R v Magnus [2012] VSC 38

Supreme Court of Victoria|2012-02-13|Before: T FORREST J

CRIMINAL LAW - Sentence - Obtaining financial advantage by deception - Gambling syndicate.

1 On 25 August 2011, a jury found you guilty of 53 counts of obtaining a financial advantage by deception. On 3 November 2011, I sentenced you to a total effective head sentence of 3 years 6 months and I directed that 2 years 3 months be served before you became eligible for parole ("the first sentence"). I declared that 366 days of pre-sentence detention be reckoned as already served under the first sentence.

2 You have subsequently pleaded guilty to 78 further offences of obtaining in financial advantage by deception. These offences (including the 53 original counts) are essentially part of the one dishonest course of conduct that you embarked upon between December 2005 and April 2007. The 78 further offences are found in Indictment No Y02871815.4 (Indictment No 1), Indictment Y02871815.5 (Indictment No 2) and Y02871815.6 (Indictment No 3).

3 The maximum penalty for each individual count, save and except for four counts, is 10 years imprisonment. Charge 17 on Indictment No 1, and charges 1, 2 and 6 on Indictment No 3 involve amounts of over $50,000 and as a consequence you fall to be sentenced on those counts as a continuing criminal enterprise offender under Part 2A of the Sentencing Act 1991 (Vic) ("the Sentencing Act"). The maximum penalty for each of those four offences is 20 years.

4 In my sentence of 3 November 2011, I dealt at some length with the factual basis of your offending. Your counsel Mr Shirreffs SC sought to adopt some of my findings made on that occasion. I annex a copy of that sentence to this sentence and I will refer to it from time to time in these sentencing remarks.

5 The Golden Egg Investment Scheme ("the GEIS") was a syndicate you devised to attract investors who supposedly were to participate in a 'lay betting' scheme. In 2005, Betfair, the UK based betting exchange, introduced the concept of 'lay betting' to the Australian betting public. In substance, Betfair offered a betting market place where it would introduce those punters who wished to back a horse to win or run a place to those punters who were prepared to bet against that horse achieving those results. Thus, for the first time in this country, punters could legitimately back a horse to lose. This is known as lay betting.

6 I have reviewed the evolution of the scheme in paragraphs 6-17 of my original sentencing remarks and I shall not descend into that detail again. I repeat those remarks. In short, the following can be identified as features of this evolution:

• You started up a private betting fund in about December 2005.

• You recruited Irene Brooks as a participant and then administrator/promoter of the scheme. Her involvement was innocent and predicated upon your misrepresentations.

• You explained the concept of lay betting to a meeting of interested potential investors in March 2006. You set out the false profits Ms Brooks had allegedly made to that date. As a result you were inundated with offers to join the syndicate.

• The core misrepresentation was that the funds were to be exclusively used for lay betting with a Queensland bookmaker Jeff Walters, who would use his Betfair (UK) account to place bets as directed by you.

• Although some of the monies received were used for betting, none were used for lay betting.

• Some of the monies received were returned to investors by way of 'dividend'. In fact, these were not dividends from lay betting at all and were monies held in your general account.

• The 'dividends' enabled the scheme to run for longer and deferred the inevitable detection of its fraudulent nature.

• You generated false statements of account purportedly emanating from Jeff Walters. These statements of account claimed very high balances, encouraged further investment in the scheme and also deferred the inevitable detection I have referred to.

• By April 2007, the investors held grave concerns about the failure of the syndicate for some months to process withdrawals or pay alleged dividends. You addressed investors meetings, assuring them of the bona fides of the scheme and blaming the liquidity problems on Jeff Walters. Subsequently, you organised a meeting between the investors' representative Peter Scott and a bogus Jeff Walters.

• The bogus Jeff Walters attended the meeting briefly and handed over an equally bogus letter acknowledging a fictitious debt by Walters to you of over $10 million.

7 At your trial, you were found guilty of defrauding eleven investors of $545,000 in total. The total sum redeemed by investors before the collapse of the scheme was $167,000, leaving $378,000 unaccounted.

8 Indictment No 1 and Indictment No 2 deal with further GEIS investors. In total, 31 GEIS investors were induced to part with $591,333. You returned $95,500 to those investors by way of 'dividends' or redemptions.

9 Indictment No 3 deals with UK Wagering Fund investors. The UK Wagering Fund was a smaller offshoot of the GEIS established in about September 2006. It was purportedly operated through a British based company and, like the GEIS, invited investors to pool money for the purpose of 'lay betting'. This time the horse races were in the United Kingdom. No formal documentation was ever produced to establish the syndicate and there were no application forms to be filled in when purchasing units. Money was transferred directly to one of your bank accounts and the net winnings were to be paid monthly to investors. As with the GEIS, there were initial payments to investors. Most of the investors learned of the UK Wagering Fund through Peter Scott, who also assumed administration of the Fund. Like the GEIS, from about November 2006 withdrawals and dividend payments became irregular and you made varying excuses to the investors. The truth was that you had never invested these funds in lay betting and they were mixed with other funds in your general bank accounts. It seems clear that a sizeable proportion of the overall monies that you appropriated, either through the GEIS or through the UK Wagering Fund, were gambled away by you in unauthorised ways. In total, four individuals invested a total of $400,000 in this UK Wagering Fund. I am told by Mr Rose SC, counsel for the Crown, that $223,878 was returned by you to these four investors as monthly dividends.

10 I shall set out in table form the sums involved in your offending. I have rounded the figures.

Thus, on these indictments you have dishonestly obtained approximately $991,000; you have returned to investors approximately $319,500 by way of dividend or redemption and a balance of $671,500 remains unaccounted. As you will recall, your first sentence involved your dishonest receipt of $545,000, with $167,000 returned to investors, leaving a balance of $378,000 unaccounted. Your overall offending therefore (including the 53 charges from trial) resulted in you dishonestly obtaining $1.536 million of which $486,500 approximately was returned.

11 As I observed in my earlier sentence, I have no satisfactory way of measuring how you applied these dishonestly obtained funds, although my suspicion remains that you used some to prop up businesses you were endeavouring to maintain. This remains no more than a suspicion and I do not act upon it for the purposes of sentence. I do accept that you used a significant amount of these funds for the purposes of orthodox win/place gambling but, again, I have no real measure of how successful this activity was. It was certainly unsuccessful with Jeff Walters. It seems clear that large cash sums were at times deposited into your bank accounts. Your counsel, Mr Shirreffs SC, tells me that these funds came from successful punting with an SP bookmaker in Sydney. The SP bookmakers excuse is a well worn one in these courts, but perhaps is a little more plausible in your case. I am not satisfied that these funds were used to support a particularly lavish lifestyle and I will not sentence you on that basis.

12 In my earlier sentence I also considered that the GEIS scheme started life as a small time scam of Irene Brooks and perhaps a couple of her friends and mushroomed well beyond what could reasonably have been anticipated. I remain of this view in relation to Indictment No 1 and Indictment No 2. The UK Wagering Fund scheme, however, evolved about nine months after the birth of the GEIS, and no such finding in your favour can be made. By September 2006, you must have known that 'lay betting' funds were highly attractive to certain sections of the punting public and when you set up the UK fund you must have anticipated it would be well subscribed. Notwithstanding this, you proceeded with it, banked the investors' funds and did not place a single 'lay bet' on UK races. Again, as in the GEIS, you provided fraudulent information to Mr Scott as to the profits derived from betting.

13 I remarked in your earlier sentence that the nature of the GEIS operated, to some extent, in your favour. It was explained to investors that this was a high risk punting scheme and that they could lose everything. Their expenditure was, by and large, of a discretionary nature and I accepted that a legitimate distinction could be drawn between this type of serious fraudulent conduct and what I consider to be a more serious type where small investors part with their life savings. This distinction remains valid for the offending for which I must sentence you today.

14 Whilst these factors may be said to operate in your favour, the fact remains that your conduct was highly dishonest and you obtained a large sum of money as a product of that dishonesty. You have relevant prior convictions which I have reviewed at paragraphs 26-29 of your previous sentence.

15 You are now 45, divorced with two children, and have established a relationship with Ms Anna Sant. I observed her on a number of occasions during your trial. She has provided a reference, which was tendered. She writes that she is prepared to wait until your release. Ms Sant has a young family and sound employment.

16 It is now nearly five years since your dishonest activities ceased. Whilst a good proportion of the delay can be attributed to you, I am nevertheless obliged to take it into account. I remarked in the earlier sentence that I considered that the prospect of the criminal process and imprisonment itself weighed heavily upon you. I again consider that this delay is a factor that stands to be counted in your favour in this exercise.

17 The delay is also relevant in another way. Since 2007 you have reordered your priorities. As I have noted, you are now in a stable and promising relationship. You have not committed any further offences. You have maintained steady employment for the last few years. I consider that your prospects for rehabilitation are reasonably good. I refer also to my previous sentencing remarks at paragraph 30 in this regard.

18 Your pleas were entered at a late stage and after some vacillation I am unable to distil any great remorse from them or from any other source. You are entitled, however, to some real benefit from the fact of your pleas of guilty. Mr Rose SC estimates that they have saved the community the inconvenience and expense of three complete trials, and perhaps three months of court time.

19 The sentences that I impose must reflect the aspect of general deterrence. The two related schemes that you operated involved recruiting innocent agents to act on your behalf and repeated acts of dishonesty. False accounts were generated both to encourage further investment and to camouflage your activities. Those inclined to involve themselves in this type of fraudulent conduct ought understand that significant prison sentences await them.

20 I consider that the aspect of personal or specific deterrence must also be given some weight given your prior history for dishonest offending, although this is tempered by the delay I have referred to and your positive use of that period.

21 Your conduct calls for denunciation and punishment and I will endeavour to reflect these factors in the sentence I will shortly impose. I am mindful of the principle of totality and the sentence that I impose is not the product of a mere arithmetical exercise. I have endeavoured to reflect the totality of your criminal behaviour whilst also applying the other sentencing principles to which I have referred.

23 All sentences are to be served concurrently with each other and the sentence you are already serving except as follows:

I direct that 12 months of Count 17 on Indictment No 1 be cumulative upon the sentence imposed on 3 November 2011.
I direct that 12 months of Count 1 on Indictment No 3 be cumulative upon both the sentence imposed on 3 November 2011 and Count 17 of Indictment No 1.
I direct that 6 months of Count 2 on Indictment No 3 be cumulative upon both the sentence imposed on 3 November 2011 and Count 17 of Indictment No 1 and Count 1 of Indictment No 3.
I direct that 6 months of Count 6 on Indictment No 3 be cumulative upon both the sentence imposed on 3 November 2011 and Count 17 of Indictment No 1 and Counts 1 and 2 of Indictment No 3.

24 That results in a total head sentence of six years and six months. Section 14 of the Sentencing Act requires me to set a new single non-parole period in respect of all sentences you are to serve. If I were sentencing you for your entire offending, including that proven at your trial, I would have imposed a non-parole period of 4 years and would have made a declaration that any pre-sentence detention be reckoned as already served under the sentence.

25 Because I must now sentence you to a new single non-parole period, I do so by reference to the total effective head sentence and by reference to the non-parole period that you have already served for the sentence imposed at your trial (R v Bortoli [2006] VSCA 62). Accordingly, I declare that the new non-parole period, commencing from today, is two years nine months. That non-parole period takes into account the 15 months approximately that you have already served.

26 I cause to be noted in the records of the Court that in respect of Count 17 of Indictment No 1 and Counts 1, 2 and 6 of Indictment No 3 you have been sentenced as a Continuing Criminal Enterprise Offender.

27 I am required to state pursuant to s 6AAA of the Sentencing Act the sentence I would have imposed but for your pleas of guilty. As this sentencing exercise involves sentencing you for offences to which you have pleaded guilty, but which are additional to a sentence already imposed, and further involves the fixing of a new single non-parole period in respect of all sentences, I regard this process as calculated to lead to confusion and/or error. Having said that, had you pleaded not guilty to the counts on Indictment No 1, Indictment No 2 and Indictment No 3 and, if I were required to sentence you on those counts as well as the counts at your trial, I would have sentenced you to a head sentence of seven years six months with a non-parole period of five years, less an allowance for the non-parole period you have already served under the original sentence.

1, 2, 3, 5, 8, 9, 10, 12, 15, 16, 17, 18 19, 22, 23, 24, 25 August 2011 and 14 October 2011

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.

2 It is not necessary to set out the finer details of the Golden Egg Investment Syndicate, but it is instructive, I think, to focus a little on how it evolved.

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

Court

Decision date

Before

Source

Judgment (88 paragraphs)

Parties