Regina v Johnstone [2004] NSWCCA 307

New South Wales Court of Criminal Appeal

CITATION : Regina v Johnstone [2004] NSWCCA 307 HEARING DATE(S) : 2 September 2004 JUDGMENT DATE : 10 September 2004

JUDGMENT OF : Mason P at 1; Sully J at 2; Sperling J at 43 DECISION : Leave to appeal against sentence granted; Appeal against sentence dismissed

Corporations Act 2001 (C'th) LEGISLATION CITED : Australian Securities Commission Act 1989 (C'th) Crimes Act 1900 (NSW) Criminal Appeal Act 1912 (NSW) CASES CITED : R v Thomson and Houlton (2000) 49 NSWLR 383 N.P. (2003) NSWCCA 195 PARTIES : Regina Robert Gary Johnstone FILE NUMBER(S) : CCA 2004/1828 COUNSEL : M. Buscombe - Crown A. Bellanto QC - Appellant SOLICITORS : Commonwealth Director of Public Prosecutions - Crown Locantro Lawyers - Appellant

LOWER COURT District Court JURISDICTION : LOWER COURT 03/11/0272 FILE NUMBER(S) : LOWER COURT Karpin DCJ JUDICIAL OFFICER :

IN THE COURT OF CRIMINAL APPEAL 2004/1828

MASON P SULLY J SPERLING J

10 September 2004 REGINA v ROBERT GARY JOHNSTONE Judgment 1 MASON P: I agree with Sully J. 2 SULLY J: In April 2003 Mr. Johnstone, the present applicant, pleaded guilty in the Local Court to a large number of charges each of which alleged, put simply, the commission by the applicant of an act of commercial fraud. The applicant was committed accordingly to the District Court for sentence. 3 The proceedings on sentence in the District Court came on for hearing in the first instance on 18 July 2003 before her Honour Judge Karpin. The Crown Prosecutor indicated an intention to present a formal indictment against the applicant notwithstanding his pleas in the Local Court. It is not entirely clear to me from a reading of the available transcript why it was thought necessary to present an indictment; but after some desultory discussion about the matter it seems to have been generally agreed that there would be no objection raised by the applicant to his formal arraignment before her Honour provided only that such arraignment did not in any way detract from the applicant's contention, with the substance of which the Crown agreed in any event, that the pleas of guilty upon which the applicant would stand in due course for sentence had been entered at the earliest practicable opportunity. The balance of the available Court time on 18 July was occupied by the formal tendering of the materials in the Crown case and by the calling of a deal of evidence in the applicant's case. The proceedings on sentence were then adjourned part-heard until 5 December 2003. 4 On that day the proceedings commenced with the formal arraignment of the applicant. An indictment containing 20 counts was then presented against him. 5 The first count charged the applicant with having recklessly made a statement that was false or misleading, thereby inducing a named person to deal in securities, namely to subscribe for an interest in a managed investment scheme, namely a fund operated by Financial Options Group Inc Pty Limited, which I shall hereinafter refer to as FOGI. Such an offence contravenes section 1000 of the Corporations Act 2001 (C'th) and it attracts upon conviction a statutory maximum penalty of, relevantly, imprisonment for 5 years. 6 The second count charged the applicant with having given information to an officer of the Australian Securities and Investments Commission being information which was false or misleading in a material particular. Such an offence contravenes section 64(1) of the Australian Securities Commission Act 1989 (C'th); and attracts upon conviction a statutory maximum penalty of, relevantly, imprisonment for 2 years. 7 Counts 3 to 20 both inclusive each charged that the applicant, being at the material times a director of FOGI, concurred in circulating a written statement which he knew to be false in a material particular with intent to deceive a creditor of FOGI. Such an offence contravenes section 176 of the Crimes Act 1900 (NSW); and attracts upon conviction a statutory maximum penalty of imprisonment for 10 years. 8 The applicant pleaded guilty to each of those 20 counts in the indictment. 9 The applicant asked Judge Karpin to take into account, when dealing with the offence charged under count 1, a further and related breach of the Corporations Act; and her Honour did so. 10 The applicant further asked her Honour to take into account, when dealing with the offence charged in count 2 of the indictment, a further and related breach of the Australian Securities Commission Act; and her Honour did so. 11 The applicant stood eventually for sentence on 12 March 2004. Her Honour imposed 20 separate sentences structured so as to produce overall an effective head sentence of imprisonment for 4 years and an effective non-parole period of 2-1/2 years. 12 The applicant seeks leave to appeal against the asserted severity of those sentences. In oral submissions before this Court, the applicant contended that both the effective head sentence and the effective non-parole period should be revised and reduced by this Court; but he contended in the alternative that at the very least the non-parole period should be so revised and reduced. 13 I adopt gratefully the following summary, taken from Judge Karpin's remarks on sentence, of the material facts: "The facts of these matters are that Financial Options Group Incorporated Pty Limited, (FOGI), was incorporated on 7 December 1987. Robert Walker was instrumental in setting up the company and was a director from the company's inception. The prisoner was appointed a director on 1 November 1999. The prisoner had known Walker for approximately ten years prior to that time. The prisoner is a chartered accountant. He was responsible for maintaining FOGI's books of account, including trade ledgers, transaction files and accounting entries on the MYOB accounting system. He also assisted with investment decisions. FOGI held itself out as providing financial services to its customers. Over the period during which these offences were committed Walker was the managing director and the prisoner was designated finance director. A corporate brochure for FOGI dated September 1999 used to market the company to prospective investors, claimed that the company's business was to provide, "Professional investment management in non regulated foreign exchange bullion and base metal markets." It was said that the company had, "Extensive experience and expertise to identify market trading opportunities for clients." It was also claimed that the company sought to provide a superior annual rate of return to clients compared with traditional investments in property, shares or fixed interest. Using a heading "Investment Strategy", the brochure referred to "disciplined risk management within a diversified portfolio". The company maintained that it employed a "stop loss criteria" in risk management. In reliance upon the claims made in the brochure augmented by assurances from Walker and on occasion from the prisoner, a number of investors paid money to FOGI and signed agreements with the company. A monthly report was forwarded to each investor together with an account statement showing the cumulative account balances after payment by FOGI of a return on the principal investment. Each month the report set out the monthly rate of return applicable to that month together with a statement of return to the client after deduction of fees and GST for the relevant month. Statements were made in these monthly reports which sought to explain the current financial position and returns offered by FOGI. For example only, "Both our short-term tactical financial markets trading and the longer term strategic financial markets positions contributed positively to our monthly performance." Monthly reports in this form were sent to investors between 8 February and 4 December 2001, there being no reports in September 2000, or in February, May, October and November 2001. The brochure set out the qualifications and banking investment history of both of the directors. The prisoner is described as being a member of the Institute of Chartered Accountants and holding degrees of Bachelor of Business and Master of Taxation Law and Master of Business Law. He is further described as having gained extensive financial marketing experience as Chief Financial Officer of a large international trading and broking group attending to accounting, credit and compliance matters in the financial and commodity traded markets. His experience and qualifications are said to have provided him with a "practical insight, not only in respect of the physical trading but also a legal insight as to how the financial markets operate in Australia and international jurisdictions." It was noted that he was approved by ASIC to act as reconciliations officer under the Managed Investment Act . Minimum deposits of $25,000 were invited from investors. Any additional deposits were to be made in multiples of $25,000. The brochure provided that funds would be at call and paid by cheque within 24 hours minimum of written instructions from the client requesting withdrawal. The monthly statements, the subject matter of counts 3 to 20 in the indictment were in each case signed by the prisoner and Walker. The modus operandi adopted by the prisoner and Walker was constituted by the issuing of the brochure seeking investments, the monthly investment reports together with verbal statements by both the prisoner and Walker." 14 Her Honour, following the foregoing analysis of the facts, considered in more detail the particular facts of several of the relevant dealings with investors, her Honour using those particular matters as examples representative of the scale of the relevant FOGI operations; and fairly representative, also, of the extent of the losses suffered by various of the particular defrauded investors. Her Honour concluded: "Through these means the prisoner obtained about 1.15 million in a very short period. The total amount involved in the matters before the court now is approximately 1.9 million." 15 Three particular grounds were argued in support of the present application. Before considering them in detail, it is, in my opinion, appropriate to say at once, and with all proper firmness, that criminal activities of the kind previously herein described are, in terms of their objective culpability, no trifling matter. Commercial fraud of that kind and scale is not victimless crime. The investors who were effectively defrauded by the applicant's activities were real people who suffered real losses having, in at least some of the particular cases, serious personal repercussions. There is, of course, the added consideration of the broader public interest in ensuring that persons in positions of commercial trust, as the applicant undoubtedly was, do not abuse that trust and thereby weaken the general confidence of the investing community in the commercial and financial institutions the activities of which have a fundamentally important role to play in maintaining the economic well-being of the community in general. 16 The applicant contended in part, in his submissions to this Court, that he had been in a real sense overawed by his fellow offender Robert Walker. This consideration tended, so it was submitted, to mitigate at least to some degree the applicant's objective criminality; and to bolster at least to some degree the subjective matters that were available to be prayed in aid by the applicant. 17 I am unpersuaded by that part of the applicant's submissions. The applicant was aged about 33 years at the material times. He was a chartered accountant: that is to say, he was a member of an honourable profession with all that is thereby entailed in terms of legitimate expectation as to his personal and professional ethics and honesty. He had other academic and professional qualifications which were summarised by Judge Karpin in the previously extracted passages from her Honour's remarks on sentence. As to his particular knowledge at particular material times, it is not necessary to travel beyond paragraph 12 of the Statement of Facts that the Crown tendered without objection to the learned sentencing Judge. It is a lengthy paragraph which is reproduced at page 120 of Volume 1 of the Appeal Book, and it is not necessary to set out now its precise detail. 18 It was submitted for the applicant that there were three bases upon which this Court would be justified in setting aside the sentences passed by Judge Karpin, and in thereupon re-sentencing the applicant to other and more lenient sentences.