R v Magnus [2011] VSC 557

Supreme Court of Victoria|2011-11-03|Before: T FORREST J

CRIMINAL LAW - Sentence - Obtaining financial advantage by deception - Gambling syndicate - 3 years 6 months imprisonment with minimum term of 2 years 3 months.

1 A jury has found you guilty of 53 counts of obtaining a financial advantage by deception. In total a sum of $545,000 was obtained by you as the product of these deceptions.

3 In late 2005, you were working for an organisation known as Racing Trades Pty Ltd. You were offering a betting product on their behalf, and first contacted Ms Irene Brooks in relation to that product. Ms Brooks invested $5,000 in this product and after a "roller coaster" ride you assisted her in recouping most of her investment.

4 In mid-December 2005, you again contacted Ms Brooks and advised her you were proposing to set up a private betting fund and that you were looking for start up participants. You explained the scheme and the concept of "lay betting" to her as follows. Betfair UK is a betting exchange where punters who wished to back a horse to win were introduced to punters who wished to take the other side to that transaction i.e. back the horse to lose. Betfair UK would take a percentage of the stake for matching the two sides of the wager. The punter who was backing the horse to lose was in racing parlance "laying" the horse, thus the expression "lay betting".

5 You explained to Ms Brooks that the betting fund you were proposing was to be a lay betting fund only. You would place the fund's monies on these type of bets with Betfair UK. You explained that when funds were transferred to you, you would immediately transfer them on to the account of Mr Jeff Walters, bookmaker, and that it was Mr Walters' Betfair account that would be used by the betting syndicate. A by-product of this, you explained, was that the funds were secure from defalcation and guaranteed by the Bookmakers Guarantee Fund. You explained that your knowledge of the horse racing industry would enable you to determine which horses the fund should lay. A further attraction you said was that because the scheme involved picking losers instead of winners, the risks normally associated with punting on thoroughbreds were substantially diminished.

6 Your sales pitch to Ms Brooks was convincing enough for her to become your first investor and subsequently an enthusiastic proponent of what became the Golden Egg Investment Scheme.

7 Ms Brooks initially invested $5,000 with you. After six weeks the purported profits from this investment were spectacular and she assisted you in aggressively marketing the scheme. By early March 2006, you and Ms Brooks organised a presentation to interested parties, explaining the scheme and Ms Brooks' results to date from lay betting.

8 Your representations to that meeting were similar to the representations you initially made to Ms Brooks and included:

(b) that because the scheme revolves around picking losers rather than winners the chances of success were greater;

(d) that, as in any betting scheme, this was high risk investment and that there was a risk that an investor's entire stake could be lost.

9 Ms Brooks extrapolated prospective per annum returns based on a conservative view of her results to that date. This was presented to the meeting, together with a prospectus-type document which evolved over time.

10 I pause in this narrative to make the following observations:

(a) it is entirely unclear to me whether the profits that you represented to Ms Brooks were real or imaginary. Similarly, I have no way of knowing whether, if you did bet with her initial $5,000, you placed lay bets exclusively or at all.

(b) it is clear, however, that these initial funds were not transferred to Jeff Walters' bookmakers account or invested on his Betfair account.

11 The presentation of 8 March 2006 was a success and over time investors joined what became the Golden Egg Investment Syndicate. You would telephone Irene Brooks, who had become the fund administrator, with what you asserted were the weekly trading results. These results would be converted into spreadsheet form and investors would receive a copy of their recent trading results and of their overall balances.

12 In fact you were not investing the monies lodged with you in any coherent or authorised way. Specifically, you did not lodge the funds received with Jeff Walters and they were not then used for the purposes of lay betting with Mr Walters' Betfair UK account.

13 I accept that you must have used a significant proportion of the investors' funds to bet with Mr Walters on an orthodox win/place basis and that otherwise the funds were mixed with your general funds. When your betting with Mr Walters involved more exposure than he was prepared to accept, he placed your bets with other bookmakers in the Brisbane betting ring. All bets placed, either with Mr Walters or through him, were orthodox win/place bets and thus outside the scope of your representations to investors.

14 As the fund became apparently more established, from time to time investors would seek to redeem some or all of their investments or "winnings". Initially redemption requests were met, it seems, from your general funds, which of course were supplemented by other investors' funds.

15 Investors, encouraged by the false profit reports, were more inclined to leave their purported profits in the scheme and you were able to meet redemption requests until relatively late in 2006. In order to paint a picture of punting prosperity you either generated, or caused to be generated, false bookmakers' statements. These statements, which purported to be of your account balance with Mr Walters, were supplied either to Ms Brooks or her administrative successors, Mr Draudins and Mr Scott, on approximately a monthly basis. The asserted balance was always fictitious and progressively inflated. By early 2007, the bookmakers' statement claimed a credit balance of many millions of dollars, when in fact the true balance of your account with Mr Walters was zero.

16 Demands for redemption became more frequent into the last part of 2006 and early 2007 and you were unable to meet them. You generated a variety of excuses, mostly to do with Mr Walters' incapacity to pay you and hence the fund. You attended an investors meeting in March 2007 where you publicly set out this false explanation. Mr Scott, an investor and administrator of the fund, flew to Queensland to meet you and a man you represented to be Mr Walters. That man handed over a signed letter acknowledging a debt by Mr Walters to you of over $10 million dollars.

17 In fact, whoever this man was, he was not Mr Walters and the debt acknowledgement was as fraudulent as its messenger. You abandoned these pretences by mid 2007 and adopted an extremely low profile for the next couple of years.

18 Ultimately, the police were contacted, and in September 2009 you were located (with some difficulty), charged and extradited from Queensland and lodged in custody. You remained in custody until July 2010 when bail was granted.

19 It follows that you should now stand to be sentenced for offences that mostly occurred more than five years ago. Although it might be said that you were the architect of at least some of this delay, the fact remains that many years have passed since the time of your offending and I have no doubt the prospect of the criminal process and imprisonment itself has weighed heavily upon you. I understand also that since your release on bail you have been gainfully employed and have not re-offended. In these circumstances I consider that this delay is a factor that stands to be counted in your favour in this sentencing exercise.

20 As I have already observed, the total sum of monies obtained from investors relating to the 53 charges was $545,000. The total sum redeemed by investors, including Irene Brooks' redemptions and administration fees, was $167,000. This leaves a balance of $378,000 that is unaccounted for.

21 I have no evidence that any of the funds the subject of these charges were used for lifestyle purposes. I suspect that they were used to prop up other businesses you were endeavouring to maintain. However, this is no more than a suspicion and I do not act upon it for the purposes of sentence. That being said, I am prepared to accept that these particular funds were not used on a lavish lifestyle. This is not a mitigating factor, but it is an absence of an aggravating factor that often accompanies this type of offending.

22 There are two aspects of your conduct that might be said to operate in your favour. I consider that when this scheme was born it is likely that you had little idea how attractive it would be to investors. I consider that it is likely that what started life as a small time scam of Irene Brooks and perhaps a couple of her friends became much larger than you had ever anticipated. I also accept that your conduct in covering up the fraudulent nature of the scheme through, particularly, the later false bookmakers accounts and ultimately the false Jeff Walters was driven by a desperation to conceal the truth as the scheme evolved rather than an elaborate pre-planned deception.

23 The second aspect that I consider operates in your favour emanates from the nature of the scheme itself. It was explained in clear terms to the investors that this was a punting scheme, high risk and that they could lose everything. There is no doubt the investors were deceived in the way that I have explained. In the language of the turf - they didn't get a run for their money.

24 Notwithstanding this, the scheme, by its nature, attracted investors who were alerted to the prospect that they could lose the lot. In other words their expenditure, by and large, was of a discretionary nature. This was punting money in the literal sense. I consider that a valid distinction can be drawn between this type of serious fraudulent conduct and the more serious type which encourages small investors to part with their savings, often their life savings, on the basis of assurances that their investment is secure.

25 I have read a victim impact statement from Mr Draudins and have observed the other victims of your criminality giving evidence during the trial. I considered, on the whole, that they appeared relatively sanguine about their losses and many seemed angrier with themselves for being duped than with you. I consider that the victims who innocently but actively promoted your scheme, namely Irene Brooks, Peter Scott and Ilmars Draudins, will necessarily have strained friendships and suffered some humiliation within their social circles. This is a direct result of your dishonesty.

26 You have a number of relevant prior convictions, although none of them involve conduct as serious as that for which I must now sentence you. In 1995 you were placed on a three year good behaviour bond for one count of obtaining a financial advantage by deception and two counts of obtaining a valuable thing by deception. I am told that these offences involved approximately $16,500 of commissions that you owed but did not pass on to the proprietor of a used car sales business contrary to the arrangement you had with that person.

27 In the District Court at Manly in 2000 you were imprisoned for a minimum term of six months with a further parole period of twelve months for one count of obtaining money by deception. The conduct giving rise to this conviction occurred in 1997, and so you were also dealt with for breaching your 1995 good behaviour bond, and sentenced to six months' imprisonment on each of the three charges. These sentences were to be served concurrently with each other and with the sentence imposed that day. The upshot of this complicated prior history is that you have served one previous term of imprisonment in 2000 of six months actual duration.

28 I am told that the obtaining money by deception offence related to a business you were a partner in. This business managed Rugby League players and identified talented young players. It seems that a person invested approximately $30,000 to buy into that business. Your counsel on the plea, Mr Thomas, told me, somewhat obliquely, that the offending involved misuse (presumably by you) of those funds. Finally in 2004 you were dealt with at Manly Local Court for larceny and refusing to pay for accommodation. You were placed on a good behaviour bond for what seems to be relatively insignificant credit card fraud.

29 As I have observed, none of this prior offending is as serious as that which constitutes your current offending. The fact remains however that you have eight prior offences of dishonesty, some of them significant enough to incur sentences of imprisonment. I am obliged to and do take this prior offending into account, particularly when considering aspects such as personal deterrence and your prospects for rehabilitation.

30 Despite this I have concluded that your prospects for rehabilitation are reasonably good. You come from a hard working family and you have demonstrated throughout your adult life a sound work ethic. After leaving school at a young age, you have worked almost continually at a variety of jobs ranging from bank telling, sales, as an insurance representative and as a form analyst in the betting industry. Certainly your powers as a persuasive salesman were demonstrated to the investors of the Golden Egg Investment Scheme and, if those powers can be channelled towards honest endeavour, you will successfully resume your career in sales or marketing.

31 At 45 you are young enough to start again and the sentence which I will shortly impose is designed to give you that opportunity. You are divorced and have two children, aged 19 and 11. You have strong support from your four siblings, some of whom have been present during parts of these proceedings.

32 I must give weight in this sentence to the aspect of general deterrence. The scheme you carried out was, I consider, relatively unsophisticated and eventual detection was near inevitable. Notwithstanding this, the scheme persisted for over 12 months and involved repeated acts of dishonesty.

33 As I have mentioned already, I consider that the aspect of personal or specific deterrence must be given some weight also, particularly given the prior history that I have outlined. The aspects of denunciation and punishment must also be accorded some weight. I am unable to find any evidence of remorse on your part. This is not an aggravating feature however, it is an absence of a feature that would act otherwise to your benefit. I am of the view that your trial was run efficiently, in the sense that sensible admissions of fact were made by you, and I also consider that Mr Edney, presumably on your instructions, conducted an efficient and sensible trial. This has resulted in a saving to the community of some inconvenience and expense, as your trial could have occupied a great deal more time than, in fact, it did. I have taken this into account in the sentence I am about to impose.

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

I propose to treat the sentence on charge 49 as the base sentence. All other sentences are to be served concurrently, save where I specifically direct cumulation.

• Charge 15 - 6 months cumulative on charges 49 and 48.

• Charge 13 - 3 months cumulative on charges 49, 48 and 15.

• Charge 1 - 3 months cumulative on charges 49, 48, 15 and 13.

That comes to a total effective head sentence of 3 years and 6 months. I direct that 2 years and 3 months be served before you are eligible for parole.

35 I declare that 366 days of pre-sentence detention including today have been served and be reckoned as already served under this sentence.

At a glance

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Judgment (47 paragraphs)

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