R. v. Mazzucco, 2012 ONCJ 333

COURT FILE Nos.: 11-2556, 12-220 Citation: R. v. Mazzucco , 2012 ONCJ 333 ONTARIO COURT OF JUSTICE BETWEEN: HER MAJESTY THE QUEEN — AND — MARIO MAZZUCCO Before Justice S.R. Clark Reasons for Sentence Guilty plea entered on January 9, 2012 Submissions made on May 10, 2012 Sentence imposed on May 29, 2012 Mr. S. Sherriff……………………………………………………………..……………..…… for the Crown Mr. J.

Shime………….……………………………….…………..…..for the defendant Mario Mazzucco CLARK J.: 1:0 INTRODUCTION [ 1 ] The defendant, a real estate lawyer, entered a plea of guilty to two counts of fraud over $5,000.00, on January 9, 2012. [ 2 ] The first count has been characterized as a large-scale fraud, in the nature of a “Ponzi scheme”, over a 14 year period, from 1994 to March 18, 2008. The second count relates to defrauding financial institutions from November 1, 2007 to March 31, 2008. The total loss to individual clients and financial institutions is approximately 9.7 million dollars.

Virtually no restitution has been made, save and except a few thousand dollars. [ 3 ] The Crown is seeking a global penitentiary sentence in the range of 10 years. [ 4 ] The defence is seeking a sentence totalling 5 years, consisting of 3 years in the penitentiary for the fraud count relating to the individual investor clients, and a consecutive conditional sentence of 2 years less 1 day for the second count relating to the institutional clients (banks). The defence submits that this “blended” form of sentence is not only appropriate, but legally permissible. [ 5 ] Defence counsel, Mr.

Shime, has characterized the theme of this sentencing exercise as involving a man who undertook illegal, fraudulent, and indeed, foolish actions to make good his mistakes to his clients.

[ 6 ] Crown counsel, Mr. Sherriff, on the other hand, submits that this case represents a very sad morality tale of excess and greed.

It suggests a classic tragedy by an individual brought to ruin as a consequence of character flaws, moral weakness, and an inability to cope with unfavourable financial circumstances and other stressors, characterized by way of acts of desperation. [ 7 ] In determining the appropriate sentence, the Court gives consideration to the following: • the circumstances of the offences; • the circumstances of the offender; • the positions of the parties; • analysis of sentencing imperatives and objectives in fraud cases; and • conclusion and imposition of the appropriate sentence. 2:0 THE CIRCUMSTANCES OF THE OFFENCES [ 8 ] The agreed statements of facts, which forms the basis of the convictions are set out as follows: The defendant Mario Mazzucco is now almost 63 years old.

He has no criminal record and has never previously been charged with a criminal offence. He was a lawyer, called to the bar in Ontario in1975. He practiced law in a small firm and later as a sole practitioner on Dundas St. E. in the City of Mississauga in a general practice with an emphasis on real estate. On November 9, 2010, he was disbarred by the Law Society of Upper Canada in relation to some of the fraud allegations now before this Court. He acknowledged his participation in fraudulent conduct and cooperated with the Law Society.

He did not challenge his disbarment, which proceeded on the basis of an Agreed Statement of Facts. On March 2, 2011, Mr. Mazzucco was arrested for the charges and released on bail on March 11, 2011. OVERVIEW OF THE FRAUDULENT CONDUCT [ 9 ] The defendant operated a “Ponzi scheme” out of his law office for approximately fourteen years from 1994 into 2008. The hallmark of such a fraudulent scheme (named after the infamous speculator Charles Ponzi ) is that investments claimed by the fraudster to have been made on behalf of investors are not in fact made.

Instead, in Ponzi schemes such as the one in this case, investors are given forged documents as evidence of nonexistent security. The monies supposedly invested are not invested at all, but instead, in the typical Ponzi scheme, the swindled monies are siphoned off by the fraudster(

s) for their purposes. Such schemes are kept afloat by making interest payments and returning principal upon request so that there is the appearance of legitimacy. Early investors are paid off with funds fraudulently raised from later investors. Inevitably, the amount of the fraudulently acquired money escalates until detection, which can take many years. 2:1 Specifics of this Ponzi Scheme [ 10 ] In 1990, Mr. Mazzucco began having problems in the wake of the real estate crash. Real estate prices plummeted approximately 35% in a very short period of time.

Just before the real estate market crashed, he bought a house on the Kingsway, with his own money. The home was heavily financed. As a result of the crash, he lost approximately $500,000 in equity and his personal financial situation took a significant downturn. He also owned five investment properties that also lost much of their value. At the same

time, Mr. Mazzucco had clients who had lost approximately $500,000 in various and legitimate registered mortgages. He felt responsible for those losses. He borrowed money from other clients to pay back the clients who had lost money on these mortgages. By 1994-95, Mr. Mazzucco was in significant personal and business debt. He had amassed a two million dollar debt load, which led him to generate a Ponzi scheme. He induced his law practice clients to invest in fictitious non-existent residential mortgages.

His intention was to obtain money from clients so that he could pay back his other clients who had lost money through investments he had arranged. The clients were invariably long term clients (several were clients over thirty years by the time the scheme was discovered) who wrote cheques payable to the defendant or his corporation, 909403 Ontario Limited. The clients were told by the defendant that they were investing in secure private mortgages, frequently first mortgages , with an attractive rate of return.

In most cases, the defendant provided his clients with fraudulent mortgage documents verifying their non-existent investment using photocopies of legitimate registration numbers. He claimed to have registered these mortgages. In fact the mortgages were fictitious and were not registered. Frequently the defendant falsely claimed to investor clients that they would be investing in a property owned by another of his clients in order to give the appearance that the mortgage investment was secure.

The clients were none the wiser because the defendant made interest and principal payments according to the terms of the mortgages. This scheme was uncovered in April 2008 when the interest cheques were dishonoured following discovery of indications of the defendant’s dishonesty by a Toronto Dominion Bank investigator. Soon after, several clients who attended at the defendant’s law office found letters of apology taped to his office door containing his admission that their mortgage documents were fraudulent. Other clients received similar letters in the mail.

Several of these letters claimed that he had used client monies to pay personal debt. When the scheme was discovered in 2008, some of the clients who ended up suffering loss were senior citizens, some of whom lost their entire life savings. 2:2 List of Individual Victims [ 11 ] Over the years, investors departed and were replaced by fresh investors. When the scheme was discovered in the spring of 2008, the following thirty-three individuals (in eighteen families) had suffered the approximate losses noted. The stated amounts involve lost principal and do not account for interest payments received.

Many of the fraudulent mortgages provided for payment of interest only which had the effect of reducing the pace of escalation of the scheme.

Loreto BALIVA (deceased) and Ernesta BALIVA - amount to be determined Ralph and Nadia BERTUCCI - $ 10,000 Nino and Nicolletta BIOCCA - $ 350,000 Atillio and Giulana BTJLFON - $ 225,000 Michel and Maria CAVOTO - $ 101,365 Beniamo and Bemadina DAGOSTINO - $ 100,000 Mario DELFRATE - $100,000 Natale and Ersilia DEMARCO - $ 172,500 Antonio and Maria FALCONE ; Frank and Filomena SIBIO - $ 110,458 Frank and Bruna FANARA - $ 170,000 Vittorrio and Rosetta FERRARI - $ 72,000 Giuseppe and Maria FINELLI - $ 50,000 Armando and Alma MAZZUCCO (not relatives) - $ 200,000 Vottoria and Rosina POLIDRO - $ 80,000 Brigette Regenscheit SMITH - $ 200,000 Nick and Camiela TACCOGNA - $287,503 Antonio and Caterina TALLARICO - amount to be determined Bianca TARANTINO - $90,000 Antonio and Maria TOLOMEI - $ 2,495,000 The total loss experienced by law practice clients upon the collapse of the defendant’s scheme was approximately $4.9 million of principal.

Over the years, numerous other clients not included in this list were defrauded in the sense that they were prejudiced and at risk. However, these clients were repaid their investment in full when they made requests to be paid out to use their money for other purposes. Such payouts served to give the scheme credibility.

2:3 The Fraud On Financial Institutions [ 12 ] Ponzi schemes, by their very nature, escalate as the perpetrator must pay out increasing monies representing the supposed principal and interest payments on an ever increasing base of nonexistent investments. Over time, it became increasingly difficult for the defendant to find fresh investor clients on the scale required. In an effort to get money to pay back his clients, he agreed to participate in frauds upon financial institutions. According to Mr.

Mazzucco, a former client named Frank Moscato approached him in early 2006 asking him to participate in a scheme, which could possibly generate, in its totality, $30-$50 million in criminal proceeds from the commission of mortgage frauds on financial institutions. The plan was that the defendant would get a 35% share of the criminal proceeds which would enable him to repay all individuals in full, although he maintains he was aware that detection by financial institutions would be certain. These frauds occurred between November 2007 and March 2008.

This aspect of the scheme involved unidentified accomplices, who the defendant maintains he never met, using false identities to impersonate the true owners of real property, arranging fraudulent mortgage financing, claiming to be refinancing or purchasing other properties. The defendant acted as solicitor for both the financial institutions and the fraudsters giving him significant control of the fraudulent mortgage transactions. He caused the mortgage proceeds to be advanced from the victim financial institutions to his trust account.

The mortgage advances were never applied legitimately to any purchase or refinance of property as claimed and no mortgage security was ever registered on title. No reporting letters were ever delivered to the financial institutions. The financial institutions advanced $6.89 million in mortgages. Of that amount, approximately $3.33 million was disbursed to the other participants in the fraud, leaving a balance of approximately $3.56 million. Of the 3.56 million, approximately $2.055million was paid back to various financial institutions when they began asking questions about the validity of some of the mortgages.

The remaining funds of approximately $1.47 million were used to repay lender clients funds that had been misappropriated. The list of the ten financial institutions defrauded is as follows: Bank of Montreal Bridgewater Bank Canadian Imperial Bank of Commerce Citizens Bank of Canada ING Direct MCAP Maple Trust Royal Bank of Canada Scotiabank TD Canada Trust Mr. Mazzucco’s position is that the scheme was detected before transferring the entire burden of his fraud upon individuals entirely over to financial institutions.

At the time of detection in the spring of 2008 the loss was split as follows: Loss to financial institutions = $ 4.8 million (approx) Loss to individual clients = $ 4.9 million (approx.) Total Loss = $ 9.7 million (approx.) 2:4 Financial Recovery [ 13 ] The sum of $43,140.00 in cash was seized by the Law Society from the defendant’s desk drawer in his office. The sum of $792,000.00 was located in three accounts formerly under the defendant’s control at the Royal Bank of Canada and frozen upon discovery of his crimes.

No voluntary restitution has been made to the clients listed herein except for a few thousand dollars paid on or about April 1, 2008 to some of the individual clients listed herein. 2:5 Supplementary Facts

[ 14 ] When submissions were made by counsel on May 10, 2012, Mr. Sherriff tendered as an exhibit, supplementary facts, which are summarized as follows: Mr. Mazzucco was suspended by The Law Society of Upper Canada for a thirty month period commencing on September 6, 2000 as a result of a finding of professional misconduct for misappropriating $301,732.50 in client trust funds between February 1997 and July 1998. This misconduct was not reported to the police, and accordingly there was no criminal prosecution at that time.

At the time of the defendant’s original suspension in 2000, the Law Society failed to detect the full extent of the defendant’s dishonest activity. In fact the defendant was engaged in an escalating fraudulent “Ponzi scheme” which was set out in the prior agreed statement of facts. The defendant’s conduct continued during and after his suspension. He testified in his Law Society hearing and misled the Law Society benchers into erroneously concluding that his dishonest actions were uncharacteristic.

The defendant made full restitution of the stolen funds in the amount known to the Law Society in 2000 which substantially mitigated his Law Society penalty. Upon his return to the authorized practice of law, the defendant was subject to the supervision of his trust account by the Law Society with a co-signor. This supervision was ineffectual. The defendant operated his “Ponzi scheme” out of his personal or his corporate account. At the time of the fraud upon institutions, the defendant opened another trust account in the same bank without the Law Society’s or the co-signor’s knowledge.

Eventually the defendant was disbarred by the Law Society of Upper Canada on November 9, 2010 after a second discipline hearing based on an Agreed Statement of Facts. 2:6 Law Society Compensation Fund Payments [ 15 ] Mr. Shime provided a list of payments made to various victims from the compensation fund from the Law Society of Upper Canada. The maximum claim which could be made by any one victim was $100,000. [ 16 ] Mr. Shime advised that it was difficult for him to obtain information from the Law Society as to how these figures were arrived at. In any event, the total compensation paid was $1,467,774.40.

A list of the claimants with corresponding amounts paid out was made an exhibit. A further exhibit relates to general guidelines regarding this compensation fund. 3:0 THE CIRCUMSTANCES OF THE OFFENDER [ 17 ] Mr. Shime submitted a brief containing 9 letters from family and friends. This brief was also made an exhibit. [ 18 ] Without specifying the author of each of the letters, the following information about the defendant can be gleaned: Mr. Mazzucco is the father of four adult children, ages 26 through 34. Two of his children are lawyers. All four have provided letters of support.

He is described as a dedicated family man to his wife, children and his own parents. He has been a regular churchgoer. He is spiritual man. Those who know him and support him have described that these offences are wholly out of character. He regrets his choices and is sorry for his actions. If he could turn back the clock he would never make the same mistakes again. He has already paid a heavy price for his actions. He has ended any chance of practicing law. He will be the subject of a number of civil lawsuits. He has put his wife in a position where she will be forced to work for many years to come.

He has caused unfathomable heartbreak to all of his family. He enjoys simple pleasures. He is an eternal optimist and positive-thinking person. Friends can only surmise that this kind of optimism may have led him to believe the recession would be short and he would eventually be able to make everyone “whole”. He has never tried to minimize what he has done, make excuses for his actions, shift blame, or deny that he is guilty. At 62 years of age, as a result of these actions, he is essentially starting over, with no assets and without the ability to practice law and earn a living.

He is aware that his own father’s life will probably end in the near future. He fears not being there to support his family during what will prove to be a challenging and transitional time. Over the last 16 years he has given thousands of hours of volunteer time to the sport of swimming, as an official on deck, and as a member of the executive committee of the board of directors of a local swim club. He appears to have been a person caught in a horrible situation trying to fix things out of the goodness of his heart and taking some unfortunate wrong turns.

He is described as a most patient, kind, loving and selfless person. He has always put his family first. He has never lived a lavish lifestyle. He has never concerned himself with material goods, preferring, when possible, to repair things rather than replace them. On many occasions money was tight. For example, he was unable to afford education expenses for one of his children, nor contribute to one of his daughter’s weddings, or the purchase of her first house. He has been forced to sell his own family home. He now lives in a condominium with his wife. Their only savings is the equity in the condominium.

Before selling the family home, he was forced to borrow money from his children. While the facts relating to these charges come as a total shock for anyone who knows the defendant, there is one fact that would not be a surprise to anyone, that none of his actions were motivated by greed or self-serving intent. It was always about making his clients whole. It was never about self-gain. He has described this situation as a nightmare he has been living with for 20 years. He did not intend to cause harm to his clients nor did he benefit personally.

The decisions and events evolved out of a desperate attempt to protect others’ losses. It broke his heart that he caused pain and suffering to his clients. He prayed and hoped for a different ending. He thought he could eventually make up for the losses and find a way to fix his mistakes. His biggest error was maintaining this

false hope. A great degree of justice has already been served upon him and his family over the last many years, and will continue to be served for decades to come. Hopefully the Court can balance this understanding with its balance of victims. 4:0 THE POSITIONS OF THE PARTIES 4:1 The Crown [ 19 ] Mr. Sherriff provided written submissions setting out the aggravating and mitigating factors for the Court’s consideration. This outline was made an exhibit. [ 20 ] The salient aggravating factors include the following: 1. The lengthy period of dishonesty. 2. The quality and degree of trust reposed in the defendant. 3.

Taking advantage of the high regard in which the defendant is held in the community. 4. The value of this fraud. 5. The impact on victims of the fraud. 6. Little hope of restitution. 7. The number of dishonest transactions. 8. Continuation of the fraud after detection. 9. Whether the sole motivation was greed. 10. Drastic escalation of the fraud with sophisticated accomplices. 11. The defendant was caught as opposed to voluntarily terminating. 12. The need to deter persons engaged in Ponzi schemes. 13. The need to deter members of the legal profession. 14.

The degree of sophistication and the degree of planning, skill, and deception. [ 21 ] The mitigating factors include the following: 1. Early guilty plea. 2. The defendant’s age. 3. The absence of a criminal record. 4. Willingness to make restitution. [ 22 ] In addition to his written submissions, Mr. Sherriff significantly amplified his position with compelling oral submissions. The period of dishonesty extended over 14 years. It was continuous and required constant recurring recruitment and deception of fresh victims.

Because no person with no moral scruples and a conscience could have carried on so shamelessly for so long, he submits that it is reasonable to conclude that dishonesty became deeply ingrained in the defendant’s character, and that it will be difficult to excise this

character flaw from such a mature man. This should be considered as an extreme breach of trust. The solicitor-client relationship is, above all, special and unique. A lawyer can readily acquire personal information about a client’s finances. No one else can receive this information in confidence and lawfully refuse to divulge it. This special trust allowed him to prey on his clients. Most of his victims are from the Italian/Canadian community. As many were from the same ethnic background, there was an understanding and expectation that he would be more trustworthy and credible.

Because he always paid out any investors who requested same, it was inevitable that his financial integrity would be held in high regard. The impact on the victims is significant. Some were elderly and lost their entire life savings. The inference is that this might drastically reduce the quality of the remainder of a vulnerable senior’s life. The defendant stole not only their money but their freedom, self-esteem, and the decent life they expected in their retirement. Furthermore, this would alter their plans at a time in life when they are unable to make the necessary adjustments. Mr.

Sherriff submits that 42% of the defendant’s legal career (14 of 33 years) was dedicated to deceiving clients. There has been no meaningful restitution. The defendant knows that he is “judgment-proof”. Regarding the significant number of dishonest transactions, a substantial number of forged documents was required. 33 individuals from 18 different families were victimized. There were many more victims along the way who escaped loss. Every month, payment to a fraud victim was also a misrepresentation that there was truly an investment.

The defendant was running a de facto dishonest investment bank which made no investments. He did not stop when the Law Society discovered the defalcations. He carried on for many more years. This exposes the defendant’s character, and the increased need to specifically deter him. The defendant was motivated by greed. He could have endured the recession like everyone else by selling assets and downsizing if necessary. The loss of half a million dollars of equity in his own house during the downturn reflects the quantum of his real estate holdings.

His refusal to risk losing his own assets is the genesis of the Ponzi scheme. The scheme escalated dramatically in 2007, 13 years after it started. The defendant became associated with a sophisticated and criminally-minded individual who was heavily involved in a much larger scheme, seeking to make $30 to $50 million dollars, from which the defendant’s potential share was significant. This escalated scheme deprived the financial institutions of 4.8 million dollars. (3.3 million to accomplices plus 1.47 million returned to investors). Mr.

Sherriff submits, therefore, that this was not simply a “robbing Peter to pay Paul” situation. Rather, it was robbing “Peter” of over three times the monies required to pay “Paul”. The real fraud loss to clients was approximately 6.37 million dollars, 13 years before the institutional fraud started. (4.9 million loss plus 1.47 million repayment). In a 5 month period (November 2007 to March 2008) the institutional fraud loss of 4.8 million dollars began to approach the client fraud losses, in large part due to the take of the accomplices.

The fact that the defendant’s actions remained undetected for 5 months by 10 financial institutions is a testament to his skills at deception. This also demonstrates how individual clients would not have had a chance of detection. When the defendant took on accomplices, he caused this scheme to “snowball” at an alarming rate. [ 23 ] Mr. Sherriff submits that there is also a significant need to deter members of the legal profession. There is a large pool of intelligent, skilled men and women in this same position of temptation.

The individuals in this pool are ordinarily rational and more capable of being deterred than many other categories of potential offenders. Accordingly, general deterrence to this defined group is more realistically attainable. There is also a need for denunciation. Offences of this nature heap disgrace on the legal profession and augment public cynicism toward lawyers. All ethical lawyers are harmed by this type of offence. The defendant chose not to resign his membership in the Law Society when first detected because he knew that his status enhanced his ability to commit this offence.

He still had the option of carrying on the Ponzi scheme as an unregulated investment counsellor. Therefore, since he was able to “outfox” the Law Society, what chance did his clients have? [ 24 ] Furthermore, Mr. Sherriff submits that it is unknown what the defendant took for himself. Since he, in effect, ran his own investment bank, he controlled all the records, making analysis of his personal gain practically impossible. The $43,140.00 in cash found in his desk drawer upon arrest illustrates this point.

It is, therefore, unreasonable and unrealistic to assume he received no substantial personal benefit in 14 years of dishonesty. There is a danger that cases like this are perceived by the public as demonstrating that “crime does pay”. There is no interest payable on the criminal proceeds and no tax. Every dollar in the pocket of one who commits fraud is a full dollar. The Court only has the defendant’s word that his accomplices received 3.33 million dollars, and that he took nothing for himself. The burden of proof that he has no assets is on him.

A bald assertion to the effect that the money is gone is entitled to little or no weight. The defendant is the only person who is in the best position to provide transparency, which he has not done. [ 25 ] Mr. Sherriff acknowledges that, in mitigation, the defendant’s early plea should be given consideration. This should be counterbalanced, however, to some extent by the overwhelming evidence against him.

Although it is correct that he is being sentenced as a first offender and that there is the absence of a criminal record, it should be noted that offences of this nature can only be committed by persons without criminal records. Accordingly, this factor should not be given as much weight as it might be given in other circumstances. This factor should also be counterbalanced by the defendant’s discipline by the Law Society which undermines his prior good character. [ 26 ] Mr. Sherriff accepts that the sentiments expressed by the authors of the character reference letters are well-intended and heartfelt.

However, he submits that they are looking at the defendant’s circumstances through “rose-coloured glasses”. He suggests that they were not kept fully “in the loop”. The defendant was not completely candid or forthcoming with them. Although the defendant’s family members may feel, emotionally, that he did not intend to cause harm to his clients, this is, sadly, not correct or accurate. [ 27 ] He minimized his involvement and the level of his artful deception. In 2000, when he was first investigated by the Law Society, he should have been disbarred and not just suspended.

Instead, he continued practicing as a lawyer for 8 more years and continued to prey on victims.

[28] Mr. Sherriff submits, therefore, that it defies common sense and logic that all of the money in the hands of the defendantwent to pay off all of his clients. What is more likely is that he benefited financially by hiving off money to maintain his fledgling lawpractice. He continued his ruse by using his guile to continue to keep his family, friends, the banks and the Law Society in the “dark”. [29] Mr. Sherriff submits that the range of sentences for offences of this nature, as set out in some of the cases filed in hissentencing Book of Authorities, is generally 3 to 5 years.

The starting point in the present case, however, should be 6 years. The Courtshould then consider the aggravating and mitigating factors as a second step and move up or down accordingly. When doing so, giventhe significant and numerous aggravating factors, the appropriate sentence should be 10 years, on a totality basis. [30] Support for this 10 year range can be found in the case of R. v. Johnson, 2010 ABCA 392 , [2010] A.J. No.1445 (Alta.C.A.). This case involved a Ponzi case by a 60 year old defendant totalling 2.4 million dollars.

The sentence of 13 yearsimposed by the trial judge was reduced on appeal to 10 years. [31] The case of R.v. Bjellebo, (ON CA), [2003] O.J. No. 3946 (Ont.C.A.) involved an individual whodefrauded a number of victims in the total amount of 22 million dollars. It should be noted that this was not a solicitor-client trustsituation. The Court imposed a 10 year sentence, however. [32] In the case of R. v. Holden, [2000] O.J. No. 3481 (Ont.C.A.), this involved an individual who continued to perpetratefrauds even after his apprehension. The total amount defrauded was 4.3 million dollars.

The Court imposed a 6 year sentence. This didnot even include the aggravating factor of breach of trust. [33] In the case of R. v. Jones, [2010] Q.J. No. 956;[2010] J.Q. No. 2575 (Q.C.C.A.) an 11 year sentence on a jointsubmission was imposed. The 67 year old defendant defrauded various victims in the amount of 50 million dollars. There was nostatutorily aggravating factor of breach of trust in this case either. [34] In the case of R. v. Drabinsky, 2011 ONCA 582 , [2011] O.J. No. 4022 (C.A.), the 7 year sentence imposed bythe trial Court was reduced on appeal to 5 years.

The breach of trust factor was not present in this case either. [35] The case of R. v. Dobis, (ON CA), [2002] O.J. No. 646 (C.A.), is cited to show the position taken bythe Ontario Court of Appeal prior to the significant amendments to the Criminal Code in 2004. Although the sentence imposed at trial inthis case was 2 years less 1 day to be served in the community, the Court of Appeal indicated that the appropriate sentence would havebeen 3 years. However, since the defendant had served 9.5 months of his conditional sentence, the Court imposed a further custodialsentence of 2 years less a day. Mr.

Sherriff submits that the facts and circumstances of the Dobis case pale by comparison to the presentcase. Mr. Dobis was employed as an accounting manager who misappropriated $286,636.50. [36] Mr. Sherriff submits that if the defendant was attempting to make people whole, why did it take him more than 13 yearsto do so? It was delusional on his part to think that things were getting better. Any notion of him being considered as a “white knight”has to be considered against this lengthy history of “darkness”. There were very few, if any, noble motives on his part.

When he was in sodeep, he “ramped up” his efforts by getting involved with an organized and sophisticated criminal element when dealing with the banks.This bought him more time. Mr. Sherriff queries that if Mr. Mazzucco was so concerned about others, why did he not sell his assets andhis home in 2007 and move into a condo then? There is no indication whatsoever that he divested himself of any of his assets until afterhe was apprehended. [37] Mr.

Sherriff takes the view that the Court should impose either a global sentence of 10 years concurrent on each count, or,alternatively, 6 years on the fraud against the investor clients, followed by a consecutive 4 year sentence on the fraud against theinstitutional victims. 4:2 The Defence [38] Mr. Shime did not tender written submissions, however his oral representations were equally helpful and thought-provoking.

At the outset, he advised the Court that he would be making his presentation in five parts, including the defendant’s position;an overview of the mitigating and aggravating factors; critiquing the sentencing cases presented by the Crown; presenting case law insupport of the defence position, with a specific analysis of the “Ontario view” of the appropriate range of sentence; and presenting a

summary of the character letters on behalf of the defendant. [39] He asks the Court to impose a somewhat creative blended sentence totalling of 5 years, 3 years for the frauds on theindividual clients, followed by a conditional sentence of 2 years less 1 day regarding the bank frauds. He acknowledges that the primarysentencing principles are general deterrence and denunciation. However, balancing same with the mitigating factors, and being guidedby the extant case law in Ontario, the Court should impose a global 5 year sentence. [40] In mitigation, the defendant is almost 63 years of age.

He has no previous criminal record. He was fully cooperative withthe Law Society investigation. He closed down his law practice in 2008. He did not challenge his disbarment. He has been exposed topublic shame and stigma from the media. He has served 9 days of pre-trial custody. He was on “house arrest” while on bail for the first5½ months. This clearly demonstrates that he is able to comply with terms and conditions of a conditional sentence if so imposed. Bypleading guilty, he has demonstrated his acceptance of responsibility for his actions and his sincere and genuine remorse.

He has savedsignificant time and expense in not forcing or requiring any of his victims to testify. In open Court, on May 10, 2012, he proffered anemotional apology to all of his victims, and family and friends whom he has disappointed. Mr. Shime submits that there should bemeaningful credit given to the defendant for his plea of guilty, and that the case law considers this as significant and weighty. The Courtshould also give some consideration to partial restitution having been made, although this money has not come directly from thedefendant, but from the Law Society Compensation Fund.

The defendant agrees that the Court should otherwise make a stand-alonerestitution order. [41] Mr. Shime takes issue, however, with the Crown’s position that the defendant was motivated by greed and personalprofit. There is an absence of any evidence that he led a lavish or extravagant lifestyle. Although the onus is on him to establish where allthe money went, there are presently no funds available to address restitution. This places the defendant in the unenviable position ofhaving to prove a negative.

He would have to retain the services of a forensic accountant to be able to trace where the funds have gone.He cannot afford to do so. Mr. Shime submits that, given the sophisticated and thorough investigation conducted in this case, if thedefendant had been enjoying an elevated lifestyle, surely this would have been discovered. Unlike the defendants in the Drabinsky andJones cases, Mr. Mazzucco’s lifestyle did not significantly change. Mr. Shime reminds the Court that the agreed statement of facts in thiscase have been very carefully crafted.

What triggered the criminal behaviour is that some of the defendant’s clients lost $500,000.00. Hefelt responsible for these losses and decided to borrow money to pay them back This does not entitle the Crown to say that the defendantprofited. The agreed statement of facts also disclose that, as the frauds continued over the years, the defendant amassed a two milliondollar debt load. Where, therefore, is the personal gain? The facts also include an acknowledgment that the defendant’s intention was topay back his clients. Again, how does this show a greedy intention?

Although it may be open to the Court to draw an inference that someof the money taken from investor clients was likely earmarked for personal use, the same cannot be said for the second part of thescheme relating to the frauds on the various banks. [42] The facts also clearly specify that the defendant was approached by a named individual. He was merely trying to obtain asmuch money as possible in an effort to pay back all of his personal clients. Therefore, it is not just the word of the defendant that he wasnot involved for personal gain.

The facts also support the theory that the banks extended approximately 2 million dollars to the defendantand, these amounts can be traced. The amount of 1.47 million dollars was used to repay lender clients. Therefore, if the defendant was sogreedy, why did he not just keep the 1.47 million dollars for himself, rather than paying it out? The reason, Mr.

Shime submits, is thatthe defendant was trying to achieve his ultimate goal to eventually create an economic windfall situation where all parties would be paidback. [43] When considering the cases in the defence Book of Authorities, and properly weighing the applicable aggravating andmitigating factors, the range is between 3 and 6 years. The blended sentence proposed, therefore, is right in the middle. [44] The “trilogy” of Ontario Court of Appeal cases should be carefully considered. Mr. Shime submits that Dobis case is theone most similar to the present case.

The 3 to 5 year range was articulated as being appropriate for offences of this nature. [45] In the case of R. v. Bogart, (ON CA), [2002] O.J. No. 3039, the defendant pleaded guilty todefrauding OHIP of almost one million dollars over a 7 year period. The fraud was only detected when his partner reported it to theauthorities. At the sentencing hearing, he received overwhelming support from many of his patients. He expressed great remorse andaccepted responsibility. He had repaid over $200,000.00.

The Court described his actions as amounting to an egregious breach of trust.He was at least partly motivated by greed and used some of the proceeds to finance lavish vacations. Mr. Shime submits, therefore, thateven with all of these significant aggravating factors, including greed, the Court only imposed a 4 year sentence. [46] Mr. Shime submits that the Drabinsky case represents the “high-water mark” for large-scale frauds in Ontario. The 7 yearsentence imposed by the trial judge was reduced, on appeal, to 5 years. The defendant was convicted of two counts of fraud.

The firstrelated to billing the entertainment company for fictitious services never actually rendered and pocketing the payments in the amount of

8 million dollars. The second fraud related to the company under-reporting expenses to reduce net income to make it more attractive to investors. Mr. Shime submits that there are two significant distinguishing features between this and the present case. First, the Court found that Mr. Drabinsky was at least partially motivated by greed. Second, this was not a guilty plea situation, but a 65 day trial. Therefore, he submits that a sentence in the range of 10 years for Mr. Mazzucco would be manifestly unfit. [ 47 ] The other cases submitted by the Crown can be distinguished, one way or another.

For example, in Bjellebo , the Court imposed a 10 year sentence after a 9 month trial. This involved over 600 investors losing 22 million dollars. It is important to note, however, that the company which was set up in this case was for the sole purpose of defrauding individuals. The same cannot be said for Mr. Mazzucco’s law practice. Mr. Shime submits that it is unfair to say that for 14 of the 33 years of his law practice it was only devoted to fraud. [ 48 ] In the Jones case, the defendant pocketed 13 million of the 50 million dollar Ponzi scheme funds. He also lived a luxurious lifestyle.

He never set up a legitimate business. Also, the 11 year sentence imposed by the Court was on the basis of a joint submission. [ 49 ] In R . v. Cunsulo , [2008] O.J. No. 66 , a recent decision of Justice Hill of the Superior Court in this jurisdiction, this involved an individual who defrauded various financial institutions in the total amount of 3.9 million dollars. This was not a guilty plea. He was a real estate agent who conducted fraudulent mortgage transactions. The Court found that he was motivated by greed. There was no remorse expressed. There was no offer of restitution.

Even the Crown Attorney who conducted the trial in this case represented that the range for frauds of this nature is between 3 to 5 years. Notwithstanding this position, Justice Hill imposed an 18 month sentence. [ 50 ] Furthermore, in R . v. Lall , [2007] O.J. No. 5213 , Justice Durno of the Superior Court in this same jurisdiction imposed an 18 month sentence on the defendant who was a tax auditor who committed a breach of trust resulting in a $143,000.00 loss. [ 51 ] Mr. Shime submits that both of these decisions are by eminent jurists in this jurisdiction.

These cases stand for the proposition that even large-scale frauds can result in reformatory sentences and even conditional sentences. He submits further that these cases support the conditional sentence being sought for Mr. Mazzucco, for the fraud count against the financial institutions. Further support for this position can be found in the case of R . v. Campbell , [2005] O.J. No. 4696 . This case involved a lawyer who defrauded many of his elderly clients of over 1 million dollars. He was 65 old and had no record.

The Court articulated that a range of sentence for a lawyer involved in a large scale breach of trust could commence at 2 years less a day, in which case a conditional sentence could be ordered. The Court imposed such a sentence, having regard to the existence of psychological evidence of recent mental illness which affected the defendant’s behaviour and judgement. He was also suffering physically with heart problems. The Court found that these special circumstances existed to support a departure from the normal range. [ 52 ] Mr.

Shime points out that none of the cases tendered by either the Crown or defence involve the Court imposing a consecutive sentence for more than one fraud. It appears that all of the sentences imposed have been concurrent, on the basis of the totality principle. 5:0 ANALYSIS OF SENTENCING IMPERATIVES AND OBJECTIVES IN FRAUD CASES [ 53 ] There are many

definitions to the offence of fraud. In essence, what it amounts to is an illegal act, committed by an individual or corporation, in the course of a legitimate occupation or pursuit, for the purpose of obtaining money or property, avoiding the payment of money or the loss of property, or obtaining business or personal advantage. [ 54 ] To assist in better understanding its insidious nature, and in crafting the appropriate sentence, the Court has given consideration to a number points set out in the text, “The Law of Fraud and Related Offences”, by Brenda Nightingale (Thomson/Carswell, 1996, particularly at

chapter 1). The common theme which runs through most, if not all fraudulent transactions, is

that the victim is induced by the offender’s dishonest conduct to deal with an asset in a way in which, but for the dishonest conduct, the victim would not have. It has been suggested that because of the number of less visible and more remote victims of fraud, this type of offence is unique, and thereby different from more conventional forms of crime. Many victims are unaware that an offence has been committed against them, either because they are unaware of the conduct itself and its harmful consequences, or if aware, fail to perceive it as criminal.

Furthermore, these offences often take place in the context of the conduct of legitimate and lawful business. Fraud is often only an offshoot from the otherwise proper execution of a previously legitimate role. Many frauds can be, and are, viewed as mere excesses in what is normally accepted business practice. Sometimes the fraudulent conduct can be seen as merely being aggressive salesmanship, or shrewd economic behaviour. Therefore, there is a tendency to identify the offender’s conduct as a variation on otherwise approved behaviour. This ambivalence is perhaps explained by two factors.

First, there is a perceived unfairness inherent in punishing someone for conduct that might otherwise be praised. Second, there is likely no agreement of a common conscience about the concept of dishonesty. This is partly due to the fact that there is tolerance within our culture of some degree of dishonesty in us all. We recognize the notion of the “white lie”, and the concept in contract law of “puffery”.

The current prevalence of some tax avoidance practices by many serves as an example of not only the lack of common conscience, but also a degree of tolerance of dishonest conduct. [ 55 ] Another factor to consider is victim involvement. Different degrees of same tend to cause a blurring of the usual clear distinctions drawn between an offender and a victim, thereby altering the perception of the criminal conduct itself. It has been stated that the offence of fraud, to a degree, includes the cooperation of the victim.

By means of the false pretences, the defrauded person is tempted to act in the direction of his or her detriment. Therefore, because the victim might be presumed to have cooperated in order for the offence to have occurred, there is often an unwillingness to believe that the victim should remain blameless. Reliance by the perpetrator on the ignorance or carelessness of the victim is almost always present. Therefore, it is almost like an informal adoption of the concept of contributory negligence. [ 56 ] Another factor to consider is the worthiness of the victim’s claim.

Unlike the victims of most crimes, fraud victims do not arouse a great deal of sympathy in the court of public opinion. They are often viewed with a mixture of scepticism, suspicion and disbelief. There is also a belief that victimization from fraud does not happen except to those of questionable character, or to those who are also playing into the “get rich quick” mentality. Another observation is that victims are perceived as “losers” among sharp practitioners who may have been outsmarted in the complex game of life and business.

Therefore, because of their failure to observe some basic rules of conduct, these victims may be regarded as fair game for those who would exploit their foolish conduct. There is also a feeling that financial institutions are not exactly the most sympathetic victims since they are so much more able to bear the loss, and in any event, they themselves are driven by greed and profit. The truth of the matter, however, is that most fraud victims are neither dishonest nor greedy.

Rather, they are people and organizations whose most outstanding quality is that they have particular needs around which fraud artists can adapt their techniques. [ 57 ] Another difficult concept to grasp is that most fraud offenders are not inherently “bad”, or anti-social by nature. While being deceitful, these individuals are able to use their station in the community to their advantage by continuing to lead a normal and unassuming life and lifestyle “under the radar”. They pay the more obvious debts, stand by their family and friends, and continue to make contributions to the community.

When considering the motives which drive the commercial crime perpetrator, therefore, it is not so much evil impulse, but, sadly, moral insensibility. Therefore, the person who “robs Peter to pay Paul” and fully intends to make all of his clients “whole” reveals nothing in the way of a vulture or shark. In fact, these offenders want nothing more than what we all want: money, power, consideration, and in a word, success. [ 58 ] However, as the Court of Appeal stated in Drabinsky , the defendant’s error lay in the means chosen to achieve a laudable end. Mr. Mazzucco lost his way.

He developed and sustained an ethical blind spot. His motives were not altruistic. In other words, they were not unselfish, humane or philanthropic. The real gravamen of his actions is not so much that he did not receive personal economic benefit, but rather, the concern should be directed to the victims who have suffered deprivation. Put another way, this sentencing exercise is not resolved so much by examining what the defendant gained, but, by examining what the victims lost.

He withheld from them something to which they were all otherwise entitled, which is the opportunity to profit from the use of their funds and to compete in the marketplace. Thus, proof of deprivation is not precluded by a mere finding that the defendant did not obtain an economic benefit from the dishonesty, or that some of the victims even ended up with a net economic gain, or that the defendant compensated the victims for any loss or placed them back in the position they were in before the conduct.

Although it may appear to the defendant, and others who remain supportive of him, that all he was doing was merely “borrowing” money from his clients with the expectation or hope that they would all get it back, this remains as a fanciful, simplistic, and naïve rationalization. [ 59 ] Deprivation will continue. The stated desire by Mr. Mazzucco to pay restitution may be attractive, however, the likelihood of being able to do so is remote. To have made significant restitution might have enured to his benefit.

Despite the availability of a restitution order, the marketplace principle of “show me the money” applies to the sentencing process. Efforts to improve the position of the victims can be mitigating, as those who receive restitution at or before the date of sentencing are obviously better off than those left to pursue their remedies through the Court process. [ 60 ] The fact that the defendant may have been motivated more by self-preservation than by greed does not lessen his culpability. He has shown wanton disregard for the welfare of his clients. His moral blameworthiness is significant.

The high degree of moral turpitude involved, including sustained deception, trickery, cheating and guile cannot be countenanced. He used his reputation to

perpetrate the frauds. He cannot now be permitted to use it to mitigate the penalty. [ 61 ] In the final analysis, Mr. Mazzucco’s spotless reputation has revealed some kind of character flaw resulting in him succumbing to this behaviour, regardless of his motives. It is always difficult to pinpoint these. For some, it is for need, rather than greed. For others, it may involve an individual who is desperate for some measure of the success, or recognition that has perhaps eluded him in his job or personal or professional life.

In many other circumstances, an individual may be driven by the desire, familiar to many of us, to succeed in a highly visible way. The trappings of wealth and status can be essential to some, for they tell the story that one wants the world to know. [ 62 ] It is unfortunate for, but not unfair to Mr. Muzzucco to now sentence him in accordance with the well-settled sentencing principles. There are few crimes where the aspect of deterrence is more significant. It is not a crime of impulse, and is a type that is normally committed by a person who is knowledgeable and should be aware of the consequences.

That awareness comes from the sentence given to others. Law-abiding citizens with good employment records and families are the ones most likely to be deterred by the threat of severe penalties. Denunciation and general deterrence most often find expression in the length of the jail term imposed. This Court is very much aware of the fact that the deterrent value of any sentence is a continuing matter of controversy and speculation. However, there are certain offences, such as the present one, that are more likely to be influenced by a general deterrent effect.

Of course, there will always be individuals who will be ignorant, or choose to remain ignorant, or will be desperate enough to take the risk that the defendant took in this situation. While this may be so, this is not a basis for rejecting the application or implementation of a general deterrence objective. Just as in the drinking/driving context, prison sentences alone, will never solve the problem, but they do have a role in deterring crime. 6:0 CONCLUSION AND IMPOSITION OF THE APPROPRIATE SENTENCE [ 63 ] A few words should be said about the sentencing principle of totality.

One of the strong tenets in our criminal justice system is the avoidance of unnecessary oppression to offenders. The Court is, therefore, entitled to take a global view of one’s situation to ensure that all hope for reform is not crushed by the total effect of the sentences. This principle requires the Court, after arriving at the appropriate sentence for each separate offence, to then look back to ensure that the totality of the consecutive sentences, for example, is not excessive.

The sentence must then be adjusted below the figure which would be appropriate for each offence taken in isolation, so that the total sentence is proper. However, it is fundamental and inherent that in no case should the application of the totality principle have the effect of reducing the end sentence to a term less than would be fit and appropriate for the most serious of the two. In other words, this principle must not result in so great a reduction of the otherwise appropriate sentence that it would induce offenders to multiply their crimes, and thus encourage, rather than deter crime.

It would appear, therefore, that the simplest method of expressing the proper total sentence is to impose a concurrent sentence. [ 64 ] Having regard to all the circumstances, the Court imposes a sentence of 6 years in the penitentiary in addition to the 10 days of pre-trial custody. In particular, the length of time over which the frauds occurred; the amount of the defalcations; and this being a breach of trust by a lawyer, justifies this disposition. The sentence shall be concurrent.

Had the Court imposed consecutive sentences this would have produced an inappropriate and excessive total sentence. [ 65 ] The Court did consider, very carefully, the creative part of the sentence proposed by Mr. Shime.

However, a conditional sentence, in these circumstances, would not be consistent with the fundamental purpose and principles of sentencing. [ 66 ] A stand-alone restitution order is made in accordance with the amounts set out in exhibit 6. [ 67 ] Copies of the Court’s written reasons for sentence, as well as copies of all of the exhibits, shall be annexed to the warrant of committal for proper consideration by the correctional authorities as it relates to classification and any consideration for accelerated parole for Mr. Mazzucco.

[ 68 ] Also, as required, a transcript of the Court’s reasons today shall be ordered and made available to the correctional authorities in due course. [ 69 ] The Court is grateful to counsel for your professionalism, and sensible and sensitive presentations in this most difficult sentencing exercise. Both the art and science of advocacy was abundantly displayed. Released: May 29 , 2012 ______________________ Justice S.R. Clark