On May 30, 2014, Mr. Justice Richard Danyliuk of the Saskatchewan Queen’s Bench sentenced Ronald Fast to seven years in prison for fraud and ordered him to pay restitution of $16.7 million. Fast’s daughter, Danielle Fast-Carlson, was sentenced to 30 months in prison and ordered to pay $1 million in restitution arising out of the same circumstances.
Ronald Fast, the founder of Marathon Leasing Corporation (“Marathon”), and his daughter, Marathon’s in-house accountant, were charged with:
- fraud over $5,000.00 by defrauding investors through dishonest acts or omissions;
- making statements about Marathon’s financial status to prospective investors knowing the statements were false; and
- possessing property obtained from the commission of an indictable offence.
Fast pleaded guilty to all counts, but his daughter fought the charges. This case provides a useful roadmap regarding the types of conduct that will lead to a finding of fraud in a criminal or civil proceeding for a party connected to a fraudulent scheme.
Key facts that led to finding of fraud
Marathon claimed to operate as a vehicle leasing company and promised investors returns of over 20%. In reality, money from new investors was used to pay interest payments to other investors. Danielle Fast-Carlson was a Certified General Accountant and did the bookkeeping for Marathon.
In 2008, Marathon filed for bankruptcy when it could no longer fund itself with new investments. A subsequent review of bank statements and other documents revealed that Marathon operated at a net loss for years, and that the only way it stayed afloat and kept paying interest, was by obtaining new money from existing and new investors.
In finding Ms. Fast-Carlson guilty, Justice Danyliuk ruled that she:
- was familiar with the business given her role as the accountant;
- admitted being aware that the cash flow of the business was insufficient to keep it afloat while making interest payments to investors;
- continued making payments out to investors;
- misled investors by embellishing the track record of the business to lead them to believe Marathon was in sound financial health and was growing;
- failed to advise any of the investors of Marathon’s financial troubles, even though she did voice concerns to her father on various occasions; and
- continued to accept money from investors, despite being aware of the restrictions placed on Marathon by the Saskatchewan Financial Services Commission (the “SFSC”) that prohibited Marathon from doing so.
In light of these facts, Justice Danyliuk rejected Fast-Carlson’s defence that Marathon appeared to her to be financial stable, stating:
For the accused to testify that with all her background and knowledge of this company, she could not see a bankruptcy coming is simply unbelievable, and the court unreservedly rejects her evidence in this regard. In this regard, her testimony was at best disillusioned; at worst, it displayed a penchant for mendacity.
The Judge was satisfied that Ms. Fast-Carlson’s sought, via acts and omissions, to deceive investors into investing their money in an ongoing investment fraud. Justice Danyliuk also found that she must have known that misrepresenting and keeping silent about Marathon’s financials would result in someone suffering a loss, given what she knew as the in-house accountant. Significantly, the Judge also found ther to be reckless or wilfully blind, as she was aware of information that made her statements to investors half-truths and refrained from making any inquiries so as to remain ignorant. The Court noted “no reasonable person, armed with the financial information entered into evidence, would believe her. She wilfully blinded herself as to what would be clear to any reasonable person.”
The Judge did not accept Ms. Fast-Carlson’s excuse that she was unable to warn investors because of client confidentiality and her duty to Marathon as its accountant, due to her obligations under the Code of Professional Conduct for Certified General Accountants.
Amount of restitution to investors
The Judge concluded that Ms. Fast-Carlson’s unlawful acts and omissions allowed the overall fraudulent scheme to continue, such that the she should be made responsible for a portion of the amount that investors lost during her tenure at Marathon. Justice Danyliuk found that had she made the appropriate inquiries, appropriate disclosures to investors, or withdrawn from Marathon when the improper dealings came to her attention, the investors would have been spared losses. While this is a criminal law case, the analysis is analogous to how damages in a civil fraud law case could be awarded.
This case marks an important development in Canadian fraud jurisprudence for at least two reasons::
- there are relatively few cases in Canada where there have been successful prosecutions of persons who, while not the architect of a scheme, allow a scheme to continue by their conduct, or very often, by their silence; and
- a significant restitution order was made against not only the architect of the scheme but also the person who helped the scheme continue.