At Investigation Counsel PC, we receive inquiries from fraud victims, often through the internet, requesting information on alternatives to traditional civil recovery due to the cost of private litigation.
Recently we received an inquiry from lawyers in California as to whether their client could make a recovery through Ontario’s Civil Remedies Act, S.O. 2001, C.28 (“CRA”) . California counsel had read online the press release of the Government of Ontario entitled “Attorney General Recovers $17M for Victims of Ponzi Scheme – Largest Ever Recovery Under Ontario’s Civil Forfeiture Law” .
This blog provides fraud victims and their counsel information on recovery through Ontario’s Civil Remedies Act. We conclude this blog by advising fraud victims that they should not count on a recovery through civil forfeiture legislation because they have no control over the process, and because by the time they learn there will be no recovery by the government for them they may be statute-barred from issuing their own civil claim by limitations period legislation. Further, in cases where there are multiple victims, the recovered funds will be distributed on a pro rata basis or some other shared form as amongst the victims.
We also remind fraud victims that, similar to recovery through criminal restitution orders, fines-in-lieu-of-forfeiture, or disgorgement orders through securities regulators, any government action and Court decision for recovery are discretionary. The government is not required to recover money for fraud victims, and most often do not attempt to do so. Further, even if the Crown or a securities regulator does bring an action, a Court in the criminal or regulatory process is not required to make orders for payment to fraud victims. And even if a Court were to make such an order, the government does not get involved in enforcing orders to pay.
Because of the reality that Canadian government agencies and the police do not make fraud recovery a priority, our recommendation to most fraud victims is that they issue a civil claim to protect their right to pursue a civil recovery, and then assess where the criminal or regulatory process is going (or not going). By issuing a civil claim, a victim’s right to recovery is preserved in the civil courts until they determine that a recovery will not be made by—or that they will not receive a recovery from—the government, police, the Crown, or securities regulators.
For further information on recovery through the Courts or securities regulators, see our blogs:
- Recovery Through Criminal Restitution Orders ;
- Recovery Through Securities Regulators ;
- Recovery Through Criminal Forfeiture Orders .
The following is information that fraud victims should know about Ontario’s civil remedies legislation.
Ontario’s Civil Remedies Act
In 2001, the Government of Ontario enacted the Civil Remedies Act ostensibly to create a new tool to deter crime and compensate its victims. Ontario was the first province to enact such legislation. Most provinces and territories now have similar laws.
Unlike the federal Criminal Code of Canada, which deters crime by punishing the guilty of crimes, and attempting to rehabilitate convicted fraudsters through restitution orders and probation, the Civil Remedies Act permits an Ontario Superior Court to order the forfeiture of the proceeds of crime in an effort to make crime unprofitable and to create an opportunity for a victim’s recovery. The logic to the policy is that if criminals are deprived of the profits of crime, then they will eventually turn away from crime as a way to fund their lifestyle.
The Civil Remedies Act attempts to make crime unprofitable by allowing the Attorney General of Ontario to bring applications “in rem” (against property instead of against a person) for the freezing, seizure, forfeiture, and preservation of any property located in Ontario which is deemed to have been used to commit an illegal act or to have been acquired through an illegal act. Forfeited property is then used to cover Crown legal expenses, or may be returned to its legitimate owners in certain circumstances.
Victim Involvement in Bringing a CRA Application
Applications for recovery by victims are initiated by the Civil Remedies for Illicit Activities Office (“CRIA”) within the Ministry of the Attorney General. Victims of fraud have no direct access to make a complaint to the CRIA. Rather, applications begin when the CRIA is referred a case from police or securities regulations for consideration, without direct input from fraud victims.
Fraud victims who hope for recovery through a Civil Remedies Act application are required to make a criminal or regulatory complaint, and then hope that the Crown, police, or securities regulators will submit their case to the CRIA. If the CRIA deems a case to be in their interest, an application is brought by CRIA lawyers on behalf of the Attorney General.
If a Court makes an order pursuant to a Civil Remedies Act application, the forfeited money or property is held by the Crown in a designated fund. Section 6 of the Civil Remedies Act requires forfeited money or property to be deposited in a “Special Purpose Account” within the province’s Consolidated Revenue Fund. Persons who have a potential property interest are then notified by way of a “statutory notice” to submit a claim for compensation.
For an example of Statutory Notice by the Ministry of the Attorney General, see http://www.osc.gov.on.ca/en/NewsEvents_nr_20130731_osc-omagn-al-tar.htm .
All claims by victims must comply with section 6 of Ontario Regulation 498/06 or they will be denied. To obtain a claim form or to make inquiries regarding entitlement to compensation, affected parties may contact the CRIA at the following address:
Civil Remedies for Illicit Activities Office (CRIA)
Ministry of the Attorney General
77 Wellesley Street West, P.O. Box 555
Toronto, ON, M7A 1N3
Burden and Standard of Proof
Civil Remedies Act applications are brought against property, not persons. The application for forfeiture is initially brought ex parte by the Crown to preserve the property at issue. After the Court orders the property held for a hearing, those who had possession are notified that they may contest the application for forfeiture.
In Ontario (Attorney General) v $13,900 in Canadian Currency (In Rem), 2015 ONSC 2267, Justice Perell held that:
If the Attorney General shows that the property is the proceeds or the instrument of unlawful activity or both and the respondent fails to prove that he or she is a legitimate or reasonable owner, the Court shall forfeit the property in question unless it is clearly not in the interests of justice.
The burden of proof is on the Attorney General who, pursuant to Section 16 of the CRA, must show that the property in question is more likely than not to be the proceeds or an instrument of unlawful activity.
The standard of proof on the Attorney General is “the balance of probabilities”. This is the standard of proof used to determine liability in civil rather than the more onerous standard used in criminal proceedings, where an accused must be found guilty “beyond a reasonable doubt”.
Civil Remedies Act applications are attractive to the Attorney General because, as noted by Justice Perell, circumstantial evidence is admissible and because the Attorney General is only required to establish that the property was obtained through crime in general (as opposed to a specific criminal act).
A respondent’s failure to provide a credible explanation for a legitimate source of the property, and a lavish lifestyle without an apparent source of income may be considered by a Court as part of the forfeiture analysis. Put another way, in suspicious circumstances, forfeiture orders are relatively easy to obtain and may be set aside where there is a “credible and reasonable answer.”
If there is a finding of guilt in a criminal proceeding related to a criminal charge, the finding will be satisfactory for forfeiture under the CRA. Section 17 explicitly provides that when a person is found guilty on criminal charges such as fraud, they are deemed to have committed the unlawful act for the purposes of forfeiture.
In other words, a criminal conviction of fraud will result in a forfeiture order under the CRA provided the Attorney General can also demonstrate that the property in question is proceeds of the fraud. However, even if an accused has been acquitted or the charges were withdrawn or stayed, that person can still be the subject of an order for forfeiture under the CRA.
Priority of Creditors
The Civil Remedies Act and other civil forfeiture laws have been criticized for priorities of repayment. As noted in a 2016 report by the Canadian Constitution Foundation , often seized money and property will be redistributed to governmental and law enforcement agencies before being used to compensate victims of crime.
Section 2 of the regulations to the Civil Remedies Act prioritize payment of the Attorney General’s legal expenses before compensating victims of crime. Generally, it is only after such payment that the victim can hope for compensation, and then only if the Crown is satisfied that the monies or property seized can be traced to the victim’s funds.
Because applications under the Civil Remedies Act are litigated by the Attorney General and not by the victims’ own counsel, the fraud victim gives up substantial control over a claim to seized monies and property unless they bring their own civil claim to lay claim to the funds or property at issue.
According to an April 2016 CBC News report , since November 2003, approximately $48.6 million worth of property has been seized by the province pursuant to CRA forfeiture orders. Of that amount, $24.5 million of that has been distributed to “victims’ funds” (which includes charities to support victims of crime as well as the victims personally), $10.9 million was distributed to law enforcement agencies through grants, and the remainder $13.2M was retained by the Ontario government to help recover the cost of handling cases of civil forfeiture.
Although $24.5M of a seized $48.6M sounds like a respectable percentage of recovery for victims, it must be borne in mind that $17M of that $24.5M was from the Stanford case referred to at the top of this blog. According to a June 27, 2016 Law Times article , it was reported that the Ontario government had generated $2.9M in 2014-2015 from its Civil Remedies Act powers, but of that amount only $202,000 was paid in direct compensation to victims of crime.
In other words, where only 7% of recovered money and property was returned to victims, some victims may justifiably view the CRA as an ineffective recovery tool for victims of crime.
The Bottom Line
While recovery efforts through the Civil Remedies Act and Civil Remedies for Illicit Activities Office are laudable government initiatives, fraud victims hoping to obtain recovery in the justice system should be aware that the odds are not good, that the risks are high, and that they should retain their own civil fraud recovery counsel to at least issue a claim and then monitor the criminal and regulatory case.
In our experience, fraud victims often require guidance on coordinating their private recovery actions with their role as complainants in regulatory or criminal actions—a topic we have discussed in other blogs. Civil fraud recovery counsel should also provide an opinion on whether civil pre-action remedies such as tracing and freezing of the victim’s lost money is viable in the circumstances.
We also advise fraud victims that being part of a group of complainants is not in all investors’ best interests. While class action fraud cases are appropriate in some circumstances, the vast majority of fraud recovery actions are by single or small groups of investors.
Fraud victims should be aware that if a criminal complaint is made, and if a restitution order is issued, this order can be registered as a civil judgment and also used for obtaining judgment for a higher quantum of damages in the civil system. If a restitution order is not made by a criminal court, at least the victim will have an avenue in the civil system through which to pursue recovery.
Another important consideration for fraud victims is that often criminal and regulatory actions only focus on the primary fraudsters. In civil fraud recovery actions, victims often can bring suit against and seek recovery from professionals and others who facilitated or were enriched by the fraud – sometimes referred to as secondary defendants—or defendants who are “knowing assistants” or “knowing recipients.” Actions against secondary defendants should often be brought when the loss is discovered.
Finally, as discussed above and reported in previous blogs, fraud victims must be aware of limitation periods. Often victims, such as in the Alberta case of R. v. Sorenson and Brost, lose their right to civil recovery because they mistakenly believed they could sue after the criminal system had run its course if a recovery through the “public” system was not successful. The hard reality is that often criminal and regulatory cases take longer than the civil limitation period allows—resulting in victims losing their right to sue when they realize there will not be a recovery for them through the criminal or the securities regulator processes.
At Investigation Counsel, we investigate and litigate fraud recovery cases. If you discover you are a victim of fraud, contact us to have your case assessed and a strategy for recovery mapped out before contacting police or alerting the fraudster. We also promote victim advocacy and academic discussion through various private and public professional associations and organizations. If you have an interest in the topics discussed herein, we welcome your inquiries.
This article was prepared with the assistance of summer law student Geoff Keeble of the University of Windsor, Faculty of Law.