R. v. Drabinsky, 2011 ONCA 582, released a few moments ago, focuses on questions of fact. The Court, dismissing the conviction appeals, notes that “this court has jurisdiction to review findings of fact and credibility: s. 686(1)(a)(i). That jurisdiction is, however, limited. This court cannot retry the case and substitute its opinion of the credibility of witnesses and the force to be given to fact-based arguments for the assessments made by the trial judge: R. v. W.(R.), [1992] 2 S.C.R. 122; R. v. Beaudry, [2007] 1 S.C.R. 190.”
There is little surprising in such language. Appeals based on fact are limited to extraordinary cases and the Court did not find the case to be extraordinary in that way.
The Court did, however, reduced the sentences imposed and in so doing drew an interesting distinction between frauds which was intended from the outset to be frauds (“scam”) and frauds that evolved over time (legitimate businesses that became frauds). As many commercial frauds are not intended to be frauds from their inception the distrinction is important. The Court writes:
[171] The appellants also submit that the trial judge gave inadequate weight to the appellants’ motives. They stress that the crime was not one driven by greed. Livent was far from a “scam”. The appellants did not set out to cheat MyGar and Livent investors with a view to leaving those investors with nothing while lining their own pockets. The appellants clearly believed that Livent would ultimately be a huge success and that everyone, including themselves, would benefit greatly by the existence of a thriving live theatre community in
[172] The trial judge acknowledged that the appellants were not driven by “pure greed”. She said, at para. 39:
The defence stress that this was not a case of “pure greed” as described in the jurisprudence and which has been considered an aggravating factor. Indeed, this was not a case of funds misappropriated for the acquisition of material goods. That said, the absence of this pure greed factor is not mitigating. Unlike some fraud cases, this was not a company set up for the purpose of a scam. It operated a legitimate business during the course of which fraudulent misrepresentations were made.
[173] We agree that cases properly characterized as “scams” will normally call for significantly longer sentences than frauds committed in the course of the operation of a legitimate business. Whether the absence of “pure greed” is viewed as a mitigating factor or simply as the absence of an aggravating factor would seem to make little difference in the ultimate calculation.
[174] We see no error in the trial judge’s treatment of the appellants’ motivation for their frauds. They were not fraudsters in the purest sense. They were trying to operate a legitimate business of potential benefit to the entire community. That said, however, their motives were not altruistic. While they operated Livent and created its false prosperity through their frauds, they lived the lives of successful, prominent and powerful international entrepreneurs. There were significant financial benefits flowing to both appellants from the operation of Livent.
[175] The appellants submit that the trial judge erred in principle in treating the fraud as a “large scale” commercial fraud in the absence of any evidence quantifying the economic loss caused by the fraud. The trial judge was clearly concerned about the quantum of the fraud during the sentencing submissions. She questioned Crown counsel on the topic both in his initial submissions and in reply. Crown counsel took the position that it could not put a dollar figure on the fraud, but that there was ample evidence that Livent’s investors and lenders suffered large losses as a result of the fraud. Counsel put it this way in his initial submissions on sentence:
The trial of this matter did not deal in any comprehensive way with the restatement of Livent’s finances or the subsequent collapse of Livent. Those matters are the subject of various related civil court proceedings, some of which are alluded to in this trial and are still pending.
The Crown is not seeking to intrude into this area for purposes of sentencing and, accordingly, is not seeking a compensation order.
[176] He also said in reply:
The company collapsed, and it was a large company. So there was a massive loss. …
… The company went into receivership. And there’s a complex process for deciding, you know, who gets what out of what’s left.
But the Crown’s position is, it’s not necessary to go beyond the fact that this is a fraud that had major implications, the collapse of a sizeable company. The number is really neither here nor there.
[177] Counsel for the appellants argued that the financial demise of Livent could not be attributed to the fraud. Counsel put it this way:
But there’s still a very live question as to whether or not new management inherited a viable company. And the whole question of the loss – why the company went into bankruptcy, is enormously complex. Not decided at this trial and not – not yet decided in the civil actions.
And, indeed, there’s been reference before you to the Deloitte & Touche litigation, in other words, the litigation that’s brought by Livent against Deloitte & Touche, claimed amount of half a billion dollars, $500,000,000. That litigation is still outstanding. And so the whole question of whether or not there may yet be a recovery for creditors and for shareholders remains to be outstanding.
And so in my respectful submission, the evidence before you does not admit of any amount of quantifiable loss as a result of the fraudulent activity which you have found. Clearly, there was a risk created by the misrepresentations, but the loss has not, in our respectful submission, been quantified before you.
[178] In her reasons for sentence, the trial judge made a single brief reference to the quantum of the fraud, at para. 24:
There was a direct link between the financial manipulations and the share value. While the exact dollar value of the fraud is not known, the investments made in the public company were over $500,000,000.
[179] The negative effect of crime on its victims is always an important consideration in sentencing. In fraud cases, actual economic loss is one of the obvious negative consequences potentially suffered by victims. The trial judge did not make any finding as to the exact quantum of the economic loss caused by either the MyGar or Livent frauds. It is unclear whether the trial judge viewed the $500 million figure as somehow representative of the order of magnitude of the fraud and, if so, how she reached that conclusion. There is nothing in the evidence to connect the $500 million figure referred to by the trial judge to the loss caused by the frauds.
[180] On our review of the trial transcript, the Crown made no submissions at trial alleging any actual economic loss as a result of the MyGar fraud. While the misrepresentations in the IPO were sufficient to establish a risk of economic prejudice, we see no evidentiary basis for a finding of any actual economic loss.
[181] Insofar as the Livent fraud is concerned, we agree that the inability to place a dollar figure on the fraud does not mean that it was wrongly characterized as a “large scale” commercial fraud. The fraud went on for years and involved the systematic misrepresentation of the financial statements in amounts well into the millions of dollars. Even though the Crown made no attempt to quantify the fraud, the evidence clearly justified the inference of significant economic harm to investors and creditors of Livent.
[182] We do agree with the appellants, however, that in the absence of evidence from the Crown, it was wrong to attribute the ultimate failure of Livent to the fraud. The causes of Livent’s demise were admittedly numerous and complex. This matter was not explored in the course of the criminal trial and the state of the record does not permit allocation of responsibility for the bankruptcy to the fraud. The bankruptcy no doubt caused significant losses to creditors, employees and investors. Those losses cannot, in our view, be laid entirely at the feet of Drabinsky and Gottlieb.
[183] The trial judge in the course of enumerating the various aggravating factors said, at para. 37:
When the company collapsed, people lost their jobs, creditors lost their money, and investors lost share value.
[184] This passage could be read as a finding by the trial judge that the financial consequences of the bankruptcy were the product of the fraud. With respect to the trial judge, before she could make that finding she had to come to grips with the question of the extent to which the financial loss flowing from the bankruptcy could be attributed to the fraud. The Crown cannot, on the one hand, refrain from joining issue on the actual loss attributable to the fraud and, on the other hand, ask the sentencing court to assume the worst for the purposes of sentencing. The Crown is obligated to prove all aggravating factors on sentence beyond a reasonable doubt.
[185] On this record, while it can safely be said that the fraud was a factor in the bankruptcy, it cannot be said that the fraud caused the bankruptcy and the subsequent financial losses. Where the actual economic harm caused by a fraud is uncertain, the sentencing judge must give the benefit of that uncertainty to the accused. The trial judge should have approached this case as one in which the Crown had proved the ultimate inevitability of significant loss, but had not proved a fraud of a specific magnitude or that the insolvency was the product of the fraud.
[186] In describing the loss as we have, we do not mean to suggest that this was not a large scale and significant fraud. It clearly was. Nor do we take away from the non-economic harm caused by this kind of fraud. When prominent business leaders who are directors and officers of public companies engage in fraudulent activity, the public faith in, and the integrity of, the public marketplace no doubt suffers regardless of the actual financial loss suffered.
[187] In our view, when the nature of the economic loss proved by the Crown is considered with the other factors relevant to sentence, a sentence within the established range of sentencing for large scale frauds is still warranted. However, we would place the appropriate sentence somewhat lower in that range. In our view, sentences totalling five years would be appropriate.
http://www.ontariocourts.on.ca/decisions/2011/2011ONCA0582.htm
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