R. v. Nielsen Date:, 2017 BCPC 293

Citation: R. v. Nielsen Date: 20170925 2017 BCPC 293 File Nos: 61891-1, 63171-1 Registry: North Vancouver IN THE PROVINCIAL COURT OF BRITISH COLUMBIA File No. 61891-1 REGINA v. FREDERICK JOHNATHON NIELSEN A.K.A. FRED NELSON File No. 63171-1 REGINA v. FREDERICK JOHNATHON NIELSEN A.K.A. FRED NELSEN ORAL REASONS FOR SENTENCE OF THE HONOURABLE JUDGE J. CHALLENGER

Counsel for the Crown: M. Richards Counsel for the Defendant: M. Forhan Place of Hearing: North Vancouver , B.C. Date of Sentence: September 25, 2017 [ 1 ] THE COURT: Frederick Johnathon Nielsen, also known as Fred Nelson, pleaded guilty to one count of breaching an order of the British Columbia Securities Commission (B.C.S.C.), by trading in a security and/or engaging in investor relations, contrary to s. 155(1)(

c) of the Securities Act . [ 2 ] The offence occurred between December 30, 2013, and January 7, 2015 in Vancouver. He engaged in trading and in raising capital relating to a Canadian subsidiary of International Wagering Systems Inc. The offence carries a maximum penalty of three years of incarceration, or a $3,000,000 fine, or both. [ 3 ] The order of the B.C.S.C. was issued March 15, 2011, and Mr. Nielsen was served on March 25, 2011. It is in force for a period of 25 years, and prohibits Mr.

Nielsen from: trading or purchasing shares; acting as a director or officer of any issuer; acting as a registrant, investment fund manager, or promoter; acting in a management or consultative capacity in connection with activities in the securities market; engaging in investor relations activities. Circumstances [ 4 ] Mr. Nielsen consented to the order after an investigation into an illegal telephone marketing operation known commonly as a “boiler room”, which was selling shares in Green Farms International Inc., a private U.S. company.

That illegal operation came to the attention of the B.C.S.C. in the spring of 2009. [ 5 ] That offence was considered to be aggravated by Mr. Nielsen’s previous history of criminal conduct relating to wire fraud, securities fraud, and conspiracy to commit money laundering, specifically, engaging in prohibited monetary transactions from criminally derived property. [ 6 ] Mr. Nielsen was convicted of those offences in Florida under his previous identity of Frederick J. Gilliland.

In October 2006, he received a sentence of five years imprisonment, a restitution order of $12,682,660.20, and a $200 monetary assessment. He was also subject to a regulatory penalty of $10,145,179 imposed by the U.S. Securities and Exchange Commission. [ 7 ] A newspaper

article filed in these proceedings described that Mr. Nielsen, then Mr. Gilliland, fled the United States in 2001 when his criminal offences came to light. He moved to West Vancouver where he “lived an expensive lifestyle, awaiting extradition proceedings”. [ 8 ] In March 2005, he was lured into Point Roberts by a disgruntled former investor on the promise of a free lunch, and arrested there. [ 9 ] He has not made any payments towards the restitution or assessment to date. After his release from jail, he returned to reside in the Lower Mainland. In April 2009, he changed his name to his current identity.

He failed to advise the U.S. authorities of the change in his name, as required. [ 10 ] It is significant that he was released from prison in the United States in October 2008, and became involved in further illegal securities activities within a few months, and before the expiry of the sentence he was serving. [ 11 ] The offender’s involvement in the prohibited activities which form the basis for the charge before the court began in 2013. He met a Mr. Walters while on a trip to Brazil. Mr. Nielsen introduced himself by his alias, Fred Nelson. He determined that Mr.

Walters was involved in obtaining lottery licences in Guatemala through his company International Wagering Systems Inc., Nevada (I.W.S.). [ 12 ] In late 2013, Mr. Walters introduced the offender to Peter Frankowski who was interested in becoming involved in Mr. Walters’s venture. Mr. Frankowski did become involved, met with the offender, and engaged him to obtain financing for the lottery opportunity in Guatemala. [ 13 ] The offender continued to be actively involved in raising capital for I.W.S. In February 2014, I.W.S. was incorporated in Canada at the suggestion of Mr. Nielsen. Mr.

Nielsen installed a nominee Director and President who had little knowledge of the affairs of the company when eventually interviewed by the investigators. This person did, however, open a bank account for the corporation in Calgary. The shares of the Canadian I.W.S. Corporation were assigned to various people associated to the offender. Mr. Nielsen was to be compensated for his efforts with shares. [ 14 ] In August of 2014, Mr. Nielsen devised a capital-raising plan, and suggested acquiring a shell company to allow I.W.S. to go public on the German stock exchange.

The offender was added as a signatory to the I.W.S. bank account in Calgary. [ 15 ] Mr. Frankowski’s son, Hyuma, decided to invest in the venture, and provided the offender with $41,023.87, the amount

necessary to proceed with the offender's plan. Mr. Nielsen invested and lost $5,427.20 in the venture. [ 16 ] The offender later advised Hyuma Frankowski that more funds would be required, and that there was a delay in finding an appropriate shell company. Another potential investor, Mr. Feldt, was contacted by the offender and was offered shares. Mr. Feldt was warned off investing because Mr. Walters and Mr. Frankowski Sr. had become suspicious of “Fred Nelson”. [ 17 ] In the spring of 2015, Mr.

Nielsen was still actively involved in attempting to raise funds for I.W.S. [ 18 ] During the spring of 2015, the offender also approached several people regarding an investment opportunity with a bank in Cyprus. The investors would provide their biographical information in exchange for €7,500 to €10,000. Mr. Nielsen was unsuccessful in finding anyone willing to participate in that scheme. Victim Impact [ 19 ] Mr. Hyuma Frankowski filed a victim impact statement suggesting that the offender is responsible for the loss of his entire investment. However, only $10,000 was removed from the bank account by Mr.

Nielsen, and the balance of Hyuma Frankowski's investment appears to have been later rolled into a different I.W.S. corporate body in Canada after Mr. Nielsen was no longer involved. Circumstances of the Offender [ 20 ] Mr. Nielsen is now 65 years old. He was born and raised on a farm in Sarnia, Ontario. He enjoyed a positive upbringing in an intact family, with one sibling. He graduated from Grade 12 and obtained a diploma in business and marketing. He was a real estate agent for a time, and operated a furniture store. At age 35, he went into residential property development in Florida. [ 21 ] Mr.

Nielsen submits that the court should be merciful because he was destitute upon his release from custody, and had to sell his Rolex watch and diamond jewellery to get by. [ 22 ] He had difficulty obtaining employment due to his criminal history. His explanation for why he became involved in the boiler room and the matter before the court is that he needed money. However in 2012, he obtained employment with JR Furniture and has been steadily employed there since, earning $2,500 per month. His income is modest but sufficient to meet his basic needs.

It is also apparently sufficient to allow him to afford a holiday in Brazil. [ 23 ] Mr. Nielsen says a jail sentence will cause him to lose his employment and jeopardize his financial security as he reaches the end of his working life. [ 24 ] He is single, with one adult son. His health is good, although he has arthritis in his legs and feet. [ 25 ] Two letters of reference were filed which support that he is a pleasant person, a good friend, and otherwise pro-social. A letter from his psychologist was also filed.

It is self-serving in that it reflects only that the offender met with the psychologist once and expressed his remorse and intention not to reoffend in the future. Positions of Counsel [ 26 ] Counsel for the Crown submits that a six-month jail sentence is appropriate is all the circumstances. They also ask for a restitution order pursuant to s. 155.1 of the Securities Act in favour of Hyuma Frankowski. [ 27 ] Counsel for Mr. Nielsen asks the court to impose a probation order pursuant to s. 89 of the Offence Act for a period of 12 to 18 months, with a term that Mr.

Nielsen is to perform 200 hours of community work service and other restrictive terms, such as a curfew. Mr. Nielsen also argued that a restitution order in the amount of $10,000 is appropriate as the balance of the funds were later rolled into a different corporation by Mr. Frankowski Sr. and Mr. Walters. [ 28 ] I want to pause to say that I am indebted to both counsel for their very able and thorough submissions in this matter. Aggravating and Mitigating Factors [ 29 ] The aggravating factors are the offender’s history and his continued violation of and disregard for court and regulatory orders.

His involvement in the offence before the court was brazen and ongoing. His sole motivation for engaging in the prohibited conduct was financial gain. He used an alias to cloak his criminal past in order to gain the trust of the principals, and put in place a nominee Director to avoid detection by the authorities. Although his boiler room activities were discovered in 2009, he was under investigation until 2011. His involvement in this matter commenced two years after he was served with the order. Although the venture itself was legitimate, Mr.

Nielsen’s involvement in it was deceitful and manipulative from the moment he identified himself by a false name. [ 30 ] In mitigation, Mr. Nielsen entered a guilty plea. The plea was not entered until after a second trial date was adjourned. The case against Mr. Nielsen was very strong, and as a result, this factor deserves little weight. [ 31 ] To Mr. Nielsen’s credit, there is no evidence I.W.S. was a fraudulent company. However his attempts to engage people in the scheme relating to the bank in Cyprus are highly suspicious in nature. [ 32 ] Mr. Nielsen submits that it was Mr.

Walters who approached him, and who went on to introduce him to the others involved. He also says that he was not the operating mind of the venture as Mr. Walters and Mr. Frankowski were the principals. This explanation does not serve to reduce Mr. Nielsen’s moral culpability. Rather, it demonstrates only that the offender lacks insight and continues to fail to take responsibility for his offending conduct. [ 33 ] Mr. Nielsen now says that he has seen the error of his ways and recognizes he has been too materialistic.

He now wishes to live a simple, frugal and law-abiding life and enjoy his family and friendships.

Principles and Range of Sentence [34] The Crown relied on the following authorities: Rex v. Bowman and Thibaudeau (1949), (ON CJ), 92 C.C.C.380; R. v. Castaneda, 2008 ONCJ 69; R. v. Da Silva, 2012 ONCJ 279; R. v. Dix, 19 September 2008, Victoria 139753-1 (B.C.P.C.)unreported; R. v. Edwardson, 2004 BCPC 312; R. v. Grossman, 2013 ONCJ 444; R. v. Knight, 2016 BCPC 105; R. v. Knight, 2016BCSC 2286; Pezim v. British Columbia (Superintendent of Brokers) (SCC), [1994] 2 S.C.R. 557; R. v. Seto, [2005]A.J. No. 994; R. v. Tulsiani, 2017 ONCJ 430; and R. v.

Wiegel, 2014 BCPC 54 , 2014 BCPC 0054. [35] The Crown submits that for regulatory offences of this nature, the principles of denunciation, general deterrence, specificdeterrence and protection of the public are to be given the greatest weight. [36] The Securities Act regime is aimed at protection of investors, capital market efficiency, and ensuring public confidence in thesystem (Pezim, p. 23). Those who act in a manner detrimental to the integrity of the capital markets must be prohibited fromparticipating.

The need for penalties that strongly encourage statutory compliance is of particular importance, when the effects of such violations havewide ramifications to society and strike at the heart and purpose of

an act, such as the Securities Act. [R. v. Da Silva, paras. 12-16; and see also Castaneda, paras. 31-33.] [37] The imposition of a financial penalty does not meet the principles of sentence as it is seen to amount to a fee for the cost ofdoing business.

The imposition of a fine may be appropriate for those who are merely careless, but a jail penalty should be imposed forthose who intentionally and knowingly commit violations (see Bowman). [38] The cases of Castaneda, Dix, Edwardson, Grossman and Knight clearly support a sentence in the range of five to twelve monthsfor offenders with histories of regulatory or criminal offences who intentionally violate orders prohibiting them from engaging in tradingfor similar activities. [39] Counsel for Mr. Nielsen relied on the following authorities: R. v. Rondeau, 2017 BCPC 120; R. v. Sisto Finance N.V., [1994]O.J.

No. 4187; R. v. Sisto Finance N.V., [1994] O.J. No. 4191; and R. v. Voong, 2015 BCCA 285. [40] Relying on the Supreme Court of Canada decision in R. v. Proulx, and on Voong, counsel for Mr. Nielsen urged the court toexercise restraint, and to craft a probationary sentence which would serve as denunciatory and as a deterrent to like-minded individuals,and to this offender. However, a suspended sentence is not available under the Offence Act, and so the risk of having a jail sentenceimposed should Mr.

Nielsen fail to comply would not exist. [41] Rondeau involves the theft of just over $100,000 from a financial institution where the offender was employed. The offenderhad no prior criminal history, was of otherwise good character, and had taken significant steps towards his rehabilitation. He received asuspended sentence. [42] In the Sisto decisions, both offenders were of previously good character. Mr. Davison was found to have engaged in a minimallevel of deceit which did not justify a term of incarceration. Mr. Carr was found to have been more culpable, and received a 90-daysentence.

He had significant health issues which mitigated in favour of a shorter sentence which could be served intermittently. Analysis [43] Mr. Nielsen is a repeat offender with a demonstrated disregard for court and regulatory orders. His history of non-compliancedoes not support the imposition of a community-based disposition as the court could have little confidence he would abide by any termsimposed. [44] The offender was unabashed in his submission that the reason for violating the B.C.S.C. order was to provide funds for hisretirement. It is clear that Mr.

Nielsen puts his own financial interests ahead of the interests of society and he must be specificallydeterred from doing so again in the future. [45] The offender’s moral culpability and level of deceit puts him in the category of offender for whom a period of incarceration isrequired. It does not reduce the seriousness of his offence that he was detected prior to realizing any returns or that he lost some of hisown funds in the venture.

He actively and intentionally deceived the principals of the venture and flagrantly violated the orderprohibiting him from engaging in it. [46] The principles of denunciation, general deterrence, specific deterrence and protection of the public require a period ofincarceration be imposed. The rehabilitative interests of Mr. Nielsen must be given little weight in all the circumstances. [47] He is a mature and worldly person who freely and knowingly chose to commit this offence. Mr.

Nielsen will have to suffer theforeseeable consequences of his offending behaviour, such as being vilified in the media and losing his employment. [48] The sentence suggested by Crown is one which, in my view, addresses the principle of restraint as the cases relied on by theCrown support a sentence of 12 months being imposed. [49] If you will stand, Mr. Nielsen. [50] I sentence you to six months imprisonment. [51] There will be a restitution order pursuant to s. 151.1 of the Securities Act in the amount of $10,000 in favour of HyumaFrankowski.

[ 52 ] MS. RICHARDS: Thank you, Your Honour. And there was outstanding counts on the 61891 Information, and the Crown directs a stay of proceedings to those, as well as a stay of proceedings to the 63171 Information. Thank you. [ 53 ] THE COURT: Okay. Thank you. [ 54 ] MS. FORHAN: I thank my friend. Thank you, Your Honour. [ 55 ] THE COURT: Thank you.