In the Provincial Court of Alberta

Citation: R v Stevenson, 2016 ABPC 201

Between:

Her Majesty the Queen

- and-

Rand Tyler Stevenson Brent Ray Derricott

Robert Michael Smylski

Date: 20160824 Docket: 130229958Pl

Registry: Lethbridge

Reasons for Sentence of the Honourable Judge T.G. Hironaka

[1] This matter is before this Court for sentencing in relation to convictions pronounced by Justice D.K. Miller on November 13, 2015.

[2] Rand Tyler Stevenson (Stevenson) has been convicted of thirty nine charges under the Securities Act of Alberta; twenty charges under s75(1) and nineteen charges under sl 10(1).

[3] Robert Michael Smylski (Smylski) has been convicted of twenty seven charges, also under the Securities Act of Alberta, fourteen charges under s93 .1 and thirteen charges under sl 10(1).

[4] Sentencing relative to a third accused, Brent Ray Derricott has been stayed by the Crown due to Mr. Derricott's untimely death subsequent to the Appeal Convictions on November 13, 2015.

[5] At trial in this Court, Stevenson and Derricott were also prosecuted on a number of charges under s92( 4.1) of the Securities Act. These charges were dismissed relative to both accused and the Crown did not appeal this Court's decision relative to those charges.

[6] The relevant portions of the above-noted sections of the Securities Act are as follows:

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75(1) Unless registered in accordance with Alberta securities laws, a person or company shall not act as

(a) a dealer,

(b) an adviser, or

(c) an investment fund manager.

110(1) No person or company shall trade in a security on the person's or company's own account or on behalf of any other person or company if the trade would be a distribution of the security unless

(a) a preliminary prospectus has been filed and the Executive Director has issued a receipt for it, and

(b) a prospectus has been filed and the Executive Director has issued a receipt for it.

Section 92

(4.1) No person or company shall make a statement that the person or company knows or reasonably ought to know

and

(a) in any material respect and at the time and in the light of the circumstances in which it is made,

(i) is misleading or untrue, or

(ii) does not state a fact that is required to be stated or that is necessary to make the statement not misleading,

(b) would reasonably be expected to have a significant effect on the market price or value of a security or an exchange contract.

[7] Section 194( 1) of the Securities Act sets out the penalties applicable to the matters before this Court:

194(1) A person or company that contravenes Alberta securities laws is guilty of an offence and is liable to a fine of not more than $5,000,000 or to imprisonment for a term of not more than 5 years less a day, or to both.

[8] The Crown seeks custodial sentences for both Stevenson and Smylski as well as orders for restitution and additional sanctions under s 194( 6) and s 198 of the Act.

[9] Initially Stevenson sought an absolute discharge relative to these charges but at the sentencing hearing on May 315

\ 2016 conceded that as a result of his May, 2000 conviction on four counts of fraud that a discharge would not be an available sentence on these matters.

[10] Both Stevenson and Smylski point out that the charges on which they stand convicted are strict liability regulatory offences.

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[11] They also remind this Court of its observation at paragraph 51 of the trial judgment where this Court stated:

The accused concede neither OCI or any of the Accused were registered under the Act to trade in securities nor was a Prospectus filed relative to the raising of funds through the Loan Agreements.

[12] The defence argument throughout the trial was that the Loan Agreements used to secure funding for the project did not come under or offend the Securities Act.

[13] Stevenson and Smylski argue that under the peculiar circumstances of this case that their contravention of these regulatory offences do not warrant custodial dispositions.

[14] Sentencing principles applicable to these matters are set out in sections 718-718.2 of the Criminal Code. These sections outline the purpose and objectives of sentencing (718), stipulate the fundamental principle that sentences must be proportionate to the gravity of the offence and the degree of responsibility of the offender (718.1 ), and provide a list of other principles that must be taken into consideration by a court in sentencing (718.2)

[15] The section 718.2 principles relevant to this case are:

a. a sentence should be adjusted "to account for any relevant aggravating or mitigating circumstances relating to the offence or the offender

b. a sentence should be similar to sentences imposed on similar offenders for similar offences committed in similar circumstances

c. where consecutive sentences are imposed, the combined sentence should not be unduly long or harsh

d. an offender should not be deprived ofliberty, if less restrictive sanctions may be appropriate in the circumstances, and

e. all available sanctions other than imprisonment that are reasonable in the circumstances should be considered for all offenders.

[16] In R v Boyle [2001] AJ Nol 142 Lefever PCJ set out the underlying basis for securities regulations in this country. At paragraph 17 he states:

Securities regimes are public interest regulatory schemes designed to protect individual investors and the public, ensure that investors are afforded a minimum level of material information, and to guard against the acts of unscrupulous persons in the sale of securities.

[17] Judge Lefever was quick to point out as well, that "the Act is not designed nor intended to necessarily protect any member of the public from stupidity, greed or an abdication of common sense". (ibid para. 7)

[18] The Crown asserts that the following aggravating factors apply to both Stevenson and Smylski:

1. a significant amount of money (over a million dollars) was illegally raised during a lengthy period (over two years)

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2. 24 investors were involved

3. no returns have been paid to the investors, despite assurances of imminent payment and the passage of near six years

4. the Defendants have displayed no remorse

5. the Defendants personally profited from the funds raised.

[19] Relative to Stevenson, the Crown raises two additional aggravating factors:

1. Stevenson's May 2000 criminal convictions on four counts of fraud; and

2. That he was "savvy enough to include a provision expressly attempting to exempt it from the application of securities law and yet did not obtain specific legal advice on that issue before using the Loan Agreement to raise funds from the public.

[20] Relative to Smylski, the Crown points to the following additional aggravating factors:

1. Smylski' s familiarity with and past breaches of securities law; and

2. At the time of Smylski's involvement with these matters he was subject to a permanent administrative ban and an unpaid monetary penalty of $600,000.00.

[21] The Crown concedes the following mitigating circumstances:

1. Vis-a-vis all three Defendants, this Honourable Court made no findings of misrepresentation. The Court was of the view that the Investors were adequately informed of the nature of the "Project".

2. Like Derricott, Smylski was not a directing mind of OCI, but rather acted in the capacity of a securities salesperson. He made referrals and assisted Derricott with certain aspects of some of the securities transactions.

[22] Let me comment on what the Crown asserts are aggravating factors.

[23] I do not find the amount of money raised or the number investors to be an aggravating factor. I do agree that the fact that Stevenson or Stevenson's company received and maintained control over the bulk of the funds, less, of course, commissions paid to Derricott and Smylski, the amounts of which were never established, is a factor that I must keep in mind in imposing sentence.

[24] I do not find the fact that no returns have been paid to be an aggravating factor. It is simply a fact which had no influence on the Crown's position towards the prosecution of these charges.

[25] The Defendants lack of remorse is of little or no relevance in this sentencing. As Stevenson has pointed out, the defence position throughout was that the Loan Agreement was not a security and until the appeal decision that continued to be a live issue.

[26] Both Stevenson and Smylski did receive personal benefit from the funds raised. However, let us look at the comments made by this Court at paragraphs 47 and 48 of the trial decision:

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47 The other charges relative to s92(4.l) are in reference to Stevenson and Derricott's failure to "state a fact" that is to advise Lenders that a portion of the funds received by OCI would be used to pay commissions to Derricott and Smylski or would be used to support Stevenson's day to day living expenses.

48 The Lenders agree that there was no disclosure that loan proceeds would be used for these things. However, when asked about this issue none of them expressed concern and those asked conceded that it "made sense" that commissions would have to be paid and given that Stevenson was working full time on the Project that his day to day living expenses would have to be covered. As noted earlier many of the 24 Lenders entered into more than one Loan Agreement. Most of those were aware that commissions had been paid and that Stevenson was being supported from loan proceeds by the time the subsequent Loan Agreements were entered into.

[27] I agree that Stevenson's prior criminal conviction is an aggravating factor which disentitled him from being considered as a candidate for a discharge under the Criminal Code. Beyond that, it is not a factor to which I need further direct my mind in the sentencing process.

[28] The Crown asserts that inserting paragraph 7 into the Loan Agreement, which stated the loan "is not subject to any securities law, (and so forth) ... " without appropriate legal advice is evidence of Stevenson's "guilty mind" and should be considered to be an aggravating factor. I do not agree. Stevenson's evidence and the finding of this Court at trial is set out in paragraph 21 of the trial decision which states:

21 Stevenson testified that he authored the Loan Agreement and that paragraph 7 was inserted to inform everyone that monies put into the Project were loaned to OCI on a personal loan basis.

[29] Let me return briefly and revisit the mitigating elements to be considered by this Court. The primary purpose of the Securities Act regulation scheme is to ensure that investors are reasonably informed. Registration and/or licensing of the dealer or advisor confirms training, knowledge and professional standing. The prospectus agreement provides a level of information regarding the substance of the intended investment. In the trial decision this Court made these observations relative to the level of information and understanding that each of the Loan Agreement holders had:

14 Except for minor variations, the Lenders generally conveyed a consistent understanding of the reason OCI required funds as explained to them by Derricott; that is: Stevenson had met an individual from the Philippines (described as a Filipino farmer or fisherman named Romeo or "Romy" Santiago) who was the sole beneficiary of a large estate ranging in value from millions to billions of dollars (the "Estate") left to him by an aunt, Candelaria Y. Santiago. Ms. Santiago apparently accumulated the wealth in some fashion associated with her position in the government or employ of former Philippine dictator, Ferdinand Marcos. Stevenson was purportedly helping the beneficiary, Romy, probate the Estate and gain access to the assets of the Estate, in return for which Romy had contracted

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to pay a portion of the Estate to OCI. In exchange for their financing the associated costs of this Project, Stevenson and OCI were to share their portion of the Estate proceeds with the Lenders in the amounts set out in their Loan Agreements.

23 The evidence provided by all 18 of the Lenders who testified was consistent with the evidence of Stevenson and Derricott. None of the Lenders suggested that they thought they were buying anything or that they were doing anything other than lending funds to OCI to enable OCI/Stevenson to successfully complete the Project.

24 Evidence from the Lenders also demonstrated that they were clearly informed that successfully completing the Project meant legally probating the estate and then securing the assets of the Estate that were located in various foreign jurisdictions.

[30] One of the investors, Michael Putici testified:

... I believe I received more information about this project than any other investment mutual fund that I've ever purchased, but this was a loan, I was well informed, to my satisfaction.

[31] Several of the investors also testified that Stevenson was quick in responding to any of their concerns or questions and that they were satisfied with his communications.

[32] None of the investors complained about a lack of information.

[33] At the risk of belaboring this point, I want to be clear that I find this level of information to be a significant factor to be considered by this Court in this sentencing process.

[34] Dealing first with Stevenson. Upon reviewing the principles of sentencing noted above and considering the aggravating and mitigating factors, I am not satisfied that a term of incarceration is required or would be the least restrictive sanction appropriate in the circumstances.

[35] I have already determined that a discharge is not available and I am satisfied that these matters can be appropriately dealt with by the imposition of fines.

[36] The question is the amount of the fines to be imposed. I am mindful of the amount of money raised for the Project. I am aware that Stevenson essentially had unfettered control of those funds.

[3 7] I am aware that some of these funds were used for expenses, governmental fees, professional fees and other things relating to the Project. I am not aware of how much of the funds were paid out for Project expenses nor specifically how much was paid as commissions to Derricott and Smylski.

[38] In the sentencing portion of the Boyle case (R v Boyle 2002 ABPC 136) at paragraph 25, Judge Lefever quotes Justice Blair in the case of R v Cotton Felts Ltd (1982) CCC (3d) 287 at pages 294-295:

.. .In our complex interdependent modern society such regulatory statutes are accepted as essential in the public interest. They ensure standards of conduct, performance and reliability by various economic groups and life tolerable for all.

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To a very large extent the enforcement of such statutes is achieved by fines imposed on offending corporations. The amount of the fine will be determined by a complex of considerations, including the size of the company involved, the scope of the economic activity in issue, the extent of actual and potential harm to the public, and the maximum penalty prescribed by the statute. Above all, the amount of the fine will be determined by the need to enforce regulatory standards by deterrence ....

The paramount importance of deterrence in this type of case has been recognized . by this court in a number of recent decisions ....

... Without being harsh, the fine must be substantial enough to warn others that the offence will not be tolerated. It must not appear to be a mere licence fee for illegal activity.

[39] Clearly, the fines imposed in this case must be significant and reflect the importance of deterrence without being unduly harsh.

[40] Taking all of the relevant factors into account, I impose fines of $10,000.00 inclusive of surcharge on each of the twenty charges under s75(1). Default time will be ninety days imprisonment.

[41] Additionally, I impose fines in the amount of$5,000.00 inclusive of surcharge on each of the charges under sl 10(1). Default time will be forty five days imprisonment.

[42] I am mindful that the charges under s75(1) and sl 10(1) both arise out of the same Loan Agreement transaction and the penalties imposed are reflective of that fact.

[43] The Crown seeks further orders under s198. Under the circumstances of this case I am at a loss as to why the Crown is seeking these additional sanctions. If Stevenson is successful in getting registered and he files a prospectus, why shouldn't he be able to trade. The Crown's application for the additional sanctions is denied.

[44] The Crown has advised this Court that several of the Investors have asked for Restitution Orders under s738 of the Criminal Code.

[45] Given the level of information in the possession of these Investors at the time of investment and given the civil recourse that has been and continues to be available to them, I decline to make the orders sought.

[46] Let me deal next with Smylski. On September 27th, 2010 the Alberta Securities Commission issued a decision against Smylski permanently prohibiting him, inter alia, from trading in securities and using any exemptions available under Alberta Securities laws. It further assessed an administrative penalty of $600,000.00 and costs of $55,000.00. Of direct relevance to this sentencing is the fact that in the Fall of 2009 when Smylski approached Don Hillyer to solicit Mr. Hillyer's interest in "the Project" Smylski was already subject to a March 2009 CTO.

[47] As noted above the Commission's decision against Smylski was dated September 27th, 2010. In the face of the Commission's specific finding that soliciting funds for the "Project" was a breach of Alberta Securities' laws, Smylski continued to assist Derricott and Stevenson in raising funds after that date.

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[ 48] The Crown argues that "Smylski still has not received the message that this conduct is serious, illegal and will not be tolerated." Accordingly, the Crown seeks a custodial term of eighteen months and additional sanctions under s 198.

[49] I agree with the Crown that Smylski has now reached the point that a custodial sentence must be imposed. I do not agree that a sentence of eighteen months is necessary or appropriate. What Smylski has done here is breached what essentially is a Court order, similar to a breach of recognizance or a breach of probation. The harm done by the breach is a factor which also much be considered. This is the first time that Smylski has been prosecuted in this Court where he has faced potential jail time or, even default time for non-payment of fines. His involvement in the Project was peripheral and his personal benefit from the funds raised was not significant.

[50] Accordingly, on each of the charges under s93.l I sentence Mr. Smylski to ninety days imprisonment. Victim fine surcharge is $100.00, in default, one day. Surcharge to be paid forthwith with today's appearance satisfying the default time.

[51] On each of the charges under sl 10(1) I sentence Mr. Smylski to thirty days imprisonment. Victim fine surcharge of $100.00, in default one day, surcharge to be paid forthwith with today's appearance satisfying the default time.

[52] Each of the sentences imposed are to be served concurrently.

[53] Given that Smylski continues to be under a permanent ban under the Securities Act, I make no further orders under s198.

Heard on the 31st day of May, 2016. Dated at the City ofLethbridge, Alberta this 24th day of August, 2016 .

. G. Hironaka A Judge of the Provincial Court of Alberta

Appearances:

Don Young Deanna H. Steblyk Adrienne Wong

for the Crown

David Kobylnyk

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for the Accused, Rand Tyler Stevenson

Rocky Pollock For the Accused, Robert Michael Smylski