R. v. Cruz, 2010 ONCJ 640

COURT FILE NO.: 2811 998 DATE: December 20, 2010 Citation: R. v. Cruz , 2010 ONCJ 640 ONTARIO COURT OF JUSTICE (Central East Region) B E T W E E N: ) ) Her Majesty The Queen ) ) ) J. O’Connor, Counsel for the Crown ) ) ) - and - ) ) ) KENNETH CRUZ ) ) ) B. Scott, Counsel for the Defendant ) ) ) ) ) HEARD: November, 30, 2010 REASONS FOR SENTENCE BELLEFONTAINE, J: These are my reasons for sentence in the matter of Kenneth Cruz who has plead guilty to one count of Fraud Over $5,000 pursuant to s.381 (

a) of the Criminal Code . Mr. Cruz has admitted to defrauding 30 victims of $1,450,000 pursuant to an elaborate Ponzi Scheme. CIRCUMSTANCES OF THE OFFENCE : The facts in this matter have been set out in an agreed statement of facts which has been filed. In

summary, between February of 2007 and November 2008, Mr. Cruz defrauded numerous members of the public of $1,450,000 in an elaborate investment scam. Mr. Cruz told the victims that he was investing in real estate in Canada and in fact, at the initial stages, he had done so. When the anticipated and promised profits did not materialize, he commenced an elaborate investment scam, known as a Ponzi Scheme where he promised high profits from fictitious sources, and paid off early investors with funds from subsequent investors as well as from his own funds. Mr. Cruz met most of his victims either directly or indirectly through his employment as a real estate agent. Some of the victims were

introduced to him by other persons with whom he had a business relationship. In order to induce individuals to invest money in the scam, he promised them interest rates every six months of between 25% to 50% return on their investment. The victims paid the funds to Mr. Cruz using bank drafts or cash that they borrowed from their lines of credit, mortgages, credit cards or personal savings. Written contracts were drawn up. Some of the early victims received some interest payments as promised. Because of the extent of the cash transactions coming from and going to Mr.

Cruz, the initial amount of the fraud claimed was significantly higher than what the parties have now agreed to be able to be proven beyond a reasonable doubt. Mr. Cruz did not in fact invest the money as agreed upon with the victims I am dealing with. He continuously lied to the victims. He initially maintained that investments were doing well. Towards the end of the scheme however, in around September of 2008, he began having trouble paying the interest payments. He began making excuses and stalling the victims. Ultimately he stopped returning telephone calls and fled the country to the Philippines.

He returned promptly to deal with these matters upon being advised that a warrant had been issued for his arrest. A review of Mr. Cruz’s banking records show that none of the money was used to purchase investments or real estate in accordance with the contractual obligations to the victims to whom this plea relates. Investigation further revealed that he had purchased over $450,000 worth of casino chips at Casino Rama and that he had made over 140 trips to the casino during the time frame of the information. The records revealed that he lost close to $1 million dollars at Casino Rama alone.

His banking records also revealed trips to Hong Kong, Tokyo and Manila where gambling losses of $30,000 were documented in one visit alone. No restitution has been paid to any of the victims and diligent efforts by the police to locate any assets or investments of Mr. Cruz have been unsuccessful supporting Mr. Cruz’s position that he has no current assets with which to make any restitution. VICTIM IMPACT: Victim Impact Statements have been filed on behalf of 15 of the victims in this matter. They speak of the significant financial and emotional devastation that has been caused by Mr. Cruz’s crimes.

Many of the victims mortgaged their homes to borrow substantial amounts of money to invest with Mr. Cruz, others invested their life savings. Ms. Elaine Chin invested $80,000 being her and her deceased husband’s life savings. As a result of the loss of the money, she has been forced to move into one of her children’s homes to live and has been forced to return to work to support herself. Mr. & Mrs. Dipti took out money from their line of credit to invest with Mr. Cruz in the hopes of using the profits to pay off other loans that had been taken out to renovate their home to accommodate a handicapped son.

They have been left with a crushing debt as a result of the financial loss and the ongoing interest that is accruing on the money. Rosanne Gulab lost $50,000 she had been saving up towards purchasing a home. Troy Gulab is a young person who obtained a line of credit of $15,000 to invest with Mr. Cruz and is now out this amount of money. Margaret Hercules is 88 years of age and has lost her $80,000 life savings to Mr. Cruz’s investment scam. Patricia Kent put a second mortgage on her home for $20,000 to invest with Mr.

Cruz and as a result of the loss of this money, is currently selling her home in order to liquidate her debts. Henry and Leitha Mason mortgaged their home in the amount of $100,000 to invest with Mr. Cruz and the loss of this money has caused incredible financial hardship and emotional stress to an extent that Mr. Mason’s physical health has been significantly impaired. Paul and Shirley Pedder invested $100,000 of their life savings with Mr. Cruz and as a result of the loss of the money they have had to refinance their home and Mr. Pedder who had been retired, has now had to return to work.

In his victim impact he states “By taking our life savings, Mr. Cruz has effectively stolen our “golden years.” Doodnauth and Rafeyon Ramcharan gave Mr. Cruz over $125,000 of their life savings, and as a result of his default, cannot afford to send their children to college or travel to visit their parents. Lamberton and Dorothy Strachan provided Mr. Cruz with $50,000. The loss of this money has caused Mr. Strachan’s health as an 88 year old to deteriorate rapidly. Mrs. Strachan cannot afford to have her husband placed in a nursing home as a result of the loss of their life savings. Margaret Vessio gave Mr.

Cruz $180,000 which has been lost. These are all her savings and she has had to sell her home which she had lived in for the last 20 years, and has returned to work in order to make ends meet. CIRCUMSTANCES OF THE OFFENDER: Mr. Cruz is 34 years of age. A thorough and positive pre-sentence report has been provided to the Court. Mr. Cruz and his family came to Canada from the Philippines when he was 16 years of age to join up with his mother who had worked here as a caregiver. He has had a very close relationship with his family, and continued to do well in school upon his arrival here.

He maintains the support of a very strong family unit and has few friends or activities outside of his extended family. He took college courses in accounting and computers and was steadily employed in the inventory management field for approximately 10 years prior to obtaining his real estate licence. He worked as a real estate agent between 2006 and 2008 when he left Canada to hide out from his “investors.” Mr. Cruz had been married but that relationship deteriorated and he separated from his wife. He has commenced a new relationship with another

woman who is supportive of him. Upon returning to Canada to deal with these charges, Mr. Cruz obtained gainful employment. He has recently ceased that employment because of the upcoming sentencing. Mr. Cruz is in debt to his family in the amount of $50,000 for outstanding debts and legal fees and he currently has approximately $50,000 in credit card debts. His home and motor vehicle were repossessed when he fled from Canada. Mr. Cruz is considered by his collateral contacts to be a hardworking quiet individual, who is remorseful for the offences before the Court. Mr.

Cruz appears to have developed gambling problems during the course of his marriage which created financial problems and disputes in the marriage. His gambling increased following his separation from his wife. He would take frequent vacations to locations where there was a casino. As his gambling evolved, he would gamble almost daily. Although the Crown has not been prepared to concede his gambling addiction in the absence of a psychiatric report and diagnosis, I am satisfied on a balance of probabilities that Mr. Cruz is a gambling addict and that this was the motivation behind the offence before the Court.

This fact would appear to be well- supported by the information in the pre-sentence report and the admitted facts on the guilty plea. Mr. Cruz has recently been taking counseling for his gambling addiction and appears to be well-motivated to pursue the counseling. Mr. Cruz has expressed a willingness to work to try to pay his victims back. He is confident that he can regain employment upon his release from custody or immediately if he does not receive a custodial sentence.

POSITION OF THE PARTIES: The position of the Crown is that a four penitentiary sentence should be imposed in this matter, and that a restitution order should be made for the full amount of the losses of each of the victims. The defence has submitted that given the underlying gambling addiction which has motivated Mr. Cruz’s offence, that a two year less one day conditional sentence is appropriate.

Further, given a complete absence of current ability to pay and with there being no future meaningful ability to contribute towards the large financial loss, it is submitted the restitution order should not be made as it would be a crushing amount and would create a substantial dis-incentive to him working in the future and accordingly would significantly interfere with his long-term rehabilitation. I note that this offence provides for a jail sentence not exceeding 14 years.

SENTENCING PRINCIPLES: In their victim impact statements a number of the victims have expressed their outrage about the financial devastation and emotional loss that they have suffered in very passionate terms. They want justice to be done, and as it seems only fair to them that as Mr. Cruz has ruined their lives, he should receive a lengthy jail sentence and maybe through his suffering a sense of balance and a sense of fairness will be achieved.

It is not within my power, nor is it my role as a Criminal Court Judge to impose a sentence that will, in any meaningful way, even the scales of suffering or right the balance between Mr. Cruz and the victims in this matter. The difficult task in a situation like this is to impose a just sanction for the offence in question, particularly in light of the degree of responsibility of the offender and the circumstances of the offence. Ultimately our goal as a criminal court is the protection of society by imposing the least restrictive sentence that will deter the accused and others and ensure his rehabilitation.

We have, as well, to maintain public confidence in the administration of justice by imposing a sentence which appropriately and objectively denounces his conduct. In order to determine what an appropriate sentence is, we look to see what the sentences customarily imposed for similar offenders, committing similar crimes, are. We then try to adjust within a reasonable range for the aggravating and mitigating factors that are particular to the offences before the Court, and that are particular to this offender. By way of mitigation, I would note the following: 1. Mr.

Cruz is still a relatively youthful offender at age 34. He has no prior record. He has been a long time, hard-working, contributing member to the community. But for these offences, he has been living a pro-social life and is well regarded by his family members and friends. The offence is out-of-character for him. Indeed, his reputation for good character in the community was no doubt a factor in the victims entrusting their money with him. 2. Mr. Cruz has plead guilty to the charge before the Court, saving the courts and the victim the costs and emotional trauma of a trial.

As unsettling as these protracted guilty plea proceedings have been for the victims, the anguish of being required to testify at a trial where one’s credibility is called into question is all the more devastating. The plea of guilty also reflects significant remorse given the potential difficulties of proof for significant parts of the original allegations advanced by the Crown.

The lack of paperwork and poor record-keeping for a number of the cases has been significant and only through lengthy efforts between the Crown and the defence, have the facts that have resulted in the agreed Statement of Facts been arrived at. A plea of guilty is of particular significance in this heavily backlogged court jurisdiction. This case would have consumed a large number of court days had it been contested, which would have prevented a large number of other cases being heard. 3. I also have to be cognizant that there were some initial real estate purchases by Mr.

Cruz which appear to have initiated his approaches to investors. Although that does not excuse the criminal conversion of funds for any of the victims who are before me, it supports his position that his actions were not initiated as a criminal scam, but evolved into such as a result of his early lack of success in a more legitimate effort to profit from flipping houses. 4. I do as well consider that Mr. Cruz has a gambling addiction which is a mitigating factor to be considered in this case. The dollar value and frequency of his gambling make the point.

I am satisfied that but for his addiction, the amount of the fraud in this matter would not have escalated to the astronomical sums that it did. To the extent that Mr. Cruz’s culpability is a factor in this matter which assumes a volitional element to the commission of the crime, that culpability is to some extent mitigated by his addiction. I note,

however, that there appears to be no recurrence or ongoing gambling since his return from the Philippines which suggests that even modest efforts on his part at reformation may have controlled his addiction before the losses escalated. AGGRAVATING FEATURES: 1 . This was a large-scale fraud operated over a significant period of time, involving a significant number of victims and receiving large amounts of money from them. There would have been dozens and dozens of decisions being made by Mr. Cruz to deceive individuals and to keep the fraud alive for as long as he did. 2 .

The dollar value of the loss to the victims in this matter puts this case at the extreme high end of the fraud cases that will come to the courts over the course of a year. It is indeed at a level that is statutorily recognized as an aggravating feature under s.380.1(1) (a). 3 . With 29 victims in this matter, I consider there to be a large number of victims, sufficient to make the number of victims also an aggravating factor under s.380.1(1)(c). Mr. Cruz’s actions have devastated the lives of a large number of individuals. 4 . Given Mr.

Cruz’s status as a registered real estate agent, I consider his receiving monies for real estate investments to be a significant abuse of his position as a licenced professional and to represent a breach of trust by way of abusing his position and converting the monies entrusted to him for specific investments to his own use. 5 . The continuation of the fraud over the substantial period of time herein, involved a significant amount of sophisticated planning and coordination. 6 .

There is a complete lack of restitution in this matter and no meaningful prospect of restitution other than as might be gained from the future garnisheeing of Mr. Cruz’s wages through the civil courts. 7 . The victims in this matter appear to be overwhelmingly middle class individuals who will bear the full brunt of the loss without recourse to insurance. At least two of the individuals are quite elderly. The losses of large amounts of money by these individuals represents a very real hardship to them.

Some individuals have lost their homes as a result of not being able to maintain the mortgages that were obtained to advance monies to Mr. Cruz. Retirees have had to return to the work force to make up the financial losses they have suffered. Families have lost their ability to send their children to university or college. Other individuals have found the emotional stress associated with the financial loss so extreme that it has affected their physical health. Mr.

Cruz’s crime has left a trail of destroyed families; not only financially, but also emotionally and in some cases physically THE RANGE OF SENTENCE: Given the broad range of circumstances that can be associated with a fraud over $5,000 charge, there is a very broad range of sentences that have been imposed. Counsel provided me with a large number of cases to support their respective positions. The authorities I have found of most assistance are the following: 1. Regina v. Dobis [ 2002 CanLII 32815 (ON CA) , 2002] O.J. No. 646 163 C.C.C. (Ont.

C.A.) The Ontario Court of Appeal overturned a conditional sentence for a large-scale fraud involving over $2 million committed by an employee of a company. Notwithstanding his good character, the Court of Appeal indicated “I would grant leave to appeal the sentence and allow the appeal from sentence. An appropriate sentence at trial would have been at a minimum at the lowest point in the range suggested by the Crown, namely three years.

The Court indicated at p.42: “I am persuaded that the serious nature and the consequences of the offences committed by the respondent, required the imposition of a penitentiary sentence. There is a real need to emphasize denunciation and, especially, general deterrence, in the realm of large-scale frauds committed by persons in positions of trust with devastating consequences for their victims, which is how I would characterize the offence in this case.” 2. Regina v. Scherer (1984) 1984 CanLII 3594 (ON CA) , O.J.

No. 156 (O.C.A.) Dealing with the lawyer who had defrauded 19 clients of $2,173,164.21, the Court of Appeal reduced a nine year sentence to seven years.

3. Regina v. Leo – Mensah [2010] O.N.C.A. 139 The Court of Appeal dealt with an accountant who had provided false charitable tax deduction receipts to clients to enable them to perpetrate a $3.28 million fraud against the Government of Canada by reducing their income tax liabilities. Mr. Leo-Mensah received none of these funds but did not report the full amount of income that he was making by virtue of providing the receipts which amounted to approximately $140,000 dollars. The trial judge imposed an effective 22 months sentence, which the Court of Appeal increased by a further two years.

The Court of Appeal noted: “ In R. v. Bogart (2002) 2002 CanLII 41073 (ON CA) , 61 O.R. (3d) 75 leave to appeal to S.C.C. period refused [2003] 1 S.C.R., this Court established that a penitentiary sentence is the norm, not the exception, in cases of large scale fraud and in which there are no extra-ordinary mitigating circumstances.” 4. R. v. Clark A low level bank employee redeemed $20 million worth of customers’ mutual funds as a preliminary to absconding with the money. His actions were caught the following day before any loss occurred.

He was a first offender and given the unsophisticated nature of the crime, and the spur of the moment conduct involved in it, the trial judge imposed a conditional sentence of two years less one day. The Court stated that a range of sentence of three to five years, bearing in mind the absence of any loss was appropriate. They noted that large-scale frauds by persons in a position of trust, will almost inevitably attract a significant custodial sentence.

In addition to opposing the imposition of a custodial sentence in jail, the defence have objected to the imposition of Restitution Orders on the basis that they will be a significant impediment to Mr. Cruz’s rehabilitation. The appellate authorities in this area are not consistent in their application. Many cases can be found where an emphasis has been placed on the impediment that a restitution order will create for an individual’s rehabilitation. Many others emphasize the restorative justice nature of the restitution order and the need to place priority on addressing the needs of the innocent victims.

The law was most recently canvassed by the Court of Appeal in R. v. Castro (2010) 2010 ONCA 718 (CanLII) , O.J. No. 4573 (O.C.A.) The Court of Appeal stated at paragraph 24: ’24. The starting point for any discussion of the objectives and factors that inform a judge’s exercise of discretion in making restitution order is the Supreme Court of Canada’s decision in R. v. Zelensky , 1978 CanLII 8 (SCC) , [1978] 2 S.C.R. 940 .

While the decision deals with predecessor legislation, the decision of Laskin C.J. nevertheless serves as a blueprint for the considerations to be taken into account in making a restitution order under s.738(1). The considerations were summarized by Labrosse J.A. in Devgan at para.26 as part of a non-exhaustive list: 1. An order for compensation should be made with restraint and caution; 2. The concept of compensation is essential to the sentencing process: (

i) it emphasizes the sanction imposed upon the offender;

(ii) it makes the accused responsible for making restitution to the victim; (iii) it prevents the accused from profiting from crime; and (iv) It provides a convenient, rapid and inexpensive means of recovery for the victim; 3. A sentencing judge should consider: (

i) the purpose of the aggrieved person in invoking s.725(1); (ii) whether civil proceedings have been initiated and are being pursued; and, (iii) the means of the offender. 4. A compensation order should not be used as a substitute for civil proceedings. Parliament did not intend that compensation orders would displace the civil remedies necessary to ensure full compensation to victims. 5. A compensation order is not the appropriate mechanism to unravel involved commercial transactions; 6.

A compensation order should not be granted when it would require the criminal court to interpret written documents to determine the amount of money sought through the order. The loss should be capable of ready calculation. 7. A compensation order should not be granted if the effect of provincial legislation would have to be considered in order to determine what order should be made; 8. Any serious contest on legal or factual issues should signal a denial of recourse to an order; 9. Double recovery can be prevented by the jurisdiction of the civil courts to require proper accounting of all sums recovered; and 10.

A compensation order may be appropriate where a related civil judgment has been rendered unenforceable as a result of bankruptcy. ………. 26. In general, the omission of a judge to give consideration to a relevant factor gives rise to reviewable error. Thus, the omission of a sentencing judge to give any consideration to the relevant factor of the offender’s ability to repay the amount of money taken is an error. A restitution order is not intended to undermine the prospects for rehabilitation of the offender. See e.g. R. v. Ali (1997), 1997 CanLII 2655 (BC CA) , 98 B.C.A.C. 239 ; R v.

Biegus (1999), 1999 CanLII 3815 (ON CA) , 141 C.C.C. (3d) 245 (Ont. C.A.) , at paras. 15 and 22 ; and R. c. Ford (2002), 2002 CanLII 34585 (QC CQ) , 2 C.R. (6 th ) 348 (C.Q. crim & pen.). 27. Reviewing courts have, however, consistently held that no single factor is itself determinative of whether a compensation order should be granted and that the weight to be given to individual considerations will depend on the circumstances of each case. Those circumstances include two considerations I wish to emphasize: the nature of the offence and, when money has been taken, what has happened to the money. 28.

Insofar as the nature of the offence is concerned, in cases involving breach of trust, the paramount consideration is the claims of the victims: Fitzgibbon at pp. 1014-15. Ability to pay is not the predominant factor. Indeed, where the circumstances of the offence are particularly egregious, such as where a breach of trust is involved,, a restitution order may be made even where there does not appear to be any likelihood of repayment: R. v. Yates (2002), 2002 BCCA 583 (CanLII) , 169 C.C.C. (3d) 506 (B.C.C.A.) , at paras. 12 and 17 . … 30.

In imposing a sentence where the offender has used his or her position to commit a breach of trust, the primary considerations are the protection of the public, general deterrence and the repudiation of the conduct of which the offender was found guilty. Relevant factors include the length of time over which the conduct took place, whether the offence was a sophisticated and well planned scheme, the amount involved, and, most importantly, the impact of the offender’s conduct on the victims.

The secondary considerations are specific deterrence, rehabilitation and any mitigating circumstance such as a plea of guilty or co-operation with the authorities (in tracing the funds ): Scherer , per Martin J.A. at para.34. 31. In Sherer, some of the victims had lost most or all of their life savings as a result of the offender’s breach of trust. While Martin, J.A. reduced the sentence of imprisonment from nine years to seven years, he upheld the compensation order in the amount of $2,173,164.21 to the persons aggrieved.

Restitution in that case recognized the victims’ needs and at the same time underlined the larger social interest in the imposition of a sanction related to the crime.’ In addition to the foregoing, I would note that the barrier to rehabilitation associated with the restitution order may be over-emphasized in some of the decisions. The restitution orders here and in most cases will only be a part of the claim that a victim would be entitled to make in the civil courts. As a clearly liquidated amount, the restitution orders represent an

indefensible part of any civil claim that the victims’ might choose to bring. By introducing s.725 (1) of the Criminal Code , which enables a victim to register the restitution order as a civil claim for collection purposes, parliament has granted victims a short cut to recovering their losses associated with the crime. The restitution order does nothing more. An offender’s rehabilitation is enhanced by not making a restitution order, only to the limited extent that it passes on to the individual victims the costs and trouble of suing the accused in a civil court.

In any civil court action, the accused’s ability to pay would be irrelevant to obtaining judgment. I do not view the refusal to grant a restitution order to do anything to meaningfully assist with an accused’s rehabilitation but only to create significant costs and hurdles for the innocent victims of crime. In such a contest it should be rare for the innocent victims to be the losers. I note as an aside, that the Bankruptcy Act provides that an order of discharge does not release the bankrupt from: 178.(1) (

a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order imposed by a court in respect of an offence; (

d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others; (

e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim. Accordingly, I do not view the Bankruptcy Act to have any impact on the rehabilatative effects of a restitution order being made or not by way of eliminating the obligation to repay the losses. I note that the amounts here are clearly ascertainable, as they have been agreed upon.

The offences were conducted over a long period of time, the offence required sophistication and considerable planning to have it continue, the amount of money in totality is extremely high, and the impact of the offender’s conduct on many of the large number of individuals has had a life-altering, devastating effect. I am mindful of Mr. Cruz’s gambling addiction.

However, given the long period of time over which this offence occurred, during which he would have had many opportunities to address his gambling addiction and given that the depth of the addiction appears to have been such that it has been resolvable following the discovery of these offences, I do not view in the balance that it mitigates against the restitution orders being made in the face of the many substantial factors that support it.

Considering all of the factors in this matter and being mindful as well of the totality of sentence which I view appropriate to be imposing, I consider it appropriate to make the restitution orders in this matter in their entirety. Mr. Cruz has a strong work history and is optimistic that he will quickly regain employment and able to contribute towards the losses of the victims. He has expressed a desire to do so. His future ability to contribute to the victims’ claims may be modest, but in my view, the victims are entitled to whatever modest repayment that can be made to them.

I do not view it appropriate to be imposing on the victims the costs of bringing actions against Mr. Cruz which they could readily do but for the cost and inconvenience of doing so. If you would stand up please, Mr. Cruz? Mr. Cruz, considering all of the evidence and all of the arguments in this matter, and balancing the many factors referred to in the sentencing decisions provided, and being mindful of your gambling addiction issues, I do not consider that a sentence of two years or less in jail will meet the needs of general deterrence or denunciation to make a conditional sentence an available option.

The sentence in this matter is three years in the penitentiary. There will be as well, restitution orders made to the benefit of the victims in accordance with

Schedule II which forms part of the agreed Statement of Facts in this matter. P.L. Bellefontaine Justice