r v. Lino MATTEO, 2012 QCCQ 1304

Autorité des marchés financiers c. Matteo 2012 QCCQ 1304 JM 2091 COURT OF QUEBEC Canada PROVINCE OF QUEBEC DISTRICT OF MONTREAL Criminal and Penal Division No.: 500-61-252903-084 DATE: February 22, 2012 ______________________________________________________________________ THE HONOURABLE HÉLÈNE MORIN, J.C.Q., PRESIDING ______________________________________________________________________ AUTORITÉ DES MARCHÉS FINANCIERS Prosecutor v.

Lino MATTEO Laurence HENRY Joseph PETTINICCHIO Andris SPURA Defendants ______________________________________________________________________ JUDGMENT (expert testimony voir dire ) ______________________________________________________________________ INTRODUCTION [ 1 ] On September 17, 2008, the prosecutor commenced penal proceedings against the defendants for contraventions of the Securities Act. [ 2 ] No fewer than 547 statements of offence were issued, alleging that the defendants aided in the presentation of false or misleading information as part of their activities within the Mount Real Corporation group [1] , and that they aided in the distribution of a form of investment without having a prospectus for which a receipt was issued by the Commission des valeurs mobilières or the Autorité des marchés financiers (AMF) [2] . [ 3 ] The prosecution, which estimates that the trial will last nine months, intends to call as witnesses Richard Forand and Michel Hébert, of the forensic accounting firm of Navigant Conseil L.J.

Mr. Forand is a senior partner with the firm, and Mr.

Hébert is a senior director. [ 4 ] The prosecution wishes to rely on their testimony not only as witnesses who obtained evidence in the course of the lengthy investigation leading up to the charges against the defendants, but also as forensic accounting experts who are qualified to draw conclusions and provide their opinions. [ 5 ] I should specify that this voir dire pertaining to the admissibility of their testimony as experts was held before any evidence was adduced. [ 6 ] Lino Matteo, who is self-represented, and Andris Spura, who is represented by Mtre Frédérick Carle, object to the admission of the testimony of the two witnesses as forensic accounting experts.

Mr. Matteo further submits that the witnesses are in conflict of interest, because they both worked at Deloitte & Touche , an auditing firm that had Mount Real Group as a client . Criteria for admitting expert testimony [ 7 ] From the outset, Mtre Carle acknowledges that the criteria for admitting expert testimony, as articulated by the Supreme Court in Mohan , [3] have been met beyond a shadow of a doubt. [ 8 ] Therefore, it is admitted that the testimony of Mr. Forand and Mr.

Hébert as forensic accounting experts would be relevant and necessary, that there is no exclusionary rule, and that they are properly qualified as forensic accounting experts. [ 9 ] However, Mtre Carle submits that he has incontestably shown that both witnesses, by virtue of their constant involvement in the AMF investigation, have lost the independence, objectivity and impartiality that a court is entitled to expect of experts who testify before

it. [ 10 ] Therefore, he submits that they should not be permitted to testify in this capacity because, ultimately, their testimony as experts would have no probative value or reliability and because the time devoted to hearing them, at the end of which the prosecutor would seek imprisonment in the event of a conviction, would be wasted.

The trial process would derive no benefit from the admission of the testimony, but there could be considerable prejudicial effect on the defendants and the administration of justice. [ 11 ] In addition, Mtre Carle contends that, in view of the complexity of the evidence on which the opinions are based (roughly two million documents and the testimony of more than three hundred witnesses, some of which are admissible and others perhaps not), it would be impossible for me to adequately assess the evidence and sort out what can and cannot be used in light of the opinions of these two forensic accountants, which he considers to be biased. [ 12 ] Therefore, Mtre Carle asks that I adopt the two-step process proposed by the Honourable Mr.

Justice Doherty of the Ontario Court of Appeal in Abbey , [4] a process that was recently followed by the Honourable Mr. Justice Annis of the Ontario Superior Court of Justice in Van Bree , [5] where, as here, the partiality of an expert witness was an issue. [ 13 ] In the first step, the existence of the usual preconditions of admissibility must be demonstrated. The existence of these preconditions is not contested here. The process also requires the judge to go further and conduct a cost-benefit analysis, even if the criteria for admissibility are shown to have been fulfilled.

In this step, which Doherty J.A. calls “the gatekeeper phase of the admissibility inquiry”, the judge exercises his or her judicial discretion to exclude evidence that would otherwise be admissible. [ 14 ] In this approach, the partiality that was considered in assessing the reliability or probative value of testimony that was admitted in evidence can become a factor that militates against admissibility. [ 15 ] Using this contextual approach in Van Bree , the judge admitted part of the testimony of a police officer who was an expert on drug trafficking, despite indicia of partiality, because the testimony was of great probative value (benefit), and the risk of prejudicial effect on the accused (cost) was low.

However, based on the same reasoning, the judge did not allow the witness to give his opinion with respect to the ultimate question to be determined, namely the purpose for which the accused held the drugs that were found in his possession. [ 16 ] In Van Bree , Annis J. expressed the view that the risk of considering the evidence of an apparently partial expert witness should not be overestimated, especially since courts are particularly alert in the presence of a partial witness. [ 17 ] In Abbey , which involved expert testimony pertaining to the meaning of a tattoo, the Court of Appeal ordered a new trial on the basis that the trial judge should have admitted the expert testimony concerning the question.

In view of the probative value of the evidence, the benefit obtained by admitting the testimony outweighed the cost, because the jurors did not have to deal with complex evidence, the experts’ language was not impenetrable, and cross-examination could expose the shortcomings of the opinions. THE TESTIMONY ON THE voir dire Richard Forand [ 18 ] Mr. Forand has been an accountant for twenty-five years, and an investigative and forensic accountant for thirteen years.

In the latter capacity, he must comply with the Standard Practices for Investigative and Forensic Accounting Engagements. [6] Put succinctly, an investigative and forensic accountant, or forensic accountant, is an accountant who is also a financial investigator. The two functions are inseparable. Here is what Mr. Forand stated upon cross-examination by Mr. Matteo: We cannot separate the expert side from the investigative side of what forensic accountants do. Because they’ve got to first search among the documentation, among the relevant information.

After that, conduct the analysis and review all the examination to issue an expert opinion. So that is part of the same task of what we’re doing daily. So investigating and after that analyze, review, resume the information in order to be able to issue an expert opinion. [ 19 ] From the outset of his testimony, Mr. Forand sought to draw my attention to

Section 700 of the Standard Practices, even though no questions on that precise subject were asked of him. By virtue of

Section 700, the primary responsibility of an investigative and forensic accountant acting as an expert witness is to the Court. He must provide impartial and objective testimony. Mr. Forand felt that it was important to specify that he understands this principle very well and consistently adheres to it. [ 20 ] In 2005, he joined Navigant Conseil L.J. Inc. as a Senior Partner specializing in the investigation of economic crimes.

The firm has many clients, including government bodies, financial institutions and the Sûreté du Québec. [ 21 ] In the late summer of 2005, the firm accepted a mandate from the Autorité des marchés financiers to provide forensic accounting services in connection with a file opened by the AFM concerning the business entity Mount Real. The investigation focused on the release of false or misleading information to the public and on the actions of the senior management and the numerous corporations tied to the Mount Real Group. [ 22 ] Mr.

Forand testifies that, in September 2005, he was unaware of the existence of Mount Real. [ 23 ] At that time, the AMF had already received the audit files from three accounting firms that had certified Mount Real’s financial statements. Following the receipt of the information subpoenaed by the AMF, Mr. Forand, based on his review of the correspondence between the AMF and Mount Real, came to the realization that all of this documentation raised even more questions than it answered.

The appointment as an investigator [ 24 ] Mr. Forand soon realized that it was essential that he and the other members of his team be involved in the witness interviews, so that they could ask more specific questions and sub-questions related to the more complex financial and accounting considerations. [ 25 ] Since the AMF had the authority to appoint him as an investigator, he was so appointed, along with Michel Hébert and Julie Forcier of Navigant. [ 26 ] On January 9, 2007, Yan Paquette, Director of Inspections and Investigations for the AMF, saw fit to appoint them as investigators because they were not members of the AMF. He implemented this measure pursuant to

section 247 of the Securities Act so that they could conduct the investigation that was initiated by the AMF. [7] [ 27 ] At the end of this investigation, the Mount Real Group was defined as a grouping of at least eighty-eight corporations. A large number of expert reports were produced, setting out the results of the investigation, along with the findings and conclusions. According to Mr. Forand, each report is based on the entirety of the documentary evidence examined, collected and assembled in the course of the investigation. One single report can be based on several sub-reports.

The MRC report, which is supported by eighteen different sub-reports, is one such report. [ 28 ] That report contains the conclusion, signed by Mr. Forand and Mr. Hébert, that offences against the Securities Act had been committed, [8] along with their recommendation that the litigation unit examine the contents of the report and file such charges as are appropriate. The reports [ 29 ] Mr. Forand signed all of the reports. He personally supervised, planned and directed the activities, and oversaw all of the work that made it possible to produce all of the documents .

Although his mandate came from the AMF, he testified that he was the person who did everything. The work team essentially consisted of people from Navigant and the AMF. [ 30 ] Although certain reports bore the AMF letterhead, while others bore the Navigant letterhead, this was not of much importance in terms of content. Since it was not ethically possible to associate Navigant’s name with someone not from the firm, the work to which the AMF investigators made a considerable contribution is reflected in the reports identified as AMF reports.

A Navigant page or an AMF page was the same thing in this instance. [ 31 ] Mr. Forand testified that he experienced no interference or pressure from his client. From the outset, an office at the AMF’s place of business was made available to him. The witness interviews took place at the AMF’s place of business. [ 32 ] Although he did not go to the locations where the searches and seizures took place, he gave a brief presentation in November 2005 with respect to the makeup of the Mount Real Group and, working with Mr. Hébert, prepared a list of evidence to look for at the premises that were to be searched.

The witness interviews [ 33 ] The cross-examination by Mtre Carle revealed Mr. Forand’s involvement in several witness interviews, including an interview of Mtre Carle’s client, the defendant Andris Spura. According to exhibit V-D 6d, that witness was met at the AMF’s place of business on May 9, 2007, pursuant to the powers conferred by the Securities Act . Mr. Forand and Mr. Hébert were present. Mr. Spura was represented by counsel. [ 34 ] At that time, Mr. Forand did not know who would face charges.

The witnesses who were interviewed were given the usual cautions and were notified of their right to counsel. [ 35 ] Based on the correspondence between the lawyers, it is my understanding that the AMF representatives agreed to redact that portion of the report and never to use the statements given by Mr. Spura. This is precisely one of Mtre Carle’s arguments. In his submission, not only is Mr.

Forand partial, his expert testimony relies in part on evidence that is known to be inadmissible, and the origin of which is sometimes even difficult to identify. [ 36 ] As for the other three co-defendants, they never received any subpoena requiring them to be available for such a witness interview. Mr. Forand made this decision in consultation with the other members of the team that he was supervising. He specifies that nobody from the AMF ever interfered with his decisions. Apart from a few meetings with management to discuss the progress of the investigation and its budget, the AMF did not interpose itself.

Here is an excerpt from his testimony pertaining to this subject: [ translation ] Clearly, the AMF was always my client. Ultimately, once per month, I issued our invoice for professional services. However, I solemnly affirm to you that I did not, at any time, experience any interference, intervention or influence of any nature whatsoever in the conduct of this file .

My understanding is that this file was important, and was a priority for the Autorité des marchés financiers because of the size of the losses incurred by the investors, and it was always my clear understanding that the AMF wanted to shed light on the situation. That is the context in which I performed my engagement. [Emphasis added.] Paul D’Andrea [ 37 ] Paul D’Andrea, charged separately, will be called by the prosecution as a witness. Mr. Forand and Mr. Hébert met with him

more than once, and on September 12, 2008, he signed a document entitled Investigation Assistance Agreement [9] in their presence. [ 38 ] The parties to that agreement are the AMF and Paul D’Andrea. The signature of Jean St-Gelais, then President and Chief Executive Officer of the AMF, is on the document, although he was not actually present at the September 12, 2008, meeting. According to Mr. Forand, Mr. St-Gelais approved and signed the document later. [ 39 ] The meeting preceding the signing began at 9:25 a.m., and at 11:40 a.m., Mr.

D’Andrea met Mtre Nathalie Marcoux, who introduced herself as the head of the AMF’s litigation unit, and stated that she would be explaining the contents of the document to him and answering his questions. [10] [ 40 ] By virtue of this agreement, Paul D’Andrea agreed to plead guilty, and accepted that the sentencing submissions in his case be deferred to the very end of all of the proceedings. He agreed to remain available to the AMF at all times. As for the AMF, it agreed to ask only that he be fined, and not imprisoned.

Therefore, my understanding is that Paul D’Andrea will testify after pleading guilty but before knowing what his sentence will be. [ 41 ] He could not leave the province of Quebec without authorization from the AMF. Mr. Hébert and Mr. Forand were the de facto liaisons between the AMF and Mr. D’Andrea. When the possibility of employment in the United States arose, he signed an undertaking before Mr. Hébert alone, [11] agreeing that Mr. Hébert, Mr. Forand or Mr. De Blois (AMF) were to be notified of all of his travel.

Le Monde Juridique [ 42 ] In 2009, Mtre Nathalie Drouin of the AMF was named Conseillère juridique d’entreprise de l’année [corporate counsel of the year]. Navigant Conseil congratulated her in the magazine Le Monde Juridique on this occasion. [12] [ 43 ] Not only was Mr. Forand not notified of this initiative, he disapproved of it, finding it totally inappropriate, because it removes a certain amount of independence . The news release [ 44 ] On September 22, 2008, a news release [13] was issued. It announced that the AMF would be prosecuting five persons: the four defendants and Paul D’Andrea. Mr.

Forand remembers that he or his team provided some facts on that occasion. There were many, even the estimated 375 archive boxes that were examined during the investigation. Michel Hébert [ 45 ] Given the facts that their professional paths are the same, that they worked in the same firm when the AMF granted the mandate, and that their involvement in the investigation as forensic accountants is essentially the same, the parties are of the opinion that the decision as to whether or not to permit Mr. Forand and Mr.

Hébert to testify as investigative and forensic accounting experts should be the same for both of them. Consequently, I do not believe it necessary to go over Mr. Hébert’s testimony in detail. [ 46 ] Mr. Hébert has been a chartered accountant with expertise in investigative and forensic accounting (CA-IFA) since 2006, which means that he achieved this status during the course of this mandate. Mr. Forand described Mr. Hébert as his employee, and Mr. Hébert confirms that he reported to Mr. Forand. Like Mr. Forand, Mr. Hébert took

part in certain witness interviews, approximately twenty in number. He recommended the issuance of certain subpoenas without having to obtain Mr. Forand’s approval. [ 47 ] Mtre Carle asked Mr. Hébert whether he felt that he had responsibility over the work done by AMF investigator Édouard De Blois. His response was as follows: [ translation ] “Indeed, on what you might call a day-to-day basis, I supervised his work, and was like his superior at that time”. THE CONFLICT OF INTEREST [ 48 ] Mr . M atteo raised the possibility that Mr. Forand and Mr. Hébert were in a conflict of interest situation.

Mtre Carle dropped this argument during the hearing in view of the answers from the two witnesses on the subject. [ 49 ] One of the auditing firms that certified Mount Real’s financial statements for the years 2000, 2001 and 2002, and that sent its records to the AMF after receiving a subpoena in 2005, is the firm of Deloitte & Touche. [ 50 ] Mr. Forand and Mr. Hébert happen to have worked for that firm: Mr. Forand did so from 1998 to 2004, and Mr.

Hébert did so from 1999 until he joined Navigant in 2005. [ 51 ] When the firm of Navigant received its mandate from the AMF, the issue of a possible conflict of interest was raised and discussed with the AMF, in accordance with the Standards of Practice. [14] Since neither Mr. Forand nor Mr. Hébert were aware of the existence of Mount Real Group, and neither had worked on those files at Deloitte & Touche, the question was vacated. [ 52 ] In addition, Mr.

Forand did not communicate with his former employer to find out whether it had had access to information concerning Mount Real, because doing so would have meant telling a third party that the AMF was investigating one of its clients, and that would have been a significant impropriety . [ 53 ] In 1998, Mr. Forand joined the firm of Deloitte & Touche as a forensic accountant, and he continued to work in that capacity until he left in 2005. He was no longer doing any audit accounting by then. [ 54 ] Deloitte & Touche is a company with nearly 200,000 employees that operates in more than 150 countries.

It audits financial statements and provides tax, valuation, business recovery and forensic accounting services.

[ 55 ] The forensic accounting services and auditing services are insulated from one another, and have a culture of information appropriation and retention. All personnel are made aware of the importance of this compartmentalization. There are policies in that regard, and every employee is required to sign independence documents every year, so that employees within the same unit do not discuss their respective files with each other. If an employee requires access to a file, such access is supervised and documented. [ 56 ] Therefore, it was upon consulting the audit files obtained by the AMF in 2005 that Mr.

Forand learned that Mount Real had been a client of his previous employer. He was never involved in the auditing at Deloitte, and he never worked with the people who audited Mount Real’s financial statements. [ 57 ] At no point did he have either direct or indirect access to information concerning the Mount Real Group or any of the companies tied to it. While he was at Deloitte, he did not even know of the existence of Mount Real. Therefore, he never discussed the entity with anyone before working on the AMF’s file. [ 58 ] And if, as Mr.

Matteo put to him, affiliates such as Gopher or Honeybee were also clients of Deloitte, Mr. Forand was unaware of it. [ 59 ] Like Mr. Forand, Mr. Hébert learned in September 2005 that the Mount Real Group had been a client of Deloitte. He joined Deloitte & Touche in 1999 as an auditing intern. From 2001 until his departure in 2005, he worked in forensic accounting. Mr. Hébert explains that the auditing department was divided into industry groups.

He worked in the manufacturing group, whereas we now know that the Mount Real audits were carried out by the technology group, which was separate from the other audit groups owing to its size. He had never heard of Mount Real. [ 60 ] Upon moving to the forensic accounting department, he worked on two files for which the partner in charge was also responsible for auditing Mount Real. However, the two files that Mr.

Hébert looked after were not connected to Mount Real in any manner. [ 61 ] He never had access to information concerning Mount Real or its affiliates. [ 62 ] The audit files were mutually inaccessible by the various groups of auditors. Confidentiality was strictly adhered to, given the nature of the financial information on public companies that was being handled. The leaking or publication of information would have adverse effects on these companies, and therefore, on the auditing firm that was at fault for the leak or publication. [ 63 ] At the January 26, 2012 hearing, Mr.

Matteo submitted to me his written pleadings entitled “Talking points re status of experts”. He does not put forth any persuasive arguments about the possible conflict of interest attributable to Mr. Forand and Mr. Hébert’s time at Deloitte & Touche. [ 64 ] I am satisfied that a reasonably informed member of the public would be convinced that, despite Messrs. Forand and Hébert’s past ties to the firm of Deloitte & Touche, no relevant information was disclosed to them during audit years 2000 to 2002.

I find that this holds equally true for the years 1999, and 2003 to 2005. [15] AnalysIS OF THE objection CONCERNING THE INDEPENDENCE, OBJECTIVITY AND IMPARTIALITY OF THE TWO WITNESSES [ 65 ]

Section 700.02 of the Standard Practices for Investigative and Forensic Accounting Engagements states: (

a) Expert witnesses have a duty to provide independent assistance to the Tribunal by way of objective unbiased testimony in relation to matters within their expertise. (

b) Expert witnesses should make it clear when a particular question or issue falls outside their expertise. (

c) Expert witnesses should never assume the role of an advocate. (

d) Expert witnesses should take reasonable steps to provide the Tribunal with the information, assumptions on which their testimony is based, and any limitations that impact their testimony. [ 66 ] There is no doubt in my mind that, as Mr. Forand testified, there was no interference, intervention or influence of any kind by the Autorité des marchés financiers. Rather, Mr. Forand’s testimony leaves the very marked impression that he had carte blanche to conduct the investigation as he saw fit. [ 67 ] In fact, the January 2007 appointment of the investigators is clear.

They were appointed as investigators to take charge of the investigation launched by the Autorité des marchés financiers . [16] [ 68 ] Mr. Forand and Mr. Hébert took charge of it without intervention, and as Mr. Forand stated, they are now before the Court to deliver [ translation ] “all of [their] work.” Mtre Poulin, one of the lawyers representing the AMF, asked Mr. Forand what testimony he expected to give at trial.

Here is his answer: [ translation ] Your Honour, this is a question that required a great deal of thought, given the magnitude and complexity of the file, and I came to the conclusion that there was only one way for it to be presented in an orderly manner so as to assist the Court in its understanding. So the plan is as follows. In order to assist the Court in its understanding, my colleague Michel Hébert, who was involved in almost all of the work, will present each element to the Court, each piece of the jigsaw puzzle, which provides a complete picture of the Mount Real forensic investigation. In this way, Mr.

Hébert will put together the entire puzzle by making the appropriate connections between the relevant elements related to accounting standards, and will thereby shed light, from a micro standpoint, on all of the non-conforming

aspects. This will be the longest part…. We are dealing with a 5,000-piece puzzle. Once the puzzle has been put together, Your Honour, my role in informing the Court will be to summarize everything that has been presented, so that the

interpretations and inferences can be made in relation to the various aspects that led to the publication of false or misleading information — in light of accounting standards and my experience in the business world — and to provide elucidation with respect to all of the complex technical and transactional aspects that will be brought up. [Emphasis added.] [ 69 ] Therefore, as experts, Mr. Forand and Mr.

Hébert will be asked to comment on their investigation and their work and, as investigators, they will be asked to justify their decisions to interview one witness and not another, and to present one item of evidence and not another. They might be asked to testify with respect to the attitude and conduct of one or more witnesses whom they met, and who may or may not contradict themselves. [ 70 ] Their meetings, as investigators, with the witness Mr.

D’Andrea do not at first blush appear to have been the subject of any special precautions, which are required with special or informant witnesses. [ 71 ] It is in this sense that, despite their good faith and complete integrity, they cannot be objective, and that, at least at this stage, there is a marked appearance of partiality, because their client, AMF, is presenting the evidence that they collected, and will present that evidence in their way. [ 72 ] Mr. Forand never had the impression that he was substituting himself for his client, the AMF. One can understand from a reading of

Section 100.05 of the Standard Practices: IFA standard practices are different from IFA engagement procedures. Standard practices relate to the IFA practitioner’s professional skills, the performance of his or her engagement, and the preparation of his or her report. IFA procedures are the specific acts or steps performed by the practitioner to attain his or her objectives in the particular engagement. [ 73 ] In my opinion, the blurred boundaries here are unfortunate within the context of a trial.

In light of the circumstances described above, a reasonable person could infer that there is a real risk that the experts will be partial, lack objectivity, and favour the person who called upon their services. [17] [ 74 ] Does this mean that they should be disqualified from testifying?

Mtre Carle does not object to their testifying as investigators; he only objects to their testifying as experts. [ 75 ] In my opinion, their role as investigators cannot be so easily separated from their role as experts, and it would be premature to do so and to make assumptions on the impact that their testimony, in whatever capacity, might have on the evidence. [ 76 ] In all of the authorities submitted to me, the decision whether or not to admit expert testimony was made while the evidence was being heard, so that the judge could assess the impact of the testimony.

In Van Bree , Annis J. identified the question as follows: Because the issues of concern relate primarily to allegations of the witness’s bias and as a judge sitting alone, I permitted Dobler to complete his testimony as part of the voir dire to be able to consider this issue against the totality of the evidence. [ 77 ] I would draw a parallel with Gorenko , [18] where the judge at first instance, even before hearing the evidence, granted a motion to stay the proceedings before trial, based on the actions of an investigator in the course of his investigation.

The Court of Appeal ordered a new trial, stating that it was preferable for the trial to take place and for the question of a potential breach to be examined while the evidence was being heard. CONCLUSION [ 78 ] The value to be given to Mr. Forand and Mr.

Hébert’s opinions depends entirely on the evidence that will be submitted and that I will have to assess. [19] [ 79 ] Regardless of the approach adopted, it is impossible for me to exercise my discretion to exclude the testimony of the two witnesses at this stage, which, it should be added, complies with the requirements and criteria adopted by the Supreme Court. Consequently, Mr. Forand and Mr. Hébert may testify as investigative and forensic accounting experts. __________________________________ HÉLÈNE MORIN, J.C.Q.

Mtre Stéphane Poulin Mtre Jean Asselin Mtre Suzanne Costom Counsel for the Autorité des marchés financiers Mr. Lino Matteo Defendant, self-represented

Mtre Frédérick Carle Counsel for the defendant Andris Spura