Barry Edward Kloogh v Serious Fraud Office
| Jurisdiction | New Zealand |
| Judge | Dunningham J |
| Judgment Date | 17 December 2020 |
| Neutral Citation | [2020] NZHC 3397 |
| Docket Number | CRI-2020412000035 |
| Court | High Court |
| Date | 17 December 2020 |
[2020] NZHC 3397
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE
Dunningham J
CRI-2020412000035
S A Saunderson-Warner for Appellant
R P Bates for Respondent
Criminal Sentence — appeal against a sentence of eight years and 10 months imprisonment with a minimum period of imprisonment of 60 per cent of the total sentence in relation to charges relating to a Ponzi scheme which the appellant operated for over seven years — elderly offender — whether reparation should have been ordered when there was no realistic prospect of payment
This judgment was delivered by me on 17 December 2020 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date 17 December 2020
The appellant, Mr Kloogh, pleaded guilty to 12 charges relating to a Ponzi
scheme which he operated over seven years. The charges are:
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(a) false accounting (representative); 1
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(b) false statement by a promoter (representative); 2
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(c) forgery (2); 3
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(d) theft by a person in a special relationship (2); 4
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(e) obtaining by deception (representative);
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(f) obtaining by deception (3); 5 and
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(g) forgery (2). 6
He was sentenced to eight years and 10 months' imprisonment with a minimum period of imprisonment (MPI) of 60 per cent of the total sentence. 7 Mr Kloogh appeals that sentence on the ground it was manifestly excessive.
The notice of appeal was filed approximately 12 days outside the statutory time period to file an appeal. Mr Kloogh's counsel explained there was a filing error. There is no prejudice to the respondent and I am satisfied it is appropriate to grant leave to file the appeal out of time.
The summary of facts is both lengthy and complex. There are 81 victims who were defrauded of approximately $15.7 million.
Mr Kloogh began his financial services career in 1983, becoming an authorised financial adviser on 20 June 2011. He provided these services through several companies of which he was the sole director and shareholder, including Impact Enterprises Ltd (IEL).
Mr Kloogh's clients came from a wide range of ages and occupations and included people wishing to invest their savings to better prepare for retirement. As at May 2019, he had approximately 2,000 active clients, of which approximately 200 were categorised as investment clients.
Apart from his own companies, Mr Kloogh used the services of other entities to provide financial advisory services to his clients, including Consilium NZ Ltd and Discovery Portfolio Services.
Mr Kloogh recruited new clients mainly by holding “free” dinner seminars where he would explain the services he was offering as an authorised financial adviser. At subsequent one on one meetings, he would discuss the attendee's financial situation, and their investment preferences, if they wished to invest. He would then draw up a financial plan for them.
If the attendee agreed with the recommendations Mr Kloogh made, he or she would sign Mr Kloogh's scope of services form and become Mr Kloogh's client. This form included a part for special instructions for the client to complete, advising what the client wished to do with his or her financial plan. Mr Kloogh charged fees for his services. However, as Mr Kloogh was not a licensed broker he was not permitted to directly receive or handle client monies. Instead, Mr Kloogh provided his investment clients details of BNZ bank accounts named “Discovery Portfolio Services”, “MCNZ Managed Allocation Planning” or “Consilium”, for the purpose of depositing funds for investment. The investment clients deposited funds into these accounts believing they were owned by those separate entities. However, they were all bank accounts for IEL and were under the control of Mr Kloogh as IEL's sole director. They were simply designated with trading names to look as though they were accounts for independent financial advisory services.
Mr Kloogh did not actually place external investments on behalf of his clients but, by using the fictitious Consilium “external investment” account as an electronic ledger, Mr Kloogh was able to perpetuate a Ponzi scheme (Charge 1). The fictitious external investments totalled approximately $15 million on or about May 2019. This amount does not include funds from clients who may have provided funds to Mr Kloogh for investment purposes and had withdrawn those funds prior to May 2019. He then provided the investors with documents including statements of external investments that were false because no such external investments existed. These documents comprised part of the documentation prepared by Mr Kloogh to induce investors to put more funds into the Ponzi scheme (Charge 2).
In each instance, Mr Kloogh's investment clients deposited funds to a bank account they believed to be owned and or operated by Consilium. However, they were in fact being deposited into IEL's bank account where they were pooled and Mr Kloogh then used the money to fund withdrawals by other clients and for other purposes. The withdrawing clients were led to believe that the money they received as withdrawals had come from their “investments”, when in fact the monies were sourced from the pooled client funds under the control of Mr Kloogh. As well as funding client withdrawals, Mr Kloogh used the pooled client funds to keep various businesses running and for his own personal use. For example, he purchased trips for himself and his wife, paid deposits for cars and lent his family members money (Charge 3).
In order to cover up his deception, Mr Kloogh forged documents. These include two forged documents provided to Mr Broome, one of his investment clients (Charges 4 and 5) and forgeries of BNZ bank statements which were used to obtain finance (Charges 6 and 7).
There were several charges of obtaining by deception. These were committed by:
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(a) issuing sell orders for clients who actually had funds in Consilium, then describing the payment received by the client as a mistake and arranging for the client to refund it back to his bank account which used the Consilium trading name (Charges 8 and 9);
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(b) recommending to clients that they “cash out” their custodial investments and reinvest them for a better rate of return, when in fact he had them reinvest in an account that was under his control (Charge 10).
Mr Kloogh also defrauded clients, the Churchers, by proposing that they seek early pay-out of Mr Churcher's life insurance policy when Mr Churcher was diagnosed with cancer, but reinvesting a significant sum of it in an IEL bank account, not an external investment, with the result that the Churchers were unlawfully deprived of nearly $630,000 (Charge 12).
The sentencing remarks of Judge Crosbie comprehensively covered the genesis and facts of the offending, the impact upon the victims with reference to their victim impact statements, and counsel's respective positions on the appropriate sentence for the offending.
The Judge was mindful of, and guided by, all the purposes and principles of the Sentencing Act 2002. 8 He considered the most relevant purposes to be; to hold Mr Kloogh accountable for the harm done to the victims; to promote a sense of responsibility and acknowledgement of that harm; to denounce his conduct and deter others from acting in a similar manner; and to provide for the interests of the victims. 9
The Judge considered the lead offences to be the representative charge of false accounting (Charge 1), which carries a maximum penalty of 10 years imprisonment; and the charges of theft in a special relationship (Charge 3), which has a maximum penalty of seven years imprisonment. In setting the starting point the Judge considered the harm to the victims, the abuse of a position of trust, the vulnerability of the victims and the premeditated nature of the offending. In totality, the features of the offending made it one of the most serious of its kind and Mr Kloogh's culpability extremely high. A starting point of 13 years' imprisonment was adopted.
The Judge did not consider Mr Kloogh was entitled to a good character discount given the duration of his offending. Further, he did not consider the
While acknowledging the inability to repay the amount lost, the Judge considered it appropriate to make an award of $5 million in reparation “in the event you do find work or come into funds”. 10
In respect of attendance at restorative justice conferences and for “any scintilla of remorse” the Judge applied a five per cent discount. 11 Mr Kloogh engaged in a voluntary interview with police and provided information to help focus the investigation. In respect of this assistance a discount of two per cent was applied. A further credit of 25 per cent for guilty pleas was applied. This brought the end sentence to eight years and 10 months' (106 months) imprisonment.
The Judge considered the possibility of parole at one third of the sentence, being two years and 10 months' imprisonment, was insufficient to hold Mr Kloogh accountable for the significant and widespread harm that he had caused. Accordingly, the Judge imposed an MPI of 60 per cent. 12
Appeals against sentence are allowed as of right by s 244 of the Criminal Procedure Act 2011, and must be determined in accordance with s 250 of that Act. An appeal against sentence may only be allowed by this Court if it is satisfied that there has been an error in the imposition of the sentence and that a different sentence should be imposed. 13 As the Court of Appeal mentioned in Tutakangahau v R...
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