Some of canada’s regulators say the criminal justice system leaves much to be desired when it comes to punishing fraud artists who pose as trusted financial advisors. They’re right. Compared with the punishments meted out to swindlers in parts of the U.S., our courts barely give criminals a slap on the wrist.

“Canadian securities regulators have expressed concern with the criminal justice system and the treatment of those who commit securities fraud,” says David Wild, chairman of the Saskatchewan Financial Services Commission, superintendent of pensions and chairman of the Joint Forum of Financial Market Regulatorsan organization that includes securities, pension and insurance regulators across Canada.

That’s because financial scam artists give the entire industry a black eye and make consumers wary of trusting any advisor with their life savings. Take the case of Earl Crackower in Ontario.

Crackower was sentenced July 6 for stealing $3.4 million from 43 clients as a mutual fund salesman. Two years ago, the jail term for securities fraud charges under the criminal code was increased to a maximum of 14 years from 10. Crackower, however, received only a five-year prison sentence.

In Canada, white-collar criminals have to serve only one-sixth of their sentences before being eligible for parole. Crackower could spend less than two years in jail for financially ruining dozens of families.

There are many other examples in which the punishment does not seem to fit the crime.

> In the late 1990s, Brian Slobogian and Frank Pillar defrauded 3,000 investors of more than $170 million in the Eron Mortgage Corp. scandal in British Columbia. Despite the huge losses, last year Slobogian received six years in prison and Pillar three years. And this was after the stiffer sentencing regime came into place.

> In Manitoba in 2001, John Worley, a registered salesperson, received four years in prison for three securities fraud convictions after stealing $850,000 from three clients.

> In Ontario, Salim Damji received 7.5 years in 2002 for defrauding 4,000 members of his community out of $77 million with his tooth-whitening scam.

> Also in Ontario, Patrick Kinlin, a registered mutual fund and life insurance rep, received five years in 2000 for defrauding 75 of his clients of $12.5 million by selling them fake investments.

Now, let’s compare the Canadian cases to the U.S. experience:

> In June, Florida sentenced two former South Florida agents to 24 years in prison for their roles in a fraud that bilked more than 30 investors of only US$1.2 million.

> In May, a Georgia man was convicted of securities fraud for defrauding six investors of US$65,000. It was the second time he had defrauded people and he was sentenced to a 28 years — four years for each victim, to be served consecutively. He is appealing the ruling.

> In May, a Denver resident was sentenced to eight years in prison for defrauding five investors of US$147,000. In a creative attempt to get restitution for the victims, the judge said the sentence would be cut in half if the accused repaid his victims.

> In February, another Colorado man was sentenced to 10 years in jail for defrauding 16 residents of US$1.3 million. In the state, convicted criminals must spend at least half of their term in prison before being eligible for parole. As Colorado Securities Commissioner Fred Joseph says: “These guys are going away for a long time.”

The sentencing regime in Colorado is designed to punish the criminal, Joseph says: “The money involved is usually gone, so often the only comfort the victim has is in knowing that the person is going to spend a long time in jail.”

Don Saxon, Florida’s commissioner in the Office of Financial Regulation, says in the past year courts in his state have meted out sentences involving 205 years of incarceration and 180 years of probation. “This demonstrates that our system is very focused on this matter and is handing out stiff sentences to both punish the criminal and deter others,” he says.

But in Canada, one seldom hears regulators talk about punishment. “That’s not how our system is set up,” says Sasha Angus, director of enforcement at the B.C. Securities Commission in Vancouver. “The American system is much different. As a matter of legal culture, we don’t put people in jail like they do.”

@page_break@The main goal of Canadian market authorities is to ensure the regulation of the markets and enforce rules, Angus says: “Our aim as a commission is not to punish. We ensure they can’t do it again by taking them out of the market.”

The regulators say their administrative sanctions are meant to deter others, while the criminal justice system focuses on punishment and deterrence.

Yet Neil Boyd, a criminology professor at Simon Fraser University in B.C., says Canadian courts have yet to get the message about the consequences of these types of crime. Boyd did a study of the victims of the Eron scandal for the BCSC and found that 25% had devastating family and health problems in addition to their financial losses. “These people were damaged well beyond their personal financial security, and our courts have yet to appreciate that,” Boyd says.

Glorianne Stromberg, consumer advocate and former Ontario Securities Commissioner in Toronto, agrees with Boyd. “Our judges need to be educated about how devastating these crimes are,” she says. “Losing all your money can be as devastating, or even more so, than a physical assault.”

Angus says it can be difficult to get a criminal case successfully through the justice system. First, police have to have special knowledge to investigate the case properly. “These are long, complex cases,” Angus says. The police must then persuade a Crown attorney that laying charges is in the public good. Then the prosecutor has to be very knowledgeable about financial markets, to educate the judge or jury about the crime so appropriate sanctions will be handed out.

Angus notes a case in B.C., in which the BCSC banned a con artist from ever participating in the markets again as a director or an officer of a company. When he tried the same con again, the BCSC sent the file to the police, hoping for a stronger sanction. The judge’s sentencing order said she wanted to send a strong deterrence message: she fined him $200 each for four counts of breaching the BCSC’s administrative sanctions.

“We calculated that this guy made $20 million on the first con, and then tried to get more the second time around,” says Angus.

A case may get through to the conviction stage, but the deterrence message won’t get through if the sanction isn’t strong enough, he says.

Why haven’t sentences been longer since 2004, when courts were given the authority to put fraud artists in prison for up to 14 years for a securities fraud conviction of more than $5,000?

“You have to remember our whole system is a system of precedents,” says Angus. “The courts can only impose a sentence that fits in the system.” The most severe sentences are usually reserved for the most egregious crimes.

Both Boyd and Mary Condon, associate professor at Osgoode Hall Law School in Toronto, say that many of the breaches of laws that could be prosecuted criminally are not. “We are seeing more administrative sanctions, as securities commissions have more knowledgeable enforcement staff than the RCMP or other police forces. And there is a lower burden of proof with administrative law,” says Condon.

Shawn Devlin, vice president of enforcement at the Mutual Fund Dealers Association in Toronto, says the MFDA strongly believes that such types of cases should be pursued from a criminal perspective: “Only when both sanctions, incarceration and our administrative sanctions, are applied is the seriousness of the case properly dealt with for the protection of the public. We do everything we can to help the police with these cases.”

To investors, the administrative sanctions are puny, but at least the cases are being brought to conclusion, Condon says. The creation of the RCMP’s integrated market enforcement teams, a combination of securities regulators and police, and the 2004 changes to the criminal code to include stiffer sentences and new offences could be harbingers of change in the criminal justice system.

Regulators are also beefing up enforcement. “We also recognize we could do things better,” says Wild, “but it it takes a long time before actions show benefits.” IE