A common reaction of those who discover they have become the victim of fraud is to confront the fraudster and/or to contact the police. At Investigation Counsel PC we recommend that fraud victims first review their cases with trusted advisors and then with fraud recovery counsel before confronting a fraudster or contacting the police. With respect to contacting the police, we suggest considering the following issues.
First, most fraud victims are inexperienced in dealing with the police and do not realize that the police are not in the business of recovering their money. If a fraud victim contacts the police before assessing his or her case with civil counsel, the victim runs the risk that the police will contact the fraudster for questioning, thereby providing notice to the fraudster (inadvertently) of potential prosecution. The fraudster may then use the victim’s own money to retain criminal defence lawyers, or may simply transfer the victim’s money out of the jurisdiction, or into the hands of accomplices. In most scenarios, the police are neither equipped to bring emergency motions to freeze the victim’s funds in the hands of the fraudsters, nor are they equipped to trace the funds into the hands of third parties. Freezing the funds in the possession of fraudsters and their accomplices is the most important factor in increasing the chances of obtaining a recovery. This reason alone should be sufficient to convince a victim to delay reporting the fraud to the police until such time as when a lawyer specializing in fraud litigation and asset recovery can evaluate the victim’s case.
Second, many fraud victims do not appreciate that the primary purpose of the criminal justice system is to punish and rehabilitate those who engage in anti-social or criminal behavior. A criminal trial is focused on the accused, not on the victim. If an accused person is convicted, the goals of sentencing are general deterrence (to deter others in the public from similar behavior), specific deterrence (to deter the offender from future anti-social conduct), and rehabilitation (to assist the offender for re-integration into society). The Crown and the police are not required to take direction from the victim, and they rarely do. Once again, fraud victims should understand that the police and the Crown are not their personal financial recovery agents.
Third, many victims of fraud do not appreciate that the police: (a) have limited resources with respect to investigating the loss, (b) already have a large volume of cases to investigate, and (c) proceed at a slower pace when investigating fraud. Several reasons why fraud cases take significant amounts of time to investigate are because many frauds occur over prolonged periods of time, and in order to litigate such cases, it is necessary to preserve and analyze the representations and communications that took place, as well as the documents to support the money transfers. The litigation of a fraud file also often involves interviewing and taking statements or affidavits from numerous witnesses. The longer the victim’s money remains in the hands of a fraudster (while the victim waits for their file to be processed by the police) the greater the likelihood that the victim’s funds will be dissipated or diverted by the fraudster.
Some fraud victims believe that criminal restitution orders are sufficient security for the recovery of their losses. The reality, however, is that this is an unnecessarily risky approach. First, there is no guarantee that a court will issue a criminal restitution order compelling a convicted fraudster to pay the victim the value of their loss. Even where a criminal restitution order is issued, they are often woefully less than the quantum of the actual loss. Further, many fraud victims do not realize that restitution orders often go unpaid, with little or no consequence to the offender, and that the restitution orders expire at the conclusion of the offender’s probation period. In other words, a restitution order must be registered as a civil judgment to be enforceable if the offender does not pay it during the term of the offender’s probation.
Significantly, many fraud victims do not appreciate the risk of having their claims become statute barred by provincially prescribed limitation periods by not issuing a civil claim within two years from the date of discovery of the fraud. Virtually all civil claims, including fraud claims, must be issued within two years of the loss being discovered. If a fraud victim decides to wait out the criminal process, the victim may find that by the time the proceedings have concluded the criminal courts have not provided the victim with recovery, and the opportunity to prosecute the victim’s claim civilly has expired. In other words, the criminal process often takes more than two years – long enough for the civil claim to expire. Conversely, there is no limitation period on making a criminal complaint. A criminal complaint can always be made at a time when the (civil) dust settles.
Further, although many fraud victims are aware that a fraudster may seek refuge in their right to remain silent upon being arrested or charged, fraud victims may not be aware that a right to silence is unavailable in a civil prosecution. Additionally, a fraudster cannot seek to stay, or have delayed, a civil case until after his or her criminal case has concluded. In other words, a fraud victim can force a fraudster to provide evidence during a civil examination for discovery that is unfavourable to the fraudster, and can compel the fraudster to produce the documentation in his or her possession relating to the fraud. While there is a rule in civil litigation that documents and evidence produced in a civil action cannot be used to prosecute an accused criminally without leave of the court (a court order), the evidence obtained from the fraudster in a civil action can be used to impeach the fraudster in a criminal case if the fraudster provides an explanation for the fraud that is at odds with the evidence produced in the civil case. Clearly, having the benefit of “discovering” a fraudster in civil proceedings is of great benefit to a fraud victim before a fraudster’s criminal trial or plea negotiations take place.
So, given all of these reasons, why do fraud victims often desire to immediately report their losses to the police before consulting their own lawyer? Fraud victims commonly believe: (a) the police will provide them with a “free” investigation, (b) the Crown will provide them with a “free” prosecution, and (c) they will obtain retribution because the fraudster will face a criminal record, and possibly incarceration or other sanctions. In a perfect world this would be the case. The reality, however, is that many fraud complaints are not processed by the police, but rather are referred to as civil matters. Even where the police accept a complaint, many such complaints are not investigated in a timely fashion. This occurs simply because of the lack of police priority placed on such complaints, due to the volume of such cases reported, and due to the incomplete nature of the complaint itself. And even in those cases where charges are laid there is no guarantee of a conviction. Part of the reason for the low conviction rate is the lack of interest by Crown Attorneys in prosecuting complicated financial cases.
We do not suggest that fraud victims throw good money after bad by spending exorbitant amounts on lawyers’ fees to advance a civil fraud prosecution – especially when recovery may not be reasonably foreseeable. We do recommend, however, that fraud victims have their cases assessed by lawyers specializing in fraud litigation. In most cases, we recommend filing a civil claim prior to making a criminal complaint to the police. Where it is not practicable to freeze a fraudster’s assets, a fraud victim may then elect to file an appropriately prepared criminal complaint either before or after the civil discovery process. It may be that in order to seek leniency on sentencing during plea negotiations in their criminal matter the fraudster may seek to settle their civil claim, and then demonstrate to the Crown prosecutors that restitution has already been made.
A fraud victim should realize that if a criminal conviction is registered against a fraudster, he or she may be precluded from seeking punitive damages against the fraudster. For further information on this issue, see our blog entitled: A Fraud Victim’s Quest for Punitive Damages.
Fraud victims should also realize that they should seek declarations through a civil court that their judgment survives any bankruptcy assignment by a fraudster. Often, a fraudster will seek to escape paying a civil fraud judgment by assigning himself of herself into bankruptcy to obtain a “fresh start”. By obtaining a “Declaration” that the fraud judgment survives any assignment into bankruptcy by the fraudster, the debt remains payable and a millstone around the neck of the fraudster for the rest of his or her natural life impeding such desires as employment, travel and a credit rating with which to borrow money.
Fraud victims should further realize that in most fraud cases that are reported to police, the police will give the fraud victim an appointment to meet an intake officer assigned to the fraud bureau of the police service they are reporting their fraud to. These appointments are often time limited opportunities for a fraud victim to convince the police they are reporting a criminal matter and not just a civil or contract dispute. If a fraud victim’s complainant and their documents are not well organized, the police often do not investigate, or if they do accept the complaint, they will not act on it with any speed or dispatch. In other words, it is in the interests of fraud victims to provide the police with well a organized and comprehensive investigative brief to increase the likelihood the police will actually act upon their complaint. Issues of jurisdiction and the fraud victim’s own negligence should also be resolved prior to meeting with the police – see our blog: Our Response to Blaming the Victim.
From the foregoing, it should be apparent that the filing of a criminal complaint in a fraud case requires consideration of numerous issues. For further information on coordinating civil recovery actions with criminal complaints to the police, contact us at www.investigationcounsel.com.