monitoring of investments as 'appalling'. Chartwell was effectively broke from mid 2006, and required new investor funds in order to meet its daily financial commitments and to pay purported interest to investors. Investor funds were not invested as represented by Hoy, but were utilised on a needs-basis to pay 'interest' - failure to pay would have revealed the parlous state of Chartwell's finances, caused a run on its remaining funds and effectively brought to an end its operations much sooner than transpired - as well as to pay ongoing business expenses of Chartwell and personal expenses of Hoy and Rau. By way of example:

a transfer of $95,000.00 by Georone Nominees Pty Ltd into CEBB 617 a/c on 8 January 2007 [charge 1 - see reconstruction behind tab 3] brought the account balance to $95,873.84. On 9 January 2007 there were then withdrawals of $14,527.00 to Moonah Links Hotel, $1,079.00 to GE Mortgage Solutions, $4,358.00 to GE Mortgage Solutions, $15,000.00 to Hoy's personal account with Bendigo Bank, $1,666.66 for The Settlement of Melville Williams, $2,000.00 to Clairela Pty Ltd, $1,666.66 to Richard Williams, $14,000.00 to Nekrep Nominees Pty Ltd, $5,000.00 to Shield Private Capital Pty Ltd, $5,000.00 to Pietech Pty Ltd, and $20,771.53 to Shield Private Capital Pty Ltd. Of the $15,000.00 transferred to Hoy's personal account, that sum was transferred the same day to a Black Swan account [see reconstruction behind tab 1] bringing that account's balance to $15012.70 from which there were withdrawals of $5,000.00 to Mark Johns, $6,000.00 to Sally Bowen and $3,000.00 to Catherine Johns (Hoy's ex wife).

A transfer of $920,000.00 by Invest 2 XL Pty Ltd into BSBB 698 a/c on 4 April 2007 [charge 11 - see reconstruction behind tab 1] brought the account balance to $1,175,966.42. On the same day there were then transfers of $296,000.00 to OCSP Trading Pty Ltd and $50,000.00 to BSBB 784 a/c, and on 5 April 2007 a $700,000.00 transfer to Grant Torrens International Marine Pty Ltd, being a deposit on a yacht 'One Song', as well as payments on credit cards;

A transfer of $100,000.00 by Accrooz Pty Ltd on 30 May 2007 into CEBB 617 a/c [charge 17 - see reconstruction behind tab 3] brought the account balance up to $121,396.40, from which there were withdrawals of $18,946.04 for salaries and wages, $24,350.00 to the Tax Office, $8,750.00 to KS & LJ Gore, $19,160.69 to C&J Goddard Investments Pty Ltd, $25,000.00 to Fly Like an Eagle Pty Ltd and miscellaneous other withdrawals.

A transfer of $80,000.00 by Simon Stafford on 31 May 2007 into the BSMB 520 a/c [charge 18 - see reconstruction behind tab 2] brought the account balance to $80,448.57. There were withdrawals/transfers between 31 May 2007 and 5 June 2007 of $1,915.45 to BMW Finance, $6,506.01 to Pietsch Pty Ltd, $2,000.00 to Hayden Real Estate, $3,000.00 to BSBB 632 a/c, $616.35 to Ford Credit, $437.00 to GE Mortgage Solutions, $50,000.00 to Simons Haplomics Limited and $4,000.00 to N&C Baker.

A transfer of $193,500.00 by Invest 2 XL Pty Ltd into the BSBB 698 a/c on 2 October 2007 [charge 11 - see reconstruction behind tab 1] brought the account balance to $309,545.41. Prior to any further deposits into that account, between 2-15 October 2007 there were then transfers of $210,000.00 to the GHBB 717 a/c, $55,000.00 to the BSBB 632 a/c, $27,790.00 to the BSBB 784 a/c, and two lease payments on the luxury yacht of $90,051.83 to CBFC Limited [both dishonoured];

A transfer of $25,000.00 by Andrew Hessey on 11 April 2008 into CEBB 617 a/c [charge 44 - see reconstruction behind tab 3] brought the account balance to $25,186.90, from which there were withdrawals of $22,839.28 for salaries and wages, $1,225.46 for salaries and wages, $1431.37 to BMW finance, $2,254.58 to Shell, $602.17 to Ford Credit, $44.00 to Jokers on Ryrie, $57.50 to Finnigans Place, $700.00 to GHBB 713 a/c, and small payments to Citylink.

[nb. For precise representations made to individual investors relevant to the charges, see the particulars in the charges

The summary also refers to investments by a number of investors additional to those covered by the Crimes Act charges. Those investments are relevant to the s. 911A Corporations Act charge. Where an investor has made other investments not the subject of the Crimes Act charge, the investments the subject of the Crimes Act charge are bolded]

George Mihos / Today Not Tomorrow Institute Finance Pty Ltd/Georone Nominees Pty Ltd (charge 1 re $395,000)

George Mihos first became aware of Chartwell sometime in 2003 through an acquaintance. In 2003 Mihos met with Hoy at the offices of Chartwell where Hoy explained to him the business activities of Chartwell which he said involved investing on the Australian and international financial markets. After meeting with Hoy, Mihos made a personal investment in Chartwell through a Syndicate Leader.

In 2005 Mihos used his company Today Not Tomorrow Institute Finance Pty Ltd ("TNTI") to make an additional investment directly in Chartwell that paid an interest rate of 50% pa.

Around 2004/2005, Mihos told his business associates about his involvement and investments in Chartwell, many of whom expressed an interest in investing. Mihos used his private company TNTI and another company Georone Nominees Pty Ltd to accept and pool funds from his friends and associates to make the following investments in Chartwell by electronic funds transfer to CEBB 617 a/c and CEMB 679 a/c:

(payment made by Georone Nominees Pty Ltd to CEBB 617 a/c)

(payment made by Georone Nominees Pty Ltd to CEMB 679 a/c)

(payment made by Georone Nominees Pty ltd to CEMB 679 a/c)

On 7 April 2008 Mihos met Hoy at Chartwell's premises. He gave to Hoy a Creditor's Statutory Demand For Payment of Debt within 21 days. Mihos video-recorded the meeting ([M01273946], [M00266900]). Hoy assured Mihos that 'we're having discussions with a number of very large investors, very significant sums of money, who are in the process of doing a due diligence on operations here for deciding whether to invest. And we're a couple of weeks away we think from the process of completion there'. He later indicated he was 'a 10 out of 10' confident this would occur, and that .'the outcome is so - so important and so big that it changes the whole operation. It gets everyone back what they need to get back and it sets us on a different path'. He also indicated that there were three potential investors including one who was conducting due diligence. There is no evidence to support Hoy's assertions that there were any large investors likely to inject substantial funds, or who were conducting due diligence. Bernd Ade has stated that he met with Hoy and Rau for approximately 15 minutes on 23 March 2008, but did not undertake any due diligence.

Abdulla Onturk first met Hoy when he was introduced to him by an associate in early 2005. Both Hoy and the associate explained to Onturk that Chartwell invested client funds on the financial markets. Subsequently Onturk made contact with other investors of Chartwell.

In early March 2006 Onturk attended at the offices of Chartwell where Hoy explained to him the business activities of Chartwell and represented that his funds would only be used to trade on the financial markets.

On 15 May 2006 Onturk attended Chartwell's office and Hoy explained to him that if he invested in Chartwell:

$100,000.00 he would receive an interest rate of 20% pa; and 2. $300,000.00 he would receive an interest rate of 40% pa.

Onturk subsequently made an investment in Chartwell.

On 15 January 2007, Onturk met with Hoy and expressed his desire to make a further investment to make his total investment in Chartwell $300,000.00, so as to be eligible to receive an interest rate of 40% pa. To make up the balance of the $300,000.00 investment, on 16 January 2007 Onturk wrote out a cheque for the amount of $186,798.00 made payable to Black Swan as instructed by Hoy. That cheque was deposited into BSBB 698 a/c on 17 January 2007.

Antony Gilson Mohr first became aware of Chartwell in December 2006 through an associate. On 23 January 2007 Mohr attended at the offices of Chartwell where Hoy explained to him the business activities of Chartwell. During this meeting Hoy explained that if Mohr was prepared to invest $1,000,000.00 he would receive interest payments of 50% pa.

On 25 January 2007, Hoy attended at Mohr's residential premises where Mohr provided Hoy with a cheque in the amount of $300,000.00 made payable to Black Swan as instructed by Hoy. That cheque was subsequently deposited into BSBB 698 a/c on 29 January 2007. The investment was made by Antony Mohr and his wife Sonia Mohr on behalf of the Mohr Superannuation Fund and Hoy had agreed that interest would be paid at a rate of 20% pa.
On 28 March 2007, Mohr attended at the office of Chartwell and met with Hoy. They subsequently made an additional investment, by providing Hoy with a bank cheque in the amount of $500,000.00 made payable to Black Swan. That cheque was subsequently deposited into BSBB 698 a/c on 30 March 2007. The investment was a personal investment on behalf of Mohr and his wife, and Hoy agreed that interest would be paid at a rate of 50% pa.

On 3 July 2007, Mohr and his wife again attended at the office of Chartwell and made a further investment. The Mohrs provided Hoy with a bank cheque in the amount of $200,000.00 made payable to Black Swan as instructed by Hoy. On 4 July 2007 that cheque was deposited into BSBB 698 a/c. The investment was made on behalf of the Mohr Superannuation Fund and was subject to an interest rate of 50% pa.

On 12 December 2007 Mohr met Hoy as he was concerned about the delay in payments. Hoy assured him that 'he had absolutely nothing to worry about'.

David Beechey became aware of Chartwell in early 2004 through an associate, who also happened to be an investor in Chartwell. Soon after hearing about Chartwell, Beechey arranged to meet with Hoy at the offices of Chartwell, where Hoy explained to him the business activities of Chartwell and made representations about trading and risk management strategies that Chartwell had in place. Hoy provided to Beechey a document on Chartwell letterhead titled 'Our Business' which stated that Chartwell was 'a highly specialised and exclusive non-retail trading house and hedge fund. We trade only on our own and specially selected others' capital' and further asserted that Chartwell did 'not offer or provide any financial product advice or investment recommendations to anyone'. Beechey, who relied on the representations made by Hoy, invested in Chartwell through his company Shield Private Capital Pty Ltd ("Shield Capital") on behalf of himself and others. Shield Capital entered into Loan Agreements with investors.

In February 2007, after selling his business, Beechey informed Hoy that he wanted to make additional investments in Chartwell. Hoy explained that if Beechey was prepared to invest $500,000.00 or more in Chartwell, he would pay Beechey an interest rate of 60% pa for a 12-month investment period. On 6 February 2007 Shield Capital invested $430,000.00 with Chartwell, at an interest rate of 60% pa for 12 months.

Through Shield Capital, Beechey accepted and pooled funds from his family, friends and associates and then forwarded the funds for investment to Chartwell, via Black Swan, by electronic funds transfer. Prior to accepting the funds, the others first met with Hoy.

The following funds were remitted to Chartwell, via BSBB 698 a/c:

[nb - repaid same day - see M01295136 at p. 13 of 22]

On 12 December 2007 Beechey attended a dinner at the Riviera on Yarra restaurant, together with a number of other investors, at which Rau gave an oral and PowerPoint presentation [M0135728] outlining Chartwell's future direction. The presentation provided an overly optimistic and misleading overview of Chartwell's financial health and a misleading or false reason for the delays in paying interest (see charge 46).

Christine Pedersen / C & J Goddard Investments Pty Ltd

Christine Pedersen first became aware of Chartwell in either 2003 or 2004 when she attended a trading seminar. Both Hoy and Rau were guest presenters at the seminar and during their presentations informed participants they operated Chartwell, which was a stock market analyst and trading business.

In January 2007, Pedersen attended an investment property seminar and met a person who had invested in Chartwell.

On 1 February 2007 Pedersen attended at the offices of Chartwell where Hoy explained to her the business activities of Chartwell. Hoy explained to Pedersen that if she invested in Chartwell:

a minimum of $500,000.00 she would receive an interest rate of 30% pa; and 2. $1,000,000.00 or more, she would receive an interest rate of 50% pa.

Pedersen informed Hoy that she was initially prepared to make (with another person) an investment of $500,000.00 and later make a further investment to increase the total investment to $750,000.00. Hoy explained that if she invested $750,00.00, she would receive an interest rate of 40% pa.

In an email dated 6 February 2007 Pedersen sought responses from Hoy to queries about Hoy's personal assets to be used as a guarantee for a loan, and whether the funds were to be traded. Hoy responded that he had no personal assets, that he had been advised by his lawyer that no one gives personal guarantees in these sorts of matters but he 'did so in order to make it easier for investors to join up', but knew it would never be called upon. [M00837634]

Pedersen and her associates made the following investments in Chartwell by cheques which were deposited into the CEBB 617 a/c:

On 24 May 2007 Pedersen's father-in law, Don Pedersen, arranged for a transfer of $300,000.00 to be made into the Macquarie bank account. (charge 5)

Mark Elshaug Williams first became aware of Chartwell in October 2005 through an associate. In late October 2005 Williams met Hoy at the office of Chartwell. Hoy explained to him the business activities of Chartwell and represented that Chartwell was doing well. During this meeting, Hoy explained to Williams that for investments of:
1. Less than $500,000.00 he would receive an interest rate of 20% pa; and
2. More than $500,000.00 he would receive an interest rate of 30% pa.

Subsequently, Williams made a number of investments in Chartwell. On 8 February 2007 Williams again met Hoy and told him that he wanted to make a further investment of $200,000.00 in Chartwell. On 15 February 2007 Williams attended at the offices of Chartwell and personally handed him a cheque made out to Chartwell for the amount of $200,000.00. That cheque was deposited into the CEBB 617 a/c.

Alison Sinclair is the partner of investor Ian McKenzie (see above). She first became aware of Chartwell in 2005 when McKenzie commenced investing, but knew of Hoy for approximately 7 years. In February 2007, Sinclair decided that she would also invest in Chartwell and arranged a meeting with Hoy.

At the meeting, Hoy explained to her the business activities of Chartwell. When Sinclair expressed to Hoy that she wanted to invest $300,000.00 in Chartwell, Hoy told her that she could expect to receive an interest rate of between 30% and 40% pa.

On 16 February 2007, Sinclair invested an amount of $300,000.00 by electronic funds transfer into the CEMB 679 a/c as instructed by Hoy.

Sinclair elected to receive compounding interest payments on her investment in Chartwell.

On 6 May 2007, Sinclair received, on Chartwell letterhead, an unsigned letter from Hoy for the March 2007 quarter. In the letter, Hoy stated that Sinclair's investment in Chartwell for the March 2007 quarter achieved a quarterly compounding interest return of $12,300.00 and the balance was $311,070.00 as at 1 April 2007. [M01273322]

On 2 September 2007, Sinclair received, on Chartwell letterhead, an unsigned letter from Hoy for the June 2007 quarter. In the letter, Hoy stated that Sinclair's investment in Chartwell for the June 2007 quarter achieved a quarterly compounding interest return of $13,064.94 and the balance was $322,828.45 as at 1 July 2007. [M01273453, M01273323]

On 22 January 2008 Sinclair received, on Chartwell letterhead, an unsigned letter from Hoy for the September 2007 quarter. [M01273327] In the letter, Hoy stated that Sinclair's investment in Chartwell for the September 2007 quarter achieved a quarterly compounding interest return of $20,015.36 and the balance was $322,828.45 as at 1 October 2007.

Pasquale Sciarrone first became aware of Chartwell sometime in 2003 through an associate. In 2003 Sciarrone met with Hoy at the offices of Chartwell where Hoy explained to him the business activities of Chartwell, including that it invested in shares, currency, futures, options etc and had risk management strategies in place. At this meeting, Hoy explained to Sciarrone that investments made directly in Chartwell would receive an interest rate of 32.5% pa.

Sciarrone used his company PK (Vic) Investments Pty Ltd ("PK Investments") to accept and pool funds from his family, friends and associates to make the following investments in Chartwell by electronic funds transfer to CEBB 617 a/c:

Fredric Houte first became aware of Chartwell in mid 2005 through an associate. In July 2005, Houte met with Hoy at the offices of Chartwell where Hoy explained to him the business activities of Chartwell, including that Chartwell invested clients' funds in the ASX. After meeting with Hoy, Houte made a number of investments in Chartwell through a Syndicate Leader.

In early 2006, Houte expressed interest in investing directly in Chartwell so as to receive a higher interest rate than what he had previously received by investing through the Syndicate Leader. Hoy explained to Houte that if he was prepared to invest $1,000,000.00 or more in Chartwell, via Black Swan, he would pay an interest rate of 50% pa.

To raise the $1,000,000.00 that was required to receive an interest rate of 50% pa, Houte explained the investment opportunity to his family and friends, including his parents-in-law Ian & Ljubica Peic, his mother Renilde Houte-Carton and her partner Nicholas Garnham.

The associates and relatives of Houte invested the following funds with Chartwell/Black Swan via electronic transfer to BSBB 698 a/c:

Kenneth Stephen Gore first became aware of Chartwell in either late 2005 or early 2006 through an associate. During this same period, the associate introduced Gore to Hoy. At the first meeting and in several meetings thereafter, Hoy explained to Gore the business activities of Chartwell and made representations that Chartwell pooled investor funds and then traded the funds on the financial markets. Hoy explained to Gore that for investments in Chartwell:

of up to $500,000.00 he would receive an interest rate of 20% pa; 2. of between $500,000.00 and $1,000,000.00 he would receive an interest rate of 30% pa; and

over $1,000,000.00 he would receive an interest rate of 50% pa.

Gore subsequently made an investment in Chartwell.

At a meeting with Hoy in January 2007, Gore told Hoy he wanted to make further investments with Chartwell of up to $500,000.00. Hoy reiterated that for a $500,000.00 investment, Chartwell would pay an interest rate of 30% pa. Gore made the following investments in Chartwell by electronic funds transfer:

On 3 April 2008 Gore met Hoy as he was concerned about delays in payments. Hoy told him that the payments were affected by the ongoing due diligence being conducted by a prospective German investor and that within a week or so everything would be back to normal.

Brenden Bennett first became aware of Chartwell in mid 2006 through an associate. In January or February 2007 Bennett met Hoy at the offices of Chartwell where Hoy explained to him the business activities of Chartwell and made representations that Chartwell continued to successfully invest on behalf of clients in local and international financial markets. At this meeting Hoy explained that if Bennett was prepared to invest $1,000,000.00 in Chartwell, he would pay Bennett an interest rate of 85% pa to be paid at the end of the 12-month investment period.

To achieve the $1,000,000.00 required to receive an interest rate of 85% pa, Bennett explained the investment opportunity to his family, friends and persons who were subsequently referred to him. Bennett then formed and registered a company called Invest 2 XL Pty Ltd ("I2XL") for the sole purpose of accepting and pooling funds from his family, friends and persons referred to him. He made the following investments in Chartwell by electronic funds transfer to BSBB 698 a/c:

Terry Ellingsen/Lynette Needham (charge 12 re $338,500)

Terry Ellingsen first became aware of Chartwell in March 2007 through an associate. On 19 April 2007, Ellingsen met with Hoy at the offices of Chartwell where Hoy explained to him the business activities of Chartwell and represented that the client funds would only be used for investment on the ASX and that the risk was low. At this meeting, Hoy explained that he would pay Ellingsen an interest rate of 20% pa for investing in Black Swan.

On 19 April 2007 Ellingsen organised for $200,000.00 to be transferred by electronic funds transfer into BSBB 698 a/c as instructed by Hoy.

After receiving interest payments in accordance with the representations made by Hoy, he decided to make a second investment in Black Swan. On the recommendations of Hoy, Ellingsen established a self managed super fund.

On 25 September 2007 Ellingsen, through the T. Ellingsen and L. Needham Super Fund, made an additional investment in Black Swan by drawing and handing Hoy a cheque in the amount of $138,500.00.

Ian McKenzie first became aware of Chartwell in early 2005 through an associate. On 10 May 2005 McKenzie attended at the offices of Chartwell where Hoy explained to him the business activities of Chartwell and made representations that Chartwell could respond to rises and falls in the market, doing well irrespective of whether the market was up or down. At this meeting Hoy explained that investments in Chartwell returned an interest rate that was based on 'best endeavours', which related to the trading performance of Chartwell. Hoy explained that based on Chartwell's past performance, McKenzie could expect an interest rate of approximately 40% pa.

Subsequent to the meeting with Hoy, McKenzie made a number of investments in Chartwell, which over time showed significant returns.

On 2 May 2007 McKenzie invested an additional $500,000.00 by electronic funds transfer into the CEMB 679 a/c as previously instructed by Hoy.

McKenzie elected to receive compounding interest payments on his investments in Chartwell.

On 25 February 2007 McKenzie received an email from Hoy [M01273456] with an attached letter [M01273310] stating that the quarterly compounding interest return was $200,129.05 and that the account balance was $2,355,431.98 as at 1 January 2007.

On 6 May 2007 McKenzie received, on a Chartwell letterhead, an unsigned letter from Hoy for the March 2007 quarter. In the letter, Hoy stated that McKenzie's investment in Chartwell for the March 2007 quarter achieved a quarterly compounding interest return of $193,145.42 and the balance was $2,529,262.86 as at 1 April 2007. [M01273311]

On 2 September 2007 McKenzie received, on Chartwell letterhead, an unsigned letter from Hoy for the June 2007 quarter. In the letter, Hoy stated that McKenzie's investment in Chartwell for the June 2007 quarter achieved a quarterly compounding interest return of $120,215.04 and the balance was $3,137,456.40 as at 1 July 2007. [M01273312]

On 22 January 2008 McKenzie met Hoy and Rau and queried them about the funding of Hoy's other assets. Both Hoy and Rau assured him that those assets - a large boat and Rolls Royce car - had nothing to do with McKenzie's investments in Chartwell. Chartwell was the guarantor for the loans for those assets.

On 21 February 2008 McKenzie received, via an email from Hutchinson, on Chartwell letterhead, a signed letter from Hoy for the September 2007 quarter. In the letter, Hoy stated that McKenzie's investment in Chartwell for the September 2007 quarter achieved a quarterly compounding interest return of $194,522.04, and had a balance of $3,312,526.24. [M01273313]

Also on 21 February 2008 McKenzie received, via Hutchinson, a signed letter on Chartwell letterhead from Hoy for the December 2007 quarter. In the letter, Hoy stated that McKenzie's investment in Chartwell for the December 2007 quarter achieved a quarterly compounding interest return of $278,252.16 and had a balance of $3,562,953.18. [M01273314]

Paul Francis Hickman first became aware of Chartwell in June 2006 through an associate. In February 2007 Hickman met with Hoy at the offices of Chartwell where Hoy explained to him the business activities of Chartwell. Hoy explained to Hickman that investments in Chartwell of:

$100,000.00 would receive an interest rate of 30% pa; and 2. $200,000.00 would receive an interest rate of 40% pa.

In March 2007 Hickman had a second meeting with Hoy about investing in Chartwell, in which Hoy reiterated the representations made at the first meeting.

On 8 May 2007, Hickman invested an amount of $100,000.00 by cheque made payable to Chartwell as instructed by Hoy. That cheque was deposited by Hoy into the CEBB 617 a/c.

At a glance

Court

Decision date

Before

Source

Judgment (379 paragraphs)

Parties