In the Provincial Court of Alberta  
Citation: R. v. Bailey, 2014 ABPC 103  
Date: 20140513  
Docket: 100344266P1  
Registry: Calgary  
Between:  
Her Majesty the Queen  
- and -  
Garth Stanley Bailey  
Reasons for Judgment of the Honourable Judge A.A. Fradsham  
Introduction of Charges and Issues  
[1]  
Mr. Bailey is charged on a four count Information:  
Count 1: That between March 1, 2001 and May 31, 2004, both dates inclusive, at  
or near Linden, in the Province of Alberta and elsewhere, did by deceit,  
falsehood, or other fraudulent means defraud members of the public of money of  
a value exceeding $5000, thereby committing an offence contrary to Section  
380(1)(a) of the Criminal Code of Canada.  
Count 2: That between March 1, 2001 and May 31, 2004, both dates inclusive, at  
or near Linden, in the Province of Alberta and elsewhere, did conspire with each  
other and others to defraud members of the public of money of a value exceeding  
$5000, thereby committing an offence contrary to Section 465(1)(c) of the  
Criminal Code of Canada.  
Count 3: That between March 1, 2001 and May 31, 2004, both dates inclusive, at  
or near Linden, in the Province of Alberta and elsewhere did use , transfer the  
possession of, deliver, dispose of or otherwise deal with property or proceeds with  
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the intent to conceal and/or convert them, knowing that all or part of the property  
or proceeds were obtained directly or indirectly as a result of the commission in  
Canada of a designated offence, thereby committing an offence contrary to  
Section 462.32 of the Criminal Code of Canada.  
Count 4: That between March 1, 2001 and May 31, 2004, both dates inclusive, at  
or near Linden, in the Province of Alberta and elsewhere did conspire with each  
other and others to use, transfer the possession of, deliver, dispose of or otherwise  
deal with property or proceeds with the intent to conceal and/or convert them,  
knowing that all or part of the property or proceeds were obtained directly or  
indirectly as a result of the commission in Canada of a designated offence,  
thereby committing an offence contrary to Section 465(1)(c) of the Criminal Code  
of Canada.  
[2]  
These charges were set out on one Information which also charged Harold Murray Stark  
and Robert Edward Fyn with those same offences. Fyn and Stark previously entered guilty pleas  
to count 1 (fraud over $5000). The other counts were withdrawn against Fyn and Stark.  
[3]  
Further, Katherine Rodigue-Bailey was charged with counts 3 and 4, and the Crown  
previously entered a stay of proceedings in respect of her.  
[4]  
[5]  
Consequently, Mr. Bailey was the sole accused to go to trial on this Information.  
Broadly stated, the questions to be answered whether the Crown is entitled to rely on the  
co-conspirator’s exception to the hearsay rule, and whether the Crown has proven beyond a  
reasonable doubt the elements of each of the offences charged.  
General Overview  
[6]  
The Crown called 20 witnesses in the trial proper, and entered hundreds of pages of  
exhibits in relation to the substantive charges. The defence did not call evidence. While there are  
points of contention between the Crown and defence about the use to which some of the  
evidence may be put, and about the reliability of the memories of some of the witnesses, there is  
enough evidence which was not the subject of serious dispute that I am able at this juncture  
outline to set out, as facts accepted by the Court, many of the events which have led us to where  
we now are.  
[7]  
At least by 2002, a company known as HMS Financial Inc. (HMS) operated investment  
programs in which those investing funds were to receive interest payments from HMS at high  
interest rates (8-10% per month). Numerous people (individually, or through companies)  
invested, in total, many millions of dollars in HMS. Initially, individual investors paid the  
money to HMS by giving it to Garth Bailey Professional Corporation; Mr. Bailey deposited the  
funds into a bank account operated by the professional corporation (see Exhibit 63). Funds were  
paid either to or on behalf of HMS from that account. Mr. Bailey was a lawyer practicing law in  
the Province of Alberta, and by 2001, he was doing legal work for HMS Financial.1  
1
Bailey wrote in a letter dated August 14, 2002 (Exhibit 78) that “I have acted for my client for  
approximately a year and a half….”  
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[8]  
In very early 2002, Mr. Bailey recommended at a meeting in Red Deer, Alberta of Stark,  
Fyn, and others (including Blaine Cisna and Peter Sheridan who testified at the trial) that the  
investment structure of HMS had to be changed to address concerns which semmed to have been  
raised by the Saskatchewan Securities Commission. The change recommended, and which was  
subsequently effected, meant that individuals no longer invested directly in HMS. Rather,  
separate corporations were created by individuals called Customer Care Specialists (CCSs). A  
person wishing to invest in HMS would buy a share in the newly incorporated company, and  
thereby become a shareholder in that company. As a shareholder, the person would then lend the  
corporation money by way of a shareholder’s loan. Once the corporation had collected  
shareholders’ loans totaling $100,000, the corporation would then invest the $100,000 in HMS.  
Accordingly, the corporation became the investor in HMS. In order not to be subject to certain  
rules of securities commissions, the number of shareholders for each corporation was limited to  
50. Once that number was reached, a new corporation was created, and the process was repeated  
for as long as there were people wishing to invest in HMS. Interest payments or repayments were  
made to the corporation which then made the appropriate payments to the shareholders involved.  
Commissions were paid to entities which brought new investors to the program.  
[9]  
The funds invested through the corporations created by CCSs were still sent to Garth  
Bailey who deposited them into his professional corporation’s bank account. Funds were paid  
out to investors through that account.  
[10] By early 2003, another company, Paget Capital Limited (a Bermuda company with its  
correspondence address being the same as HMS; see Exhibits 61 and 63) had been incorporated  
as a subsidiary of HMS to facilitate use of an offshore account at the Horizon Bank International  
Ltd. in St. Vincent (that account was set up after the HMS bank account in the Three Hills,  
Alberta branch of the Community Savings Credit Union was closed by the Credit Union).  
[11] At some point, a difficulty arose between Bailey and his bankers, and a lawyer for one of  
the CCSs allowed funds going to or coming from HMS to be deposited or disbursed through his  
professional bank account. Even in the approximate seven months that this lawyer’s bank  
account was used for HMS funds, Mr. Bailey was still receiving HMS destined funds. Indeed,  
Mr. Bailey continued to receive such cheques until April 2004, though he had said to HMS office  
staff in November/December, 2003 that he would not be taking any more cheques.  
[12] In the period September 2002 to March 2004, Mr. Bailey made at least the following  
representations:  
1. In a meeting of potential investors held in Calgary on February 25, 2003,  
Mr. Bailey told the audience that Bailey held in trust bonds worth in  
excess of $30 million to be used if the investment failed, and that money  
invested with HMS was “safer than money in the banks”.  
2. Bailey told Mr. Arie Schalk (who became an investor in HMS) that he  
(Bailey) had bonds worth $40 million to secure the investments.  
3. On May 2, 2013, Bailey gave to Mr. Allan Gray (ultimately a CCS) a  
letter dated March 15, 2003 (see Exhibit 62) on the letterhead of Garth S.  
Bailey, Barrister and Solicitor Professional Corporation, which stated:  
“We act for Paget Capital Limited. This will confirm that Garth S. Bailey  
Professional Corporation holds assets for Paget Financial Limited with a  
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value in excess of Forty Million United States Dollars. These assets are  
the property of Paget Capital Limited and are not subject to any liens,  
claims or other encumbrances. These assets are held under the trust terms  
that they may be used by Garth S. Bailey Professional Corporation to  
obtain funds to satisfy the contractual obligations of Paget Capital Limited  
to _______________ in the event of a default by Paget Capital Limited in  
its said contractual obligations.” Bailey explained to Gray that he (Bailey)  
no longer signed this form of letter but had done so in the past, and that  
the contents of the letter were true.  
4. On August 14, 2002, in reply to an inquiry about the bonds made by a  
Saskatchewan lawyer on behalf of a client contemplating an investment in  
HMS, Mr. Bailey wrote: “Due to the confidential nature of the bonds, my  
client’s instructions are not to provide copies or details of same. They are  
bonds in a private corporation. The bonds are in bearer form and I have  
possession of them. There are no impediments or conditions for their use  
by me, other than the terms set out in my letter of which you have a draft.  
In the event of a breach by my client of the Joint Venture terms, and that  
breach continues for 45 days, then I am free to act. The process would be  
for your client to advise me of the breach and then I would diarize the  
matter. To realize on the bonds may take a period of 3 or 4 months. I have  
contacts sources (sic) for funding, however they are again confidential and  
must remain so.” The letter is marked as Exhibit 78.  
5. Mr. Robert Main (ultimately an investor in HMS) received a letter  
(Exhibit 56) on the letterhead of Garth S. Bailey, Barrister and Solicitor  
Professional Corporation, and dated October 9, 2002. It reads: “We act  
for HMS Financial Inc. This will confirm that Garth S. Bailey Professional  
Corporation holds assets for HMS Financial Inc. with a verified value in  
excess of Thirty Million United States Dollars. These assets are the  
property of HMS Financial Inc. and are not subject to any liens, claims or  
other encumbrances. These assets are held under the trust terms that they  
may be used by Garth S. Bailey Professional Corporation to obtain funds  
to satisfy any contractual obligations of HMS Financial Inc. pursuant to  
the attached Joint Venture Agreement, as shown on the attached  
authorization.” I am satisfied beyond a reasonable doubt that the letter  
came from Bailey. It is too close in content to the letter personally given  
to Mr. Gray by Bailey, and to representations made directly by Bailey to  
other persons, to have come from anywhere else.  
6. In a letter dated March 10, 2003, on the letterhead of “Garth S. Bailey,  
Barrister and Solicitor Professional Corporation” (see Exhibit 48), and  
sent by e-mail to Dana Carlson (a lawyer in Red Deer acting for a  
potential investor), Mr. Bailey states: “Further tour (sic) meeting in Red  
Deer last week, this will confirm that I hold assets with a value in excess  
of Forty Million United States Dollars on behalf of Paget Capital Limited.  
These assets are the property of Paget Capital Limited and are not subject  
to any liens, claims or other encumbrances. If there is a default in an  
agreement between our clients by my client and that default is not cured  
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within 45 days, then I have the authority, at the request of your client, to  
use these assets raise (sic) funds to return any capital amount under an  
agreement to your client. I estimate that this action would take between 60  
and 90 days to complete after request. This letter will serve as my  
undertaking to act in this manner in these circumstances. I trust that you  
will treat this letter as confidential and use it only with respect to the  
proposed dealings between our clients.”  
7. In a letter dated January 2, 2003, on the letterhead of “Garth S. Bailey,  
Barrister and Solicitor Professional Corporation”, and under the signature  
of Garth Bailey (see Exhibit 92), Mr. Bailey states: “You have retained  
me to provide an opinion with respect to certain assets, namely corporate  
bonds, owned by you and on deposit with this office. In order to provide  
this opinion, we have examined the assets and the verification of value  
that you have provided to us…. On the basis of the foregoing, and subject  
to the qualifications set forth herein, we are of the opinion that the assets  
have an obtainable value in excess of forty million United States Dollars,  
such value to be obtained by way of sale or a loan against the assets. It is  
our further opinion that, so far as we are aware, these assets are not  
encumbered at this time in any way and may be sold or used as collateral  
for financing at any time without restriction.” This letter contains this  
statement: “This opinion relates exclusively to the matters described  
above and is for the sole use and benefit of the parties to whom it is  
addressed for the purposes referred to above. Accordingly, it cannot be  
relied upon by other parties or used in any other transaction or for any  
other purpose without our express written consent.” However, the  
evidence satisfies me beyond a reasonable doubt that Bailey himself  
discussed and affirmed the contents of this letter with Blaine Cisna (one of  
the CCSs).  
[13] The RCMP became interested in the activities of HMS Financial in 2002, and began  
“intelligence gathering” in that year. In January, 2003, the Beiseker Detachment of the RCMP  
opened a file on HMS and classified it as a potential proceeds of crime or money laundering  
matter. The investigation became more intense when a formal complaint was filed by a member  
of the public.  
[14] A search warrant was executed at the HMS Financial office in Linden, Alberta on April  
29, 2004.  
[15] Though no specific figures were proven, it is clear beyond dispute that many investors  
lost money in the HMS investment program, and were never repaid. The total amount of money  
lost was in the millions.  
Evidence and Findings of Fact  
[16] The following is a summary of the evidence given by the witnesses called in the trial  
proper.  
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[17] I find all of the witnesses to be credible and reliable. I accept their evidence as it was  
given in examination-in-chief and occasionally modified or clarified in cross-examination. Some  
of the evidence contains hearsay. Out of court statements made by Bailey are admissible against  
him. Statements made by Fyn and Stark to the witnesses who testified are hearsay but may be  
admissible against Bailey on the basis of the co-conspirator’s exception to the hearsay rule. That  
will be discussed and resolved later in these Reasons. Hearsay statements which are not  
admissible under the principled approach to hearsay only form part of the narrative, and are not  
relied upon for proof of the truth of the content.  
Examination in Chief of Staff Sergeant Garth Jesperson  
[18] Staff Sergeant Jesperson (Jesperson) specialized in the Serious and Organized Crime  
Unit, and was the primary investigator on the HMS Financial file from early 2003 until October  
2004. Jesperson made daily investigation reports as the investigation progressed. All entries were  
noted on the “1624 continuation reports” (which are RCMP forms).  
[19] Jesperson started intelligence gathering on HMS Financial in November 2002 through  
most of 2003. Information was gathered from various sources on HMS Financial. At this point,  
no criminal complaints were made. The information came from financial institutions, suspicious  
transaction reports from investment advisors, and information from various securities  
commissions.  
[20] In January 2003, the Beiseker RCMP detachment opened a file on HMS, and classified it  
as a potential proceeds of crime or money laundering file, and that two men involved were living  
beyond their means.  
[21] At first, the information coming in was from concerned individuals who thought that  
HMS ran an investment opportunity that was too good to be true.  
[22] When a victim came forward with a complaint, the investigation into HMS really “took  
off”.  
[23] Staff Sgt. Jesperson testified, for the purposes of narrative background, that he learned  
that another investigator, in the Commercial Crimes Unit in Saskatchewan, had also heard of  
HMS, and received information about HMS from a financial institution. The investigator  
executed a warrant in Saskatchewan to get an investor list, and Jesperson met with the  
investigator to receive information on how, in the Information to Obtain a Search Warrant, the  
investigator had overcome the fact that there were no victims. He did so by comparing and  
contrasting the characteristics of high yield investment frauds or prime bank instrument fraud  
with the documentation already in possession of the police. The investigator was able to satisfy  
the Court that there were reasonable and probable grounds to believe that an offence of fraud was  
being committed. Jesperson retained a copy of this search warrant, and used it as a basis to start  
research into HMS. Research on high yield investment fraud and prime bank instrument fraud  
led Jesperson to conclude that the promised rates of return by HMS, (a guaranteed return  
between 120 and 240 percent per year) was too high. Jesperson had a finance professor from the  
University of Calgary Business School affirm that the rates of return were too good to be true.  
[24] This information was presented to a Judge in Calgary to obtain a Search Warrant.  
Jesperson also sought advice from Crown Counsel (Mr. Pickney out of the Specialized  
Prosecutions Office in Edmonton).  
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[25] Jesperson’s theory was that HMS was operating a high yield investment fraud or a prime  
bank instrument fraud.  
[26] All the information that was coming in at the time from various sources indicated that  
there were three primary individuals involved: Robert Fyn, Murray Stark, and Garth Bailey.  
[27] Several surveillance operations were conducted, primarily in late 2003, which involved  
parking and observation posts near the business location of HMS in Linden, Alberta, to  
determine the activity level of the HMS business.  
[28] Jesperson also wrote an Information to Obtain a Search Warrant to seize Murray Stark’s  
daytimer that was left in the airport, and a search warrant for documents related to the Garth  
Bailey Professional Corporation CIBC Shawville account.  
[29] Jesperson obtained a search warrant for the HMS premises at Linden, Alberta. That  
search was executed on April 29, 2004, at HMS Financial in Linden, Alberta. Jesperson testified  
about how the search was executed. A number of documents were obtained from the HMS  
premises, and those documents which were seized were put in a van and returned to the Calgary  
RCMP Commercial Office Unit. The documents were then put in file folders and organized by a  
case management program called Supertext. Each individual piece of paper within an exhibit  
folder was given a scan number.  
[30] As part of the investigation, Jesperson also spoke with Margaret Dart, Judy Gibbs, and  
Denise Bedard, all of whom were employees of HMS Financial.  
[31] Jesperson was also involved in investigating “HMS money” that was in California and  
the lawyer involved, Cameron Campbell. Jesperson understood that $10 million was being  
invested by HMS Financial in the United States. At the time, the FBI thought that Mr. Stark was  
a victim in the investment scheme. The FBI contacted Mr. Stark, but received no co-operation  
from Mr. Stark.  
[32] Jesperson had conversations with the Law Society of Alberta (LSA), to inquire about  
Garth Bailey’s status with the LSA and whether he was a practicing lawyer .  
[33] The last interview that Jesperson conducted in relation to the HMS Financial File was on  
May 12, 2004. After 2004 Jesperson had nothing to do with the HMS File.  
Cross –Examination of Jesperson  
[34] Jesperson lost his notebook he kept from his investigation of HMS Financial.  
[35] He was asked whether the floor plan of the HMS Financial Building was part of his  
notebook, and he said that it was not. Defence counsel asked whether Jesperson was taking notes  
while he was conducting the investigation, and Jesperson responded that since he was the exhibit  
coordinator, was taking photographs, and filming while being present at the scene, he would not  
have been able to take a lot of notes.2  
[36] Jesperson stated that he recalled speaking to Bill Prabaduski in 2003. Jesperson  
understood Prabaduski to be with CIBC’s corporate security department.3 Jesperson spoke with  
Mr. Pradabuski in relation to the second Information to Obtain that Jesperson drafted related to  
2
Transcript, Oct. 28/13 – Oct. 30/13. Vol. 1, p. 72, ll. 20-24.  
3
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 1, p. 72, ll. 31-37.  
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an account at CIBC in the name of Garth Bailey Professional Corporation.4 Jesperson spoke to  
Mr. Pradabuski in April 8, 2003.  
Examination-in-Chief of Dwayne Patrick Pilling (Pilling)  
[37] Pilling was qualified as an expert in computer forensic analysis and was permitted to give  
opinion evidence in relation to matters involving computer forensic analysis, in particular the  
imaging of hard drives and the exporting of images from the imaged hard drives.  
[38] Pilling testified that he received the original hard drives of the individuals investigated in  
this case, that he made exact image copies of those hard drives, and that he exported out active  
files from the images.5 The investigated individuals whose media devices were retrieved for the  
purposes of the investigation included: Bedard, Dennis, Stark, Haskett, Young, and Fyn.6  
[39] Pilling reviewed the process by which he retrieved and made copies of the hard drives  
obtained. Mr. Pilling confirmed that he made exact copies of all the hard drives, but omitted  
copying files that included noted viruses. He further confirmed that the files of which the Crown  
was specifically interested in receiving a copy did not contain any viruses. All requested files  
were, therefore, copied.7 Pilling testified that any data that was copied was not altered in  
anyway, but now appears in its original form.8  
[40] Additionally, Pilling created a Microsoft Word document, and made notes at the bottom  
for his own purposes to help explain what it was for which he was looking (almost like a labeling  
of the copied files).9 Also included was a PDF document, which outlines a list of e-mails that the  
Crown wanted to retrieve10, lab notes, a forensic report, a copy of Adobe 6, Photographs of the  
Search Scene, and Photographs of the Computers.11  
[41] During his testimony, Pilling went over the organization of the copied information along  
with the additional documents that were not copied from the retrieved hard drives. The evidence  
appears in an envelope which contains 10 Disks and a Transit Slip, marked as EXHIBIT No. V-  
K and a small black USB Flash Drive marked as EXHIBIT No. V-L.  
Cross-Examination of Mr. Pilling  
[42] Pilling testified that he is satisfied that the same USB drive that he prepared for himself is  
the same as the one that he provided to the Court to be marked as an exhibit.12 Pilling also  
testified that he is satisfied that the disks that he provided for exhibits are true copies.13 Pilling  
testified that any degradation to the data on the disks only relates to file name or folder names  
4
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 1, p. 72, l. 39 – p. 73, l. 3.  
5
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 1, p. 151, ll. 21-23.  
6
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 1, p. 117, ll. 34-36.  
7
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 1, p. 120, ll. 1-26.  
8
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 1, p. 124, ll. 1-4.  
9
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 1, p. 137, l. 1-12.  
10  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 1, p. 136, ll. 38-41.  
11  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 1, p. 151, ll. 29-36.  
12  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 164, ll. 35-39.  
13  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 165, ll. 9-10.  
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being degraded, rather than the content of the data under the file name or within the folder.14  
Any corrupt files that a virus scan picked up were not copied to the disks provided as exhibits.15  
The disks provided reflect what is copied from the hard drives of computers seized from HMS  
Financial during search.16  
[43] Crown entered Exhibit V-M- Amended Disclosure Letter dated October 29, 2013.The  
letter was provided by Crown to defence advising what the Crown learned about the value added  
in respect of Mr. Pilling as a witness, and two corrections that were identified.17  
Examination-in-Chief of Dana Carlson  
[44] Carlson is a lawyer who practices in Red Deer, Alberta; he has been practicing law for  
almost 19 years. Carlson states that he has very limited practice experience in securities law18,  
and that he has no personal experience in investments and banking.19 He has not taken any  
Canadian securities courses or similar courses.  
[45] The Crown entered Exhibit N- For Identification- Booklet of Documents Provided By  
Dana Carlson.20 It contains the following documents:  
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waiver of solicitor-client privilege;  
Garth Bailey’s business cards;  
e-mail correspondence between Dana Carlson and Garth Bailey;  
letter from Garth Bailey to Dana Carlson guaranteeing $40 million in  
securities;  
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cheque paid to Garth Bailey in the amount of $594.00 by Garth Bailey;  
letter from Dana Carlson to Garth Bailey setting out Trust conditions;  
letter dated February, 2004 from Garth Bailey to Dana Carlson to confirm  
that Garth Bailey holds assets that can be liquidated to reimburse original  
funds in the event of default of HMS Financial; and  
-
money transfers from Dana Carlson’s client (Altruistic Holdings Ltd.) to  
HMS Financial in the amount of $200,000.00 (USD), $137,000.00 (USD),  
$1,000.00 (USD), $35,000.00 (USD) and $20,000 (USD).  
[46] In summary, Carlson’s client, Amin Ramji, with whom Carlson had a long professional  
and personal relationship21 and who was already involved with HMS Financial, asked Carlson to  
become involved to obtain undertakings from the principals of HMS and their lawyer (Bailey).  
Mr. Ramji was concerned that he might have money misplaced or stolen from him, and he  
14  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 167, ll. 1-11.  
15  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 168, ll. 24-37.  
16  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 170, ll. 1-13.  
17  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 175, ll. 12-16.  
18  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 178, ll. 27-29.  
19  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 179, ll. 14-16.  
20  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 181, ll. 31-32  
21  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 182, ll. 16-18.  
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wanted to protect his financial position.22 He was told that Bailey was prepared to give him an  
undertaking.23 Carlson was asked this question and gave this answer:  
Q Now, you said earlier that eventually your client retained you to have some  
dealings with HMS. So can you tell us what you did as part of your retainer?  
What were your actions?  
A Well, there was an evolution. But at the beginning, it was to receipt some  
funds that were already committed to HMS and give them to my client and draft  
cheques to other people that I understood were involved with HMS through my  
client. Later, I took on a more of a banking role, if you will, where I was writing  
multiple cheques to my client’s clients and receipting large sums of money from  
HMS, what I would call large sums of money in any event.24  
[47] I find that what Carlson was describing was that he received from his client Amin Ramji  
both money collected by Mr. Ramji from other investors, and Mr. Ramji’s own money. He sent  
those funds to HMS through Bailey (for example, see Exhibit 48 and Transcript p. 191, ll. 23-  
31).  
[48] Later on, Carlson took on more of a banking role in which he was writing multiple  
cheques to Ramji’s clients and receiving large amounts of money from HMS, between one and  
two million dollars. Carlson would always receive the money on the instruction of his client Mr.  
Ramji, and transfer the money to whomever Mr. Ramji directed him (see Exhibit 11).25 This  
was confirmed by Mr. Ramji.26  
[49] Carlson understood that he was asked to take on the “banking role” because Garth Bailey  
was having issues moving large quantities of money.27 That understanding seems to have come  
from Mr. Ramji, but, as will be noted later, Bailey alluded to the problem once in a conversation  
with Mr. Carlson.  
[50] The first meeting that Carlson had with Garth Bailey, Murray Stark, and Robert Fyn  
(where his client Mr. Ramji was also present) was in 2003 (not 2001 or 2002 as stated by  
Carlson, e-mails in Exhibit V-M confirm that it was in 2003) in Red Deer.28 Carlson did not  
consider Bailey to be a principal of HMS Financial, but considered him to be a lawyer of HMS  
and related companies.29 At the meeting, all present talked about the principals’ credentials,  
their expertise, the undertaking, the principals’ involvement in HMS, and “professional  
paperwork” was presented.30 The professional paperwork included what the principals had done,  
their capabilities, and what experience they had in investments of the nature that in which HMS  
was involved. The named principals were Robert Fyn and Murray Stark.31 Upon their first  
meeting, Bailey showed Carlson his card from McCarthy Tetrault, which impressed Carlson and  
22  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 183, ll. 1-7.  
23  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 184, ll. 1-3.  
24  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 187, ll. 4-12.  
25  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 189, ll. 1-41.  
26  
Transcript, Oct. 30/13 – Nov. 25/13, Vol. 3, p. 876, l. 1 – p. 877, l. 13.  
27  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 190, ll.1-9.  
28  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 194, ll. 33-35.  
29  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 217, ll. 31-41.  
30  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 190, ll. 27-39.  
31  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 191, ll. 1-9.  
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made him believe that Bailey was credible.32 There were two other business cards that Carlson  
received from Bailey, and a photocopy of these cards is in Exhibit V-M: Garth S. Bailey  
Professional Corporation Card and Guyons Performance Centre Card.  
[51] At the meeting, Bailey also presented to Carlson and his client, Mr. Ramji, a mockup of a  
new Aero Marine motor.33 At the meeting, Bailey stated that the motor was revolutionary and  
that it would be used in aeroplanes, boat motors, and the like.34  
[52] When discussing the undertaking at the meeting, Carlson was told that if his client had  
any issues and if anything went wrong, his principal investment would be returned to him as  
HMS had $40 million USD available to liquidate. This was directly stated by Mr. Bailey.35 The  
returns were also mentioned during the meeting, and they were discussed by the principals who  
stated that returns would be anywhere from 2-10 percent per month.36 At the meeting, Carlson  
was also told that the principals of HMS had been involved in investments around the world that  
could yield the kinds of returns that they were offering.37 Carlson was specifically told that the  
money was going to be invested in mostly third world countries to develop large infrastructure  
types of projects: bridge, water purification, housing, roads.38  
[53] Besides the initial meeting, Carlson met with Mr. Fyn and Mr. Stark on a number of  
occasions, some of them social.39 Carlson also testified that he went to the HMS office.40  
Carlson stated that in the HMS office there was art on the walls, mostly bonds, railroad bonds,  
big corporation bonds, historical corporation bonds. Mr. Carlson said the bonds that were on the  
walls were more of a collector’s item rather than ones with financial utility.41 Carlson never  
discussed the items on the wall with Mr. Bailey.42  
[54] In his testimony, Carlson described the importance of undertakings in the commercial  
world, specifically in business law, real estate, and conveyancing, and described an undertaking  
as a promise between two lawyers that will be enforced by the Law Society in the event that one  
of the lawyers fails to keep that promise.43  
[55] Carlson testified that he was never told by Bailey that he (Bailey) was in breach of his  
undertaking, that he didn’t hold the assets, or that he had returned the assets to his clients.44  
Initially, Carlson believed that the undertaking that he was recovering from Bailey was  
enforceable. Carlson stated that he did not have any dealings with Bailey to enforce the  
32  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 192, ll. 1-11.  
33  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 195, ll. 25-38.  
34  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 196, l. 39.  
35  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 197, 1-10.  
36  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 197, ll. 25-33.  
37  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 208, ll.1-3.  
38  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 216, ll. 10-17.  
39  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 212, ll. 37-41.  
40  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 213, ll. 1-2.  
41  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 213, ll. 8-12.  
42  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 213, ll. 14-15.  
43  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 201, ll. 1-11.  
44  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 202, ll. 6-13.  
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undertaking, but when the Law Society stepped in, it was Carlson’s presumption that the  
property which Bailey had available to him was not sufficient to cover his client’s costs.45  
[56] Bailey never provided Carlson with any documents explaining how he had come to the  
valuation of the assets, and Carlson never asked for such documents because he did not consider  
himself a sufficient authority, and did not think he had enough experience to know what to know  
whether the assets were valid.46 Carlson stated that the $40 million security provided a lot of  
comfort to his client.47 Carlson was told by Bailey that the $40 million was a liquid security.  
[57] Carlson testified that he was convinced to get involved on the basis that a lawyer from a  
large firm (which was how he saw Bailey) was also prepared to be involved with HMS.48  
Carlson researched HMS before he advised his client, Mr. Ramji, about investing. Carlson  
looked at a number of websites, blogs, and websites about various high-yield investments scams  
around the world.49 Carlson also went on to read “a bunch” of literature about Ponzi Schemes50  
and the Bretton Woods Agreement.51  
[58] Carlson’s involvement with HMS Financial eventually resulted in a 3 month suspension  
and payment of fees for his involvement with HMS Financial.52 The Law Society’s primary  
concern was that the HMS Financial was a Ponzi Scheme.53 This also lead to Carlson being  
questioned by the RCMP on a number of occasions.54  
[59] On May, 2013, Carlson provided a formal statement to Corporal Stafford.55 Carlson also  
provided formal statements to the Law Society of Alberta when it was conducting its  
investigation.56 Carlson provided a DVD to the RCMP. Carlson was not aware of the content of  
the DVD, but knows that there were about 80 images on the DVD many of which were  
duplicates.57 Carlson further provided to the RCMP email communications with Mr. Bailey58.  
Carlson’s email addresses at the time were either [email protected] or [email protected].59  
[60] Carlson was sued as a result of his involvement with HMS Financial.60  
[61] In his testimony, Carlson went over the e-mail correspondence in 2003 between himself  
and Bailey. Carlson testified that other than receiving and sending money, he also had dealings  
with Mr. Bailey in relation to solidifying the terms of the undertaking.61 In a March 10, 2003,  
45  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 203, ll. 8-12.  
46  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 203, ll. 31-41.  
47  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 203, ll. 24-26.  
48  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 197, ll. 16-19.  
49  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 216, ll. 22-28.  
50  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 216, p. 34-35.  
51  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 217, ll. 19-29.  
52  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 184, ll. 20-23.  
53  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 184, ll. 25-27.  
54  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 184, ll. 39-40  
55  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 185, ll. 14-16.  
56  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 185, ll. 27-30.  
57  
Transcript, Oct. 28/13 – Oct. 30/13, Vol.2, p. 188, ll. 36-39.  
58  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 199, ll. 5-6.  
59  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 198, ll. 24-30.  
60  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 185, ll. 35-36.  
61  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 204, ll. 24-26.  
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email that Bailey send to Carlson, a letter was attached confirming the $40 million in securities  
(205, 28-32). The letter, as Carlson understood it, indicated that Bailey had the money, that it  
was available to him, that it could be liquidated, and that it could return his client’s principal.62  
This confirmed to Carlson that Bailey was willing to offer the undertaking.63 Carlson stated that  
if he had not received the undertaking from Bailey, he (Carlson) would have told his client that  
he (the client) had no security at all.64  
[62] In his testimony, Carlson confirmed that the money transfers as provided in Exhibit N  
were made by him to HMS Financial on behalf of his client, Mr. Ramji.65  
[63] Carlson testified that there were a number of companies that were incorporated by  
HMS66, one of them being Paget Capital Limited67  
[64] Carlson testified that he sent money to Bailey “under the HMS umbrella” on behalf of his  
client, and testified that neither he nor his client were concerned about HMS Financial being a  
fraud or a Ponzi scheme. Their only concern was giving up control of Mr. Ranji’s money and not  
having it returned to him.68  
[65] In his testimony, Carlson described the role of Customer Care Specialists (CCSs).  
Carlson understood the role of a CCS was to martial monies and commit others to invest with  
HMS.69 Carlson’s client, Mr. Ramji, was a CCS.70 At some point, Carlson learned that some of  
the money that came through his office was not his client’s money, or HMS money, but someone  
else’s, and does not believe that it was CCS money.71  
[66] When asked whether Bailey spoke to Carlson about the Securities Commission concerns  
and investigation related to HMS, Carlson stated that he had a vague recollection of whether he  
spoke to Bailey about it, but did recall that information about the concerns came through his  
client, Mr. Ramji.72  
[67] When asked whether Bailey ever told Carlson that banks had advised him (Bailey) that  
they had concerns about Bailey money laundering which lead to the freezing of his accounts,  
Carlson stated that Bailey did not. Carlson testified that the reason why he was asked to take over  
the banking role on behalf of his client, as he understood it, was to ensure that the flow of money  
did not stop because Bailey ran into some issues in terms of being able to transfer money.  
Carlson recalled that Bailey made reference to the problem once in a telephone call, but that it  
was something that would be fixed very shortly.73  
62  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 205, ll. 37-39.  
63  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 206, ll. 17-21.  
64  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2. p. 206, ll. 32-38.  
65  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 207, ll. 8-10; p. 208, ll. 30-32; p. 209, ll. 20-21; p. 210, ll.  
13-14; p. 210, ll. 23-24.  
66  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 206, ll. 1-3.  
67  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 205, ll. 37-41.  
68  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 207, ll. 29-35.  
69  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 213, ll. 30-32.  
70  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 213, ll. 34-35.  
71  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 214, ll. 12-18.  
72  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 214, ll. 20-24.  
73  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 214, ll. 26-33.  
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[68] Carlson stated that he was a banker for HMS Financial for about seven months.74  
[69] When asked why he stopped acting in that role, he said:  
A I received a phone call from the Law Society, told them that I was involved in  
something that wasn’t on the up and up.  
Q And then you stopped; is that –  
75  
A Yes. I immediately stopped.  
[70] Carlson testified that Kerby Audit was an entity that Bailey used as a vehicle to transfer  
some money related to the HMS matter.76  
[71] Carlson stated that he never invested in HMS because he considered it a conflict.77  
[72] Carlson was asked to go over the letter that was written to him by Bailey on February, 1,  
2004- Exhibit N.78 Carlson testified that the letter was an abbreviated form confirming the  
undertaking that Carlson was seeking and that Bailey was offering. It was affirmation of the  
earlier undertaking.79 The Crown asked why another confirmation was made on February 4,  
2004. Carlson responded that he believes that the letter was written because at that time there  
were issues with HMS having enough money to pay out the investors. Carlson became aware of  
this because at one point he had a million dollars from two separate entities under the HMS  
umbrella, unrelated to his client Mr. Ramji, that were loaned to make the payouts.80 Carlson  
obtained this knowledge from his client. 81 At this point Carlson realized that there were troubles  
that HMS was experiencing.82  
[73] Carlson was asked to look at Exhibit 11 which consists of Carlson’s cheque stubs. When  
asked why Carlson’s cheque stubs would have been at HMS, he stated that he did not know and  
that he was shocked to see them.83 Carlson was asked to go through Exhibit 11 and to look at a  
number of pay stubs with the names of Arnold Dyck, Arie Schalk, Blaina Cisna and Invitran  
Consulting, and Altruistic. The only name that Carlson recognized was Altruistic, which was the  
name of Mr. Ramji’s company.84  
[74] Carlson was also asked to look at Exhibit 21, the video of the HMS Financial Search.85  
He was asked whether he recognized the financial documents on the wall and whether those  
were the documents which he described earlier in his testimony. He confirmed that the images on  
the video represented what he saw on the wall at the HMS Financial Office in person.86 He  
74  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 214, l. 41.  
75  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 215, ll. 1-5.  
76  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 215, ll. 11-14.  
77  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 215, ll. 24-28.  
78  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 218, ll. 1-4.  
79  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 219, ll. 27-30.  
80  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 218, ll. 1-37.  
81  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 219, ll. 1-3  
82  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 219, ll. 12-13.  
83  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 220, ll. 13-14.  
84  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 221 – 223.  
85  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 223, ll. 37-40.  
86  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 224, ll. 18-29.  
- 15 -  
recalled that one of the bonds on the wall was from a railway, but did not recall the name of the  
company.87  
[75] Carlson was asked about comfort letters written by HMS. Carlson testified that a comfort  
letter is effectively a letter containing information that would give investors some comfort in  
participating in the investment.88 Carlson stated that he was instructed to write comfort letters  
for Mr. Ramji and that he did write them, but was not sure whether letters were ever written to  
investors. However, Carlson now assumes that he was writing the letters to give some people  
comfort about Mr. Ramji and his involvement with HMS.89  
[76] Mr. Ramji was asked and answered these questions:  
Q Okay. What was the basis of your comfort letter that you would write? So  
why are you writing a comfort letter?  
A I assume at the time that I was writing it, and I’m not sure, but I assume at the  
time I was writing it to give some people some comfort about Mr. Ramji and his  
involvement with HMS.  
Q Did – do you know if the undertaking informed that at all  
A I’m almost certain it did.  
Q How did it inform them?  
A It would’ve referenced – it would have referenced, not Mr. Bailey directly, but  
the fact that I had an undertaking from another lawyer.90  
[77] I find that Mr. Carlson is saying no more than he is “almost certain” that he used the fact  
that he had an undertaking from another lawyer to give substance to his “comfort letter”.  
Cross-examination of Dana Carlson  
[78] Carlson stated that he believed HMS Financial to be a legitimate investment program91,  
and that he did various searches to satisfy himself that the program was legitimate. Carlson  
specifically looked at books, readings, and other literature and was directed to educational  
resources by Mr. Fyn, Mr. Stark, and Mr. Bailey during the first meeting92 (specifically the  
Bretton Woods Treaty93). Carlson stated that Bailey never directed him to any specific sources.94  
Carlson also consulted with independent parties, one of whom was a certified financial planner,  
who advised Carlson that high yield investments programs do exist and they can be legitimate.  
Based on the research and the advice that Carlson received, he decided to represent his client Mr.  
Ramji in receiving funds on behalf of Altrusitic Holding and repaying investors at his direction.95  
87  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 224, ll. 28-41.  
88  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 225, ll. 6-12.  
89  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 225, ll. 14-33.  
90  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 225, ll. 29-40.  
91  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 313, ll. 12-15.  
92  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 313, ll. 24-41.  
93  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 314, ll. 1-3.  
94  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 314, ll. 13-14.  
95  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 314, ll. 16-38.  
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[79] At one point, Carlson flew to Toronto and spoke to different individuals about how banks  
can take people’s money and pool it, and then trade it 24 hours a day to make preferential  
interest.96 This provided Carlson with overall knowledge about high-yield investment programs,  
and gave Carlson confidence that such programs could be legitimate.97  
[80] Carlson testified that he was not able to provide the McCarthy Tetrault card to the  
RCMP, he never sent emails to Bailey at a McCarthy Tetrault email address, and that any  
correspondence which Carlson had with Bailey by e-mail would have gone through the  
[email protected].98  
[81] Carlson was asked to refer to the wire transfer for $137,000 USD in Exhibit 48.99  
Carlson agreed that the undertaking was not in place at the time that the deposit was made, and  
that there were no trust conditions on the $137,000 which was sent to Bailey100  
[82] Carlson stated that the only amount of money which was sent to Bailey from Carlson on  
his client’s behalf, and which was protected by trust conditions, was the $200,000.00 wire  
transfer reproduced in Exhibit 48. Carlson stated that in transferring the $200,000.00 he would  
have relied on both the trust conditions and the undertaking.101 The other sums that followed  
were not under specific trust conditions.102  
Re-Examination of Carlson  
[83] Carlson confirmed that the undertaking was made on March 10, 2003, and that the wire  
transfer in the amount of $137,000 was made on March 17, 2013. However, Carlson stated that  
he would not have relied on the undertaking alone without trust conditions in place. Carlson did  
not think that the undertaking terms were specific enough.103  
[84] Carlson was referred to Exhibit 51 (Email Letter from Dana I. Carlson, sent January 11,  
2004, to Amin Ramji) which stated that $137,000 was wired to Bailey on March 7, 2003.  
Carlson testified that this is a typo, and that the correct date is March 17, 2003.104  
[85] Carlson was asked to refer to the March 10, 2003 letter written to Carlson from Bailey  
regarding the undertaking. Carlson stated that the sentence about assets in the amount of 40  
million dollars USD is not actually part of the undertaking. Instead, Carlson considers it to be a  
representation between two lawyers intended to be relied upon.105 Carlson stated that he was not  
concerned about where the money came from so long as there was a representation that the  
money would be repaid, which is why he did not go on to investigate the legitimacy or the  
liquidity of the assets held by Bailey. Carlson just wanted to be able to rely on the promise of a  
96  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 314, ll. 40-41; p. 315, ll. 1-2.  
97  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 315, ll. 4-12.  
98  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 316, ll. 14-37.  
99  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 317, ll. 33-36.  
100  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 318, ll. 1-6; p. 321, ll. 36-37; p. 324, ll. 34-41.  
101  
Transcript, Vol. 2, p. 330, ll. 1-23.  
102  
Transcript, Vol. 2, p. 328, ll. 36-40.  
103  
Transcript, Vol. 2, p. 335, ll. 10-34.  
104  
Transcript, Vol. 2, p. 336, ll. 1-16.  
105  
Transcript, Vol. 2, p. 336, ll. 18-40.  
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lawyer in good standing that he would fix the problem should one arise.106 Carlson stated that it  
would have been “extremely alarming” to him if Bailey did not have “unilateral authority” of the  
assets to be used as a security for his client.107  
[86] Carlson stated that Exhibit 51 (Email Letter from Dana I. Carlson, sent January 11, 2004,  
to Amin Ramji) is a legal opinion written to his client, Mr. Ramji, about the civil remedies that  
were available to him. This e-mail did not have anything to do with an opinion related to  
criminal activity.108  
Examination-in-Chief of Kendra Haskett (Haskett)  
[87] Haskett stated that she was an office assistant for HMS Financial from 2002-2003.109  
Her official title was personal assistant to Robbie Fyn.110 Robbie Fyn initially offered her the  
position.111 Haskett stated that the office was very disorganized when she started. There was no  
scheduling. Haskett had to set up a filing system, organize emails, and get a proper running  
system in place. Haskett described the state of affairs when she started as “chaos”, with no  
procedures in place.112 Haskett’s role also consisted of driving Fyn around, reading and  
organizing Fyn’s e-mails113, typing letters and e-mails for Fyn upon his direction114, and picking  
up from the airport clients who came in from other parts of Canada or the United States.115  
Haskett also double checked the receptionist’s work, met with clients, double-checked contracts,  
took money in, did some banking116, answered calls117, and hired two receptionists (Judy Gibbs  
and Denise Bedard).118 Haskett understood HMS to be a financial company119 that made high  
return investments.120  
[88] Hasket, together with her husband, invested into HMS.121 Haskett testified that she never  
saw Mr. Fyn invest HMS money into places, she never saw emails or letters which would  
suggest that Mr. Fyn was investing HMS’s money into places or investment vehicles, nor did  
Haskett see Mr. Stark make any investments on behalf of HMS.122  
[89] Haskett states that the original bank account that she worked with when she started  
working with HMS Financial was Community Savings Credit Union at Three Hills. This account  
106  
Transcript, Vol. 2, p. 337, ll. 14-27.  
107  
Transcript, Vol. 2, p. 338, ll. 14-23.  
108  
Transcript, Vol. 2, p. 338, ll. 25-40.  
109  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 247, ll. 26-27.  
110  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 251, ll. 15-17.  
111  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 248, ll. 30-31.  
112  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 250, ll. 21-31  
113  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 251, ll. 20-41.  
114  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 252, ll. 1-18.  
115  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 254, ll. 9-12.  
116  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 255, ll. 12-29.  
117  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 258, ll. 40-41; p. 259, ll. 1-6.  
118  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 259, ll. 8-29.  
119  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 253, ll. 34-36; p. 255, ll. 34-35.  
120  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 255, ll. 37-38.  
121  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 256, ll. 5-6.  
122  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 256, ll. 12-27.  
- 18 -  
was “red flagged” by Community Savings because there was too much money going in and out  
of the account, and the account had to be closed.123 After the Credit Union Account was closed,  
HMS set up offshore accounts at Horizon Bank, which was set up by Haskett with the help of  
Mr. Fyn.124  
[90] Haskett testified that Margaret Dart kept track of the all the finances at HMS, the  
contracts that came in, the money that came in, and the pay outs that were made. Haskett stated  
that Margaret Dart quit her job at HMS because payouts were not being made, and clients were  
getting angry. Ms. Dart did not want to deal with it anymore.125  
[91] In her testimony, Haskett described “Customer Care Specialists” (CCS) as people who  
wanted to invest money and make a profit from getting others to invest. A CCS would bring in  
other people’s money to invest in HMS, and they would make a profit from doing so, which  
Haskett believed to be a 10 percent per month return. Haskett stated that she was a CCS. 126 This  
return could be compounded, or the investor could ask for a pay out.127 If requested, a pay out  
would usually be made every three months, but Haskett stated that contractual rules at HMS  
Financial were not always followed.128 This was due to the fact that if someone wanted to get  
his or her investment money back right away, the person could call HMS, and HMS would send  
them a cheque for however much they needed.129  
[92] Haskett stated that there were different CCS contracts. Some CCS only held their own  
money and others pooled other people’s money.130  
[93] Haskett had her whole family invest into HMS, but the cash that they invested went under  
their own names, not Haskett’s. Since Haskett brought in clients to invest, she was given a  
bonus.131  
[94] Haskett ended up pulling out of HMS the money she had invested. She put it into an  
offshore account at Horizon Bank, and invested the money into another investment scheme in the  
United States that operated in the same way as HMS Financial. The scheme was unrelated to  
HMS, and the reason why Haskett pulled her money out of HMS was that HMS was not making  
pay outs, there was chaos in the office, and the bosses were not coming in. Haskett at that point  
asked if she could pull out all of her money and her family’s money,132 and HMS allowed her to  
do so. Haskett did get her principal back ($5,000) plus a little bit of interest.133  
[95] In her testimony, Haskett stated that many clients who invested at HMS set up their own  
personal bank accounts at Horizon Bank. Clients knew that HMS was dealing with Horizon  
123  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 257, ll. 19-30.  
124  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 257, ll. 32-36.  
125  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 258, ll. 15-38.  
126  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 261, ll. 19-41.  
127  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 262, ll. 14-16.  
128  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 262, ll. 27-40.  
129  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 263, ll. 1-8.  
130  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 263, ll. 27-33.  
131  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 264, ll. 1-8.  
132  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 264, ll. 20-41; p.266, ll. 22-26.  
133  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 265, ll. 1-6.  
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Bank and it was easier for HMS to make direct payments to clients if they had Horizon Bank  
accounts.134  
[96] When asked about Butterfield Bank, Haskett testified that it was one of the banks that  
Bailey used.135 Haskett testified that she met Bailey on several occasions, and described Bailey  
as HMS’s lawyer.136 Haskett communicated with Bailey in person, over the phone, and via e-  
mail.137 To Haskett’s knowledge, Bailey, as lawyer for HMS, oversaw the contracts and  
paperwork and took care of “stuff behind the scenes”.138 Haskett saw Bailey at the HMS Office  
on several occasions, specifically in meetings which she was asked to attend. Typically at these  
meetings, Bailey, Stark, Fyn and Haskett would be present.139  
[97] The meetings at HMS Financial were related to starting up new companies, and how to  
draft new contracts and other paperwork.140 The different companies were started up so that  
clients could put their money under the new company name rather than under HMS.141 During  
these meetings there was discussion about cheques, what bank accounts they should be deposited  
into, or whose name the cheques should be made out to since Bailey was having problems  
depositing so many cheques made out to his name.142 In the beginning, cheques were made out  
to Garth Bailey.143 These cheques were not related to payment of legal fees144, rather it was  
because Garth Bailey initially had a bank account at the Butterfield bank for clients to put their  
money into.145 At the meetings, there was always tension related to problems that HMS was  
experiencing with the bank, and figuring out what to do with the cheques and the money which  
was coming in, which accounts the money should be put into, or what names the cheques should  
be made out to.146  
[98] When asked about Chase Forbes Trust147, Haskett stated that it was a company that HMS  
formed for the purpose of processing more contracts and money. It was a subsidiary of HMS.  
When asked about Dresden Group, Haskett stated that she could not specifically state the  
relationship between HMS and Dresen Group. However, Haskett had heard the name before.148  
Haskett stated that Paget Capital was another subsidiary company under HMS which was used  
for the CCS contracts.149  
134  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 265, ll. 17-34.  
135  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 266, ll. 28-30.  
136  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 266, ll. 28-39.  
137  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 267, ll. 13-21.  
138  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 268, ll. 23-26.  
139  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 273, ll. 11-12.  
140  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 270, ll. 9-34.  
141  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 272, ll. 35-36.  
142  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 271, ll. 1-15.  
143  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 271, ll. 29-33.  
144  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 272, ll. 1-7.  
145  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 272, ll. 23-26.  
146  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 271, ll. 20-27.  
147  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 268, l. 41  
148  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 269, 7-24.  
149  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 270, ll. 1-7.  
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[99] In her testimony, Haskett stated that when clients invested money they had to fill out a  
joint venture agreement or it was filled out for them by HMS.150 In terms of loan agreements,  
they were arranged between Paget Capital and the CCS. The main difference between loan  
agreements and joint venture agreements was the difference between the pay-out amounts and  
the fact that only CCSs could do loan agreements.151  
[100] Haskett recalled Mr. Fyn mentioning that the Securities Commission did not like what  
HMS Financial was doing, but that the Securities Commission could not do anything to stop  
HMS from proceeding. Haskett did not know the role of the Securities Commission.152  
[101] Haskett stated that a client brought in bonds that were sent off to get verified and to see  
how much they were worth. Hasket, however, does not recall who this client was, but stated that  
it was determined that the bonds were not worth anything, and that they could not be used in any  
way. Haskett stated that the bonds were discussed at HMS, and it was known that Bailey held  
bonds in trust for HMS so that in the event of something going wrong or clients wanting their  
money back, Bailey would be able to cash in those bonds and would be able to pay out clients.  
There were letters in the office that referred to this, and this knowledge would also have been  
provided in the joint venture agreement. During the end at her time with HMS, Haskett asked  
Bailey about cashing in the bonds because pay outs were not being made. Bailey’s response was  
that he was looking into finding the “highest buyer”. To Haskett’s knowledge, no bonds were  
cashed while she worked at HMS.153  
[102] When Haskett was cleaning up and organizing the HMS office, she saw green paper at  
the bottom of one of the filing cabinets. Haskett thought this green paper looked like bonds, but  
assumed that because they were at the bottom of the filing cabinet that they were not worth  
anything.154 Haskett stated that she would not know the difference between a bond and a share  
certificate.  
[103] When asked whether HMS had any offsite storage locations, Haskett stated that a month  
before HMS was shut down she was asked by Mr. Fyn to take all the files and paperwork to a  
storage unit in Three Hills. Haskett complied with Mr. Fyn’s request, and gave him a the key to  
the storage unit.155 The files and papers that went off to the storage site had been moved prior to  
the RCMP coming to execute the search at HMS Financial.156 When asked whether Mr. Fyn  
went to the storage unit to deal with the stored documents while the search was being conducted,  
Haskett stated that she did not know. When asked whether she dealt with the documents in the  
storage unit, Haskett stated that she did not.157  
[104] After the RCMP carried out their search at HMS Financial, HMS Financial did not  
comply with a cease and desist order, and Haskett was instructed by Mr. Fyn to keep working.158  
Haskett kept working on a voluntary basis because she felt badly for all the clients who kept  
150  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 276, ll. 1-3.  
151  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 276, ll. 26-41.  
152  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 277, ll. 25-33.  
153  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 278, ll. 1-38.  
154  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 279, ll. 1-8.  
155  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 273, ll. 33-39.  
156  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 274, ll. 9-12.  
157  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 275, ll. 31-36.  
158  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 274, ll. 27-39.  
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phoning in every day about pay-outs which had not been made.159 Haskett stated that she was  
told by Mr. Fyn to reassure clients that there was a banking and securities issue, and that HMS  
was doing everything it could to get the funds released.160 After the execution of the search  
warrant at HMS Financial, the clients who were owed money by HMS never received their  
money back.161 Haskett did not recall speaking to Bailey about the bonds after the search at  
HMS Financial162, or having any communication with Bailey whatsoever.163  
[105] Haskett was sued in 2011 for $115 million as a result of her involvement with HMS  
Financial. The law suit was settled in April 2013.164 Haskett did not discuss the collapse of HMS  
with either Bailey, Fyn or Stark.165  
[106] Haskett testified that she heard from Mr. Stark’s and Mr. Fyn’s family members that both  
Mr. Stark and Mr. Fyn are in gaol.166  
[107] Haskett was asked whether while working at HMS there were ever difficulties with  
money that was transferred to the United States. Haskett responded that there were difficulties.  
Haskett testified that HMS ended up sending “a bunch” of cheques down through a bank account  
in the United States that Bailey had arranged, and all those cheques ended up getting seized.  
Haskett then had to send letters to those clients whose investments were related to those cheques  
and those clients were asked to sign a waiver form to have the cheques put into someone else’s  
name or moved to a different account.167 This was Bailey’s idea.168 Haskett was not aware  
whether Bailey had any other role with respect to the money that was held up in the United  
States.169 Haskett stated that it was Bailey who set up the bank account in the United States  
because it was not an account with which HMS or Haskett had any connection. Haskett also  
stated that the cheques were made out to Bailey by clients of HMS. These cheques were then  
deposited into a bank account in the United States and were red-flagged.170  
[108] Haskett testified that she did not know the source from which client money was  
provided.171 When asked about how HMS tracked money that came in, Haskett stated that HMS  
kept track of it in banking books. All clients names were written down, together with the cheque  
number and the amount. Haskett also kept track of the money on her own spreadsheets that  
would be double-checked. The spreadsheets would then be given to Margaret Dart, and she  
would input them into her Excel program.172 From the bank books, Haskett would use the  
information to create joint venture agreements or loan agreements, and then would input the  
159  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 275, ll. 1-16; p. 279, ll. 14-24; p. 281, ll. 10-18.  
160  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 287, ll. 22-29.  
161  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 279, ll. 26-27.  
162  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 279, ll. 38-41.  
163  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 280, ll. 1-10.  
164  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 282, ll. 1-6.  
165  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 283, ll.5-12.  
166  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 287, ll. 10-13.  
167  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 288, ll. 1-12.  
168  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 288, ll. 38-39; p. 287, ll. 3-13.  
169  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 291, ll. 1-4.  
170  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 288, ll. 24-33.  
171  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 290, ll. 1-3  
172  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 291, ll. 26-30.  
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information into a spreadsheet with the joint venture agreement number, amounts and dates.173  
Joint venture agreements were all numbered sequentially (for example, a joint venture agreement  
had a number from one through to one thousand, and could be tracked by the number).174  
Records of pay outs were based on Margaret Dart’s spread sheets.175  
[109] Haskett stated that she and the receptionists had access to the bank books and spread  
sheets.176  
[110] Haskett testified that when investors were paid out they were not issued any “T slips” or  
forms for tax purposes. Haskett was told by Margaret Dart that it was up to the clients to pay  
their own taxes, and that it did not have anything to do with HMS.177  
[111] Haskett stated that when clients had a million dollars to invest they were assigned to a  
special program, but did not recall how the program differed from other investments. Haskett  
kept track of the One Million Dollar Program, and may have created contracts and forms for the  
program.178  
[112] Ms. Haskett also testified that the use of “cash cards”. She was asked these questions and  
gave these answers:  
Q Did HMS ever use something I’m going to call a cash card?  
A Yes.  
Q Okay. What is a cash card in this context?  
A We had a CCS bring in cash cards. We had an office meeting where he  
explained how these cash cards worked and we used them for payroll to see how  
they would work so that we could use them down the road for pay-outs.  
Q Why – who is the CCS, first of all?  
A Amin Ramji, I believe was his name.  
Q Okay. And who was at this office meeting that you recall?  
A Amin would have been there and Robbie, Murray, Margaret and myself.  
Q Okay. What was your understanding from this meeting why you were  
switching to use cash cards instead of regular cheques or regular banking?  
A It would have been easier process (sic) if we had all the money in one place. If  
clients had cash cards we could just, by the push of a button move their pay-outs  
on to these cash cards and they were similar to debit cards. So clients would set  
up a name on the cash card and a PIN number so they could just go to an ATM  
and pull out their money that they had gotten, their pay-out.  
Q Were the cash cards run like, through a bank or whose accounts were they run  
through or did they run through –  
173  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 291, ll. 36-41.  
174  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 292, ll. 1-16.  
175  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 293, ll. 1-2.  
176  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 293  
177  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 294, ll. 14-26.  
178  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 295, ll.23-39.  
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A I’m not positive on that.  
Q You don’t know? Did you ever get pay-outs through cash cards or your salary  
through cash cards?  
A Yes.  
Q How would that work?  
A Margaret worked the program with Amin so I’m not exactly how – I don’t  
know exactly how it was run.  
Q Did you get paid –  
A I just know I was issued a cash card with a fictitious name and a PIN number  
and that’s how I got paid. 179  
[113] When asked whether she ever saw any e-mails from Mr. Fyn to Bailey instructing him to  
deal with funds in Bailey’s trust accounts Haskett stated that she did not recall.180  
[114] When asked whether she saw any bonds in the office, Haskett stated that she did not,  
except the ones that she saw at the bottom of the filing cabinet as mentioned earlier in her  
testimony.181 Haskett was asked to refer to Exhibit 15.182 The contents of Exhibit 15 were found  
in a red folder titled “Corporate/Historical Bonds”. Exhibit 15 consists of copies of corporate  
bonds, letters concerning value of railways bonds, an affidavit of authenticity of bonds, valuation  
of Pacific Railroad Gold Bond, historical railroad company bonds, memo on a corporate bonds  
list, copy of a website link on corporate bonds and debentures, list of bonds and prices, list of  
preferred UK Equity and bonds, copy of website providing information on bonds, funds market  
list, a copy of a sterling corporate bond market liquidity survey by Credit, photocopy of mailed  
envelope. Haskett stated that she created the folder, but did not recognize its contents.183  
[115] Haskett watched the video of the HMS Office Search (Exhibit 21). Haskett was  
specifically asked to look at framed images on the wall in the HMS Search Video and she  
described them as bonds that were in the office just for show.184  
[116] Haskett did not recall money being invested by HMS into infrastructure programs in  
developing countries.185 Haskett discussed “comfort letters” which were written by HMS to  
clients to smooth over any difficulties in the office; this occurred when HMS started  
experiencing difficulties, particularly when a number of cheques were seized in the US around  
Christmas 2003. These were cheques that needed to be deposited into a US Bank account. The  
cheques were red-flagged and seized. Haskett, from either Fyn or Bailey, heard that the cheques  
were red flagged.186 The cheques were to be sent to Natural Global in the United States.187  
179  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 296, ll. 4-40.  
180  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 297, ll. 34-37.  
181  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 298, 25-30.  
182  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 298, ll. 32-36.  
183  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 299, ll. 8-19.  
184  
Transcript, Oct. 28/13 – Oct. 30/13, Vol. 2, p. 303, ll. 18-28.  
185  
Transcript, Oct. 30/13 – Nov. 25/13, p. 119, ll. 1-2.  
186  
Transcript, Oct. 30/13 – Nov. 25/13, p. 122, ll. 1-31.  
187  
Transcript, Oct. 30/13 – Nov. 25/13, p. 148, ll. 1-9.  
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[117] Haskett testified that there were “hundreds” of Loan Agreements made between Paget  
Capital (a company created by HMS) and Custom Care Specialists (CCS). In these agreements,  
Bailey was named as the person upon whom notices to the borrower (Paget Capital) could be  
delivered. A typical loan agreement is as follows: see Attachment “A”.  
[118] Haskett was referred to Exhibit 1 and documents ending in 0003 and 0004. The  
document ending in 0003-March 17, 2004 meeting with Garth, states: “Garth picking up $25  
million from Chile next week. Murray needs criminal record report. Garth need coordinates for  
fund to go (Bendigo).” Second page of document states: “If it goes to litigation it will not be  
good for stock. Will the engines get built? This may tie everything up for years.”  
[119] Document ending in 0004 states “Rent storage unit in THaskett through Rolly Cool”- this  
was the storage locker that Stark had rented in order to store documents off site. This was done  
after March 17, 2004 and before the search warrant was executed (pages 171-172). Document  
0004 also says: “They are needing things resolved in 7-10 days. Owed $4,777,545.00 + $16  
million principal/ Need to start sending bits and pieces to Jim immediately/Should not be taking  
any more funds, should put out a letter to the cops.”  
[120] No further evidence was led to explain these documents.  
[121] Haskett was referred to Exhibit 15 (Corporate/Historical bonds folder). Document ending  
in 0024 in that folder is a Memo: “Info on AA and AAA Corporate Bonds”. Haskett testified that  
the memo was written by “Radar” (Garry Young).  
[122] Haskett was referred to Exhibit 19- Document ending in 0001. This is a letter written by  
Bailey which refers to the drafts and cheques which were to be deposited to the account of Chase  
Forbes Trust (US Bank Account). The remainder of Exibit 19 are copies of the cheques that were  
to be deposited. This letter is dated December 21, 2003.  
[123] Haskett testified that it was common knowledge at HMS that Bailey held bonds in trust  
for clients in the event that something happened and that payout could not be made.  
[124] Haskett said that for Paget Capital Loan Agreements, the borrower is Bailey.188  
[125] Haskett testified that Bailey stated that he would no longer be accepting cheques after  
cheques were seized in the United States in December, 2003. She stated that even though Bailey  
told HMS that he would not be accepting cheques, cheques continued to be sent to him because  
people did not listen.189 Haskett testified that in March 2004, Bailey was stepping away from  
HMS; he did not want to receive any cheques or do any banking for HMS, and he did not want  
his name on anything. At this point, HMS started asking Peter Manousos questions when they  
needed legal advice, although HMS was still in contact with Baily for other legal questions-  
specifically the declaration of the cheques in the United States.190  
[126] Ms. Haskett was referred to an email purportedly from Bailey which indicated that he  
was in Chile. The email, dated March 24, 2004, reads as follows: see Attachment “B”.  
[127] Ms. Haskett was referred to emails between her and Bailey in March of 2004. In an  
email dated March 26, 2004, Bailey sent a proposed “release section” for a letter to be sent to  
clients; later that day, Bailey asked if “Robby” (Fyn) was “available for a meeting on Monday”.  
188  
Transcript, Oct. 30/13 – Nov. 25/13, p. 186, ll. 17-30.  
189  
Transcript, Oct. 30/13 – Nov. 25/13, p. 188, ll. 8-31.  
190  
Transcript, Oct. 30/13 – Nov. 25/13, p. 195, ll. 5-35.  
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[128] Ms. Haskett confirmed that HMS went into default on payments, but, as far as she knew  
buyers were never found for the bonds. 191  
[129] Hasklett testified that there was maintained in the HMS office a “blue ledger book” (Ex.  
14), made by herself or Judy Gibbs. The ledger recorded cheques received at the HMS office.  
Up until sometime in January, 2004, the cheques were made payable to Garth Bailey, after  
which, at Bailey’s request, they were to be made payable to HMS. The cheques payable to  
Bailey were sent to Bailey for deposit.192  
[130] Haskett was referred to the paper print out of Excel Spreadsheets (Exhibit 52- Excel  
Spreadsheet on USB Drive). The spread sheets were used to keep track of all the joint venture  
agreements, the loan agreements, quarterly payouts, and this information was used to help  
generate statement every quarter.193  
[131] The Loan agreements were between Paget Capital and corporations. They worked in the  
same way as Joint Venture Agreements, only they were specifically for corporations. Haskett  
testified that she “drafted” the agreements but did not expand on what she meant by that term.194  
[132] Haskett was referred to Exhibit 17: Copies of cheques made out to Garth Bailey. Haskett  
had made a note indicating that Bailey took cheques worth about $1 million to Toronto on  
January 21, 2004.  
[133] Haskett was referred to Exhibit 6 (Account Book- Horizon Bank). Horizon Bank was an  
offshore bank account into which funds were deposited.195 Exhibit 6 shows that Bailey  
deposited $3,088,027.26 on January 15, 2004.  
[134] Haskett stated that there were several Horizon Bank Accounts.196 Haskett testified that it  
was a lot easier to transfer money from Horizon Bank than it was to transfer money from  
CIBC.197 Horizon Bank is a bank in St. Vincent.198  
[135] Haskett stated that she did not draft the original Joint Venture Agreement word for word.  
She said that the Joint Venture Agreements were already in place when she started with HMS.199  
[136] Haskett stated that the bank that HMS had in 2003, when she came on board, was the  
Credit Union in Three Hills. This was used before HMS set up off shore accounts at the Horizon  
Bank.200  
[137] Haskett stated that Paget Capital was a company under HMS that had all the contracts  
with the CCS and their corporations.201  
191  
Transcript, Oct. 30/13 – Nov. 25/13, p. 208, ll. 4-8.  
192  
Transcript, Oct. 30/13 – Nov. 25/13, p. 221-231.  
193  
Transcript, Oct. 30/13 – Nov. 25/13, p. 243, ll. 1-6.  
194  
Transcript, Oct. 30/13 – Nov. 25/13, p. 244, ll. 1-7.  
195  
Transcript, Oct. 30/13 – Nov. 25/13, p. 249, ll. 21-23.  
196  
Transcript, Oct. 30/13 – Nov. 25/13, p; 251, ll. 19-20.  
197  
Transcript, Oct. 30/13 – Nov. 25/13, p. 257, ll. 1-7.  
198  
Transcript, Oct. 30/13 – Nov. 25/13, p. 273, ll. 16-26.  
199  
Transcript, Oct. 30/13 – Nov. 25/13, p. 280, ll. 1-16.  
200  
Transcript, Oct. 30/13 – Nov. 25/13, p. 280, ll. 32-38.  
201  
Transcript, Oct. 30/13 – Nov. 25/13, p. 291, ll. 38-40.  
- 26 -  
Cross-Examination of Ms. Haskett  
[138] Ms. Haskett testified as follows:  
Q And it’s also my understanding that while you were involved with HMS, you –  
or working there, you learned of a number of projects that Mr. Stark was involved  
in?  
A Yes.  
Q And those were investment opportunities in the United States and other places?  
A That’s correct.  
Q And do you remember the names of any of those companies or places?  
A We went over some of the names in some of the documents last week. Trans  
Max was one that came to mind, Perma-Tune. There were a couple others, but I  
don’t recall them at this moment.  
Q And do you recall sending funds to Trans Max?  
A Yes, ma’am.202  
Re-Examination of Ms. Haskett  
[139] In re-examination, Ms. Haskett was asking the following question and gave the following  
answer:  
Q Okay. And you were also asked about Trans Max, Perma-Tune. Any – as you  
said, you gave evidence about, I think that, in direct. Do you have any idea  
whether those were legitimate businesses or not?  
A I never saw firsthand.203  
Examination-in-Chief of Margaret Stanbuski-Dart (Dart)  
[140] Ms. Dart was asked about the people working in the HMS office. She gave the following  
descriptions:  
1. Crystal Fyn – Robbie Fyn’s daughter; receptionist/secretary.  
2. “Radar” – “the office gopher”; he lived in the back of the office and  
performed maintenance (fixed doorknobs, fixed squeaky drawers, ordered  
equipment as needed). (Mr. Cisna testified that his real name was Gary  
Young).  
3. Robbie Fyn – “He is the one that basically solicited people for money.  
Okay. And told them about the program when they came in and asked  
about the program. And basically explained that they were investing the  
202  
Transcript, Oct. 30/13 – Nov. 25/13, p. 306, l. 32 – p. 307, l. 4.  
203  
Transcript, Oct. 30/13 – Nov. 25/13, p. 307, ll. 29-32.  
- 27 -  
money in, and basically put everyone’s fears at – at rest that that was a  
good investment, and HMS was a good choice.204  
4. Kendra Haskett – Robbie Fyn’s personal executive assistant.  
5. “Peter and Blaine” – This was a reference to Peter Sheridan and Blaine  
Cisna, they collected money from clients in Saskatchewan and brought it  
to HMS; they used a spare office in HMS and would see clients there.  
6. Garth Bailey – a lawyer who attended at HMS about once per month for  
the 20 months Dart worked there. She had frequent communications with  
him (email and telephone) and once attended his De Winton residence to  
help him with a computer program which they were trying as part of  
finding a new way to disburse cheques.  
7. Murray Stark – one of the partners at HMS; he worked with Robbie Fyn;  
sat in the same office as Robbie Fyn; he had a mortgage broker  
background.  
[141] Dart left HMS in February 2004, when she realized that clients were not going to be paid  
out.205 When Dart left, she destroyed the hard drive that was on her own personal computer and  
got a new one because she did not want to be connected to or have anything to do with HMS.206  
The data on Dart’s laptop related to HMS was also on the HMS computer system.207 Dart also  
made a copy of a disk (the disk contained a copy of the spreadsheet that Dart created for  
HMS).208  
[142] Dart was asked about the business of HMS. She testified as follows:  
Q -- some goalposts. We’ll come back to that in a few minutes, but I wanted to  
nail that down. All right. So lets go back to when you arrived at HMS in 2002.  
We’ve talked a little bit about what Murray did, what Robbie did, but tell me a  
little bit more about HMS’s business. What did you understand they were in the  
business of doing when you arrived or what did you see or what were you told  
about that?  
A I was basically told that they invested their money in junk bonds.  
Q Okay. Who told you that?  
A Was Robbie – sorry, Robbie – Murray did. Sorry, Murray Stark did.  
Q Okay  
A Okay.  
Q And –  
A So it junk bonds or it was railway bonds, you know, I got – on several  
occasions I got two or three different stories.  
204  
Transcript Oct. 30/13 – Nov. 25/13, p. 325, ll. 11-14.  
205  
Transcript, Oct. 30/13 – Nov. 25/13, p. 334, 14-37.  
206  
Transcript, Oct. 30/13 – Nov. 25/13, p. 336, ll. 15-22.  
207  
Transcript, Oct. 30/13 – Nov. 25/13, p. 337, ll. 19-24.  
208  
Transcript, Oct. 30/13 – Nov. 25/13, p. 367, ll. 31-37.  
- 28 -  
Q Okay. And what was the gist of the stories? Were they all the same or were  
they – were they conflicting?  
A They were just – they were investing in some tool. That way they were all the  
same whether the tool was junk bonds or railway bonds that depended.  
Q And where did the money come from to invest in these bonds?  
A That people would, clients or customer would come in and invest in $5,000  
increments or basically the minimum – the minimum investment was $5,000, and  
then they could invest any amount after that, and they would bring in their money,  
and sit down and talk to Robbie and Murray and sign contracts –  
Q Okay.  
A -- saying that they were going to invest the money.209  
[143] Ms. Dart described how investments were made in HMS:  
Q Okay. And was it a straightforward one person per investment or did some  
people make more than one investment at that time?  
A No, some people made more than one investment. They would invest initially  
with 5,000 or 10,000 and then they – and then they would invest another 5,000 or  
10,000. It wouldn’t be added to the original because it had different investment  
dates, so it had a different method of compounding or paying out so they had to  
be kept separate.  
Q Okay. So you mentioned two new words there, compounding and paying out.  
A Mm hm.  
Q What – can you unpack those a little bit for us, please?  
A Okay. So when they brought $5,000 in, if client A brought in $5,000 and they  
could choose to compound it, which means they would get 10 percent interest  
every month, and on the three months that 10 percent interest would be added to  
their initial investment, and that new – new amount would be invested for the  
second three months, or they could –  
Q Okay. So just to – just to use a round number, if they brought in $10,000 –  
A Yes.  
Q -- so I can do 10 percent of $10,000 easier than 5. How much would one  
month’s return on that investment be?  
A It would a thousand dollars.  
Q Okay.  
A So they get a thousand dollars if they invested in January, okay, so they had to  
be in for January 1st, then February 1st they would get a thousand, February,  
March and April so they would get a thousand those three months. Then when I  
did the new spreadsheet or carried forward the compounding their new investment  
would start on – at 13,000.  
209  
Transcript Oct. 30/13 – Nov. 25/13, p. 227, l. 29 – p. 338, l. 17  
- 29 -  
Q Okay. So the 10,000 plus a thousand for each month –  
A For each month, yes.  
Q -- would get you 13,000 at the end of the quarter.  
A Yes.  
Q And they had a choice at that point to do what?  
A They had – basically, yeah, they had to tell me when they initially invested  
whether they wanted to compound or payout.  
Q Okay.  
A So if they had initially said they were compounding then I would roll it over,  
and if they were – wanted a payout then I would do a payout spreadsheet and  
indicate that they needed a cheque for $3,000.  
Q Okay. And about how many of – how many of those investments could you  
say approximately between April of 2002 and February, 2004 came to HMS?  
A A hundred and seventy-five/a hundred and fifty.  
Q Okay.  
A I’m not sure.  
Q That you’re aware of?  
A Yes.  
Q Okay. All right. And so if I understand your evidence correctly, at the time  
they placed their money they would tell you, I want to be paid out at the end of  
the quarter or I want to reinvest it?  
A Yes.  
Q Okay. And was – was this all in one program?  
A As in a like spreadsheet –  
Q Well lets –  
A -- program or HM – or an investment program?  
Q Investment program.  
A They could choose if they – basically if they brought U.S. funds it would go  
into HMS and if they brought Canadian funds and that wasn’t – at the beginning  
the Canadian funds would get converted –  
Q Okay.  
A -- to U.S. funds and then, I don’t know, February, 2003, somewhere in there,  
about six or seven months then a Canadian program called Tuscany showed up.  
Q So depending on what currency the –  
A Yes.  
Q -- the investor would bring in you would funnel them to one or the other?  
- 30 -  
A Yes.  
Q Okay. And was there a name for the U.S. dollar ones?  
A Just HMS.  
Q Okay. And for the Canadian one you mentioned something like –  
A Tuscany.  
Q Tuscany. Okay. Like the – like the region of Italy.  
A Yes.  
Q Okay. And these are still investors investing directly with HMS?  
A Yes.  
Q And if I recall your evidence correctly, approximately a hundred and seventy-  
five or so?  
A Somewhere in there –  
Q Okay.  
A -- I can’t recall.  
Q Now I want to take you back to Peter and Blaine, how did they fit in, if at all,  
to what you’ve just told me about?  
A They would basically before the CCS designation and all of that they would –  
they would basically bring the cheques that – from investors in Saskatchewan  
where they were residing and bring them to Crystal or to Robbie or whoever  
happened to be in the office, and then myself or Crystal would basically type up  
joint venture agreements, which was the contract between HMS and the investor.  
Q Okay. So lets unpack that a little bit.  
A Okay.  
Q The cheques that Peter and Blaine brought from Saskatchewan were made out  
payable to whom?  
A Payable to Garth Bailey.  
Q Okay. Okay. And the – the investors you identified in the – the previous  
example where they came directly to HMS and provided their money to HMS,  
how did they make their form of payment?  
A If they brought in a bank draft it was made to Garth Bailey.  
Q Okay.  
A Some brought cash.  
Q And what did you do with the cash?  
A It was given to Robbie.  
Q Okay. And was – was there a receipt issued or – or how was it documented?  
- 31 -  
A Yes, there was a receipt, and it was just basically a word document that we had  
created saying that we had received X number of dollars from this person and  
whoever was in the office signed it so.  
Q Okay. So if I understand where we are at so far, when did these transactions  
mostly take place, the investors directly with HMS and Peter and Blaine bringing  
cheques from Saskatchewan?  
A Like when like how does that –  
Q When between 2002 and 2004, was it throughout?  
A It was throughout.  
Q Okay.  
A It was on a daily basis.  
Q Okay. And you –  
A Not necessarily Peter and Blaine but other people would bring in cheques on a  
daily basis.  
Q Okay. And you mentioned a word a moment ago or – or an abbreviation of  
CCS.  
A Mm hm.  
Q Can you explain that please?  
A That was a term we came up with called customer client specialist, I think is  
what it stood for.  
Q Okay. I’ll show you some documents later, but I –  
A Yeah.  
Q -- want to get your recollection at this moment. So what – what was a CCS  
and what did a CCS do?  
A The CCS was designed to be the go-between between HMS and the investors.  
And its designation came up we kind of – it was kind of an acronym we came up  
with in the office to kind of designate those people that would be entitled to bring  
money into HMS without just customers walking in off the street.210  
[144] She testified that Murray Stark explained to her that investors who invested $100,000 or  
more were considered, by securities commissions, to be “sophisticated investors”. Customer  
Care Specialists (CCS) would collect investment monies in amounts of $5,000 and $10,000 from  
individuals, pool those funds until they totalled $100,000 or more, and then the CCS would  
invest pooled funds with HMS. The investment contract would be between HMS and the CCS  
and would record that the CCS had invested the pooled amount.  
[145] She testified that sometimes a CCS would bring in investments less than $100,000:  
210  
Transcript, Oct. 30/13 – Nov. 25/13, p. 338, l. 27 – p. 342, l. 25.  
- 32 -  
Q Okay. And the CCS, if I understand your evidence correctly, would gather  
smaller investments, group them into investments of a hundred thousand dollars  
or more.  
A Yes.  
Q And contribute that to HMS for investment.  
A Yes.  
Q Okay. And about how many CCS’s did you see in your time at HMS?  
A Like over a week how many would I see or –  
Q Well lets start with a week. How many would you see – see in a week?  
A Probably four or five.  
Q Okay. And in the whole time are you able to estimate how many CCS’s  
investments were placed at HMS between April, 2002 and February, 2004?  
A I couldn’t guess how many investments they brought in. I knew there was  
probably about 25 or 30 CCS’s.  
Q Okay. And each of them would have to bring in at least how much money to  
become a CCS?  
A That was the initial was a hundred thousand, and then other ones would bring  
in smaller amounts and Robbie would sort of say, yeah, you know, that’s okay,  
we’ll – we’ll invest that for you, and they would get a contract as well for less  
than a hundred thousand.  
Q So there were some CCS’s who did make the hundred thousand –  
A Yes.  
Q -- dollar threshold?  
A Yes.  
Q But Robbie would okay those?  
A Yes.  
Q Okay. And you saw that personally?  
A Yes.  
Q Okay. And lets talk a little bit more about the larger CCS’s.  
A Mm hm.  
Q Some were a hundred thousand dollars. Were there some that were larger?  
A There was Skyward Management which was Peter and Blaine. They brought  
in at least one million dollar investment, and I – I’m sure – I don’t know if that  
was accumulated amounts. And then there was Juan Exposito, I think, brought in  
a million dollar investment or a cheque to invest in a – a million dollar program.  
Q And where was Juan Exposito from?  
A Florida, that’s all I know.  
- 33 -  
Q Okay. Any other CCS’s that come to mind with a large either single  
investment or – or a large accumulation of investments?  
A Not over, most of them were between a hundred thousand and 400,000.  
Q Okay. If I throw out a couple of different names maybe you’ll tell me if you  
recognize them as a CCS or not.  
A Okay.  
Q How about John Willock?  
A Yes, he was a CCS.  
Q Okay. On the larger side or the smaller side?  
A He was on the smaller side, but we would actually – like we would do  
contracts like hundred thousand dollar contracts with him. We wouldn’t put it all  
into one.  
Q Okay.  
A So –  
Q And about how many of those can you say?  
A Three or four.  
Q Okay. How about Amin Ramji?  
A Yes. But most of his were a hundred and seventy, 230,000, somewhere in that  
area.  
Q Arie Schalk?  
A Yes, he had a CCS designation, but his investments were like 35,000. He was  
one of the ones that Robbie okayed to bring in smaller amounts.211  
[146] Ms. Dart testified that the cheques brought in by CCS’s, were payable to Garth Bailey  
and were sent to him. Dart typed up the contracts with the CCS’s and recorded them on a  
spreadsheet. Crystal Fyn took the cheques and sent them to Bailey.  
[147] At the end of a fiscal quarter, Dart would tabulate her spreadsheet and print out a  
spreadsheet of “payouts and compounding amounts.”  
[148] Dart testified that the spreadsheets which she created for HMS were reviewed by Fyn  
who then asked that the spreadsheets to be e-mailed to Bailey every quarter. Following this,  
Bailey would drop off cheques at the HMS office. The processed cheques had people’s name on  
them and the amounts correlated with the spreadsheets made by Dart. It was Garth Bailey who  
controlled the accounts from which the funds were drawn to make the payouts to investors at  
HMS. He signed the cheques.212  
[149] Dart set up Quickbooks on Bailey’s computer, and set up a file that would allow cheques  
to come off Mr. Bailey’s computer.213  
211  
Transcript, Oct. 30/13 – Nov. 25/13, p. 344, l. 36 – p. 346, l. 29.  
212  
Transcript, Oct. 30/13 – Nov. 25/13, p. 350-355.  
213  
Transcript, Oct. 30/13 – Nov. 25/13, p. 357, ll. 26-31.  
- 34 -  
[150] Dart described the way Joint Venture Agreements worked, how they were recorded, and  
how they were paid out.214  
[151] Dart testified about a meeting in Banff in 2003 with Stark, Bailey, Crystal and the CCSs.  
There were about 25 people present, and during this meeting there was a general consensus that  
Customer Care Specialists should be created. During the meeting there was a “questions and  
answers” period, but Dart could not recall if Bailey was there.215  
[152] Due to her involvement with HMS, Dart was sued and there was a judgment made  
against her.216  
[153] Dart described the mechanics of setting up Joint Venture Agreements and Loan  
Agreements.  
[154] Dart stated that she never saw the bonds which were referred to in the agreements  
between HMS and the investors.217  
[155] Dart explained what Kirby Audit was:  
Q Okay. All right. We talked a little bit this morning about your trip to Mr.  
Bailey’s office, and a little bit about the accounting system you set up there.  
A Yes.  
Q And after we asked – we spoke about that you mentioned something like Kirby  
Accounting or Kirby Audit.  
A Yes.  
Q What was that?  
A That was a company that was set up at a bank separate from the CIBC so we  
could put the – so that Garth could transfer money over to that account, and then  
we – they – it would be treated like payroll – like a payroll company.  
Q Okay. So lets – lets expand – or unpack this a little bit.  
A Okay.  
Q Who set up Kirby Audit?  
A I think it was his wife that set up the Kirby Audit.  
Q Okay. And what did Kirby Audit do? You gave us a sort of a sense that they  
would –  
A They would basically be the company that the – like a payroll company.  
Q Okay. Like a payroll company.  
A Okay. So a company would bring them money and they would disburse the  
payroll cheques. Except we did it for the investments.  
Q So –  
214  
Transcript, Oct. 30/13 – Nov. 25/13, p. 361-362.  
215  
Transcript, Oct. 30/13 – Nov. 25/13, p. 370-371.  
216  
Transcript, Oct 30/13 – Nov. 25/13, p. 373  
217  
Transcript, Oct. 13/13 – Nov. 25/13, p. 397, ll. 4-5.  
- 35 -  
A It was done for the investments.  
Q Okay. And by investments do you mean investment contributions or  
investment returns?  
A Investment returns.  
Q So the money that would be paid to whom?  
A The money out of that Kirby account would be paid to the client.  
Q Okay.  
A Yeah.  
Q As their interest or principal?  
A Yes.  
Q Okay. And do you remember what period of time Kirby Audit was operating?  
A It was only that one – that one quarter period that –  
Q Okay.  
A -- that actually happened during that time.  
Q Okay. Can you say when that happened?  
A No, I can’t recall dates.218  
[156] Ms. Dart testified that the use of CCSs started in March, 2003.  
[157] Dart stated that she invested $30,000 into HMS, but never received her principal back.219  
[158] Dart testified that 2% of the initial shareholders or joint venture contract was paid to the  
CCS every quarter as a commission.220  
[159] Ms. Dart was shown a “sample” letter which read as follows: see Attachment “C”.  
[160] Her evidence about the letter was as follows:  
Q -- that’s probably my data print. But, you’ll agree with me that the letterhead  
says what?  
A The letterhead’s from Garth S. Bailey.  
Q Barrister and Solicitor, and what follows Barrister and Solicitor?  
A Professional Corporation.  
Q Right. And then there’s an address for an email?  
A Yes. [email protected] (phonetic).  
Q Okay. And is that the same e-mail, or a different e-mail that you used to –  
A That’s a different e-mail.  
218  
Transcript, Oct. 30/13 – Nov. 25/13, p. 398, l. 22 – p. 399, l. 31.  
219  
Transcript, Oct. 30/13 – Nov. 25/13, p. 411, ll. 38-41.  
220  
Transcript, Oct. 30/13 – Nov. 25/13, p. 435, ll. 5-15.  
- 36 -  
Q Okay.  
A That was at the beginning.  
Q Now, July 23, 2002, re: HMS Financial Inc. We act for HMS Financial Inc.  
This will confirm that Garth S. Bailey Professional Corporation holds assets for  
HMS Financial with a verified value in excess of 30 million United States dollars.  
Have you seen that before?  
A I’ve seen this document.  
Q Okay. Tell me where you saw it?  
A It would have been sent to – certain clients wanted a written guarantee –  
Q Okay.  
A -- that their funds were being looked after, and so, occasionally, if they  
requested, Garth would send this letter out to them if I supplied him their  
information.  
Q Okay. So, let’s back up a little bit and unpack that. Certain clients requested a  
guarantee, or – or –  
A Yes.  
Q I don’t want to put words in your mouth.  
A A piece – a piece of paper saying, we’ve invested our money and we want to  
know it’s safe.  
Q Okay. So how did you come to learn that? The first time? Let’s talk about the  
first time you came to learn that somebody made that request.  
A How did it – Crystal probably showed me.  
Q Okay.  
A I don’t know.  
Q Did happen once, or more than once?  
A It happened a couple of times, and then – yeah, ‘cause, basically, I would –  
sometimes I would even prepare the letter with the person’s address on it –  
Q Okay.  
A -- and send it off to Garth.  
Q And how did you do that?  
A Electronically.  
Q So, just – (INDISCERNIBLE) like, me through it. I know – I know you’re  
really good with this stuff, but you prepare an electronic letter for Mr. Bailey –  
A Yeah, I basically have this letter, I take the sample off it, I type in their names,  
and send it to him, and what he did with it at his end, is up to him.  
Q Okay. And Word document, WordPerfect document?  
A Word.  
- 37 -  
Q Okay. And the understanding being, you wouldn’t have done it and sent it to  
him unless what?  
A Unless the client requested it.  
Q Okay.  
A And, at the beginning, he did – he did all the documents, I just – it might take a  
little bit for him to get to the – get to the – actually formatting the document, so.  
Q Okay. And about how many times did you send Mr. Bailey a – a formatted  
version of this letter for execution, and to do what he would with?  
A Maybe half a dozen.221  
Q Okay. Fair enough. All right. And – but, just so I understand your evidence,  
there were times when there was a request from either a CCS, or an investor, for  
an actual letter, and you would take the steps you described, and asked Mr. Bailey  
to forward along –  
A Yes.  
Q -- a signed version? Okay. And I notice that the second line says, 30 million  
United States dollars.  
A Yes.  
Q Did that number stay the same throughout, or did it change?  
A No. It changed. Because about a year later, they – they upped it to 40 million.  
Q Okay. Why?  
A I don’t know. I didn’t ask the bosses why.  
Q Okay. You just took the instructions, and –  
A Yes.  
Q Okay. And what you’ve described with this letter, the one in your hands, did  
you do the same things to the one that marked – was marked 40 million?  
A Yes.222  
Cross-Examination of Margaret Stanbuski-Dart (Dart)  
[161] Dart was asked to review the Loan Agreement which listed the borrower for the loan  
agreements as Paget Capital Limited (Bailey was the person named to receive notices on behalf  
of the borrower).  
[162] Ms. Dart testified that on one occasion, Bailey told her that cheques paid to Garth Bailey  
“In Trust” were to be returned. He did not want cheques payable to him “In Trust”.  
221  
Transcript, Oct. 30/13 – Nov. 25/13, p. 462, l. 25 – p. 464, l. 14.  
222  
Transcript, Oct. 30/13 – Nov. 25/13, p. 465, ll. 6-27.  
- 38 -  
Examination-in-Chief of Robert James Main (Main)  
[163] Mr. Robert Main testified. He was a farmer in the area of Three Hills, Alberta. He  
learned of HMS through an implement dealer (Ken Toews) who was Robbie Fyn’s brother-in-  
law.  
[164] Mr. Main explained what he did:  
Q Okay. Now tell me what happened next.  
A Well, he introduced me to him, and – and I was a little leery of it because of  
the – of the high interest they were offering at the time, which is – was 10 percent  
for a month. So I did my due diligence as best I could and I – I interviewed the  
both of them, Robbie – Robbie Fyn and Murray Sparks (sic), twice. And I also  
wanted to know – and my biggest concern was – is if it was registered with  
Alberta Securities, and I was assured it was.  
But I still didn’t feel comfortable with that, so I wanted proof. So they gave me a  
phone number of a lawyer firm that was apparently handling their affairs, and it –  
and the name was Garth Bailey, and I phoned him. Now, I honestly can’t say it  
was him I talked to. He said he was Garth Bailey, but – and gave me – and  
assured me that it was registered with Alberta Securities, and also sent me a letter.  
Q Okay. Tell me about the letter.  
A The letter stated that it was – there was nothing to worry about, and that they  
held funds to the tune of $30 million and growing to back all assets and activities  
of – of HMS.223  
Q Okay. And you met Mr. Fyn and Mr. – Mr. – I think you called him Mr.  
Sparks.  
A Yeah.  
Q Okay. And you had a conversation with them where?  
A In their office in Linden.  
Q Okay. And had you been there before?  
A I had not been there. I knew where the office was. I had not been there before,  
though.224  
Q Okay. All right. And – okay. So we left off with the second meeting at HMS.  
And – and –  
A Yeah.  
Q -- then what happened?  
A Well, after the second meeting and I – I received the letter from Garth Bailey  
lawyer – law firm, I decided, well, this – this has got to be okay. So I gave it a  
try.  
223  
Transcript, Oct. 30/13 – Nov. 25/13, p. 485, ll 13-30.  
224  
Transcript, Oct. 30/13 – Nov. 25/13, p. 486, ll. 8-17.  
- 39 -  
Q Okay. Let’s talk about the letter. Can you describe it for me?  
A If I remember correctly, it – it was just a – a page letter and it – and it basically  
said on it that there was – that he was representing – he was a representative, I  
believe, if that’s right, of HMS Financial, and he held assets of HMS of – to the  
tune of $30 million. And I believe on there – and I can’t say that for sure, but I  
believe it said, “and growing.”225  
Q MR. WAGNER: And while I’m doing that, Mr. Main, would you tell me a  
little bit more about the letter? I think you said it was one page. Can you tell me  
–
A Yes, I believe it was one page. To my best relec – recollection is that it stated  
that they were a representative and guaranteeing me that it was registered with  
Alberta Securities, and there was nothing to worry about.  
Q And whose letterhead was this on?  
A On – on the top left-hand or right-hand corner, I – I don’t remember exactly  
which corner, the letterhead Garth Bailey Professional Corp. on it, I believe.  
Q Okay. And did the letter – was it – do you recall whether it was signed or not?  
A I am not sure. I – I think it was. I can’t say that for certain though.  
Q Do you recall whether it was an original or – or addressed to you?  
A Yes, it was addressed to me.226  
[165] He summarized his initial involvement with HMS as follows:  
Q Okay. All right. So I – I don’t want to be pedantic, so lay out the situation, the  
cir – the chain of events again, you started with an – an implement dealer –  
A M-hm.  
Q -- Mr. Toews.  
A Yeah  
Q And then you spoke with Mr. Fyn and Mr. Stark and Linden.  
A That’s correct.  
Q And –  
A In their office.  
Q -- and then who did you speak with next?  
A Then I – I – when I spoke to Mr. Sparks (sic) and Mr. Fyn, I – I asked them for  
more evidence. They gave me Garth Bailey’s phone number.  
Q Okay.  
A That’s when – somewhere in between the first meeting with them and the  
second meeting is when I phoned and talked to him. And that actually is what  
225  
Transcript, Oct. 30/13 – Nov. 25/13, p. 487, ll. 28-41.  
226  
Transcript, Oct. 30/13 – Nov. 25/13, p. 488, ll. 10-25.  
- 40 -  
gave me the – made me think, well, this is on the up-and-up because my biggest  
concern was being registered with Alberta Securities.  
Q Okay. And then you went back to HMS.  
A Then I went back to HMS, and that’s when I did the first investment.  
Q Okay. Tell me about your first investment. When – when was that?  
A It would have been somewhere in 2002, probably between October to  
December – I – I don’t know the exact date – and it was for the sum of $50,000  
Canadian.227  
[166] The investment was repaid with the stipulated interest. Mr. Main invested two additional  
sums ($50,000 and $20,000).  
[167] I am satisfied that the Bailey letterhead letter to which Mr. Main referred was the same in  
content as the one marked as Exhibit 55 and reproduced above.  
[168] He was told by Stark and Fyn that Garth Bailey Professional Corp. held the assets having  
a value of $30 million.228  
[169] At a third meeting which Main had with Fyn and Stark, he was told by them that the $30  
million in assets had grown to $40 million. This meeting occurred shortly before Main and his  
sister made an investment of $20,000 on October 15, 2003.  
[170] The November, 2003 payment was missed by HMS.  
[171] Mr. Main explained why he invested with HMS:  
Q What led you to – to make the investment? You had a couple of meetings with  
Mr. Fyn and Mr. Stark, and you made a phone call to Mr. Bailey. What role –  
how big a role, how small a role did this – your phone call with Mr. Bailey play in  
your decision to invest?  
A I’d say it would have been a major role. My biggest concern was if it was  
legitimate and it was – whether it was being held – whether assets were being  
held by a professional corporation. And – and I received this letter, and plus the  
telephone conversation that I had with him requesting whether it was registered  
with Alberta Securities. And when it was verified to me that it was, it gave me  
the confidence to invest – invest in it.  
Q What about the – the letter marked ‘sample’? Did that play any role at all in  
your decision?  
A Not really. I – I – I – at the time, I guess I probably wondered why it was  
sample, but I think more so it was the phone conversation that I had with him, and  
this letter back had the same information that I got from him.  
Q From who?  
A From Garth – I’m going to have to say it again: supposedly Garth Bailey.  
227  
Transcript, Oct. 30/13 – Nov. 25/13, p. 492, l. 22 – p. 493, l.92.  
228  
Transcript, Oct. 30/13 – Nov. 25/13, p. 499, l. 35 – p. 500, l. 38.  
- 41 -  
Q Okay. And you – sorry. A moment ago I heard you say, It backed up the same  
information I got from –  
A From Garth Bailey when I phoned – made the phone call.  
Q Okay. Okay. I understand. Now, did you ever get your principal or interest  
back?  
A No.  
Cross Examination of Mr. Main  
[172] In cross examination, Mr. Main was asked these questions and gave these answers:  
Q Sir, you testified about a phone conversation that you say took place with a  
person you thought was Mr. Bailey.  
A That’s correct.  
Q And you testified that this person confirmed that HMS was registered with the  
Alberta Securities Commission?  
A That’s correct.  
MS. SERINK: And, madam clerk, can you please put Exhibit 56 in front of the  
witness?  
Q MS. SERINK: And I’ll just give you an opportunity to look at this letter. We  
talked about it this morning already. And would you agree with me that there’s  
nothing about the Alberta Securities Commission in this letter?  
A I would agree there isn’t, yes.  
Q Okay. And could it be that what you spoke about with that person on the  
phone was whether or not HMS was incorporated?  
A No. I – I definitely – and I definitely remember asking, and that was my major  
concern, if it was registered with Alberta Securities. And I – I had no reason to  
believe that I was not talking to Garth Bailey at the time because they gave me the  
address and the phone number.  
Q Yes.  
A And I – I distinctly remember asking him if it was registered under Alberta  
Securities.  
Q What was registered?  
A The – the funds that they held and – and HMS, if it was registered under HMS  
Securities (sic) as an investment firm.  
Q So it was your understanding that HMS would be –  
A Registered under Alberta Securities.  
Q And you were just saying HMS or the funds that they held. So which one were  
thinking?  
- 42 -  
A I – I was asking about funds that I was told that HMS had that was held by  
Garth Bailey. And he confirmed to me on the phone – by phone –  
Q Yes.  
A -- that – and – and it states here too, that it was 30 -- $30 million. I believe in  
that conversation he also said, “and growing.”229  
Examination-in-Chief of Allan Ambrose Gray (Gray)  
[173] Gray is an investment advisor with CIBC Wood Gundy, a position he has had for 3 years.  
In 2003, Gray was an independent investment broker. Gray first heard about HMS in 2003, and  
heard that a number of investors had been getting paid high raters of return. Gray was invited to  
a meeting at the Crossroads hotel in Calgary to hear a presentation by Stark and Bailey.230 This  
meeting took place on February 25, 2003.231  
[174] Gray testified that Bailey’s part of the presentation was that he held bonds in trust in case  
the investment went bad. Gray recalled that the bond amount was $40 million, but did not recall  
any specifics about the bonds being stated.232  
[175] At the meeting, Bailey told the audience that he had previously tried to help clients  
become involved in “bank trade programs” but had been unsuccessful until he had joined HMS  
three years before.233  
[176] Gray is owner of Pheonix Global Resources Limited. The company was formed and  
incorporated for the purpose of investing with HMS.234 Gray was told that this was required in  
order for him to participate with HMS. He was told this by Bailey, Stark and Fyn.235  
[177] Mr. Gray described that meeting:  
Q The – when you had that meeting with Mr. Bailey, who else was present, the  
May 2nd, ’03 meeting?  
A Ed Baran and myself and Garth.  
Q Have you seen him since then?  
A I don’t think so.  
Q Have you seen him today?  
A Yes.  
Q And where do you see him?  
A That’s Garth.  
MR. JOHNSTON: Okay. He’s indicated the accused, Your Honour.  
229  
Transcript, Oct. 30/13 – Nov. 25/13, p. 512, l. 10 – p. 513, l. 9.  
230  
Transcript, Oct. 30/13 – Nov. 25/13, p. 514-518.  
231  
Transcript, Oct. 30/13 – Nov. 25/13, p. 521, ll. 16-18.  
232  
Transcript, Oct. 30/13 – Nov. 25/13, p. 519, ll. 30-39.  
233  
Transcript, Oct. 30/13 – Nov. 25/13, p. 524, l. 28 – p. 525, l. 1.  
234  
Transcript, Oct. 30/13 – Nov. 25/13, p. 526, ll. 1-8.  
235  
Transcript, Oct. 30/13 – Nov. 25/13, p. 526, ll. 17-19.  
- 43 -  
THE COURT: Thank you.  
Q MR. JOHNSTON: Now, you said that you were told by both Garth and HMS  
principals to open the company. What do you – when was – when did Garth  
Bailey tell you that?  
A In person.  
Q And when?  
A On that meeting, May 2nd, ’03.  
Q Did he explain why?  
A Yes.  
Q Okay. What did – what was his – your understanding of his explanation?  
A that the way to invest in HMS – or investors to participate is they must come  
through another company.  
Q Did he say why?  
A I’m sure he did to the degree that there’s securities legislation or this is the  
right way to do it. It – it’s just the right way to do it is the best summary.  
Q Okay. What else did he tell you about setting up the company?  
A Then you can provide shareholders’ loans.  
Q To whom?  
A To investors.  
Q Okay.  
A And then we’ll – from there, we’ll – we will invest in HMS and have a loan  
agreement between HMS and Phoenix.  
Q Okay. So just so I understand it, this is information provided to you from  
Garth Bailey, correct?  
A Yes.  
Q The principals of HMS are not in this meeting, right? So –  
A Right.  
Q -- if you call them Murray Stark and Robbie Fyn, they’re nowhere to be found.  
A Right  
Q Okay. And if I understand your evidence correctly, you’re telling – he’s  
telling you to set up a company which will extend shareholders’ loans to the –  
A Investors.  
Q -- raise investors?  
A Yeah.  
Q And that would be – your company would have been Phoenix –  
- 44 -  
A Right.  
Q -- which would then issue shareholders’ loans to people who would invest into  
Phoenix to – so – is that correct? Yes?  
A Right.  
Q Then Phoenix would then pool that money and invest it into HMS. Is that  
correct?  
A Right.  
Q All right. And that’s advice given to you by Mr. Bailey.  
A Yes.  
Q Did Mr. – did you understand Mr. Bailey to be your lawyer or somebody else’s  
lawyer at the time?  
A Primarily HMS’s lawyer, but we would have accepted as advice from a lawyer,  
and you know, as good advice therefore.  
Q Okay. Did he ever represent to you that he was your lawyer?  
A No.  
Q Did he ever suggest that you might want to get independent lawyers to look at  
any of this information?  
A No.  
Q Did Mr. Bailey during that – you’ve already mentioned the Securities  
Commission. Do you recall any more detail about that?  
A No.  
Q Okay. Did compliance issues come up with – at that meeting?  
A Compliance?  
Q Yes, complying with certain documents or anything?  
A No. No. Now in my role today, I would – how I think of compliance is, you  
know, there’s ways of doing things and there’s regulations and whatnot. But back  
then, no, the word ‘compliance’ didn’t come up.236  
Q Did you do any sort of due diligence with respect to any of these individuals,  
background checks –  
A Garth –  
Q -- anything like that?  
A Garth or Murray?  
Q Either or any.  
A Only what we – to the degree that we met other investors.  
Q Okay.  
236  
Transcript, Oct. 30/13 – Nov. 25/13, p. 529, l. 19 – p. 531, l. 36.  
- 45 -  
A That – that was the primary research that we would have – would – that we  
did. When I first tried to call Garth, it was through the telephone book, his listing  
with McCarthy Tetrault.  
Q Did that work?  
A So – well, he said he wasn’t available, so I didn’t have any other way to get a  
hold of him, so I would have got his number from HMS after that. So I suppose  
the fact that he was a lawyer with McCarthy Tetrault did carry a little bit of, you  
know, credibility with us.  
Q Why? How is McCarthy Tetrault important to you?  
A Well, it’s a large, reputable law firm.237  
[178] Mr. Gray described how those investing through Mr. Gray met the principals of HMS:  
Q Okay. Explain to me what happened when your – did you take investors to  
meet Mr. Stark and Mr. – yes? You’re –  
A Yes.  
Q -- nodding. Okay. Explain that to me. Why are – why is that going on and  
what’s happening?  
A Well, we would have had some information that we could provide to potential  
investors. Ultimately, our recommendation would be they’d need to come and  
meet the principals –  
Q Okay.  
A -- and get the whole story.  
Q And you would assist your – your shareholders in going out to meet Mr. Fyn  
and Mr. Stark. Is –  
A Yes.  
Q -- that correct?  
A And they would mostly – usually be before they invested with Phoenix.  
Q Okay.  
A Before they were a Phoenix shareholder, they were a prospective shareholder,  
and we would take a trip to Linden with them.238  
[179] Mr. Gray testified that he received two letters from Bailey regarding the security Bailey  
was holding:  
Q Now, did you understand there to be a guarantee or security of the investment?  
A The only guarantee or security would have been bonds held by Garth Bailey.  
Q Do you have any more detail on how that worked, how the security operated?  
237  
Transcript, Oct. 30/13 – Nov. 25/13, p. 533, ll. 3-25.  
238  
Transcript, Oct. 30/13 – Nov. 25/13, p. 534, ll. 3-25.  
- 46 -  
A Well, I do have two letters that Garth provided Ed and myself when we met.  
Then I have another letter from HMS signed by Robbie Fyn stating how that  
would work.  
Q And explain to me the letter that was given to you by Garth, that was given to  
Ed and yourself.  
A Yeah. Well, two letters.  
Q Two letters. Okay. Explain them.  
A Well, I do have them, but my understanding is that Garth held roughly $40  
million worth of bonds as security –  
Q All right.  
A -- such that if HMS defaulted on their own agreements with us, he would  
liquidate the security –  
Q Okay.  
A -- and – and cover – cover the shortfall.  
Q And just so that I understand the process, you have the letter with you today?  
A Yes.  
Q Okay.  
A A copy.  
Q A copy of it. Is there an original anywhere?  
A You would have it, I think.  
Q Okay. And –  
A But even that was a copy. It’s not – not signed by Garth, but it’s what Garth  
provided to us.  
Q Okay. So just so that I’m clear, you provided that to the Crown which – and in  
request. Is that correct?  
A Yes  
Q Okay. And that letter was provided to you – you by Garth. Do you know  
when?  
A Two letters at that meeting, that one meeting.  
Q What date?  
A I think we said May 2nd, ’03.  
Q Okay. So this isn’t the February meeting. It’s the May 2nd.  
A That’s right. That’s right.  
Q I’m going to show you – you said there were two letters?  
A Yes  
- 47 -  
MR. JOHNSTON: If we could just have a moment, Your Honour. You do. Your  
Honour, may I approach?  
THE COURT:You may.  
Q MR. JOHNSTON: Tell me if you recognize those two pieces of paper, sir.  
A Yes. Those are the ones I gave to you.  
Q Okay. And those actually have a blue copy sticker on them, correct?  
A Correct, yes.  
Q And the first letter is dated what?  
A February 1st, ’03.  
Q Okay. And the second letter?  
A March 15th, ‘03  
Q Are they the same or different?  
A They’re different.  
Q And how are they different?  
A Well, the wording’s different.  
Q Okay.  
A They’re both on Garth’s – well, one’s on Paget Capital letterhead, one’s on  
Garth Bailey letterhead.  
Q Okay.  
They’re both signed by Garth. Oh, sorry, that’s not true. One has Garth’s name  
at the bottom and one has Robbie Fyn’s name at the bottom.  
Q Okay. Which one has Fyn’s name at the bottom?  
A The February 1st one.  
Q And whose letterhead is that on?  
A Paget Capital Limited.  
Q Okay. And the second one, the March 15, 2003, one, is unsigned –  
A That’s right.  
Q -- but there’s – the name ‘Garth Bailey’ is written on it.  
A That’s right.  
Q Is that correct?  
A Yeah, that’s right.239  
Q But these documents were given to you together by Mr. Bailey on May 2nd,  
2013.  
239  
Transcript, Oct. 30/13 – Nov. 25/13, p. 534, l. 27 – p. 536, l. 41.  
- 48 -  
A That’s right.  
Q Why were they given to you? Were you – does it – do you remember?  
A Well, a key part of the conversation, as always: What’s the security on the  
investment? So these documents would have been provided to demonstrate –  
they’re both talking about the security that’s held in case the investment is  
defaulted on.  
Q Okay. Did anyone explain these letters to you –  
A Yes.  
Q -- on the 2nd?  
A Yes. Garth –  
Q Who –  
A -- would have explained them – did explain them I guess is the better term.  
Q And what was your understanding from his explanation of these letters?  
A These are letters – the one that has Garth Bailey’s name on it at the top and  
bottom, he said he has signed these in the past. He isn’t signing them currently,  
or prefers not to sign it, but it’s factual information. It’s true information.  
Q Did he – did you ask him, Why – why won’t you sign it?  
A No.  
Q No? He – he did say it was true, though?  
A Yes.240  
[180] The letters were marked as Exhibits 61 and 62. Those letters read as follows: see  
Attachment “D” and Attachment “E”.  
[181] Mr. Gray explained how his company Phoenix was going to make money by having  
people invest in HMS:  
Q MR. JOHNSTON: Did you understand what your return was going to be at  
HMS?  
A Yes, I think so.  
Q Well, what did you understand your return to be?  
A Phoenix’s return was –  
Q Yes.  
A -- to be 12 percent per month.  
Q Okay. How did – does Phoenix make money on this deal?  
A Yes.  
Q How does Phoenix –  
240  
Transcript, Oct. 30/13 – Nov. 25/13, p. 537, l. 28 – p. 538, l. 13.  
- 49 -  
A Phoenix would make the spread between what it’s paying the clients and what  
HMS is paying.  
Q And what was the spread?  
A Clients would receive 3, 5, or 7 percent –  
Q Okay.  
A -- per month based on how much they invested.  
Q And so that I’m clear, back to your earlier conversation, a client of Phoenix  
means a – somebody who signed the shareholder agreement Phoenix. Is that  
correct?  
A Right.  
Q Okay. Shareholder loan to Phoenix.  
A Right.  
Q And somebody – the month that Phoenix gets comes from where?  
A From the shareholders, investors.  
Q When it’s coming back out of the investment.  
A From HMS.  
Q Okay. Did you ever hear of something called Dresden?  
A Yes. Robbie Fyn used that term sometimes.  
Q Okay. What – what is that in relation to? Do you know?  
A He called it the Dresden program, and the way he described it, it was definitely  
different than how Murray Stark described –  
Q Okay. Well –  
A -- what they were investing in.  
Q How does Murray Stark describe it?  
A He described what I’d said, as bank trade programs –  
Q Okay.  
A -- $10 million plus, high yield bank trade program.  
Q And how does Robbie Fyn de –  
A Robbie Fyn described it as participating – doing what banks do –  
Q What does that mean?  
A -- which would be accepting deposits, having a reserve ratio, loaning out  
multiples of what you’re bringing in on deposits, therefore getting a higher rate of  
return.  
Q Did you ever discuss with either Fyn or Stark why is – why is there a  
difference?  
- 50 -  
A Never asked that question.  
Q You didn’t?  
A No.  
Q Why not?  
A Like I said, the – the primary factor was that people had been getting paid for a  
long time, over three years. Therefore, we perceived that it was probably  
legitimate based on that, plus the fact that Garth Bailey held the bonds as security.  
Those were the primary factors. Never had Garth and – and – sorry, Robbie Fyn  
and Murray Stark in a room together casually to ask them that question.241  
[182] He described the process of recruiting investors:  
Q How did Phoenix go about recruiting its shareholders?  
A Friends, family, business associates of Ed and myself.  
Q What information would you tell them about – did you tell them any  
information about HMS?  
A Yes.  
Q How’s it explained?  
A We would have passed on information that we – that we had as far as we’ve  
met investors, we’ve met Robbie and Murray and Garth, told them our  
experience. There were a couple of documents that HMS provided that we could  
show people.  
Q Okay. You’d pass on the meetings with Garth. Is that correct?  
A Sorry?  
Q You passed on the information from Garth?  
A Described it to them, yes.  
Q How would you describe it to them?  
A And we did show them those – those letters as well.242  
[183] “Those letters” referred to Exhibits 61 & 62.  
[184] Phoenix advanced to HMS the total sum of $1.154 million (Canadian) in the period  
August, 2003 to February, 2004. Phoenix received back from HMS the sum of $51,000. The  
rest of the money was lost.  
[185] Mr. Gray testified as to the role Bailey’s representations made in the decision to invest:  
Q What role did Mr. Bailey’s representation to you about holding the bonds as  
security play in making that investment?  
A The primary role. We probably wouldn’t have participated without – without  
Garth being there –  
241  
Transcript, Oct. 30/13 – Nov. 25/13, p. 540, l. 7 – p. 541, l. 36.  
242  
Transcript, Oct. 30/13 – Nov. 25/13, p. 543, l. 32 – p. 543, l. 10.  
- 51 -  
Q Why do you say that?  
A -- as a third party holding security because we didn’t understand enough of  
what HMS was doing with the money, how they were generating their higher  
returns.  
Q So then how does that relate back to the – the bonds and the security?  
A How does it relate back?  
Q Right.  
A Because if Garth and his reputation, and him stating that he holds bonds as --  
as security, as collateral, and that – and that if we – if – if something goes wrong  
with HMS in the investment, then he will – he will cover it by liquidating  
bonds.243  
[186] After money was not being returned, Gray tried to contact Bailey to find out about the  
bonds. He could not get a hold of Bailey.244 Phoenix was sued for being involved with HMS.245  
[187] Gray was asked to review Exhibit 64, which he identified as the Shareholder’s Loan  
Agreement between Phoenix and its investors. Gray stated that it was the HMS Office which  
provided him with the template of the Shareholder’s Loan Agreement. HMS staff stated to Gray  
that this Agreement was something that Bailey recommended.246  
Cross-Examination of Allan Ambrose Gray (Gray)  
[188] In cross-examination, Mr. Gray denied being asked by Bailey “not to show not entitled  
clients the two letters.”  
Examination-in-Chief Stanley Edwin Wright (Wright)  
[189] Wright invested in HMS. Investing in HMS was suggested to Wright by Mr. Lennox who  
provided Wright with paperwork, cheques that he received from HMS, and letters. Wright then  
made a phone call to Bailey to find out how secure the investment was. Wright’s phone call to  
Bailey was a deciding factor in regard to investing.247  
[190] Wright identified the following documents: Exhibit 68- Photocopy of draft cheque, dated  
April 9, 2003, payable to HMS; Exhibit 69- Joint Venture Agreement dated April, 2003, between  
HMS and Wright and Wright’s wife; Exhibit 70-72- photocopies of draft cheques, payable to  
HMS; Exhibit 73- Joint Venture Agreement dated May 13, 2003, signed by HMS and Wright’s  
daughter; and Exhibit 74- photocopy of draft cheque payable to Wright’s daughter from Dana  
Carlson (Initially it was Bailey with whom Wright dealt, and then he received cheque from  
Carlson).  
243  
Transcript, Oct. 30/13 – Nov. 25/13, p. 561, ll. 8-23.  
244  
Transcript, Oct. 30/13 – Nov. 25/13, p. 547, ll. 1-24.  
245  
Transcript, Oct. 30/13 – Nov. 25/13, p. 547-548.  
246  
Transcript, Oct. 30/13 – Nov. 25/13, p. 554, ll. 1-24.  
247  
Transcript, Oct. 30/13 – Nov. 25/13, p. 594, ll. 15-27.  
- 52 -  
[191] Wright did not receive his principal back from HMS. Wright tried to contact Bailey to get  
his money back but he received no response.248  
Cross Examination of Mr. Wright  
[192] Mr. Wright confirmed after he invested, he had a second conversation with Mr. Bailey,  
and it was in that conversation that Mr. Wright started to form the opinion that the investment  
“would go south”.  
Examination-in-Chief of Lloyd Maurice Balicki (Balicki)  
[193] Balicki is a lawyer from Saskatchewan who acted for Mr. Dirks, an HMS investor.  
Balicki was asked to look over documents supplied to Mr. Dirks by HMS. Mr. Dirks wanted to  
know what kind of comfort letter he would get out of the documentation that had been supplied  
to him. The documents which Mr. Dirks received are in Exhibit 77. Because the documents  
supplied to Mr. Dirks were signed by Bailey, Balicki contacted the Law Society with respect to  
Bailey. Balicki received a letter from the Law Society stating for how long Bailey had been  
practicing, and that there were no outstanding matters such as discipline proceedings. (Exhibit  
75- Letter from the Law Society). Balicki wrote a letter, dated August 7, 2002, to Bailey (the  
letter that Balicki sent to Bailey is marked Exhibit 76). The letter was sent by Balicki to obtain  
more information with respect to the bond or bonds which Bailey was apparently holding.  
Balicki received a letter from Bailey, dated August 14, 2002 (Exhibit 78). The letter stated that  
the bonds were in bearer form, that they were in private corporations, that Bailey had them in his  
possession, and that there were no impediments or conditions for their use other than the terms  
set out in the initial letter. The letter specifically states: “Due to the confidential nature of the  
bonds, my clients instructions are not to provide copies or details of the same. They are bonds in  
a private corporation.” After the August 14, 2002 letter, Balicki did not have any follow up  
discussions or correspondence with Bailey. Balicki passed on the August 14, 2002 letter to Mr.  
Dirks, and then Mr. Dirks acted on his own. Eventually the Law Society of Alberta contacted  
Balicki in relation to this matter.249  
Cross-Examination of Lloyd Maurice Balicki (Balicki)  
[194] Mr. Balicki confirmed that he reviewed documents provided to him by his client and  
made notes on them as to how they would provide greater protection to his client.  
Examination-in-Chief of Brian Lewis Dirks (Dirks)  
[195] Dirks was introduced to HMS through the CCSs, Blaine Cisna and Peter Sheridan. Dirks  
then met with Stark and Fyn at the HMS Office. At this meeting, he was told about international  
investments and HMS being able to guarantee the return on investments made. The guaranteed  
return was 10%, and that it was guaranteed by bonds which could be liquidated in the event that  
the need was there. During his meeting with HMS, Dirks did not receive any documents other  
than a form letter (the Overview Letter- Exhibit 79).  
248  
Transcript, Oct. 30/13 – Nov 25/13, p. 595, ll. 22-26.  
249  
Transcript, Oct. 30/13 – Nov. 25/13, p. 619-629.  
- 53 -  
[196] Several weeks after his initial meeting at HMS with Stark and Fyn, Dirks met with Bailey  
in Bailey’s home in De Winton, Alberta. The main purpose of Dirks’ meeting with Bailey was to  
ensure that the investment was secured. Dirks recalled discussing the protection of the  
investment with Bailey, and that this protection was guaranteed by the bonds that Bailey was  
holding. Dirks came out of the meeting understanding that if investors were not being paid,  
Bailey had a responsibility to liquidate those bonds and look after payment of the investors.250  
During his discussions with Bailey, Dirks recalled a quoted value of the bonds and that value  
was in the millions.251 Dirks recalled that either Bailey or Stark told him that the bonds were  
corporate bonds or railroad bonds.252  
[197] After his meeting with Bailey, Dirks asked his lawyer Mr. Balicki to look over the  
documents supplied to him by HMS. Dirks asked Mr. Balicki to write a letter to Bailey, which is  
what Mr. Balicki did. Bailey responded by writing a letter on August 14, 2002. After that, Dirks  
made his first investment. Dirks invested in HMS through his company, Dirks Petroleum.253  
[198] Dirks testified that some investment returns were handled by Carlson, and that he  
received some HMS returns from Kirby Audit Services.254  
[199] On March 23, 2004, Dirks received a “Dear Valued Customer” letter which stated that  
the HMS program has been discontinued (see Exhibit 91). After receiving this letter, Dirks  
decided to roll over this HMS investments to Skyward Investments, a company operated by  
Cisna and Sheridan. Dirks did end up receiving his money from Skyward Investments.255  
[200] Dirks testified that in relation to his investments in HMS, his meeting with Bailey was  
important, and that he would not have invested without it.256  
Cross-Examination of Brian Lewis Dirks (Dirks)  
[201] Nothing significant arose in cross-examination.  
Examination-in-Chief of Blaine Arthur Cisna (Cisna)  
[202] Cisna became involved with HMS in 2001. On his first meeting with Mr. Fyn of HMS,  
Cisna was told of the Aspire program which HMS had been investing in. The program provided  
a pay out to people at 8% per month on a regular basis. Cisna and his then partner, now wife,  
invested in the program and received a return. By 2002, Cisna and Peter Sheridan referred  
around 300 people to the HMS program. Cisna testified that in 2002, the Aspire Program became  
the Dresden program. Fyn told Cisna that the Aspire program was secured by the Gilbert family  
trust, but because the program was growing so fast, the Gilbert family trust did not have enough  
money to provide the security. Consequently, the Aspire program switched to the Dresden  
Program, and Fyn told Cisna that he (Fyn) obtained municipal and corporate bonds to back the  
amount.  
250  
Transcript, Oct. 30/13 – Nov. 25/13, p. 649, ll. 23-36.  
251  
Transcript, Oct. 30/13 – Nov. 25/13, p. 651, ll. 6-19.  
252  
Transcript, Oct. 30/13 – Nov. 25/13, p. 651, ll. 15-31.  
253  
Transcript, Oct. 30/13 – Nov. 25/13, p. 653-656.  
254  
Transcript, Oct. 30/13 – Nov. 25/13, p. 664.  
255  
Transcript, Oct. 30/13 – Nov. 25/13, p. 668-670.  
256  
Transcript, Oct. 30/13 – Nov. 25/13, p. 670, ll. 16-34.  
- 54 -  
[203] Cisna stated that before Bailey was involved, it was Cisna’s understanding that Fyn found  
somebody to evaluate the bonds to ensure that they were worth “X number of dollars”. The  
bonds were given to Bailey to hold in trust; if anything went wrong with the program, Bailey was  
to be the lawyer for everyone in the program, and was to either borrow against the bonds or sell  
the bonds.257 In November or December of 2002, Fyn was putting a lot of pressure on Bailey to  
produce a letter stating the value of the bonds.258  
[204] Cisna’s understanding was that either Fyn or Bailey found somebody to evaluate the  
bonds.259  
[205] Cisna testified that in February, 2003, Cisna and Sheridan set up a corporation called  
Skyward Management. Bailey incorporated Skyward Management for them. Cisna was told that  
the best way for the Dresden program to be handled was that those who were taking referrals  
would be Customer Care Specialists (CCSs). CCSs would need to incorporate, and then sell the  
shares to the investor, and then obtain a shareholders loan from the investor.260 Cisna was told  
by Bailey that this was the best way to get around any problems related to the Securities  
Commission: set up a corporation, sell the shares in it, and then the shareholders invest in the  
corporation by making a shareholders loan to the company. The first six or eight (approximately)  
corporations were set up by Bailey. Bailey and Fyn told Cisna this was done to avoid any  
problems with the Alberta Securities Commission.261  
[206] Cisna’s office and Sheridan’s office from November, 2002 to May, 2003, was in the  
HMS building.  
[207] The format of the loan agreement, and the information and client sheet used for people  
wanting to invest, were structured and came from Bailey and Fyn.262  
[208] Mr. Cisna explained the way investors would get money into HMS.  
Q Okay. Well I want to go back to the discussions in December, ’02, and  
January and February, ’03, about how to set up this new Dresden program and  
where the information for that came from. So the last thing I think I asked you  
about that was where did the structure come from –  
A Yes.  
Q – and you indicated you believed it was from Mr. Bailey and Mr. Fyn.  
A Yeah. The format of the loan agreement and the info and the client sheet to  
use for people wanting to invest.  
Q Came from?  
A Came from Robbie Fyn and Mr. Bailey.  
Q Okay. Now what did you observe or learn from being in that office space that  
would lead you to that belief?  
257  
Transcript, Oct. 30/13 – Nov. 25/13, p. 690, ll. 27-37.  
258  
Transcript, Oct. 30/13 – Nov. 25/13, p. 732, ll. 34-41.  
259  
Transcript, Oct. 30/13 – Nov. 25/13, p. 692, ll. 24-29.; p. 731, ll. 1-14.  
260  
Transcript, Oct. 30/13 – Nov. 25/13, p. 693, ll. 18-29.  
261  
Transcript, Oct. 30/13 – Nov. 25/13, p. 694-695; p. 799-800.  
262  
Transcript, Oct. 30/13 – Nov. 25/13, p. 696, ll. 29-40.  
- 55 -  
A Just the talking and discussion with them.  
Q Okay. During that three month period how often do you see Mr. Bailey?  
A He would come out there sometimes he’d be out there once a week, sometimes  
every two weeks, sometimes it was a bit longer than that.  
Q Okay. All right. So let’s talk a little bit more about the structure. How would  
it – let’s say I have someone who wants to invest in the Dresden program and I  
meet you.  
A M-hm.  
Q What are you in the scheme? You identified HMS, you identified –  
A Yes.  
Q -- Skyward, you identified a CCS, what are you when I come talk to you?  
A Well we’d – we would describe how it worked and that and we did have in our  
literature if I recall correctly there was an information sheet on there.  
Q Okay. And where would your literature come from?  
A That literature was basically a lot of it was from the Aspire program and then  
drafted over to work with the Dresden program.  
Q Okay. So where did the literature for the Aspire program first come from?  
A I have no idea.  
Q How did you first come into possession of it?  
A From Mr. Fyn.  
Q Okay. All right. And if I understood your evidence from a moment ago the  
Dresden program was basically a newer version of the Aspire’s literature?  
A Yeah. It was – there was some changes in there and, of course, with the  
incorporations and that, that was a big change.  
Q Okay. So tell me about the incorporations. There was Skyward. Skyward, I  
believe your evidence was it was incorporated, it was a corporation?  
A Yes.  
Q Okay. So it was legal personality.  
A Yes.  
Q Who were the shareholders at Skyward?  
A Class ‘A’ was Peter Sheridan and myself.  
Q Okay.  
A And then Class ‘B’ would be the investors.  
Q Explain that, please.  
- 56 -  
A Okay. So if you wanted to invest, you wanted to invest $10,000, then they  
would pay $25 for a Class ‘B’ share and then put $10,000 as a shareholders loan  
into the corporation.  
Q Okay. And who would the investor’s cheque be made out to at the beginning  
of the Dresden program?  
A The Dresden program? It was – most of those funds were made out to, I  
believe it was made out to Garth Bailey’s trust account.  
Q Okay. And so investor account I issue a cheque to Mr. Bailey’s trust account  
say in January, 2003.  
A Yeah.  
Q You’re nodding. Okay. And then you indicate something about a shareholders  
loan?  
A Yes. It’d be shareholders’ loan in that. Yeah. And what we did is the Aspire  
program all that money we collected was made out to Garth Bailey’s trust account  
afterward when we set up Skyward some of it instead be made out to his trust  
account but most of it would be made out to Skyward Management Inc.  
Q Okay. So we’ll talk about the shift in a moment.  
A Yeah.  
Q But let’s just stick with the January – around January, 2003 period and let’s  
talk about the documents that were generated from that $10,000 example.  
A Yeah.  
Q So I’m an investor comes in, I issue a cheque for $10,000 made out to Garth  
Bailey in trust or Garth Bailey Professional Corporation.  
A Yes.  
Q And that cheque goes where?  
A That cheque then we would give to Robbie Fyn and/or Murray Stark and then  
my understanding then it would be passed onto Garth Bailey so he could put it  
into his account.  
Q Okay. So you know that you get the cheque and you know that you tender it to  
Mr. Fyn and you understood the rest.  
A Yes.  
Q Okay. And in return for that cheque for $10,000 you issue a shareholder loan  
document to that individual investor.  
A Well, yes, after February. Yeah.  
Q After February. Oh, after February.  
A Yeah.  
Q After Skyward was set up.  
A Yeah.  
- 57 -  
Q All right. So let me ask about February then. All right. And any other  
documents or any other share manipulations? Would the person invest and  
become a shareholder as well?  
A Yes. Yeah. Because we sold one class ‘B’ share in that.  
Q One class ‘B’ share.  
A Yeah.  
Q And you can’t be a shareholder – you can’t give a shareholder loan unless you  
are a shareholder.  
A That’s correct.  
Q So how many class ‘B’ shareholders did Skyward Management have?  
A Class’B’, the maximum we could have was 50 so I think 45 or 48.  
Q Okay. And then after investor 51 comes along then what happens?  
A Then set up a new corporation.  
Q And who set that new corporation up?  
A Mr. Bailey did.  
Q Okay. Great. This is the first six or however many corporations we were  
talking about a moment ago.  
A Yes.  
Q All right. And did you pay Mr. Bailey for doing that service?  
A Yes.  
Q Okay. Do you remember how much you paid him for each corporation?  
A Wasn’t very much. It was whatever the incorporation fee was and a search and  
that at the time. Then it was only a couple hundred dollars I figure –  
Q Okay.  
A -- for a corporation.  
Q And was a share certificate in fact issued to an investor?  
A Yes.  
Q And what did the – was the loan documented in anyway?  
A Yes. It was a loan agreement –  
Q M-hm.  
A -- and the investor got a copy of it.  
Q Okay. Now was there any paper between the investor and HMS Financial?  
A Once we set up the corporation and – no.  
Q Oh. Okay. Please explain.  
- 58 -  
A Then everything – all the people that were clients of Skyward would go  
through Skyward –  
Q M-hm.  
A -- and we would do all the paperwork.  
Q So before Skyward was formed there’d be a different paper trail, after Skyward  
was formed the loan documentation would be with Skyward –  
A Yes.  
Q -- or the corporations formed thereafter.  
A Yes.  
Q Depending on which investor you were in the sequence.  
A Yes.  
Q And the loan documentation would be between investor and Skyward as well  
as the share –  
A Yes.  
Q -- certificate. And then the actual investment itself, was there a document  
talking about the actual return anticipated?  
A Yes, there was.  
Q Okay. And before Skyward it was called what?  
A Before Skyward?  
Q Yes.  
A It would be – there was the Aspire program and then the Dresden program, and  
then shortly after that then – and I believe some of the money that we first took in  
from people went to HMS underneath the Dresden program.  
Q Okay. All right. So in – let’s talk about after Skyward. Skyward comes along  
and there’s the Dresden program, you’ve documented the shareholders’ loan,  
you’ve documented the share certificate, but what about the actual investment?  
Did Skyward document the actual investment?  
A The Actual investment then would be given to HMS and then we would’ve got  
a loan document from them for it.  
Q Oh, so there was another loan document generated.  
A Yes.  
Q From whom to whom?  
A It would be from HMS Financial to Skyward Management.  
Q All right. So there’s a shareholder loan from the investor to Skyward,  
Skyward or the next company would issue a loan document between Skyward and  
HMS.  
A Correct.  
- 59 -  
Q Okay. What – was there any other documentation lined to this investment?  
Was it purely a loan?  
A Yes, it was. Yeah.  
Q Okay. Was there any other documentation generated during the Skyward? In  
other words, February, 2003 onward period?  
A That Skwyard generated?  
Q That anybody generated.  
A Anybody generated. Not that I can remember. It was just from Skyward to the  
investor and Skyward to HMS.  
Q Okay.  
A And HMS would’ve generated that document to us.  
Q All right. So let’s talk about the money goes to Mr. Fyn and then presumably  
Mr. Bailey cashes the cheque. What about the returns?  
A The returns would’ve – there was – there was some of that was coming from  
Garth Bailey’s trust account through HMS and I think sometimes in smaller ones  
HMS just paid us that.  
Q Okay. So, and did that change as time went on?  
A Yes. There was a change in bank accounts and that and then down the road a  
ways it was Kirby something that was set up.  
Q To do what?  
A And that was – that was basically paying us the returns I believe.  
Q Okay. And anybody after Kirby?  
A Then there was a lawyer in Red Deer that did some payouts.  
Q Who was that?  
A I don’t remember what his name was.  
Q Okay. And how long did that go for?  
A Just a few months.  
Q Okay. And after that?  
A Then after that, that’s – that was pretty much the end of the line.  
Q Explain that please.  
A Well that’s – he did some payouts and then they were trying to set up a new  
system for payouts on a card and that.  
Q M-hm.  
A And that went on for three to four months, something like that, and then the  
RCMP came in and raided HMS in April, 2004 I believe it was.  
Q Okay. All right. And then what happened?  
- 60 -  
A Then that was about it.263  
[209] Cisna testified that in late February or March of 2003, there was a meeting set up by  
Skyward Management at the Radisson Hotel. He testified as follows:  
Q Okay. And all this time, 2001 through the end of 2002, my recollection is you  
brought in about at least 200, maybe 300 people?  
A Something like that. Yeah.  
Q Okay. And what was their sort of minimum investment?  
A 5,000.  
Q Okay. And there were some high rollers?  
A Yes. There were some and I believe it was February, maybe March and that,  
we had a meeting at the Radisson in Calgary.  
Q Okay.  
A And Mr. Fyn, Mr. Stark and Mr. Bailey was there.  
Q Okay. When was this meeting at the Radisson in Calgary?  
A That would’ve been in later February or maybe in March, of 2003.  
Q 2003.  
A Yeah.  
Q Spring, anyways.  
A Yes.  
Q Okay. So tell me about that meeting.  
A And that meeting we had I believe about 20 people that Peter Sheridan and  
myself knew and some of them we didn’t know but there were some that were  
there and they knew the other people so they invited them along –  
Q M-hm.  
A -- and that. And then there was a talk given I think it was by Murray Stark on  
the investment and that because you could do a $1 million investment so he talked  
a bit about that.  
Q Okay.  
A And then Mr. Bailey talked a bit about that.  
Q Okay. So tell me what Mr. Bailey said at that Radisson meeting?  
A Well, what really stood out was that your money was safer in that program  
than at the bank.  
Q Safer than at the bank.  
A Yes.  
263  
Transcript, Oct. 30/13 – Nov. 25/13, p. 696, l. 32 – p. 703, l.1  
- 61 -  
Q Please explain.  
A Well that the program and that, the way it was set up and the way it worked,  
that your money was safer in the $1 million program than it would be in your  
local bank.264  
Q Okay. Let’s try and get a little context. So it’s a meeting at the Calgary  
Radisson.  
A Yes.  
Q Which is a hotel. And you’re in a hotel room or a meeting room, or?  
A It was in a meeting room.  
Q Okay. And who set up the meeting?  
A It would have been Skyward Management that would’ve set it up.  
Q Okay. And who’s Skyward Management?  
A It would be Peter Sheridan and myself.  
Q Okay. And how did Mr. Stark and Mr. Bailey find themselves at this meeting?  
A We had asked them to come and explain the program.  
Q Ah, okay. So Mr. Stark did some explaining and Mr. Bailey did some  
explaining.  
A Yeah. And – yes.  
Q Okay. So what –  
A And I’m not too sure what Robbie had said but I think he had said a little bit,  
too, but I’m not sure exactly what.  
Q Okay. Well I want to focus on what Mr. Bailey did in his role explaining the  
program. So could you expand that a little bit for me? What topics did he cover?  
What things was he talking about?  
A I think he talked a little bit about the Dresden program and basically what  
really stood out was that it was – that your money was safer in the bank or I mean  
in the program than at the bank. That’s really what stood, you know, that’s what I  
think most of them remember.  
Q All right. So when you and Mr. Sheridan brought – Mr. Stark and Mr. Bailey  
decided to bring them to talk what did you want them to talk about? What did  
you – did you speak –  
A To explain the program.  
Q Okay.  
A Yeah.  
Q Did you give them some more framework around that detail around that?  
264  
Transcript, Oct. 30/13 – Nov. 25/13, p. 707, l. 12 – p. 708, l. 16  
- 62 -  
A Well we had some people that were interested in investing and getting in a  
higher return and that so – and Robbie Fyn and Murray Stark had said that they  
had a $1 million program and that and so we basically – they assured us that it  
was safe and everything. So then we got the investors – we got a few people there  
and that, that were interested.  
Q Okay. Now we got on this Radisson track because I asked you about the high  
rollers and then you mentioned the Radisson and now you’re talking about the  
million dollar program. We haven’t talked much about the returns. I think you  
said Aspire paid 8 percent?  
A Yes.  
Q How often?  
A 8 percent a month.  
Q Okay. And the Dresden program paid how much?  
A It was the same thing.  
Q Okay. And what’s – so people were happy with 8 percent per month.  
A I guess they were but people are always happy with more.  
Q Okay. So that’s how the million dollar program was born?  
A Yeah. They had said that they had come up with a million dollar program that  
would pay more.  
Q Okay. Can you tell us anything more about Mr. Bailey’s role at this Radisson  
hotel?  
A Basically as far as I know he was there as HMS’ lawyer and that and I don’t  
know what – just basically there as HMS’ lawyer.  
Q All right. So let me go back, I’ve sort of gone off my script here and I’m going  
to try to get back to it.  
A Okay.  
Q All right. Now, I asked you a little bit about the money at first that went into  
Mr. Bailey’s trust account. Investors would write a cheque to Mr. Bailey’s trust  
account, it would be given to Mr. Fyn and then as far as you knew Mr. Bailey  
would cash it.  
A Yes. It went into his account and then my understanding then it would’ve been  
moved into an investment account that Robbie Fyn had set up.  
Q Okay.  
A The Aspire people.  
Q So what did HMS do with the money that was invested in it?  
A Well they would’ve invested in the Aspire program.  
Q Okay. What was the Aspire program?  
- 63 -  
A That was a program from California that Robbie Fyn was looking after here in  
Alberta.  
Q But what did Aspire do? If I buy a share of BlackBerry I know what  
BlackBerry does, what did Aspire do?  
A They were investing in, I’m not too sure exactly what all they had said, but I  
think it was some of it was probably buying and selling bonds or stocks and that.  
Q So it was a financial trade of some sort?  
A Yeah. Yeah.  
Q Okay. Did you get very involved with that?  
A No.  
Q Okay.  
A Just involved in getting people in.  
Q All right. And I asked you a moment ago about how the returns came back  
and my understanding, and please correct me if I’m wrong, is that they first came  
from Mr. Bailey’s trust account.  
A Yes. And then they were paid out from there.  
Q To whom?  
A And when it’s the Aspire program it would’ve been paid out to the individual  
people.  
Q Okay. And after the Aspire program was finished and Dresden came out?  
A Then I believe it was paid to Skyward Management.  
Q Okay. And what did Skyward do with the payouts?  
A Then what we would do in that is pay the investors their interest.265  
[210] Mr. Cisna testified that Skyward’s payment for bringing in an investor to HMS was 2%  
per month of the amount invested. He described the process as follows:  
Q And we talked about the returns from that. And you mentioned you referred a  
number of other people.  
A Yes.  
Q What did you get for referring these people?  
A We got 2 percent –  
Q 2 percent of what?  
A -- per month. Well if they were – it would be 2 percent of their investment.  
Q So if I’m that $10,000 guy on January –  
A M-hm.  
265  
Transcript, Oct. 30/13 – Nov. 25/13, p. 709, l. 3 to p. 711, l. 39  
- 64 -  
Q -- let’s say it’s March 1st, 2003 –  
A Yeah.  
Q -- and we do all the paperwork for Skyward and I put in my 10,000, I get how  
much each month?  
A You would’ve got 8 percent and we would’ve got 2 percent.  
Q Okay. So 2 percent that Skyward got was 2 percent of the principal how  
often?  
A Monthly.266  
[211] Mr. Cisna testified that Skyward paid out investment income to its shareholders and  
issued T-5 forms in respect of that income:  
Q Okay. What about the people who were investing through you either in the  
Aspire program or afterwards through Skyward?  
A Once we had Skyward Management set up then we did T-5s for them.  
Q What’s a T-5?  
A T-5 is reporting investment income.  
Q Okay. So who issued the T-5?  
A Skyward Management did.  
Q All right. And you issued the T-5 to whom?  
A To the – to Skyward’s investors.  
Q Okay. And did Skyward receive tax documentation from HMS?  
A No, we never received any T-5s or anything from them.267  
[212] As for the Dresden program, Mr. Cisna testified:  
Q All right. Now let’s talk about the Dresden program and what you would do  
with investors that come in off the street. So I’m the guy with $10,000 burning a  
hole in my pocket, who do I talk to when I come in?  
A If you came in to see Skyward probably 90 percent of the time or more you  
would’ve talked to Peter –  
Q Okay.  
A -- Sheridan.  
Q And 90 percent. The other 10 percent?  
A Well, there’s some people that I knew that came in and I did their –  
Q Okay.  
A -- all the paperwork and everything for them.  
266  
Transcript, Oct. 30/13 – Nov. 25/13, p. 713, ll. 11-32.  
267  
Transcript, Oct. 30/13 – Nov. 25/13, p. 714, ll. 23-37.  
- 65 -  
Q Did your approach or Peter’s approach vary or did you have the same approach  
for the investors investing in Skyward?  
A I would say it wasn’t the same, no.  
Q Okay. Let’s talk about your approach. Let’s say I’ve got $10,000 burning a  
hole in my pocket –  
A M-hm.  
Q -- and I come and see you, Mr. Cisna.  
A M-hm.  
Q I want to hear about this HMS thing. What documents do you show me?  
A I would’ve showed you the – we had an information sheet and that, I would’ve  
shown you that, and then went over the application form. Then we had a in case  
something happened to you where would the money be paid out to.  
Q Like a beneficiary designation?  
A Yes. Yes.  
Q So you’ve identified an information sheet, a beneficiary designation.  
A Yes.  
Q What else?  
A Loan documents.  
Q Okay. Which loan documents?  
A Ones for Skyward – that Skyward used for the shareholders loan.  
Q The shareholder loan between the investor and Skyward?  
A Yes.  
Q How much was a share?  
A $25.  
Q Okay. And what else?  
A That and then we had – we had a letter from Garth Bailey saying that the bonds  
and that it was – they were valued at I believe around 50 million.  
Q Okay. We’ll come back and talk about that in a minute.  
A Yeah.  
Q But it’s a letter? What kind of letter?  
A Was drafted up on his letterhead and that and –  
Q And where did you get that from?  
A Would’ve got that from Robbie Fyn.268  
268  
Transcript, Oct. 30/13 – Nov.25/13, p. 715, l.1 – p. 716, l. 24  
- 66 -  
[213] Mr. Cisna recognized a letter dated January 2, 2003 on Mr. Bailey’s letterhead and  
addressed to Paget Capital Limits (Exhibit 92). The letter reads as follows: see Attachment “F”.  
[214] Mr. Cisna testified as follows:  
Q MR. WAGNER: All right. So you’re referring to a document, sir. What’s the  
date of the document?  
A January 2nd, 2003.  
Q All right. And it’s on whose letterhead?  
A Mr. Bailey’s.  
Q And it’s addressed to whom?  
A Paget Capital Limited.  
Q All right. So what’s important about this letter?  
A This letter here says that there is certain assets, namely corporate bonds, that  
he had some – on the (INDISCERNIBLE) at his office. And I guess the – I guess  
page 2, the first paragraph, where it says that the value is in excess of $40 million  
US.  
Q Okay. And whose signature is that below the words Garth S. Bailey  
Professional Corporation?  
A Mr. Bailey’s.  
Q All right. And this is a letter of January 2, 2003, do you recall in 2003 what  
US dollar was worth?  
A I believe our money was in the forms (sic) of US was 60 some cents.  
Q Okay. Which would mean the US dollar was worth $1 something Canadian?  
A Yeah. $1.30 or...  
Q Okay. All right. Now we got onto this letter by me asking you what you  
would show someone who came in to invest at Skyward. What’s Paget Capital?  
A Paget Capital was a company that was set up, my understanding it was set up  
by Mr. Bailey, in the Bahama – in Barbados.  
Q And why was it set up; do you know?  
A It was set up to handle the funds and that, that was going into the Dresden  
program and into the $1 million program?  
Q Okay. Now did Skyward Management send money to Paget?  
A There may have been some cheques made out there, I’m not – I don’t recall at  
this time.  
Q All right. So tell me why this letter’s important. I asked you what you would  
show me if I came in to invest in March, of 2003. Is this one of the letters you  
would show me?  
A I usually never but I know Mr. Sheridan did.  
- 67 -  
Q How do you know that?  
A Because his desk was here and my desk was here.  
Q You’re pointing to two things right next to each other.  
A Yes.  
Q Okay. What were – you actually in the same room when –  
A We were in the same room and he had his desk here and I had mine right  
beside it.  
Q Okay. So would Mr. Sheridan bring in people to speak with him while you  
were in the room?  
A Oh, yeah.  
Q Okay. And you would observe these meetings to some measure?  
A Yeah.  
Q Okay. So you actually heard him make that representation?  
A Yes.  
Q Okay. All right. So, and you indicated that you didn’t put this letter forward  
as much?  
A No, I didn’t. I usually told investors that to – what you would do and that is do  
not invest your milk money and your rent money, it was money that you could  
afford to lose just as the same as you wouldn’t do it if you were buying Fort  
Canada shares. You wouldn’t put in your milk money and your rent money into  
Fort Canada shares because even if they’re on a big incline you – they can also go  
down, hey?  
Q Okay. Now, this letter is dated January 2, 2003, it’s addressed to Paget  
Capital. How did you come to possess it?  
A It was probably gotten from Mr. Fyn.269  
[215] There was a seized letter (dated September 10, 2002; marked as Exhibit 93) which Mr.  
Sheridan showed to some potential investors. It reads as follows: see Attachment “G”.  
[216] Mr. Cisna testified about Exhibit 93:  
Q MR. WAGNER: Now, this talks about $30 million.  
A Yes.  
Q The last letter talked about $40 million, can you explain that?  
A I believe the second letter was done – or the first letter was, that two-page one,  
was done before this one.  
Q The first letter we looked at was from January, 2003.  
A Yes.  
269  
Transcript, Oct. 30/13 – Nov. 25/13, p. 719, l. 14 – p. 721, l. 4.  
- 68 -  
Q And the one we just tendered was from – it had a handwritten date of  
September –  
A September, 2002. Yes.  
Q And the 2002 one said 30 million and the January, 2003 one said 40 million.  
A Yes. That was – my understanding would be that was after corporate bonds  
and municipal bonds were evaluated.  
Q Okay. So your understanding is that the 40 million number dollar – the $40  
million number came from the bond valuation?  
A Yes.  
Q Where did you acquire that understanding?  
A From discussions with HMS.  
Q Who at HMS?  
A Mr. Fyn and Mr. Stark.270  
[217] Mr. Cisna was referred to a letter dated June 19, 2002 from HMS to Bailey (exhibit 94).  
It reads as follows: see Attachment “H”.  
[218] Mr. Cisna testified in relation to it:  
Q And we got started on this by me asking you about what letters – what  
documents might an investor see. What is the letter that you’re looking at now?  
A It’s from HMS to Mr. Bailey.  
Q It’s on HMS Financial letterhead?  
A Yes.  
Q All right. Is it dated? Is there a date on this document, sir?  
A Yes. June the 19th, 2002.  
Q All right. And then why is HMS writing to Mr. Bailey?  
A It’s basically saying that the security documents that Mr. Bailey has is to be  
used – are to be held in trust and to generate funds to satisfy any obligations  
underneath the various joint venture agreements that HMS has in case of any – in  
case of any default in the program.  
Q Okay. And why did Skyward have this document and what did Skyward do  
with this document?  
A Well this would’ve been to assure that they actually did have – that they  
actually give Mr. Bailey authorization to do something with the bonds.271  
[219] Mr. Cisna testified that he had a conversation with Bailey and Fyn about the securities:  
270  
Transcript, Oct. 30/13 – Nov. 25/13, p. 723, l. 23 – p. 724, l. 7.  
271  
Transcript, Oct. 30/13 – Nov. 25/13, p. 724, ll. 12 – 31.  
- 69 -  
Q MR. WAGNER: Now, Mr. Cisna, I asked you about whether you had any  
discussion with Mr. Bailey and you identified the two-page letter is the document  
you discussed with him?  
A Yes. More than likely we didn’t have the letter in front of us when we talked  
about it but we would’ve talked about the security and that just to ensure that  
they’re – I guess to say that they actually did have the security and the  
authorization to cash them in to pay everybody back if something went wrong.  
Q Okay. How many of these conversations did you have before April, 2004?  
A Probably just the one.  
Q When was that conversation?  
A I don’t even – I don’t even remember when it was but I know we had talked  
about it and – trying to remember when it was.  
Q Okay. What did Mr. Bailey tell you in this conversation?  
A Well, as far as I can remember that he actually did have the – that he actually  
did have the securities and then he could cash them in if something went wrong  
with the program.272  
Q Okay. And you indicated there was some question about bonds being used as  
security in the Dresden program.  
A Yes.  
Q And that there might be an evaluation for those bonds.  
A Yes.  
Q Okay. Who told you that?  
A That would’ve been Robbie Fyn and that he had placed them with Mr. Bailey  
and they were – and there’s – and they’re being evaluated by an evaluator of  
bonds and that.  
Q So, just so I understand you, Mr. Fyn told you that he had placed the bonds  
with Mr. Bailey and Mr. Fyn told you that an evaluator was evaluating the bonds.  
A Yes.  
Q Okay. Did you speak to Mr. Bailey about the bonds or the valuation?  
A We had several different conversations and that but I don’t recall all that we  
talked about because it was a lot of different things we talked about.  
Q Okay. You say “we”.  
A Peter Sheridan and myself.  
Q Okay. But my question was did Mr. Bailey and you have a conversation about  
the bonds?  
272  
Transcript, Oct. 30/13 – Nov. 25/13, p. 726, ll. 21-39  
- 70 -  
A I – we did talk about the security and that. But the – it was nothing about what  
– that there was just corporate and municipal bonds.  
Q And you again use the word “we”, who are you referring to there?  
A Oh, that would be myself and Peter Sheridan.  
Q Okay. So my question is did you talk to Mr. Bailey? Did you and Mr. Bailey  
have a conversation about the bonds?  
A Myself and just him?  
Q A conversation with Mr. Bailey present and participating.  
A I believe we did. Yes.  
Q Okay. “We” is who?  
A Sheridan, and myself and Mr. Bailey.  
Q Okay. I’m now starting to get it. I’m sorry to be a pedantic –  
A Okay.  
Q -- but the use of pronouns can be a little elusive sometimes.  
A Yes. And Robbie Fyn could’ve been there, too.  
Q Okay. And how many conversations did you have, you personally, with other  
people present or without with Mr. Bailey about the bonds?  
A I think it was just one or maybe two.  
Q Okay. And can you give us an idea – can you give the Court an idea as to what  
Mr. Bailey said about the bonds in those one or two conversations?  
A That he was holding them and that for HMS securities – as securities to just in  
case anything would go wrong with the program then he could pay everybody out  
from selling off or borrowing money against them.  
Q Okay. And are you able to firm up when those conversations or that  
conversation took place?  
A It was more than likely in December, 2002 or early 2003 when these letters  
were coming out about the bonds and that.  
Q Okay. So the letter might’ve facilitated the discussion.  
A Yes.  
Q You can’t say today.  
A No, I can’t say for sure.  
Q Okay. All right. Now, that leads me to my next question. You indicated there  
were bonds in trust.  
A M-hm.  
Q How did you know there were bonds in trust? Who told you that?  
A That’s Robbie Fyn, Mr. Bailey and then the letters confirmed that.  
- 71 -  
Q Right. Okay. All right. Now, my note here says Mr. Fyn put a lot of pressure  
on Mr. Bailey in November, December of 2002 to say the bonds were worth  
something.  
A When he was getting – my understanding was that he was putting pressure on  
him to get the letter out, that two-page one, saying there were ’X’ number of  
dollars or more.  
Q Okay. And why do you have that understanding? Where does your  
understanding come from?  
A That came from Mr. Fyn.  
Q Okay. Did you ever talk to Mr. Bailey about the pressure Mr. Fyn was putting  
on him?  
A No, we never.273  
[220] Between 2001 and 2003, Cisna recalled seeing Bailey at the HMS office between 12-15  
times.274  
[221] Mr. Cisna described the volume of investment business and mechanics of payouts:  
Q Okay. And if I recall your evidence from earlier today about 300 people had  
invested by the end of 2002.  
A Yes. It would be somewhere around there.  
Q And by the end of – by April, of 2002, the number was up to about 700?  
A Yes.  
Q So can you give me a sense of whether your business was growing, flat, stable  
or decreasing in May, June, July, August, 2003?  
A It was growing and that but once we set up the office in Aidrie and that it was  
just like it was snowballing.  
Q Explain that, please.  
A It was – other people that had invested were bringing in other people to us and  
that.  
Q Okay. So it was –  
A So we didn’t have time to go – like we basically just stayed in the office there.  
Q You aren’t making cold calls.  
A No.  
Q Okay. All right. And were the returns coming in on schedule in May, June,  
July, August, 2002 – 2003?  
A I believe they were.  
Q Okay.  
273  
Transcript, Oct. 30/13 – Nov. 25/13, p. 731, l. 1 – p. 733, l.4.  
274  
Transcript, Oct. 30/13 – Nov. 25/13, p. 738, ll. 30-41.  
- 72 -  
A It wasn’t until – the first time that they weren’t coming in I believe was – that  
we never got a payout was in February, of 2004.  
Q Okay. So the fall of 2003 your clients were getting their money on schedule?  
A Yes.  
Q Would you have heard from them directly otherwise – if otherwise?  
A Yeah. Because the money was coming to us and then we were paying it out.  
Q Okay. So by the fall of 2003 Skyward or one of its other companies –  
A Yes.  
Q -- would receive the funds from where?  
A That would’ve been received from – some of that would be receive from the  
Garth Bailey’s trust account and then from Kirby and then from – oh, yeah, I  
remember his name now – Dana Carlson up at Red Deer.  
Q Okay. So explain to me, the fall of 2003 were you getting funds from all those  
sources or from some of those sources, or one of those sources?  
A I think it was just one source and then it just changed and that.  
Q Okay. Do you remember the sequence? Which one went to which one?  
A Would’ve been Garth Bailey’s trust account, would’ve been Kirby and then  
would’ve been Dana Carlson.  
Q Okay. Why did it change?  
A As far as I know they were having problems moving funds around.  
Q Okay.  
A And then I believe it was Robbie that said that Garth Bailey’s trust account  
was shut down.  
Q Who told you that?  
A Robbie Fyn.  
Q When?  
A Would’ve been probably in – somewhere in late 2003 when Kirby was set up.  
Q Okay. And what was Kirby?  
A Kirby was a company that Mr. Bailey had and that. Well I guess it was  
basically his – in the name of his wife and it was a company to handle the payouts  
and that.  
Q Okay. And how do you know that?  
A Because we got some cheques from them.  
Q Okay. And who were they signed by?  
A I don’t remember who they were signed by.  
- 73 -  
Q Okay. How did you learn that Kirby was something that was set up by Mr.  
Bailey?  
A That would’ve been from either Mr. Fyn or Mr. Stark.  
Q Do you recall which?  
A No, I don’t.  
Q All right. And Mr. Carlson of Red Deer, who was he?  
A He’s a lawyer in Red Deer.  
Q Okay. What did he do?  
A He handled payouts after Kirby.  
Q Okay. Why?  
A Because my understanding was that Kirby had their bank account shut  
down.275  
[222] Paget Capital become involved in the HMS scheme later on in 2003. Paget handled  
investments for HMS from fall of 2003 until into 2004.276  
[223] In March, 2004, clients received a letter (Exhibit 95) from Paget Capital stating that the  
investment program was discontinued. Payments stopped in February, 2004. Mr. Cisna testified  
that he and Mr. Sheridan used funds (in excess of one million dollars) still in the possession of  
Skyward (from commissions paid to Skyward) to pay people who had placed their money with  
Skyward.  
[224] Mr. Cisna then testified about a meeting he had with Mr. Bailey after default had  
occurred and the RCMP had searched the HMS offices.  
Q All right. Did you come to have another conversation with Mr. Bailey after  
May 1st, 2004?  
A Yes.  
Q All right. When was that?  
A I believe it was late 2004 but I’m not sure, or early 2005. We had a coffee  
meeting with him at I think it was Perkins or something down on just off I think  
32nd Street.  
Q In Calgary?  
A Yes, in Calgary.  
Q Okay. So you say “we”, who’s “we”?  
A Peter Sheridan and myself –  
Q Okay.  
A -- and Mr. Bailey.  
275  
Transcript, Oct. 30/13 – Nov. 25/13, p. 742, l. 5 – p. 744, l. 10.  
276  
Transcript, Oct. 30/13 – Nov. 25/13, p. 746, ll. 15-34.  
- 74 -  
Q Okay. And tell me about that meeting.  
A That meeting there and that was there that Mr. Fyn had come over to Mr.  
Bailey’s place, threatened him and he gave the bonds and the security back to  
Robbie Fyn.  
Q Okay. I need a little more –  
A And that’s when I found out they were – most of them were railroad bonds.277  
Q All right. Okay. So let’s go back and talk about that conversation late in 2004  
or early in 2005, whenever it happened at the coffee shop with Mr. Sheridan. I  
need a little bit more detail about what was discussed.  
A We discussed a few different things and then pleasantries and so forth and then  
we had talked – then he told us about what happened with Robbie Fyn and that  
and then we finally found out that they were railroad bonds and that. And his last  
conversation was that – that the only thing that was left to do was for the investors  
and so forth to – that they would probably have to sue him. Have to sue Mr.  
Bailey.  
Q Did he explain why?  
A Because he was holding bonds and they weren’t worth nothing.  
Q All right. How did you respond?  
A Well I had – I was just sort of shocked, I just walked out.  
Q All right. Tell me a little bit more about where the bonds went. I believe you  
said that they went from Mr. Bailey to Mr. Fyn?  
A Yes.  
Q What did Mr. Bailey recount about that, that event? What had happened?  
What the circumstances were?  
A That Robbie Fyn came to his house and threatened him.  
Q Was he specific?  
A Yes. That he had to give them up otherwise he would do bodily harm to him.  
Q Did Mr. Bailey use those words?  
A I – yes. Maybe not in the same context but he said that Robbie Fyn would do  
harm to him.  
Q All right.  
A And knowing Robbie he probably would.278  
[225] Cisna testified that he had a conversation about the HMS bank accounts with Stark in the  
summer of 2004. Stark told Cisna that he was going down to the US, and that Fyn and Bailey  
had convinced him that he should give Fyn power of attorney in case something was to happen  
to Stark. Stark gave Fyn power of attorney, and then Fyn emptied all of the HMS bank accounts  
277  
Transcript, Oct. 30/13 – Nov. 25/13, p. 754, l. 35 – p. 755, l. 16.  
278  
Transcript, Oct. 30/13 – Nov. 25/13, p. 756, l. 26 – p. 757, l. 16.  
- 75 -  
once he obtained the power of attorney. Bailey set up the power of attorney, which Cisna thought  
was in 2005. Stark also said that he transferred the shares in the company that they had to Sam  
Higgins.279 While I accept that this conversation occurred, its content is all hearsay.  
[226] Skyward Management also had problems with its bank accounts at CIBC (Crossfield) and  
at the Bank of Nova Scotia (Airdrie). The problem arose from too much money flowing  
through.280 The Bank of Nova Scotia account was closed down in the Spring of 2004, and the  
CIBC account was closed down in later 2003 or early 2004.281  
Cross-Examination of Blaine Arthur Cisna (Cisna)  
[227] In cross-examination, Mr. Cisna testified as follows:  
Q MS. SERINK: Mr. Cisna, just going back to late fall at the Perkins Restaurant  
where you met with Mr. Sheridan and Mr. Bailey –  
A Yes.  
Q -- and that was in 2004?  
A I believe it was.  
Q Okay. And you’ve testified that Mr. Bailey told you that Mr. Robbie Fyn had  
threatened him to give back to the bonds?  
A Correct.  
Q And that Mr. Bailey, as a result of that threat, gave the bonds back to Mr. Fyn?  
A That was my understanding, yes.  
Q And then you also said that it was at that time that Mr. Bailey spoke to you  
about the bonds and that’s when you learned that they were actually railway –  
historical railway bonds?  
A Yes, as far as I can remember that’s...  
Q Okay. And, sir, I’m just wondering if you can recall Mr. Bailey telling you  
that he gave the bonds back to Mr. Fyn not because he was under threat, but  
because Mr. Fyn had told him that he had a buyer for the bonds?  
A No, he didn’t say that.  
Q And, sir, you gave a statement to the police on November 16th, 2007?  
A Yes.  
Q And that was roughly six years ago, almost to the date, on Saturday?  
A Yes.  
Q And would you agree with me that your memory was better in 2007, about  
these events, than it is today?  
279  
Transcript, Oct. 30/13 – Nov. 25/13, p. 760, ll. 9-27; p. 772-774.  
280  
Transcript, Oct. 30/13 – Nov. 25/13, p. 796, ll. 21-41.  
281  
Transcript, Oct. 30/13 – Nov. 25/13, p. 796-799.  
- 76 -  
A I would say so.  
Q And do you have a copy of your statement with you?  
A Yes, I do.  
Q And would you agree with me that you actually told Detective Glydon that you  
learned about the bonds being railway bonds in 2005? So, quite a bit after the  
meeting with Mr. Bailey?  
A I don’t recall that.  
Q Okay. If we can just look at page 121, of your statement? And, sir, I’m just  
looking at line 2173, on page 121.  
A On which line?  
Q Two-one-seven-three.  
A Two-one-seven-two?  
Q Two-one-seven-three.  
A Okay. Yeah.  
Q And it says your name, Cisna, and you say: (as read)  
Yeah, it would be probably October/November. It was fall of  
2004, I believe it was.  
And Sergeant Glydon says, “Much after the 45 days?” And you  
say, “Yeah, much after.” Do you see that?  
A Yes.  
Q Okay. So, you’re talking about that meeting in the fall, of 2004, at the Perkins  
Restaurant?  
A Yes.  
Q And then Sergeant Glydon says, “Did Garth ever comment about the value of  
the bonds to you?” And then you say: (as read)  
I found out from some place, I don’t know who it was from, that  
they were – I think it was after that meeting. I think it was  
probably in somewhere in early 2005 that they – that they were  
railway bonds – historical railway bonds which would be corporate  
bonds.  
And then Glydon interrupts you and says, “But, not necessarily?”  
And then you say: (as read)  
But, not cashable because – because US government will not  
honour them.  
And then you go on to describe how you – what your  
understanding was of the US railway bonds?  
A Yes.  
- 77 -  
Q So, sir, would you agree with me that you didn’t find out about the bonds  
being railway bonds until much after, somewhere in early 2005?  
A That – that’s the statement I gave to him, yes.  
Q Okay. And I know that you gave that statement, but would you agree with me  
that when you gave that statement that is actually what accords with your memory  
or what – are you sticking with what you said the other day?  
A To be perfectly – to be honest with you, I – I really do know at this time.282  
[228] I note that the transcript is in error. Mr. Cisna said, “I really do not know at this time.”  
[229] I accept that Mr. Bailey did not say that Fyn had a buyer for the bonds.  
[230] As to what Mr. Bailey said at the meeting, I will leave that finding until I review the  
evidence of Mr. Sheridan.  
Examination-in-Chief of Arnold Dyck (Dyck)  
[231] Mr. Dyck testified that in 2002, he had a meeting with a Skyward Management  
representative at the HMS Office. It was either Cisna or Sheridan who suggested that if he had  
any more questions about the investment program then he was invited to speak to Bailey, a  
lawyer acting for HMS, who handled the investment money, the money transfers and the legal  
work related to HMS.283 In December 2002, Dyck called Bailey and spoke to him over the  
phone for 30 minutes. Dyck told Bailey that he was not interested in becoming involved in an  
investment program that was immoral, illegal or unethical. Bailey responded that he did not have  
to worry about that, and that he too would not get involved in anything like that.284 Dyck also  
asked Bailey how long he had worked for HMS and Bailey told him that he was lawyer for HMS  
for 1.5 years. Bailey also told Dyck that he left a big firm to pursue working with HMS.285  
[232] After Dyck spoke to Bailey, Dyck called the Law Society of Alberta to find out whether  
there was anything on Bailey’s record. The Law Society indicated that there was nothing on his  
record and that he was in good standing.286  
[233] In January 2003, Dyck invested about $20,000 into HMS. He was paid out by Garth  
Bailey Professional Corporation and his principal was returned to him, but he did not receive any  
interest on the amount.287  
[234] In February of 2003, Dyck attended a meeting in Calgary where Stark and Bailey were to  
give a presentation on the $1 million program in which a minimum investment of $50,000 was  
required in order to participate. The meeting was held at the Radisson Hotel in Calgary on  
February 26, 2003.  
[235] Mr. Dyck gave the following explanation of the meeting in February, 2003 in Calgary:  
Q Okay. So, then what happens?  
282  
Transcript, Oct. 30/13 – Nov. 25/13, p. 802, l. 12 – p. 804, l. 23.  
283  
Transcript, Oct. 30/13 – Nov. 25/13, p. 816.  
284  
Transcript, Oct. 30/13 – Nov. 25/13, p. 817, 9-20.  
285  
Transcript, Oct. 30/13 – Nov. 25/13, p. 817, ll. 32-37.  
286  
Transcript, Oct. 30/13 – Nov. 25/13, p. 818, ll. 9-24.  
287  
Transcript, Oct. 30/13 – Nov. 25/13, p. 818-820.  
- 78 -  
A Okay. Now, we’re into the middle of February. I got a call from Peter  
Sheridan shortly thereafter or maybe the 20th or so inviting me to attend a meeting  
in Calgary at which Murray Stark and Garth Bailey would both be present and  
they would explain in more detail what some of their programs were, but that they  
were considering launching a new 1M package. And so, Ian said if you have  
friends great, that you think might be eligible or, you know, this is a $50,000  
investment. So, if I had acquaintances in the business community or whatever  
that I could invite them and they could hear for themselves what Garth Bailey and  
Murray Stark and to say –  
Q Okay.  
A -- and then do what they want to do.  
Q So, what did you do?  
A Well, I went to that meeting with a couple friends. I’d say there was  
somewhere between 25 and 30 people present at the Radisson Hotel, 16th Avenue,  
North East, Calgary. I believe it was February the 26th, 2003.  
Q How do you know that date?  
A Pardon me?  
Q How do you know that date?  
A Well, I just have a good memory –  
Q Okay.  
A -- for figures and dates it seems.  
Q Go on the. I – I just had to ask it so....  
A Well, that’s okay.  
Q Okay.  
A I’m quite sure that it was the 26th, but you could always check the records at  
the bank – at the hotel.  
Q Okay. So, what happened at the meeting?  
A It was a very interesting meeting. Peter Sheridan acted sort of as an MC, just  
introducing people and talking about what was going to be happening, but other  
than that Peter did not speak about the investments per sae (sic). He invited  
Murray Stark to open the session so to speak and Murray spoke about how  
banking systems work, that if a person wanted to make a loan at a bank I think he  
used the example of a $40,000 truck. He said, if you want to buy a $40,000 truck  
you go to the bank, ask for a loan, they’ll check your credit, if your credit is good  
they decide to lend you that $40,000. He says they don’t go into their safe area or  
whatever and start counting the money. All that’s required is you sign a  
document promising to pay, you know, ‘X’ number of installments, over ‘X’  
number of years or whatever agreed upon with the bank, and all they needed was  
your signature and the money was created the very second that you sign the paper,  
that they money did not exist until that point. And so, it was really – I mean, I  
- 79 -  
had heard over the years I guess that money was – sometimes seemed like it was  
created out of thin air, you know, but I had never really heard it explained quite  
that way before. So, that to me was an interesting point that he made and then he  
started talking about the HMS involvement with international banks and he made  
specific reference to the World Bank and the IMF, that these people sanctioned  
huge projects mostly in the third world. It could be a billion dollar projects for  
irrigation, dams or hydroelectric power generation or, you know, large projects  
that the country could not afford to do. Mostly these were third world countries  
lacking in a lot of infrastructure and so, people could apply to the World Bank.  
And I just want to make an aside here on the statements. That’s the statement that  
all of you have seen.  
Q We – just so you know, the judge has not seen your statement.  
A Okay. That’s fine.  
Q So...  
A I just wanted to clarify that I read in that statement a number of times Royal  
Bank and I think that the stenographer or whoever was transcribing my video  
interview with the RCMP, back in 2007, misunderstood sometimes World/Royal  
might sound the same. It was not the Royal Bank that we were – you know, I – I  
never mentioned that word ‘Royal Bank’, but it shows up in the statement as  
Royal Bank, but it was the World Bank.  
Q Okay.  
A Okay?  
Q So, there’s an error in your statement when it says “Royal Bank”, is that what  
you’re saying?  
A That’s correct.  
Q Okay.  
A I – I was wondering myself, when I read this, I says where does this Royal  
Bank come from and then it just occurred to me that, you know, when you  
actually – on the paper they don’t even look close to being the same, but when  
you say the words, ‘World/Royal’, they might sound somewhat similar. And so,  
anyway, that’s – that’s a small detail. But, in any case it’s important, I think, that  
we’re talking about the World Bank here, which I’ve heard something about  
obviously, that it’s been around since the end of World War II and that they  
specifically worked with countries on large projects. And so, we talked about  
these huge programs that required hundreds of millions and maybe sometimes  
even billions of dollars, that if the World Bank assessed this and found it to be a  
credible program that the World Bank would then go to institutional banks and  
say, you know, they are – the World Bank, themselves, does not lend money, but  
they’re more like an advisory as I understood it. But, anyway, the – the word  
would go out from the World Bank and the IMF, International Monetary Fund,  
that they could then go to the big banks. Like, it could be Barclay’s Bank of  
England or HSMC or, you know, any of the really big international banks and  
say can you get 150 million or 250 million or whatever, we need a billion, to fund  
- 80 -  
such and such a program. And that that was the kind of a chain of information on  
how things happened, that HMS would be involved with one of the major  
European banks and that they would commit to raising ‘X’ number of millions of  
dollars and then there would be other sources for these big banks to raise  
additional money, but that HMS was part of that process of contacting their own  
people and – raising money at the grassroots level so to speak.  
Q Okay. Did anyone else speak?  
A Okay. So –  
Q That’s Murray Stark that you’re –  
A That’s Murray Stark.  
Q Okay.  
A Right. He seemed quite comfortable, he seemed quite knowledgeable and  
believable. And the Garth Bailey got up to speak and of course he immediately  
identified himself as a lawyer and that he did legal work for HMS. And by this  
time Peter and Blaine had already incorporated and were operating as Skyward  
Management, but still under the roof and in the same building in Linden as HMS.  
But, they had taken on I guess an opening given to them by HMS to give them a  
little more independence and incentive or whatever, but that all of the programs  
would remain HMS programs. Skyward never offered any programs under any  
name other than HMS. All of the money – and it was clear that they understood  
that all of the money went to HMS and Garth Bailey. So, at this meeting Garth  
explained that he had worked with the company, that he believed that – or, did  
just believe, he stated categorically that any monies invested in any HMS program  
was 100 percent safe, that the principle was guaranteed. They could not  
guarantee and advance any particular return or interest, but he says your principle  
will never be in doubt, guaranteed it, and he (INDISCERNIBLE). He said he  
personally managed the trust accounts, which had in excess of $30 million worth  
of bonds, which were cashable bonds, if anything should ever go wrong with any  
investment and if that problem could not be cured, I think that was his word, or  
back on track within 45 days that he had the authority to cash those bonds in and  
that there was plenty there, that all investors would be made good for their  
principle out of the funds that came from his trust account which consisted of a  
mix of bonds. So, that – that point was emphatically made. He mentioned  
another thing that struck – struck me as quite an amazing statement to make. He  
says, Your money – any money that you put into any HMS program is safer than  
money in the back and safer. Not nearly as safe, or as safe, but safer. And there  
was about, as I say, 25 people there, maybe 30, and most of them struck me as  
being fairly substantial and knowledgeable people.  
Q Did you talk to the people in the room?  
A Some of them, yes.  
Q Okay. Okay.  
A Yeah. They struck me as being business types and professional people. I  
knew one lady who was a financial advisor. I knew – I – I knew of three people  
- 81 -  
in particular that I’ve known for years are multimillionaires, very successful guys.  
So, you know, this – this conversation was being addressed to pretty smart  
successful people and for the lawyer to say in front of 25 to 30 witnesses so to  
speak that your money with HMS is safer than money in the bank and somebody  
had said to him, Well, how is – how can that even be.  
Q So, is this a question from the floor that –  
A Yes –  
Q Okay.  
A -- from the floor. How could it be safer than money in the bank and Garth said  
if you have a lot of money in the bank only your first 60,000 is covered by deposit  
insurance, CDIC, Canadian Deposit Insurance Corporation, I believe is the  
agency that for all Canadians and savings accounts that if – if the bank should go  
bankrupt the insurance, in spite of the bank’s bankruptcy, would pay for at least  
your first $60,000. Beyond that you could possibly lose all or part of what was  
over and above $60,000. So, he said banks are not necessarily as safe as you  
might think they are, but every dollar whether it’s a million dollars or any amount  
the whole thing is guaranteed by our – the trust account that I manage which is, as  
I say, backed by over $30,000 US. In those days the Canadian dollar was only  
around 65 cents so 30 million US is a lot of money and so I felt quite comfortable  
that a lawyer couldn’t possibly stand looking in the eye of 25 smart people and  
tell them that their money was safer with HMS than in any bank. So, as – you  
know, it’s – you know, how – how could anybody make a statement like that  
unless it were true?  
Q Is this a question you asked to yourself or to –  
A Yes.  
Q Okay.  
A Yes, this is a question I was asking to myself –  
Q Certainly.  
A -- that I just couldn’t possibly believe that he would put himself at such a risk  
in front of 25 potential witnesses. And so, we’re talking now about bigger  
money. The original investment was $20,000 right? Now, we’re talking millions  
of dollars and so the stakes have been raised a lot at this point. At this meeting at  
the Radisson Hotel that’s what was being discussed, much larger projects and  
Garth Bailey, in person, said – he says, I have made many trips to Europe to  
check these things out for myself. I believe it was London mostly that he went to,  
to talk with officials these larger banks that HMS would be forwarding money to.  
In fact, he made a joke about – he says, I sometimes wonder whether the  
hospitality industry isn’t running some kind of a scam here to see often they can  
get me and other people to fly to Europe because I’m paying a lot of money for  
airplane tickets and hotels and everything else. But, that was just his attempt at  
some humour, but –  
Q Okay.  
- 82 -  
A -- to emphasize the point that he had made many trips to Europe specifically  
for the case of assuring himself and the company that the money that they were  
raising from ordinary people. 288  
[236] At this point, there was an objection raised by defence counsel, after the resolution of  
which Mr. Dyck continued:  
Q So, continue on, Mr. Dyck?  
A Well, he said that he had made many trips to Europe to the financial centres to  
check out any type of investments that HMS was offering.  
Q Okay. Anything else you remember about the meeting?  
A The main points that I remember about the safety, that the money was safer  
than money in the bank and that he had personally visited financial centres in  
Europe – in Europe on numerous occasions to verify the authenticity and that – I  
think it was actually Mr. Stark rather than Mr. Bailey who said nobody’s ever lost  
a nickel with any HMS investment. So, I – I – I can’t say for sure whether it was  
Bailey who said that or Stark, but I know that that was stated. But, that Bailey did  
talk about the guarantee and the fact that his – that he had a trust account that he  
managed –  
Q Okay.  
A -- and that he’d made many trips to Europe. Those are the outstanding things I  
remember.289  
[237] I accept as accurate Mr. Dyck’s recollection of what was said at that meeting. I note one  
significant error in the transcript: the reference to “$30,000 U.S.” should have read $30,000,000  
U.S.”  
[238] Dyck invested a total of $250,000 USD into Skyward/HMS.290  
[239] Dyck recalled another meeting in October, 2003, at which about 150 people were present.  
During this meeting, Fyn stated to everybody that he had in his hand a statement from an Anglo-  
Irish, confirming a $50 million line of credit, and that they were expecting to grow their business  
substantially.291  
[240] In April of 2004, after the RCMP search of the HMS office, Dyck tried to contact Bailey  
but he could not.  
[241] Mr. Dyck was asked about the importance, if any, of Mr. Bailey’s statements at the  
Radisson Hotel meeting (in relation to Mr. Dyck’s decision to invest):  
Q MR. JOHNSTON: Sir, what role – you’ve given us advice earlier that Mr.  
Bailey was present at a meeting, that you had a conversation with him and that  
you were present at the Radisson Hotel at a meeting. Was that also called  
Crossroads at the time? Does that make sense?  
288  
Transcript, Oct. 30/13 – Nov. 25/13, p. 820, l. 32 – p. 825, l. 15.  
289  
Transcript, Oct. 30/13 – Nov. 25/13, p. 826, ll. 5-20.  
290  
Transcript, Oct. 30/13 – Nov. 25/13, p. 830.  
291  
Transcript, Oct. 30/13 – Nov. 25/13, p. 833-834.  
- 83 -  
A I think there’s a Crossroads shopping centre –  
Q Okay.  
A -- but it may have been – yeah, the name sounds familiar. Yes.  
Q Okay. And the question is what role did those representations that you heard  
from Mr. Bailey about the – about the investment play in your decision to invest?  
A Almost everything. I mean, I had made a small investment prior to that after  
talking with Mr. Bailey and then contacting the Law Society just to determine that  
this was legitimate, but for all investments from thereon in after that, it was  
critical.  
Q Why?  
A Well, because of what was said and to whom it was said. As I mentioned  
earlier, there were a number of points that were very emphatically made about the  
security of the loan – or security of the – the principle, more secure than the bank,  
the fact that Mr. Bailey had visited Europe frequently to ascertain, you know, the  
validity of the programs. There was one other point I made, can’t remember right  
now, but you have it on record, anyway.292  
Cross-Examination of Arnold Dyck (Dyck)  
[242] In cross-examination, Mr. Dyck agreed that he took into account several matters when  
deciding to invest:  
Q MS.SERINK: Just following up on that last question, I just wondered, you met  
with Hank at the Tim Hortons and who else was present at that meeting?  
A You want the name of that person?  
Q Yes.  
A Heike Enticknap.  
Q Pardon me?  
A H-E-I-K-E, Heike, and her last name is equally strange sounding, E-N-T-I-C-  
K-N-A-P.  
Q And that was the bank manager that you knew?  
A That’s correct.  
Q Okay. And why did you invite her to the meeting?  
A Well, we were good friends. I knew she was involved with banking and the  
little that I heard is this had something to do with international banking, I trusted  
her judgement and I just wanted her to give me a second opinion.  
Q And what opinion did she give you?  
A Well, she endorsed it. She believed it sounded believable and that she herself  
would be considering investing in the program, which she later on did.  
292  
Transcript, Oct. 30/13 – Nov. 25/13, p. 853, ll. 2-23.  
- 84 -  
Q And didn’t Hank also give you a phone number for somebody else that he  
knew that had got him interested in the program?  
A Yes, he did.  
Q And you called that person and were satisfied based on the representation that  
that person made to you over the phone that the investment program was  
successful and it was a legitimate program?  
A That’s correct.  
Q Okay. And you actually – when you were interviewed by Constable – or  
Corporal Randhawa, and I’ll just get the date for you, that was November, 20th,  
2007, and he actually came down to Lethbridge to interview you; correct?  
A Yes.  
Q You advised him that you had made that phone call to the person that Hank  
had provided you the phone number? And you had also told Corporal Radhawa  
that with both the bank manager and then other experienced people that had been  
involved with HMS, you felt like you had done your due diligence on the  
program.  
A Yes.  
Q Okay. And that it was more like there was a number of things that involved –  
like, made up part of your due diligence?  
A Well, yeah. I talked to, I thought, all levels of involvement.  
Q So you talked to Hank, then you talked to investors, then you had your bank  
manager friend who advised you that, you know, this looks legitimate, and then  
you made inquiries with Mr. Bailey, and then you went one step further and made  
inquiries with the Law Society?  
A That’s correct.  
Q And so you – you based your decision to invest on – on those different aspects  
of due diligence?  
A Yes.293  
[243] I accept that Mr. Bailey’s statements at the Radisson Hotel meeting were important to  
Mr. Dyck’s investment, but that the other matters mentioned in cross-examination also played a  
part in that decision.  
[244] Mr. Dyck also confirmed that he brought other investors to Skyward Management for the  
HMS program, and received $18,000 in commissions for those referrals.  
Examination-in-Chief of Amin Ramji (Ramji)  
[245] Ramji incorporated the company Altruistic Holdings in order to invest in HMS. After  
meeting with Fyn and Stark in the HMS Office, Ramji met with Carlson (Mr. Ramji’s lawyer),  
Fyn, Stark and Bailey in Red Deer at the Black Knight Inn. At the meeting, Bailey told Ramji  
293  
Transcript, Oct. 30/13 – Nov. 25/13, p. 854, l. 24 – p. 855, l. 38  
- 85 -  
that “the boys [Fyn and Stark] do their thing” and that Bailey held bonds for them, and could  
liquidate the bonds should investments “not pan out”.294 During the meeting, Carlson asked if he  
could see the bonds, and Fyn told him that he could not. Carlson also asked about the value of  
the bonds, and both Fyn and Bailey “suggested” that there was $40 million worth of bonds.295  
[246] Ramji testified that he understood that after the meeting, Bailey sent a letter to Ramji’s  
lawyer, Carlson. The letter confirmed that if the bonds needed to be liquidated, then Bailey could  
liquidate them. Though Ramji’s testimony about the letter is hearsay, it was confirmed by  
Carlson. After that, Ramji took family funds to invest in HMS. Ramji testified that Fyn told  
Ramji that it was Bailey’s instruction that Ramji should set up a corporation and deposit the  
money into the corporation. Ramji then set up Altruistic Holdings. Ramji explained how the  
investment was made, and how the pay outs were dealt with. Ramji discussed Carlson’s  
involvement and how Carlson set up a bank account at Canadian Western Bank in order to  
receive cheques on behalf of HMS. After the search at the HMS Office in 2004, Ramji asked to  
get his principal back but was told to wait things out in relation to the fund. Eventually Ramji  
received a call from Stark who told Ramji that everything was getting sorted on their part and  
that they hired a new lawyer who was going to do the same job as Bailey, and that Bailey was  
going to move over and look after all of their investments more hands on.296  
[247] Ramji testified that it was never explained to him as to how HMS made its money; how  
the 10% return would be realized. Ramji said he was not told about any risks involved in the  
investment, and Ramji felt secure because his counsel, Carlson, received a letter from Bailey  
stating that he had collateral that he (Bailey) could liquidate in case anything happened.297  
[248] Mr. Ramji testified about one of his visits to the HMS office in Linden, Alberta. He was  
asked these questions and gave these answers:  
Q Okay. Now, you said that you went to the HMS offices and you described a  
few times going there. Did – what does the HMS offices look like? They’re in  
Linden, Alberta, but what do they look like? Is it a tower?  
A No. It was – I don’t know how to describe it, it looked like it was just any old  
building. In fact, in the wintertime, it got rather cold in there –  
Q Okay.  
A -- it was a really old building.  
Q Okay.  
A Once you walked in, there was I think a little bit of a sofa on the right–hand  
side and two or three chairs on this side. Their offices were directly in the back,  
right in front of you, and then towards the back there on the left-hand side were  
the bathrooms and a water tower and so on – water – I mean, water fountain.  
Q All right. Was there anything about the decoration that stood out in your mind  
at HMS?  
A Decorations as in plants and things like that?  
294  
Transcript, Oct. 30/13 – Nov. 25/13, p. 867, ll. 32-39.  
295  
Transcript, Oct. 30/13 – Nov. 25/13, p. 889, ll. 26-38.  
296  
Transcript, Oct. 30/13 – Nov. 25/13, p. 878, ll. 14-26; p. 868-878.  
297  
Transcript, Oct. 30/13 – Nov. 25/13, p. 881, ll. 18-22.  
- 86 -  
Q Wall –  
A Oh, there was on the wall as soon as you walked in on the left and the right-  
hand side wall, there were – what I didn’t know then but I knew later to be  
Scripophily art.  
Q Okay. What’s – you’re the person that introduced me to that word, so you  
need to explain it. I’ not sure that everyone –  
A Scripophily is the art of collecting copies and/or real versions of bonds that are  
out of date and so on and so forth that you can buy through the internet, from  
other people, and they’re worthless, they’re completely worthless, but they’re –  
they’re – I mean, I’ve got a couple that – that I bought through eBay that I wanted  
to just frame because the writing on it is very scripted, really old – old language,  
railroad bonds and such and so on.  
Q When did you get involved in that?  
A In – in the purchase of that?  
Q Well, sure, in –  
A Well, you had to be there, I suppose. It was much like this except not a TV, it  
was a – it was a frame and there was an orange coloured bond in there, it was a –  
a railroad bond and I was just staring at it one day waiting for Robbie Fyn to get  
out and I was just mesmerised by the scripted handwriting and I was trying to  
read everything on it and I was engrossed enough that when Robbie Fyn came out  
– and you’ve got to understand this, he was not light of feet, if he’s walking,  
you’d hear him, but I didn’t even hear him, I got startled when he was right next  
to me and he said, You like that, huh? I said, Yeah, I do. He said, Well, that’s the  
copy of the real one that’s being held by Mr. Bailey.  
Q Okay.  
A And that’s when I said, Wow, I’d – I’d sure like to have something like this on  
my wall, it’s – I like art, I like that as art.  
Q At that time when that representation was made to you by Mr. Fyn, did you  
understand Scripophily? Did you –  
A No. No. No. I actually did research when I went back home. I just typed in,  
if I remember right, Old railroad bonds, on the internet and all sorts of images  
came out and so on, clicked on the very first one and that’s when I read the word  
“Scripophily” for the first time.  
Q Okay. And since then, I guess you’ve – you’ve continued – is it a hobby of  
yours, or?  
A Oh, I – I then –  
Q Okay.  
A -- I collect – I – I ordered off eBay one, two, maybe a third one –  
Q Okay.  
- 87 -  
A -- and then I also bought original – a roll of original unopened railroad tokens  
from, I think it was New Jersey, that I paid just a bit under $50 for. I thought it  
was cool to have. Somewhere down the road, I could say a hundred years down  
the road, these were used in ex-railroad and so on. It’s just amazing, they’re  
really cool.  
Q Okay. Did you know that the bonds on the wall were the bonds that Mr.  
Bailey was holding? Did you – did – did –  
A I did not know until I was told that.  
Q Okay.  
A And at that time I said, Wow, you know, talk about hiding in plain sight as  
such. And –  
Q Did you know –  
A -- and I was told just to keep it on – you know, between the – between him and  
myself, he said that, you know, This is – this is the copy of. And I says, That’s  
beautiful, I’d like to be able to have something like that on my wall. And he says,  
Well you can’t get that but I suppose you can get other copies of. And I says,  
Okay, and that’s what took me looking for it on the internet.298  
. . .  
Q And this is before or after you’ve invested your 10 –  
A Oh, no. This was – this was much after.  
Q What about the money that’s gone in through Altruistic, is it before or after?  
A After.299  
[249] Ramji’s understanding was that after money was pooled into Altruistic Holdings, it  
would then be sent to Carlson. Carlson would then send the money to Bailey. Then Bailey would  
send the money to HMS for an investment return of 10% per month.300  
[250] Ramji testified that the undertaking between Carlson and Bailey played a “huge role” in  
Ramji choosing to invest in HMS as it provided him with a sense of security.301 It was also  
important to Ramji that Bailey held the bonds because it meant that he (Bailey) could have them  
liquidated.302  
[251] Mr. Ramji was not cross-examined.  
Examination-in-Chief of Crystal West (West)  
[252] West is Fyn’s daughter. West started working at HMS in the summer/fall of 2001 as a  
receptionist, and worked for HMS for 12-14 months. West was told that there were bonds being  
298  
Transcript, Oct. 30/13 – Nov. 25/13, p. 883, l. 1 – p. 885, l. 3.  
299  
Transcript, Oct. 30/13 – Nov. 25/13, p. 885, ll. 34-38.  
300  
Transcript, Oct. 30/13 – Nov. 25/13, p. 891, ll. 23-37.  
301  
Transcript, Oct. 3-/13 – Nov. 25/13, p. 892, ll. 36-41.  
302  
Transcript, Oct. 30/13 – Nov. 25/13, p. 899, ll. 31-40.  
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held as a security for the investments by Fyn and Stark. West was under the impression that  
Bailey held the bonds and that Bailey was lawyer for HMS.  
[253] West understood that HMS pooled investments together, and then would send them off to  
an investments company to get high yield returns. West testified that when she was speaking to  
investors at the office, she would let them know that the bonds for security were held in trust, but  
she did not mention who held them in trust.303 West was under the impression that Bailey held  
the bonds in trust, and she was told this by Stark and Fyn304  
[254] West stated that Aspire was the first project that HMS was working on, and then HMS  
had a project named Dresden.  
[255] West saw bonds at the HMS Office. The bonds were on her desk, and were about 2-3 feet  
long in size. West was told that the bonds were worth $30 million, and was told by Fyn that they  
were Chinese bonds. She discussed with Fyn the possibility of just cashing the bonds and “living  
large.” West stated that it did not make sense to not cash the bonds as she was not being paid  
very much.305  
[256] West was asked to look at copies of bonds: Exhibit 15. West stated that those bonds  
looked similar to the ones that were on her desk at the HMS Office306 The bonds that were on  
CW’s desk were eventually taken by Stark and/or Fyn.307  
[257] Ms. West was not cross-examined.  
Examination-in-Chief Douglas Arnold Cowan (Cowan)  
[258] Cowan started investing in HMS in the summer of 2001, and continued to do so for  
around 3.5 years. Cowan stopped investing in late 2004 or late 2005 when HMS funds were  
frozen. Cowan incorporated two companies to invest in HMS: Lab Alta. Ltd., and 993638  
Alberta. Cowan was a Customer Care Specialist and brought in close to $1 million of  
investments through these companies. Cowan did not receive his principal back, and none of the  
investors under his incorporated companies got their principal back. Cowan was sued as a result  
of being involved with HMS. The law suit resulted in a settlement in which Cowan had to pay a  
“bit of money” out and had to pay legal fees.  
[259] Cowan understood (though the evidence is not clear from when he gained this  
understanding) that Bailey held bonds as security, and that those bonds could be accessed in case  
of default, or when problems with the investment occurred. The security amount increased from  
$30 million to $40 million.308 Cowan made this representation to clients by showing them  
Bailey’s letter describing the security. Cowan believed the bonds to be outside HMS, and that  
they could be used without HMS’s further authorization.309 Cowan never saw the bonds, and  
when asked whether the bonds were a significant factor in an investor’s decision to invest,  
303  
Transcript, Oct. 30/13 – Nov. 25/13, p. 928-931.  
304  
Transcript, Oct. 30/13 – Nov. 25/13, p. 943, ll. 1-9.  
305  
Transcript, Oct. 30/13 – Nov. 25/13, p. 932-934.  
306  
Transcript, Oct. 30/13 – Nov. 25/13, p. 940.  
307  
Transcript, Oct. 30/13 – Nov. 25/13, p. 942.  
308  
Transcript, Oct. 30/13 – Nov. 25/13, p. 955-969.  
309  
Transcript, Oct. 30/13 – Nov. 25/13, p. 966.  
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Cowan stated that he is not sure whether it was a significant factor, but that it was definitely a  
factor.310  
[260] In late 2002 or early 2003, there was a change in procedure in HMS, and Bailey gave a  
presentation about it in Red Deer. The change in procedure was that joint venture agreements  
would be eliminated, and they would be replaced with loans to incorporated companies of the  
CCSs.311  
[261] When asked about whether Bailey’s involvement with HMS grew from 2001 to 2004,  
Cowan stated that it grew, because his name started appearing on more documents.312  
[262] Mr. Cowan was not cross-examined.  
Examination-in-Chief of Peter Leonard Sheridan (Sheridan)  
[263] Sheridan was owner of Skyward Management and Cisna’s business partner.  
[264] Initially, Sheridan and Cisna invested $5,000 into HMS to see if the scheme worked after  
a meeting at Cousins Café where Garth Bailey was present and spoke about a tax program.313  
Eventually, Sheridan got more involved in HMS, and he and Cisna moved their business into the  
HMS office in November 2002. Before Sheridan decided to get totally involved, he and Cisna  
did a background check on Bailey by contacting the Law Society of Alberta.314  
[265] At one point, the Aspire program did not have the security that it said it did so the  
program ended. HMS then set up a program called Dresden. Dresden started to experience  
difficulties. One of the CCSs under the Dresden program was being questioned by the Securities  
Commission about the joint ventures. Bailey went to Saskatchewan to try to resolve the problem.  
After Bailey came back from Saskatchewan, he said that HMS had to change the way it was  
doing business. Bailey said that HMS could not do joint ventures any longer, and would need to  
set up corporations, that shares would need to be sold in the corporation, and then any  
shareholder who wished to invest would need to put a shareholders loan into that corporation and  
the corporation could invest the money as it saw fit. It was after this that Bailey incorporated  
Skyward Management for Sheridan and Cisna.315  
[266] Mr. Sheridan testified that there was concern expressed by Robbie Fyn about the  
“security” for the Aspire program. Mr. Sheridan testified as follows:  
Q Okay. Continue on then?  
A Okay. So security was an issue because apparently under the Aspire Program  
there was a trust called the Gilbert Family Trust that apparently secured the  
Aspire Program.  
Q Where did you learn about the Gilbert Family Trust in this?  
A From Robbie Fyn of HMS Financial.  
310  
Transcript, Oct. 30/13 – Nov. 25/13, p. 969, ll. 15-20.  
311  
Transcript, Oct. 30/13 – Nov. 25/13, p. 960-961.  
312  
Transcript, Oct. 30/13 – Nov. 25/13, p. 972, ll. 1-12.  
313  
Transcript, Oct. 30/13 – Nov. 25/13, p. 989, ll. 1-16.  
314  
Transcript, Oct. 30/13 – Nov. 25/13, p. 989-992.  
315  
Transcript, Oct. 30/13 – Nov. 25/13, p. 994-996 & 1013.  
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Q Okay.  
A So Robbie claimed to have been up on the bond trading floors at 2 and 3:00 in  
the morning securing bonds, commercial and business type bonds, is what he told  
us, of sufficient value to secure the investments that were coming in.  
Q Did Mr. Fyn tell you where he got the money to buy these bonds?  
A No. No, he didn’t.  
Q Oh.  
A And – and, you know what, did I ask him? I’m not sure.  
Q Okay.  
A But we – we asked lots of questions and got not – very few answers.  
Q You were saying security was an issue.  
A Well, and so that’s apparently why he did this.  
Q Okay.  
A Right. So he had these bonds and I believe he held them, at that point in time,  
and Garth would come to the office, I think, every Monday, as I remember, and  
supposedly to check to make sure the security was in sufficient amount to secure  
the investments because the investment amount would change every week.  
Q And when you say Garth came to check the security, what’s the security? Is it  
–
A Well, the bonds –  
Q Okay.  
A -- to make sure there was enough money in the bonds is what we were told. I  
never saw it. I – I saw Garth in the office. They always met behind closed doors  
and we weren’t privy to what was going on there but that’s what we were told is  
when.  
Q Who were you told that by?  
A Robbie.  
Q Robbie?  
A Robbie.  
Q Did you ever speak to Garth about why are you coming to the office on  
Mondays, or?  
A I – I don’t recall.  
Q Okay.  
A I may have. I mean Garth was very friendly. We got along very well and he  
may have said that. I don’t recall him saying it. I recall Robbie telling us that  
that’s what it was about.  
Q Okay.  
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A Okay. So that’s the security and we – shortly thereafter we moved into the  
office in Airdrie, operated business out of there until 2004. I believe it was April  
when the RCMP raided the Linden office. We were always told that things were  
going to be fixed, things were going to be better, just another week or two and  
we’ll have everything back in progress. So as we – oh, okay. I’ll back up on  
that.316  
Q Okay.  
A -- we were getting a bit – concerned about the security and Garth wrote a letter  
from Paget Capital, or to Paget Capital, I don’t remember, stating that there was  
bonds in sufficient amount to – to secure the investments.  
Q Did you get a copy of that letter at some point in time?  
A Yes, we did.  
Q Why did you get a copy of the letter that Mr. Bailey wrote to Paget Capital?  
A Because it was a letter confirming that there was security on the investments.  
Q And who gave you that letter?  
A I don’t recall. I – I can assume but I shouldn’t do that. So I – I believe it was  
Garth faxed it to us or sent it to us or it could have come through HMS and it  
could – he could have given it to them.  
Q Okay. So you said you don’t know who did it but –  
A No.  
Q -- you can pretty much – is it a list of three people then you would say, or two  
people, Garth –  
A Yeah.  
Q -- or someone at HMS?  
A Right.  
Q Okay. Do you know why that letter was generated or anything like that?  
A To give clients and ourselves some confidence that there was security for  
investments.317  
Q What did you think the risk was?  
A The risk was what the bonds would be worth on the day they needed to be  
cashed if they ever needed to be cashed, right. But I believed that – that it was a  
good program.  
Q Why are the bonds related to the risk? Explain that to me.  
A Well, the bonds were their security. So if HMS had $100 million or whatever  
figure and they had $100 million in bonds and something happened here, you  
could cash some bonds and people would get paid out.  
316  
Transcript, Oct. 30/13 – Nov. 25/13, p. 997, l. 20 – p. 998, l. 36  
317  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1000, l. 40 – p. 1001, l. 27.  
- 92 -  
Q Okay. So the – would – was it your understanding the bonds secured the  
principle or the interest or both?  
A Would say the principal, I believe.318  
[267] Mr. Sheridan described the one million dollar program:  
Q On – on the term of growth, what was – how did Aspire or Skyward grow  
from, say, 2002 to 2003? Was it slowly or –  
A Exponentially.  
Q Okay.  
A What – when we started doing what we refer to as the One M Programs, we’d  
had a friend of ours and client from Saskatchewan phone and say that he had half  
a million dollars, could he put that together with somebody else’s money and get  
into a $1 million program to make more return on his money? And so we asked  
Robbie and Murray both if we could do one of those because we’d heard that they  
were around and Robbie said, Absolutely. So we went down our list of potential  
clients, had a luncheon meeting at the Crossroads Hotel in Calgary, and Murray  
was there and explained how the trading floors work. Garth was there. Garth had  
made the statement at the meeting that – that their money was safer with HMS at  
that point in time than it would have been in the bank.  
Q What did he mean by that?  
A I didn’t ask him. I just – I – I believe that he meant that money was safe in  
HMS, that it was a safe investment.  
Q Okay. He said that to you or to –  
A No. To the group.  
Q Okay. How many people were at that meeting?  
A Might have been 15 or 20 something.  
Q It’s a public meeting more –  
A No. It wasn’t public. It was people we invited and we –  
Q Okay.  
A -- we had a room at the hotel.  
Q Who organized that meeting?  
A Blaine and I.  
Q And you remember that safer than the bank thing. Why?  
A Because it made us feel very good.  
Q Did it make you feel good?  
A Absolutely.  
318  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1016, ll. 6-18.  
- 93 -  
Q Why?  
A Well, because you always wonder, you always question, you always – well, we  
see the old story, it’s too good to be true; right? And everything seemed to be  
working out fine. Everything was good, right, and payments were being made.319  
[268] Mr. Sheridan said Skyward “was set up to solve the problem of not being able to do joint  
venture agreements.”320  
[269] The bonds were part of the “sales-pitch” used by Skyward. Mr. Sheridan testified as  
follows:  
Q Okay. Can you give me an example of what the – you know, your sales pitch  
was?  
A Well, people would come, they would have heard about the investment  
opportunity and we would have explained as best we knew it at the time, and  
that’s basically that money was put on the trading floors or high yield  
investments. The exact pitch, I – I don’t even remember. I couldn’t even get  
back into it if I wanted to.  
Q What were the key points of your sales pitch?  
A Well, the keys points was that – that they would make eight percent per month,  
paid out quarterly or they could let that compound. So they would just about  
triple their money in a year. That there was the security of the bonds and always  
they would say, well, what’s our risk, and I would say, the risk is, for you, the  
same as for me, whatever the bonds are worth on the day when and if they need to  
be cashed. So they never needed to be cashed, there’s no risk.321  
[270] The funds were sent to Bailey. Mr. Sheridan testified:  
Q What happens when – what, Skyward now has, say, my $5,000 –  
A Yeah.  
Q -- what do you do with it?  
A It’ll go in with everybody’s else’s $5,000 and I think it was – I don’t know  
how often we did it. I don’t know whether it was once a week or once a month, a  
couple times a month we transferred the funds to Garth Bailey professional  
account to be invested with HMS.  
Q Do you know why it went through Garth Bailey’s professional account?  
A Because that’s the way we were told to do it.  
Q Who told you to do that?  
A Robbie Fyn.322  
Q Did you ever get any resistance from Mr. Bailey about it?  
319  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1005, l. 4 – p. 1006, l.7.  
320  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1013, l. 3  
321  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1020, ll. 9-21.  
322  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1021, ll. 20-33.  
- 94 -  
A No. We never actually dealt with Mr. Bailey, you know, on a day-to-day basis  
for –  
Q Sure.  
A -- that sort of thing. If there was any resistance, it would have been back  
through HMS.  
Q Okay. But Skyward was sending money to Mr. Bailey?  
A Yeah. Well, to his account.  
Q To his professional account.  
A Yes.  
Q How much money?  
A Well, millions.  
Q Did anyone from Garth Bailey Professional Corporation ever phone you up  
and say can you please stop putting these millions through our account?  
A Not that I recollect.  
Q Okay. So once the money goes to Garth Bailey’s Professional Corporation  
account, what was your understanding of what would happen with the money?  
A Well, there would be a – there would be a written agreement, and, again,  
Blaine being the accountant, he looked after that, with a date that – that the funds  
were placed into the program.  
Q So it was papered in some way?  
A Yeah.  
Q Where did the paper come from?  
A Blaine and HMS generated it.  
Q Okay. When money – or so once the money is now – so, by now, the money’s  
gone from – into Garth Bailey’s professional account, did you understand what  
happened to it?  
A My understanding was it was placed into the Dresden Program in Germany.323  
Q Okay. How much did – in – in other people’s – in money raised through  
investors into Skyward and the Skyward family, how much money did Skyward  
raise that went through HMS?  
A How can I – don’t – I don’t know exactly. I’m – I’m believing it’s somewhere  
in the 22 to $25 million range.  
Q Twenty-two to 25 million?  
A I believe so.  
Q And how do you come to that number?  
323  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1022, ll. 6-40  
- 95 -  
A Well, I know that we did 19 $1 million programs and we’d have done – I’m  
sure we had done 5 million before that.  
Q The 19 million and the One – or the 19 One M Programs, it comes out to $19  
million –  
A Amazing.  
Q -- was that Canadian or US, do you know?  
A That would be US.324  
[271] Mr. Sheridan testified that he never saw the bonds being held as security. He testified:  
Q Did you ever see any bonds at HMS?  
A The bonds that we’re referring to for security? No.  
Q Well, let’s – the bonds that you were referring to as security, you say no?  
A Yes.  
Q Any bonds?  
A There was – there was historical railway bonds hanging on the wall there.  
Q And how did those historical railway bonds, as you understood it, compare to  
the bonds that were the security at the time I mean?  
A Well, at the time, I – they – they had no comparison as far as I was concerned  
at the time.  
Q Where did you get that –  
A We were told that they were corporate and municipal bonds that were being  
held for the security, historical railway bonds, because we, years ago, had been  
involved trying to pursue those things to – to see if they were real and found out  
that they weren’t, but they made nice decorations on the wall. So I don’t know,  
Robbie got them from somewhere.  
Q Okay. The bonds that were security then are – just so I’m clear in my mind  
from your evidence, they’re distinctly different than the ones that are on the wall?  
A Absolutely. The ones on the wall were just decoration.  
Q Okay. And did you know what type of bonds these – and I may have missed  
your answer, so you have to – I apologize.  
A Okay That’s fine.  
Q The bonds that were being held as security, what were they bonds in?  
A Corp – supposedly corporate and municipal bonds is what we were told.  
Q Did you know how that broke down, for example, or anything like that?  
A No.325  
324  
Transcript, Oct. 30/13 – Nov.25/13, p. 1025, l. 40 – p. 1026, l. 17.  
325  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1028, l. 26 – p. 1029, l. 18.  
- 96 -  
[272] Mr. Sheridan’s comments about the value of the bonds on the wall have no weight as he  
was not qualified to give such opinion evidence.  
[273] Mr. Sheridan testified about what occurred after the RCMP searched the HMS offices:  
Q How were you communicating with Mr. Fyn after April, 2004?  
A On the phone a little bit. Not a whole bunch.  
Q Okay.  
A He called me out to the farm one day, said, I need to see you. This was April –  
it was likely May or June. And I hadn’t had much to do with him up to that point  
in time, after this income had collapsed. We had been talking to Kendra and  
Margaret who were the ones that kept saying things are going to get better, it’s  
going to be okay. Robbie called me out in May or June, I don’t remember, and  
just basically sat me down and said, Look, you gotta know that – that Murray has  
stolen all the money here.  
Q Okay.  
A Okay. And, of course, that was – that was when we had to start figuring out  
what we were going to do. I remember we called Garth and had a meeting with  
him and Garth mentioned to us then that the bonds that were around were  
worthless, that they had no value to them. And I believed it was news to him as  
well. And we kind of said, Well, what’s our out – what’s our recourse, and he  
said, Undoubtedly, you’ll have to sue me like everybody else will.  
Q So Mr. Bailey said, You’ll have to sue me?  
A Yeah. Like everybody else. Undoubtedly. You know, it was just kind of a  
casual thing, he said, I don’t know what the recourse is, you’ll undoubtedly have  
to sue me like everybody else. We had lunch, parted company, and haven’t  
actually chatted since then.  
Q Did you ever learn what kind of – what the bonds were in, what corporation?  
A I – I think Garth told us at that luncheon meeting that they were actually  
historical railway bonds.  
Q Okay. After that meeting with Mr. Bailey – where was the meeting, do you  
know?  
A At a restaurant. I don’t remember.  
Q Do you know what city, province?  
A Oh Calgary. Calgary. Sorry.326  
Cross Examination of Mr. Sheridan  
[274] In cross-examination, Mr. Sheridan again spoke about the bonds:  
326  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1002, ll. 4-38.  
- 97 -  
Q Okay. You testified that Mr. Bailey said that the bonds were railway bonds  
and that – was it your understanding at that time that he had also returned them to  
Mr. Fyn?  
A At that time I think we were told that he had returned them to Mr. Fyn, I  
believe, or that they were taken back by Mr. Fyn.  
Q Okay. And you testified that he told you and Blaine at that meeting that the  
bonds were worthless, is that right?  
A Yes.  
Q Okay. I’m going to suggest that he didn’t tell you that the bonds were  
worthless, he told that – you that he had returned them and you made the  
assumption that they were worthless based on your own knowledge of the railway  
bonds and your experience dealing with them.  
A No, I believe he told us they were worthless. And then we asked him what sort  
of bonds they were and he told us they were railway bonds.  
Q And so you’re saying – sir, you’re referring to you and Blaine Cisna?  
A Blaine Cisna and myself, yes.327  
Examination-in-Chief of Peter Manousos (Manousos)  
[275] Manousos had a previous relationship with Bailey: Bailey was Manousos’s principal  
when he was an articling student at Merchant Law Group where he worked for 10 years, and  
where Bailey also worked.  
[276] Though he could not specifically remember, he agreed that his e-mails indicated that the  
monies referred to which he invested in HMS were given to Mr. Bailey.328  
Cross-Examination of Peter Manousos (Manousos)  
[277] Defence asked Manousos to confirm that he told the Law Society of Alberta that Bailey  
was not aware that Manousos invested with HMS in 2004 when Manousos made investments in  
2004, and that Manousos made the investments on his own, meaning he went straight to HMS,  
without first going to Bailey. Manousos testified that the initial investments that Manousos made  
in 2003 were made through Bailey, but after that they were made through HMS. Manousos  
stated that Bailey did not solicit an investment from Manousos, and that Manousos made the  
decision to invest on his own. Manousos stated that Bailey told him in 2004 that the only work  
that he was doing with HMS at the time was to try to fix the problems that HMS was having.329  
Examination-in-Chief Murielle Nagy (Nagy)  
[278] Nagy testified that she has worked for HSBC Bank Canada for 28 years. In 2003, Nagy  
was a personal finances manager.  
327  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1058, l. 31 – p. 1059, l. 7.  
328  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1077 – 1078.  
329  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1087-1089.  
- 98 -  
[279] Nagy was asked to refer to Exhibit 34- 00020024- Document dated November 6, 2003.  
This document was written after Nagy and Bailey’s meeting at HSBC. Present at the meeting  
were Nagy and Bailey only. When Nagy was asked to refer to the document she stated that she  
specifically recalled the situation, which was a ‘significant client exit.’ HSBC had asked Nagy to  
meet with Bailey to discuss some concerns about suspicious transactions on the account. There  
were suspicious transactions that were going through the US dollar trust account. The number of  
transactions that were going through the account, and the amount in dollars was not making  
sense with respect to the purpose of the account.330 The document that Nagy wrote summarizes  
Bailey’s response to Nagy’s questions. Bailey told Nagy that there was a two-fold business: acts  
on behalf of clients for real estate purchases and acts on behalf of clients for setting up asset  
protection trust. When Nagy asked Bailey whether he was selling investments or involved in the  
selling of investments or securities, Bailey stated “no.” Nagy then asked Bailey whether he could  
provide confirmation from his clients. Bailey responded that he could see what he could do, and  
would have to check with his clients due to solicitor/client privilege. Nagy never received any  
confirmation documents from Bailey.331  
[280] On November 13, 2003 another letter was written to Bailey from HSBC indicating that  
certain accounts of his would be shut down. HSBC decided to exit the relationship with Bailey  
because it was concerned about Bailey’s accounts.332  
[281] Nothing of significance arose in the cross-examination of Ms. Nagy.  
Examination-in-Chief of Sara Jimenez (Jimenez)  
[282] In March 2004, Jimenez worked at the Law Society of Alberta as an auditor and  
investigator. Jimenez was hired to perform spot audits and investigations of lawyers, as called  
upon, when there were concerns with trust funds. Jimenez was assigned to an audit task  
concerning the practice of Garth Bailey Professional Corp.  
[283] Jimenez reviewed the nature of the audit task, and the steps taken to properly complete it.  
Jimenez explained the purpose of the audit program, and a number of Rules relating to trust  
accounts, with which lawyers must comply and the forms which lawyers must fill out annually.  
[284] Ms. Jimenez testified as follows:  
Q Okay, all right, now let me ask you about annual filings. Is – this is again to  
your knowledge as an auditor for the law society, is a lawyer required to make  
annual filings with the law society?  
A Yes, at that point in time they were.  
Q Okay, and can you – are you able to tell me what filings?  
A Yes, with respect to trust records, a law firm was required to file a form ‘S’  
which is a form that the lawyer or chief lawyer of the law firm would fill out on  
the law firm’s behalf and send it in annually and then a second form ‘T’ which  
was required to be completed by an external professional accountant that basically  
signs off on a small review of all, again, the trust and general banking records.  
330  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1092-1094.  
331  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1095-1099.  
332  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1099-1101.  
- 99 -  
Q Okay, so the form ‘T’ is signed by an external professional?  
A Yes.  
Q I’m assuming someone with an accounting background?  
A Yes, professional designation, yes.  
Q All right, and the form ‘S’ is signed by who?  
A The lawyer.  
Q Okay, and in the case of a large firm, it’s signed by?  
A The managing practitioner.  
Q Okay, all right, and did you ascertain that there was a form ‘S’ filed for Mr.  
Bailey’s practice?  
A Yes, there were.333  
Q MR. WAGNER: Okay, and Your Honour, could I approach the witness,  
please?  
THE COURT: You May.  
Q MR. WAGNER: Ms. Jimenez, I’m going to show you a document that’s  
stapled together, several pages. Would you have a look, please. Do you  
recognize this document?  
A Yes.  
Q All right, the first page is a – is a letter with a letterhead on it.  
A M-hm.  
Q And whose letterhead is that?  
A That’s Garth S. Bailey, professional corporation.  
Q Is that the same entity you went out to do the spot audit on in June, 2004?  
A Yes.  
Q All right, and it enclose – it attaches – well, it has a receive stamp on it. Do  
you recognize the receive stamp?  
A Yes.  
Q And that’s dated – it’s hard to read on the photocopy. Do you recall when  
about the loss – loss (INDISCERNIBLE)?  
A It was like on the second page and this agrees with my notes was June 30th,  
2003.  
Q -- very well. All right, and the – what’s up after the first page covering letter?  
A After the cover letter, it would be a copy of a form ‘S’, form ‘S’ or a form  
reported by a law firm.  
333  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1116, l. 33 – p. 1117, l. 21  
- 100 -  
Q Okay, and is this – looking at the – the law firm information at point ‘A’ –  
A Yes.  
Q -- which firm is this?  
A Garth S. Bailey, professional corporation.  
Q Okay, is it – is it one in the same, is my question?  
A Yes.  
Q All right, all right, now, just going through this, there’s an e-mail address there.  
Do you recognize that e-mail address?  
A Yes.  
Q Is it one you used during the conduct of your audit?  
A It appears so, yes.  
Q Okay, and it covers a period of what?  
A This form covers the period June 1st, 2002 to May 31st, 2003.  
Q Are you able to say from recall whether you ever looked at one for after May  
31st, 2003?  
A I do not recall.  
Q Okay, would you turn over to the second page. Point five asks for the – a list  
of the owners and associates of the law firm and there’s one name there.  
A Garth S. Bailey.  
Q Is that the individual that you dealt with when conducting this audit?  
A Yes.  
Q Okay, and there’s no other lawyers listed at point five, point six or point  
seven?  
A No.  
Q Okay. Does that accord with your recollection?  
A Yes.  
Q All right, now under part ‘B’, accounting information, there are a number of  
bank accounts including what appear to be two for HSBC?  
A Yes.  
Q Would you have looked at some of the statements for those two accounts, for  
example?  
A Yes.  
Q Okay, and there’s some other accounts listed below at points two and point  
three under ‘B’ but I want to take you next to the last page of this document, part  
‘D’ and let me – let me introduce this topic a little bit. Do I understand that law –  
- 101 -  
you mentioned trust accounts and general accounts. Could you draw a distinction  
between those two, please?  
A Trust bank accounts are bank accounts that would be held for a lawyer to hold  
funds only for clients under trust conditions with those individuals or groups –  
Q Okay.  
A -- and then a general firm account would be where the lawyer or the law firm  
would have their own funds for conducting business operations.  
Q Okay, and did you observe both those types of accounts at Mr. Bailey’s  
practice?  
A Yes.  
Q All right, now, account – this sounds like a stupid question but accounts will  
what?  
A Pardon me?  
Q Accounts will what – trust accounts and general accounts, what do they hold?  
A Money.  
Q Money and in what currency denominations?  
A It can be in any but generally Canadian and sometimes in U.S. dollars.  
Q Okay, are you able to recall which you observed in this spot audit?  
A I believe both.  
Q Okay, all right, now beyond money held in trust, is it ever the case that lawyers  
hold non-currency assets or value in trust?  
A Yes.  
Q Okay, can you explain a little more, please?  
A Lawyers can hold property for clients in some cases. Sometimes they hold  
things as part of an estate or in some cases, they do hold trust funds or trust like  
funds in – in their capacity as a lawyer so clients entrust them with all sorts of  
things, jewellery, coins, bonds, investment certificates, cheques even that aren’t  
cashed.  
Q Something of value that can’t be deposited into an account –  
A Yes.  
Q -- at a bank?  
A Yes.  
Q Okay, so let me give you an example. Let’s say I can’t afford to pay my bill  
and you’re the lawyer but I want to give you my Paiget watch that’s worth  
$100,000.  
A Yes.  
- 102 -  
Q What would you do, as a lawyer, when you receive that property as collateral  
for my – for me paying my bill later.  
A If you’re holding just property there’s two different rules actually in – in the  
law society’s rules that handle (INDISCERNIBLE) property . One is rule 132  
which is where you have actual representative capacity over something where  
you’re –  
Q I should clarify, I’m asking my question with respect to the rules as they  
existed in 2002, 2003, 2004”  
A Yes.  
Q Okay, please an – please continue – you’re answer was about that, right?  
A Yes.  
Q Okay, please continue.  
A And so rule 132 is representative capacity where the lawyer has a role with  
respect to this property as opposed to rule 134 which is they’re just holding on to  
property but they’re not necessarily making any representation for acting on  
behalf of the property so not acting as a trustee or acting as a representative for –  
for that property, just holding it.  
Q Okay, is there – and you mentioned property as it distinguish from currency.  
Is there another category for things that don’t exist in one or – one or the other?  
A Not necessarily but rule 134 is more and I think it’s termed – I don’t have it in  
front of me but is more property so a physical object or like your watch or jewelry  
per se whereas rule 132 tends to be you might be holding funds or something. In  
a lot of cases, say a – a lawyer is trustee for an estate and there’s a whole other set  
of bank accounts or investments or other trust like assets that they’re holding  
outside of their regular law firm trust account and so that’s a little bit of a  
different scenario.  
Q Okay, so where would something like a negotiable instrument like a uncashed  
cheque fit?  
A We would tend to see that as held (INDISCERNIBLE) usually as the trust cap  
– like a representative capacity because you’re usually holding it in the case or  
form of a representation.  
Q Okay, so if you’re a lawyer whose holding something like a cheque or perhaps  
a bond –  
A M-hm.  
Q -- how would you account for that on your form ‘S’ for example?  
A Well, under the form ‘S’, you would – if you’re acting, you have a  
representative capacity, you’re required to actually notify the executive director of  
the law society that you hold that capacity and then in the form ‘S’, you would  
reaffirm that – that role and what your role is –  
Q Okay.  
- 103 -  
A -- so –  
Q Let me stop you there. Where in the form ‘S’ would that be noted?  
A In section ‘D’ of the form ‘S’, where it says estate file and representative  
capacity so it’s essentially a catch all where we’re trying to make sure that – or at  
the time, we’re trying to make sure that any trust property handled by the lawyer  
is – is something we can look at and get some assurance that it’s being handled  
properly.  
Q Okay, so that would be section ‘D’, point number one on the form before you?  
A Point number one would be for estate files and point number two is any other  
representative capacity so acting as a trustee or a representative of.  
Q Okay, so the form ‘S’ that we’re looking at here says list the members – at  
point two ‘D’, list the members of the law firm who acted in a representative  
capacity as contemplated by rule 132 during the reporting period parenthesis ‘N’  
‘B’ colon, only members acting at a representative capacity and handling or  
holding funds in excess and this is underlined, of $20,000 outside the law firm’s  
trust accounts need to be listed here and close parenthesis.  
A Yes.  
Q So that’s what you’re telling me would be noted there?  
A Yes.  
Q And what is noted on this form?  
A Nothing, ‘N’ ‘A’, not applicable.  
Q Okay, and you had took that to mean what?  
A That Mr. Bailey or his law firm held no representative capacities.  
Q All right, section ‘E’ says it has a form ‘S’ certification. It has a name entered  
there and a signature and a date.  
A Yes.  
Q Do you recognize those?  
A It’s Garth S. Bailey and Mr. Bailey’s signature and dated June 26th, 2003.  
Q All right, now this document – did this document exist before you attended Mr.  
Bailey’s office on June – in June, 2004?  
A Yes.  
Q Please explain.  
A This would have been received – that stamp that we talked about on the first  
page and the second page shows that the form was received by the membership  
department of the law society and we would regularly collect those as part of our  
audit department analysis.  
Q All right, so just for clarity, did you – did this document become created  
because of anything you did in June, 2004?  
- 104 -  
A No.  
Q It existed – it came into existence as far as you can ascertain –  
A Prior to that date, yes, absolutely.  
Q -- all right, all right. Now, you mentioned something about writing to the  
executive director. Can you explain a little more about that, please?  
A Oh, under rule 132, the rule where a lawyer would be engaged – acting on  
behalf of an estate or in any representative capacity, the rules require that the  
member, if it’s greater than $20,000 of funds that they’re responsible for and  
they’re held outside of their trust account so outside of that regular set of accounts  
that we have rules over, they would have to notify the executive director of the  
law society of what their capacity they were acting in, the form of the trust assets  
and amount.  
Q Okay, and this is a rule that was enforced during the time 2001 to 2004, for  
example?  
A Yes.  
Q All right, now that requirement, is it a requirement like a form ‘S’, you must do  
it in the ordinary course if it applies to you?  
A No, I don’t have the rules in front of me but I believe it – it was within 30  
days.  
Q Oh, right but did that – I’m asking the question badly. That requirement, is it  
part of the spot audit program or is it part of the regular rules of the law society?  
A Oh, that’s just part of the regular rules of the law society and members regular  
–
Q Okay.  
A -- ongoing practice.  
Q When conducting your spot audit and I want you to confine your answer  
please, only to the documents generated in the ordinary course of Mr. Bailey’s  
practice.  
A Yes.  
Q Looking at that set of records, did you see any letters to the director - -  
A No.  
Q -- of that nature?  
A No.  
Q Okay. When you did your spot audit of Mr. Bailey, how many times did you  
attend Mr. Bailey’s office?  
A I believe only the first day of the audit –  
Q Okay.  
A -- once.  
- 105 -  
Q Did you have access to the entire law portion of the office?  
A I – yes.  
Q Okay.  
A It was (INDISCERNIBLE).  
Q I don’t care about his kitchen pantry or the upstairs bathroom but –  
A No, there was a separate spot for the office. That’s the only place I entered.  
Q So there was a separate room in the – in the residence that was the law office  
and you were given full access, less than full access or no access?  
A I – I was – I had given access with Mr. Bailey. We sat down in there. I wasn’t  
left alone with the files at all, no.  
Q Okay, I know accountants hate questions about was nothing there but I’m  
going to ask you whether anything was there. Did you see any records kept in the  
ordinary course which would allow you to draw an inference or – did you – well,  
let me ask you the – the main question. Did you see anything of value not  
accounted for by the form ‘S’?  
A No.  
Q Did you see anything – any documents – again, inside the framework of things  
you looked at in the ordinary course, which would have caused you to draw an  
inference that there was something of value not recorded in the form ‘S’?  
A In the law office?  
Q Yes.  
A No.334  
. . .  
Q MR. WAGNER: I’m going to ask you a question while that document’s being  
marked. If you need to see it again, let me know, all right. Now, we talked about  
rule 132 and trust property in excess of $20,000. You mentioned also rule 134  
and do I understand that that refers to representative capacity like an estate, for  
example?  
A No, rule 134 is just dealing with specifically property received by a lawyer and  
there’s just a simple set of rules that will require the lawyer to affirm, in writing,  
back to the client that they hold this property, clearly showed or labelled the  
property as belonging to the client, and if required, let the client know where and  
where it is at any point in time.  
Q Okay, and was that when you were referring to the Paiget watch, for example?  
A Yes.  
Q Okay, now I want to ask you about that category as well and again, confining  
my questions to the things that you observed, records kept in the ordinary course.  
334  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1117, l. 28 – p. 1124, l. 27.  
- 106 -  
A Yes.  
Q Now, do you need to look at the form ‘S’ again to recall the – the answer given  
at paragraph ‘D’ one?  
A No.  
Q Okay, why not?  
A Because there was not a – there was no answer. It was not applicable.  
Q It was the same answer as for ‘D’ two?  
A Yes.  
Q Okay, now I ask you the same question I asked in respect of ‘D’ two which is  
did you see – and again, inside the framework of things that you saw in the  
ordinary course of your audit. Did you see any records – did you – first of all, did  
you see any property that would fall under the category ‘D’ one, rule 134?  
A At the law office, no.  
Q All right, did you see any records which pointed towards such property being  
received or – or held?  
A At the law office, no.335  
Cross Examination of Ms. Jimenez  
[285] Ms. Jimenez testified that Mr. Bailey did make an error on his ‘S’ form filing:  
Q And it’s the pre-printed form ‘S’ in brackets five dash one, Annual Law Firm  
Report?  
A Yes.  
Q Okay, and on the front page at number two, it says: (as read)  
Is this a final form ‘S’?  
And it looks like it’s ticked off, yes.  
A Yes.  
Q And so my understanding of – of when you tick off final form ‘S’, that means  
that you’re actually closing down that account or your law firm?  
A Yes.  
Q And so through your – the course of your investigation and what you looked  
at, obviously Mr. Bailey practiced until 2004?  
A Yes.  
Q Okay, so can you explain why it’s marked as this is a final form ‘S’?  
A I – I – I know that inexperience, a lot of law firms put final – like they collect  
they tick yes, thinking that yes, this is my final copy as opposed to I’m shutting  
335  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1125, ll. 4 – 40.  
- 107 -  
down my law practice so quite often we actually ended up ignoring that because  
until bank accounts are actually closed and they can file a form that lists zero  
bank accounts, we – we can’t disregard the fact.  
Q Okay, so but this actually wasn’t a final form ‘S’?  
A No.  
Q Okay, so that – where it says yes, that’s a mistake?  
A Yes.336  
Examination-in-Chief of Arie Schalk (Schalk)  
[286] Schalk, and his partner Peter Mol, became involved in HMS through some friends.  
Initially, Schalk was skeptical as the returns were very high, but after meeting Fyn and Stark,  
who Schalk thought were impressive, Schalk decided to invest through his company, Enorex.  
The first investment which Schalk made was in late 2002. Shortly after, he recommended to  
others he knew that they should start investing in the HMS Program.337 At his first meeting with  
Fyn and Stark, Schalk was told that a professional lawyer was involved in HMS: Bailey.338  
Schalk was told that Bailey held $30 million of investments or bonds, and if something was to  
happen, in 30 days one could get one’s money back.339 When Schalk told others to invest, he  
would provide the same information to potential investors. That information came from Fyn and  
Stark. The incorporated company that Schalk used to invest in HMS was called Vitron  
Consulting.  
[287] Schalk attended a meeting in Red Deer which HMS put together for the CCSs. At the  
meeting, HMS asked the CCSs to form companies.340  
[288] Mr. Schalk also testified about a conversation he had with Robbie Fyn about the bonds  
being held as security. He testified as follows:  
Q That’s fine. All right. And was that the only time Mr. Bailey’s name came up  
on that first meeting?  
A Oh, no. Oh, no, it – it came up numerous times because not only myself, but  
the people that we would talk to again, that we would try to bring in or that – that  
were asking questions, how is it possible, and, well, there’s this lawyer, Garth  
Bailey, in Calgary, he is – he’s checked this all the way through and he is holding  
in trust a – a $30 million US investment or bonds and, if something was to  
happen, 30 days and you would have your money back.  
Q Okay. So, you – you explain this to whom?  
A My partner and I, we would use that to explain how the system worked and –  
and would tell that to most – oh, I would imagine all of the clients that we ever  
talked to, we would always be bringing up that – that person’s name.  
336  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1127, l. 27 – p. 1128, l. 16.  
337  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1143-1145.  
338  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1148, ll. 13-18.  
339  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1148, 34-39.  
340  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1146-1147.  
- 108 -  
Q Okay. And where did you learn about the bonds and the – if I call it “security”  
you know what I mean?  
A Yeah, the security, the – yea.  
Q All right.  
A Yeah.  
Q So, where did you first learn about that?  
A Um, again, almost the first, second meeting with the – with Robbie Fyn and –  
and Murray Stark.  
Q All right. And was that the only time that you learned about those bonds?  
A No, we – we questioned at different times because then somebody else would  
bring to our attention, Well, what about this or that, we would go back –  
whenever we had a meeting with them, we’d be asking these questions. And, at  
one time – I can’t tell you when exactly – but when Peter and I – Peter Mol and I  
were there, then we really said, You know, how is that possible, how can these  
things just pay back in 30 days? And then, he went away and to a safe or  
whatever, and he drew out a whole packet of these railroad bonds and they –  
Q You’re saying “he” – meaning?  
A Robbie Fyn.  
Q Okay. Continue, please?  
A Yes, and Robbie, you know, he’d page through them and they – they were old  
looking things, like bonds. I am – I am not a bond person, I have no idea what  
they’re supposed to look like, but they looked very authentic and good to us, and  
– and he showed me that, and he said, you know, They can be cashed in and have  
your money in 30 days.341  
[289] Mr. Schalk testified about two meetings he had with Bailey:  
Q Right. Now, I’m going to ask you to search your memory – did you ever meet  
Mr. Bailey?  
A Yes, I did.  
Q Okay. How many times – how many times can your recall?  
A Two times.  
Q Okay. Tell me about the first time, when it – when it happened, where it was  
what happened during the?  
A Um, at – I – I had an office, my – my warehouse and office at – at that time  
was located on Horton Road.  
Q In where – which city?  
A In Calgary.  
341  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1148, l. 32 – p. 1149, l. 33.  
- 109 -  
Q Okay.  
A I can’t tell you the – the number of the building now, but – on Horton Road  
and he came to my office. I had – I had a couple of discussion on the phone and  
we were – this is now when we were working on setting up Vitron Consulting, my  
partner and I were setting up Vitron Consulting, and from the meeting out of Red  
Deer, there was a – generic documents that had come to the CCSs that were  
looking at possibly getting together and making a company, as we did, and we  
used those documents as guides as – as to how to write things up. And then, in  
our document, Vitron would be the lender to the – to the client, and the client  
would be the borrower to Vitron, and then Vitron, in turn, would again become  
the borrower to HMS.  
Q Okay.  
A And the wordings that we used, we weren’t sure, and we – we talked back and  
forth on the phone once –  
Q “We” is?  
A Like – like, my partner and I, we would talk to Garth Bailey a couple of times,  
or a bit – really it was myself. I was doing – I was doing all the paperwork, so it  
was really myself. And so, I can’t tell you, but it – I’m guessing that twice that I  
talked to him on the phone, and then said, Can we have a look at these papers? I  
had a rough draft. He came into my office, we sat down, and we – again, I know  
for a fact my partner, Peter Mol, he talked to Garth about the – the bonds, how  
that all worked, and – and that, again, was explained because my partner and I  
were always told that it was Garth Bailey that was the – the – I guess you could  
call it the trustee. He was the one that was in charge of that, but in a – ‘cause he  
was the legal man and, in case something happened, he would be the one to – to  
execute that. And so –  
Q Execute what? To execute what?  
A The – the – to – the bonds, to – to get them into cash and pay everybody back  
out again.  
Q If what happened?  
A Well, again, explained this, that – I can’t tell you the words – but we were  
satisfied, I mean, he was the professional. He was a – we looked up to him as a –  
you know, it should be safe, everything should be good, and we were satisfied.  
Then – but the document that we had – specifically had Garth Bailey Professional  
lawyer or whatever – I – I can’t remember the exact words – but basically the  
same wording that was on some other documents that we had received from HMS  
with Garth Bailey’s Professional Corp. on there.  
Q And that draft, who drafted that draft? Who wrote that?  
A I did.  
Q You wrote that? Okay.  
A Yeah.  
- 110 -  
Q And you had it at this – this meeting that Mr. Bailey came to your office?  
A Yes, and I gave him a copy, and – but then, he right away said, Strike out –  
like Garth Bailey told us then, Strike out “Garth Bailey Professional Corp.”, just  
say “Calgary lawyer”, and that’s what we ended up. He said, I don’t want to have  
all the clients come after me, to phone, Is this okay, and, Is that okay? So, it was  
just “Calgary lawyer”, that’s what we had on there.  
Q Okay. So, if I understand your evidence, you had some phone calls with –  
with Mr. Bailey after the Red Deer meeting –  
A Yeah.  
Q -- where the – you were changing over to the CCS model?  
A We were setting up a company –  
Q Right.  
A -- so that we would become the – the vehicle to take in the investments and  
then put that through to – to HMS.  
Q Okay. And, as a result of the Red Deer meeting, you had some documents  
provided at that meeting?  
A Yes.  
Q And you were drafting your own documents using the provided documents –  
A Yes.  
Q -- as a sample or – or a guide –  
A Yes.  
Q -- I think the word you used was “guide”. And you had some phone calls with  
Mr. Bailey about drafting the documents were describing a moment ago?  
A Yes.  
Q And then, Mr. Bailey came to see you –  
A Yes.  
Q -- and everything you just told us was out of that first meeting where you had  
Mr. Bailey in your office?  
A Yes.  
Q Okay. Did anything else happen at that first meeting?  
A Um, he took a copy of that along, ‘cause there was a couple of other minor  
changes that he wanted, and he was leaving town, I believe. I think I – I  
remember saying – him saying that he was going to leave town, so he was going  
to do that quickly and then fax it back to me, and which he did. And then, there  
was some changes made on it, and – and then it was faxed back to me, to my  
office.  
- 111 -  
Q Okay. And what – the document that was faxed to you, was it the same  
document provided with handwritten changes, or were the changes incorporated  
into a document?  
A No, it was – it was all done – handwritten –  
Q Okay. And what –  
A -- just taking out this, and – and changing this word to that word, and –  
Q Okay. What did you do when you received that fax?  
A We made up the document and then we – we were at that – when we, my  
partner and I, we were incorporating or setting up our new Vitron company, and  
that became the document for – for the clients –  
Q Okay.  
A -- to see it, sign.  
Q Okay. Let me be a little more specific – what did you do with the handwritten  
changes on the fax that you received? Did you incorporate those into the revised  
document or did you –  
A Oh, yes –  
Q -- ignore them?  
A No, I – I definitely – I – that – that all – whatever was on – the changes and  
everything, we went exactly according to that – this document now was sort of, in  
my opinion, certified by Garth Bailey, the lawyer.  
Q Okay. And just so the record’s clear – you had phone calls, you met with Mr.  
Bailey –  
A Yeah.  
Q -- he took a document with him, you received a fax back from where?  
A Well, from Garth Bailey –  
Q Okay. And –  
A -- I – I don’t know where he sent it from, but from Garth Bailey.  
Q Okay. And then, it had some changes reflected and you made those changes  
and –  
A Yes.  
Q -- and then what happened with that document after you made the changes?  
What did you use it for?  
A I’m not sure – you – you mean the actual faxed –  
Q No, the – when you made the changes into the document?  
A Oh, the – that – that became our document for Vitron as – as the main  
document that we brought clients in and – and the places to sign and – and so on.  
That –  
- 112 -  
Q Okay. Now, you said there were two times that you met Mr. Bailey.  
A Well, I met him probably a week and a half – we were in the process of getting  
our company set up and just came by just to make sure that – that everything was  
right and that that was just basically a two-minute, five-minute, Yeah okay,  
everything looks good, ‘cause by that time, we had it all – all – all in order.  
Q Okay.  
A And I – I’m thinking that it was a week later, but I can’t say.342  
[290] As to the document reviewed by Mr. Bailey, Mr. Schalk testified as follows:  
Q Okay. Now, I’m going to – there’s a couple of binders in front of you. We’re  
going to deal with the contents of all of those first –  
A Okay.  
Q -- but while we’re talking about the contract that you drafted, that you met with  
Mr. Bailey about, could I ask you to look at binder 1 of 2, at tab 65?  
A 1 of 2?  
Q Yes.  
A Sorry – 65?  
Q 65 – 6-5, and it’s – there’s a number of pages after tab 65. I’ll take them out  
while you get there.  
A Yes.  
Q I just want to ask you about the first page following tab 65. I want to ask you  
first – do you recognize that document?  
A Yes.  
Q What is it?  
A It is the document that Vitron used for signing up prospective clients – or, not  
prospective, they had committed to going in, and then that was kind of the – the  
loan agreement.  
Q Okay. And if you look at the – there – underneath, there are some blanks,  
there’s a (INDISCERNIBLE) loan agreement, there’s some blank states –  
amounts from – and then, there are a couple of “AND WHEREAS” paragraphs –  
you see those? On the first page –  
A Okay.  
Q -- it begins in capital letters “AND WHEREAS”?  
MR. JOHNSTON: May I approach the witness, Your Honour?  
A Oh, right on – yes, yes –  
Q MR. JOHNSTON:  
Okay.  
342  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1150, l. 10 – p. 1154, l. 7  
- 113 -  
A -- yes.  
Q Okay. And there’s – there’s one very short one, one line, and then there’s a  
longer one that begins “AND WHEREAS”?  
A Yes.  
Q Okay. The second one says: (as read)  
AND WHEREAS the borrower has an agreement with Paget  
Capital Ltd., a capital growth management company, for the  
purpose of raising funds through joint venture endeavours and  
offering profitable returns to lenders, and as protection has assets  
with a verified value in excess of 40 million USD, these assets are  
held as protection for the lender by a Calgary-based lawyer.  
You see those words?  
A Yes.  
Q Is this the document that you were referring to a moment ago?  
A Exactly.  
Q Is this the document you sent to Mr. Bailey –  
A Yes.  
Q -- that he – that he brought back and you discussed, and faxed to you, or is it  
the final version?  
A It is the document that he seen in my office at the time when we – when we  
discussed everything, the investment and all, and then we had a draft of this and,  
specifically, the – you know, the – the growth – growth management company for  
the purpose of raising funds, et cetra, all of that – like, some of that wording was  
changed a little bit to say as you see it.  
Q Okay. So, this is the final version or a draft version?  
A Final – this is the final version.  
Q Okay. And if I understand what you telling me correctly, this particular  
paragraph was a – was something that you met and discussed with Mr. Bailey  
about?  
A Yes.  
Q Okay. And do you recall what the first version of this paragraph had around  
the words “by a Calgary-based lawyer”?  
A Well, my first draft was slightly different in – in its context and it said “Garth  
Bailey Professional Corporation” or “lawyer” –  
Q Okay.  
A -- in Calgary.  
Q So, if I understand your evidence, that – those are the words that Mr. Bailey  
asked you to take out?  
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A Yes.  
Q And in the version that you received back by fax, was that marked up, or was  
that already changed?  
A No, that was marked up as well.  
Q Okay. And you made that change?  
A Yes.  
[291] The document in binder 1. Tab 65 is part of Exhibit 113.  
[292] In the first described meeting with Mr. Bailey, there was a conversation about the bonds:  
Q We left off at the meeting with Mr. Bailey in your office and the fax that he  
sent you afterwards.  
A Yes.  
Q If I understand your evidence, you discussed changes to the document we just  
looked at at tab 65?  
A Yes.  
Q Did you talk about the bonds in any detail with Mr. Bailey at that meeting?  
A In – in our – in our meeting, my partner and I, and especially my partner – he’s  
more nervous and – and that than I am – he specifically wanted to reaffirm again  
that this whole investment was good and that, should something go wrong, that  
we can pay back the people that we’ve brought in, and so he – you know, he went  
into that conversation and then –  
Q And – sorry – who was in – in this room?  
A It was only partner and myself and Garth Bailey.  
Q Okay. And, please, a little more detail.  
A He explained again – like, we –  
Q “He”?  
A He, as Garth, had – had explained again just how things worked and as far as  
the security part of it is concerned. We – we’ve already heard many times before  
about the – how the – how the investment works, but then Garth explained again  
that the bonds were totally secure, it was – I believe at that time it was already  
40,000 – or, 40 million US, and – and growing, said that if the – Garth said that as  
long as the – as the more investments, the higher the – the – the security would  
become.  
Q Okay.  
A And – and, again, we were satisfied with what he said and –  
Q “We were satisfied with what he said” --  
A My partner and I were satisfied with – with how that went and – and said,  
Okay –  
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Q With –  
A -- we –  
Q With who – and who’s –  
A -- we trust that – we trusted Garth on that because, yeah, he’s the lawyer, he –  
he’s the legal man.  
Q All right. All right. Anything else at that meeting?  
A No, it – the essence of the meeting was that, my partner and I, we wanted to be  
sure that the paper that we were putting out was a proper paper, legal, and – and  
everything else, and would – would be able to – so that we could use that for  
clients.343  
[293] Mr. Schalk testified that his company Vitron invested more than one million dollars with  
HMS. Those who invested in HMS through Vitron were told of the security represented by the  
bonds:  
Q How many of the investors who invested through Vitron did you meet  
personally?  
A A quarter of the investors.  
Q Which would be about how many, do you think? Like, I don’t want you to  
guess.  
A 40 –  
Q Okay.  
A Maybe.  
Q And of those 40 that you met with personally, did you discuss the particulars  
of the investments to be placed at HMS?  
A Yes.  
Q Some of them, or all of them, none of them?  
A Every client that I talked to, I would go through the whole process of how they  
sort of told us – talked to me how to – what – where the investments went and so  
on, and I would relay that to these people that wanted to invest.  
Q Okay. And that discussion would include referring – referring to documents?  
A Oh, yes.  
Q Would it include referring to the document we looked at at tab 65 after it was  
created?  
A Yes.  
Q Okay. And are you able to say how many of these 40 people that you spoke  
with directly you would refer the document at tab 65 to?  
A To everyone.  
343  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1159, l. 7 – p. 1160, l. 11.  
- 116 -  
Q All right. And when you referred to that document, did the security come up  
in any of those discussions?  
A Absolutely.  
Q Why?  
A Because the – the people that we talked – that I talked to were as sceptical as I  
was in the beginning and I had to tell them and convince them that the security  
was safe because it was – and – and trusted in by – by bonds by a – a Calgary  
lawyer.  
Q Okay. And – okay. Are you able to say, based on your discussions with these  
people, whether that security was of any significance to them in their decision to  
invest?  
A I would say it was almost the most secured thing that they could go – I could  
not give them any other security except what was on that paper and that $40  
million security.344  
[294] Mr. Schalk testified that he did not recover the principal he personally invested in HMS.  
He also testified that the people who invested in HMS through Vitron did not receive back their  
principal.  
Cross Examination of Mr. Schalk  
[295] Mr. Schalk was asked about the bonds he was shown by Mr. Fyn:  
Q Mr. Schalk, you – Mr. Bailey told you that he held the bonds as security for the  
investments in HMS?  
A I was led to believe that, yes.  
Q Okay. And you had discussion with Mr. Bailey about that?  
A Yes.  
Q Okay. And you testified about bonds that Mr. Fyn showed you out of a safe at  
the HMS office?  
A Correct.  
Q But you can’t say for sure that those were the same bonds that Mr. Bailey was  
holding as security for the HMS investment?  
A That’s correct.345  
Are statements made by either Fyn or Stark admissible against Bailey?  
[296] As noted in the summary of the evidence, a number of statements were made by either  
Robbie Fyn or Murray Stark to the persons who testified. Those would appear to be classic  
344  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1165, l. 28 – p. 1166, l. 28.  
345  
Transcript, Oct. 30/13 – Nov. 25/13, p. 1170, l. 30 – p. 1171, l. 2.  
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hearsay. It is necessary to determine whether those statements made by Fyn or Stark are  
admissible against Bailey in this trial.  
The rule against hearsay evidence  
[297] The rule against hearsay is one of the best known and perhaps the oldest common law  
rules of evidence. Given the rule’s complexity and its multiple statutory and common-law  
exceptions, expressing the rule in its entirety is difficult. Originally, hearsay was defined in  
Subramaniam v. Public Prosecutor346 as follows:  
Evidence of a statement made to a witness by a person who is not himself called  
as a witness may or may not be hearsay. It is hearsay and inadmissible when the  
object of the evidence is to establish the truth of what is contained in the  
statement. It is not hearsay and is admissible when it is proposed to establish by  
the evidence, not the truth of the statement, but the fact it was made. The fact that  
the statement was made, quite apart from the truth, is frequently relevant in  
considering the mental state and conduct thereafter of the witness or some other  
person in whose presence the statement was made.  
[298] A more recent definition of hearsay is provided by Sopinka J. in R v. Evans.347 At pages  
102-103 Sopinka J. wrote:  
An out-of-court statement which is admitted for the truth of its contents is  
hearsay. An out-of-court statement offered simply as proof that the statement was  
made is not hearsay, and is admissible as long as it has some probative value.  
[299] Application of the “hearsay rule” therefore depends upon the purpose for which a  
statement is sought to be admitted before the trier of fact. Where the purpose or object of the  
hearsay is not to establish the truth of the content of the statement, but rather is to prove only the  
fact that the statement was made, then such a statement will be classified as admissible hearsay.  
On the other hand, where the statement or assertion is submitted as proof of the truth of its  
content, that is, the purpose or object of the hearsay is to give the statement or assertion  
independent testimonial value, then the statement will be inadmissible. This distinction was  
summarized by the Supreme Court of Canada in R. v. Khelawon:348  
[38] When the witness repeats or adopts an earlier out-of-court statement, in  
court, under oath or solemn affirmation, of course no hearsay issue arises. The  
statement itself is not evidence, the testimony is the evidence and it can be tested  
in the usual way by observing the witness and subjecting him or her to cross-  
examination. The hearsay issue does arise, however, when the witness does not  
repeat or adopt the information contained in the out-of-court statement and the  
statement itself is tendered for the truth of its contents.  
[300] The inability to test the reliability of the hearsay is the central concern underlying the  
rule. The rule recognizes the potential difficulty in assessing the probative value of a statement  
by a person who is not subject to cross-examination. The worry is that the hearsay evidence may  
346  
[1956] 1 W.L.R. 965 (P.C.)  
347  
(1993) 85 C.C.C. (3d) 97, [1993] 3 S.C.R. 653  
348  
(2006) 215 C.C.C. (3d) 161, at para. 38, 2006 SCC 57  
- 118 -  
be afforded more weight than it deserves.349 Such concerns were identified by the Supreme Court  
of Canada in R. v. K.G.B:350  
A reformed rule must carefully balance the accused's interests in a criminal trial  
with the interests of society in seeing justice done. Since the orthodox rule is an  
incarnation of the hearsay rule, a reformed rule must also deal with the "hearsay  
dangers" of admitting prior inconsistent statements for the truth of their contents -  
- namely, the absence of an oath or solemn affirmation when the statement was  
made, the inability of the trier of fact to assess the demeanour, and therefore the  
credibility, of the declarant when the statement was made, and the lack of  
contemporaneous cross-examination by the opponent.  
[301] The essential and defining features, therefore, of inadmissible hearsay are: (a) the hearsay  
is adduced to prove the truth of its contents; and, (b) the absence of contemporaneous  
opportunity to cross-examine the declarant.351  
[302] However, despite the existing concerns surrounding hearsay statements, hearsay evidence  
may be admissible if it falls within a recognized exception,352 or if the hearsay evidence meets  
the criteria of necessity and reliability under the “principled approach” originally adopted by the  
Supreme Court of Canada in R. v. Khan.353 In Khan, supra, the court held that the mother’s  
statement of what her three and a half year-old child had told her about the sexual assault  
incident was admissible. The court found that the child would likely suffer trauma and harm if  
forced to testify in court and therefore rejected the child’s viva voce evidence. As a result, the  
court held that it was necessary in the circumstances to introduce the child’s out of court  
statement in court. On the topic of reliability, the court held that the child’s statement was  
reliable as the child had no reason to falsify her story, and the statement was corroborated by  
physical evidence.  
[303] McLachlin J. (as she then was) in Khan, supra, elaborated on the topic of necessity and  
reliability at paragraphs 29-30:  
[29] The first question should be whether reception of the hearsay statement is  
necessary. Necessity for these purposes must be interpreted as "reasonably  
necessary". The inadmissibility of the child's evidence might be one basis for a  
finding of necessity. But sound evidence based on psychological assessments that  
testimony in court might be traumatic for the child or harm the child might also  
serve. There may be other examples of circumstances which could establish the  
requirement of necessity.  
[30] The next question should be whether the evidence is reliable. Many  
considerations such as timing, demeanour, the personality of the child, the  
349  
Sopinka, Lederman & Bryant, The Law of Evidence in Canada, 3rd ed., (Ontario: LexisNexis, 2009) at  
229-230.  
350  
79 C.C.C. (3d) 257, at pp. 271-72, [1993] 1 SCR 740  
351  
Khelawon, supra, at paras. 35 and 38.  
352  
Some examples of traditional exceptions to the hearsay rule include prior inconsistent statements,  
identification evidence, business records, prior testimony, prior convictions, declarations against interest by  
non-parties, dying declarations, declaration in the course of duty, statements made as part of res gestae, and  
co-conspirators exception to the hearsay rule: Hill, Tanovich & Strezos, McWilliam’s Canadian Criminal  
Evidence, 5th ed. (Ontario: Thomson Reuters, 2013) at Ch. 7.  
353  
59 C.C.C. (3d) 92, [1990] 2 S.C.R. 531  
- 119 -  
intelligence and understanding of the child, and the absence of any reason to  
expect fabrication in the statement may be relevant on the issue of reliability. I  
would not wish to draw up a strict list of considerations for reliability, nor to  
suggest that certain categories of evidence (for example the evidence of young  
children on sexual encounters) should be always regarded as reliable. The matters  
relevant to reliability will vary with the child and with the circumstances, and are  
best left to the trial judge.  
[304] At paragraph 49, McLachlin J. added:  
[49] (…) The criterion of necessity is founded on society's interest in getting at  
the truth. Because it is not always possible to meet the optimal test of  
contemporaneous cross-examination, rather than simply losing the value of the  
evidence, it becomes necessary in the interests of justice to consider whether it  
should nonetheless be admitted in its hearsay form. The criterion of reliability is  
about ensuring the integrity of the trial process. The evidence, although needed, is  
not admissible unless it is sufficiently reliable to overcome the dangers arising  
from the difficulty of testing it. As we shall see, the reliability requirement will  
generally be met on the basis of two different grounds, neither of which excludes  
consideration of the other. In some cases, because of the circumstances in which it  
came about, the contents of the hearsay statement may be so reliable that  
contemporaneous cross-examination of the declarant would add little if anything  
to the process. In other cases, the evidence may not be so cogent but the  
circumstances will allow for sufficient testing of evidence by means other than  
contemporaneous cross-examination. In these circumstances, the admission of the  
evidence will rarely undermine trial fairness. However, because trial fairness may  
encompass factors beyond the strict inquiry into necessity and reliability, even if  
the two criteria are met, the trial judge has the discretion to exclude hearsay  
evidence where its probative value is outweighed by its prejudicial effect.  
[305] Since Khan, supra, the principled approach has been consistently endorsed in cases such  
as R. v. K.G.B., supra, R. v. Hawkins & Morin,354 R. v. Starr,355 and R. v. Khelowan, supra. The  
principled approach recognizes that in certain circumstances the law is forced to choose between  
hearsay evidence and no evidence at all. In such cases, the court may accept the hearsay  
evidence provided that the evidence has a sufficient degree of reliability and is necessary in the  
circumstances.  
[306] Following the decision in Starr, supra, there was considerable confusion about how to  
assess reliability. In Starr. at paragraph 215, the court noted that a distinction was to be made  
between threshold reliability (i.e. questions of admissibility that the trial judge has to decide) and  
ultimate reliability (i.e. questions of weight that is for the trier of fact), and took the position that  
corroborative evidence and other extrinsic evidence could not be used in assessing admissibility.  
The court held that such evidence was relevant to the ultimate reliability of the statement only,  
since it focused on whether the statement was true and not on the circumstances surrounding the  
354  
(1996) 111 C.C.C. (3d) 129, [1996] 3 S.C.R. 1043  
355  
(2000) 147 C.C.C. (3d) 449, 2000 SCC 40  
- 120 -  
making of the statement. This approach was soon after criticized as being too rigid and  
inconsistent with the principled approach.356  
[307] The confusion around the use of corroborative and extrinsic evidence, and when it should  
be assessed, was resolved by the Court in Khelawon, supra. The Supreme Court of Canada in  
Khelawon, supra, did not abolish the distinction between threshold reliability and ultimate  
reliability, but took the position that the distinction is not helpful in determining what factors can  
be considered in assessing reliability. At paragraph 4, the Court wrote:  
[4] As I will explain, I have concluded that the factors to be considered on the  
admissibility inquiry cannot be categorized in terms of threshold and ultimate  
reliability. Comments to the contrary in previous decisions of this Court should no  
longer be followed. Rather, all relevant factors should be considered including, in  
appropriate cases, the presence of supporting or contradictory evidence. In each  
case, the scope of the inquiry must be tailored to the particular dangers presented  
by the evidence and limited to determining the evidentiary question of  
admissibility.  
[308] Khelawon, supra, therefore, empowers trial judges assessing threshold reliability to look  
at any evidence that is relevant to the truth or accuracy of the contents of the statement, and  
provides the trier of fact with the necessary tools to test the reliability of the evidence by means  
other than cross-examination.357  
Co-conspirators’ exception to the hearsay rule  
[309] One recognized exception to the rule against hearsay includes the “co-conspirators’  
exception.” The Alberta Court of Appeal in R. v. Wu and Huynh358 defined the exception as “the  
admission of evidence of acts and statements in furtherance of conspiracy by persons alleged to  
have been party to that conspiracy as against other persons also alleged to have been party to that  
conspiracy even though those acts and statements in furtherance are done in the absence of those  
other persons.” In other words, the out of court statement of the co-conspirator is admissible  
against a non-declarant co-conspirator. In applying this exception, Canadian courts have adopted  
the three part test introduced in R. v. Carter; the test was described by the court as follows  
(emphasis added):359  
At the end of the day, however, before the hearsay exception may apply, such  
evidence on the threshold issue of membership of the accused in the conspiracy  
must be present. In charging the jury on this question, the trial judge should  
instruct them to consider whether on all the evidence they are satisfied beyond a  
reasonable doubt that the conspiracy charged in the indictment existed. If they are  
not satisfied, then the accused charged with participation in the conspiracy must  
be acquitted. If, however, they conclude that a conspiracy as alleged did exist,  
they must then review the evidence and decide whether, on the basis of the  
evidence directly receivable against the accused, a probability is raised that he  
356  
Hill, Tanovich & Stregos, McWilliam’s Canadian Criminal Evidence, 5th ed. (Ontario: Thomson  
Reuters, 2013) at 7-57.  
357  
Ibid., at 7-58.  
358  
(2010) 266 C.C.C. (3d) 482 at para. 39, 2010 ABCA 337  
359  
(1982) 67 C.C.C. (2d) 58 at p. 575 [1982] 1 S.C.R. 938.  
- 121 -  
was a member of the conspiracy. If this conclusion is reached, they then become  
entitled to apply hearsay exception and consider evidence of the acts and  
declarations performed and made by the co-conspirators in furtherance of the  
objects of the conspiracy as evidence against the accused on the issue of his guilt.  
This evidence, taken with the other evidence, may be sufficient to satisfy the jury  
beyond a reasonable doubt that the accused was a member of the conspiracy and  
that he is accordingly guilty.  
[310] After describing the requirements of the co-conspirators’ exception, the Court in Carter,  
supra, described what instructions should be given to the fact finder when considering the  
application of the exception:360  
They should be told, however, that this ultimate determination is for them alone  
and that the mere fact that they have found sufficient evidence directly admissible  
against the accused to enable them to consider his participation in the conspiracy  
probable, and to apply the hearsay exception, does not make a conviction  
automatic. They should be clearly told that it is only after they have become  
satisfied beyond a reasonable doubt on the whole of the evidence on both issues,  
that is, the existence of the conspiracy and the accused's membership in it, that  
they may convict, and that it is open to them, if they think it right or if they are  
not satisfied, to acquit the accused, even after reaching their initial determination  
of probable membership in the conspiracy which enabled the application of the  
hearsay exception.  
[311] The three part test set out in Carter, supra, was summarized by the Supreme Court of  
Canada in R v. Barrow:361  
The appellant concedes that the charge of the trial judge on the question of the  
application of the conspirator's exception to the hearsay rule was generally in  
accordance with the decision of this Court in R. v. Carter, [1982] 1 S.C.R. 938.  
This was also the view of the Court of Appeal which conveniently summarized in  
three steps, at p. 486, the approach propounded in Carter:  
1. The trier of fact must first be satisfied beyond reasonable doubt  
that the alleged conspiracy in fact existed.  
2. If the alleged conspiracy is found to exist then the trier of fact  
must review all the evidence that is directly admissible against the  
accused and decide on a balance of probabilities whether or not he  
is a member of the conspiracy.  
3. If the trier of fact concludes on a balance of probabilities that the  
accused is a member of the conspiracy then he or they must go on  
and decide whether the Crown has established such membership  
beyond reasonable doubt. In this last step, only the trier of fact can  
apply the hearsay exception and consider evidence of acts and  
declarations of co-conspirators done in furtherance of the object of  
360  
Ibid.  
361  
(1987) 38 C.C.C. (3d) 193, at page 228, [1987] S.C.J. 84  
- 122 -  
the conspiracy as evidence against the accused on the issue of his  
guilt.  
[312] The Carter test requires that the issue of admissibility be decided by the fact finder.  
Further, the application of the exception is not limited to those circumstances where an accused  
is charged with conspiracy;362 the Carter test applies whenever the Crown alleges a common  
enterprise involving two or more persons. It is worth mentioning, however, that when the Crown  
intends to prove the conspiracy by relying on direct evidence of an accomplice, a Carter  
instruction may not be necessary. This was stated by Blair J.A. of the Ontario Court of Appeal in  
R. v. Chenier:363  
The Carter process relates to the steps a jury must follow if they are to rely upon  
the co-conspirators' exception to the hearsay rule. This exception permits the jury  
to use the acts and declarations of an accused's alleged co-conspirators to be used  
as evidence against the accused, if the acts or declarations were done or made in  
furtherance of the conspiracy. In this case, however, the Crown's case did not  
depend upon the acts or declarations of co-conspirators. It depended primarily  
upon the direct evidence of Boisclair as to what Farley himself actually did. A  
Carter instruction was therefore not required. Directions to a jury on a conspiracy  
charge are complex and difficult enough for a jury to understand. The trial judge  
was right to minimize that complexity and not to give a Carter instruction in the  
circumstances.  
The Carter Test  
Step 1: Is there a conspiracy?  
[313] At the first stage of the Carter test, the trier of fact must determine whether, on “all the  
evidence”, it is satisfied beyond a reasonable doubt that the conspiracy charged in the indictment  
existed. In R. v. Alcantara,364 Madam Justice Greckol considered the meaning of “all the  
evidence”, and stated that Canadian courts are split between two main views about the meaning  
of the phrase. The first view holds that the phrase means all admissible evidence but does not  
include evidence which might provisionally be admissible under the co-conspirators’ exception  
to the hearsay rule.365 The second view, on the other hand, describes “all the evidence” as  
evidence which is generally admissible, as well as evidence which is provisionally admissible  
under the co-conspirators’ exception.366 After acknowledging both views, Greckol, J. referred to  
362 There are a number of non-conspiracy cases where the rule has been applied by the Supreme Court of  
Canada. Some examples include: R. v. Baker (1926), 45 C.C.C. 19 (S.C.C.) at 29; R. v. Paradis (1933), 61  
C.C.C. 184 (S.C.C.) at 190-191; R. v. Cloutier (1939), 73 C.C.C. 1 (S.C.C.) at 7; R. v. Koufis (1941), 76  
C.C.C. 161 (S.C.C.) at 168; R. v. Gagnon (1956), 115 C.C.C. 361, 24 C.R. 159 (S.C.C.) at 365 [C.C.C.]; R.  
v. Lord, [1995] 1 S.C.R. 747(S.C.C.), affirming (1993), 36 B.C.A.C. 223 (B.C. C.A.); R. v. Sutton (S.C.C.),  
supra.  
363  
(2006) 205 C.C.C. (3d) 333, at page 361, [2006] O.J. No. 489  
364  
2012 ABQB 521 at para. 49-53, [2012] A.J. No. 929  
365  
Examples of case law taking this position include R. v. Jamieson, (1989), 48 C.C.C. (3d) 287 (Nova  
Scotia C.A) and R v. Duff, (1994), 90 C.C.C. (3d) 460 (Man. C.A.).  
366 R. v. Loewen (J.K.) (1999), 134 Man.R. (2d) 234 (C.A.) at para. 17; R. v. Buell (1996), 146 Nfld. &  
P.E.I.R. 173 at paras. 11-19 (S.C.A.D.); R. v. Falahatchian and Momeni, (1995), 99 C.C.C. (3d) 420 at pp.  
435-37 (Ont.C.A.); application for leave to appeal abandoned [1995] S.C.C.A. No. 402; R. v. Fraser  
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Sulyma, J.’s comment in the previously decided R. v. Alcantara.367 In that decision, after  
reviewing both positions, Sulyma, J. concluded the following:  
[54] Given this explanation, it would seem there really is no difference in result  
between the two views. They both accept that acts and declarations of a co-  
conspirator in apparent furtherance of the conspiracy can be considered when  
determining whether a conspiracy existed, as these do not constitute hearsay for  
that purpose.  
[314] In coming to this conclusion, Sulyma J. relied on David M. Pacciocco’s and Lee  
Stuesser’s commentary in The Law of Evidence, 5th ed. (Toronto: Irwin Law Inc, 2008) at 157.  
At paragraphs 52-53 Sulyma J. wrote:  
[52] In The Law of Evidence, 5th ed., (Toronto: Irwin Law Inc., 2008) at p. 157,  
the authors David M. Pacciocco and Lee Stuesser take the position that the weight  
of authority favours this second view, stating that:  
It is settled that all acts and statements made by the alleged co-  
conspirators in the formation of, or apparent furtherance of, a  
conspiracy, are included in the phrase “all of the evidence,” and  
can be considered during the part one inquiry. At first blush it may  
appear circular to allow statements made by A to be used as part of  
the co-conspirators tests, when that test is being employed to  
determine whether those very same statements by A should be  
used against B during the trial. Bear this in mind, though: The  
issues are different. In the part one inquiry, the issue is not whether  
A’s statements in furtherance of the conspiracy can be used to  
prove B’s guilt, but whether there is a conspiracy. There is nothing  
circular in treating evidence differently on different issues.  
[53] The authors go on to explain that at the first stage of the inquiry, such  
statements are not really hearsay at all. They are circumstantial evidence of the  
existence of the conspiracy as their relevance lies in the fact they were said. They  
are direct evidence of the formation or furtherance of the agreement to commit an  
offence. Their admission does not depend on the truth of their content. Even  
where it does, they “will tend to be statements accompanying or explaining acts  
done in furtherance of the conspiracy and, like statements caught by the res gestae  
exceptions, their content will assist in evaluating their reliability.”  
[315] To support her position, at paragraph 55, Sulyma J., also made reference to the Nova  
Scotia Court of Appeal decision R. v. Smith,368 in which the Court, at paragraph 236, wrote the  
following:  
[236] There is no dispute that, at the first step, at least all the evidence which is  
relevant and otherwise admissible should be considered. This includes non-  
hearsay relevant to the issue of the existence of the conspiracy and any hearsay  
evidence which may be admissible under a traditional exception or under the  
(1999), 176 Nfld. & P.E.I.R. 181 at paras. 17-22 (N.L.S.C. C.A.); and R. v. Pilarinos and Clark, 167  
C.C.C. (3d) 97, at para. 171 (B.C.S.C.).  
367 2009 ABQB 524, [2009] A.J. No. 997  
368 (2007) 216 C.C.C. (3d) 490, 2007 NSCA 19  
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principled approach. In many cases, acts and declarations of alleged co-  
conspirators will be admissible on one of these bases, either because on the issue  
of the existence of the conspiracy, they are non-hearsay or because they  
accompany and explain acts of the declarant, or because their reception is  
necessary and the statements are shown to have sufficient threshold reliability to  
be received under the principled approach.  
[316] Sulyma J. concluded that the acts and declarations of a co-conspirator made in  
furtherance of the conspiracy are viewed as either circumstantial evidence, as opposed to  
hearsay, or as hearsay evidence which meets the requirements of necessity and reliability under  
the principled approach. Further, such evidence at the first stage of the Carter test is not admitted  
for the purpose of determining whether the accused was a member of the conspiracy, but strictly  
to determine whether a conspiracy existed.369 This distinction is important.  
[317] Greckol, J. in her decision R. v. Alcantara,370 at paragraph 52, added that any uncertainty  
concerning the issue of whether hearsay evidence adduced by the Crown at stage one of the  
Carter test is admissible, was put to rest by the Alberta Court of Appeal in R. v. Wu and Huynh,  
supra. In that case, the Court, at paragraphs 40-41, wrote the following (emphasis added):  
[40] In order to justify admission of acts and statements in furtherance of  
conspiracy as against persons not present and not otherwise proven to have  
adopted such acts and statements when making the final decision on guilt, the  
court must first determine: (1) whether the conspiracy existed (based on all the  
evidence but proven beyond a reasonable doubt); and (2) if so, whether the  
accused is a member of that conspiracy (based only on evidence receivable  
against the specific accused, and proven on a balance of probabilities). Given this  
hybrid burden of proof, Carter allowed (procedurally) for provisional admission  
of all the evidence and that the court could then at the end of the Crown's case  
determine whether acts or declarations made by a co-conspirator in furtherance of  
the conspiracy could be used as evidence against any other alleged co-conspirator.  
[41] The appellants do not dispute that the trial judge was entitled to consider all  
the evidence led by the Crown in determining firstly whether or not there was a  
conspiracy as charged proven beyond a reasonable doubt. All the evidence was  
available for the first step as to the conspiracy's existence, although only the  
evidence directly implicating each appellant was available under the second stage  
of the Carter test to permit the 'in furtherance' evidence to be used against that  
appellant: see R. v. Sutton, [2000] 2 S.C.R. 595, 148 C.C.C. (3d) 513, 2000 SCC  
50 at paras. 3-5. If all the evidence failed to prove a conspiracy as charged, the  
trial judge would not need to consider the Carter test further and would acquit.  
Accordingly, it would not be wrong for a trial judge to consider the whole of the  
evidence, including acts and declarations 'in furtherance', on that first issue.  
[318] To be clear, I understand the law to be that acts and declarations ‘in furtherance’ of the  
conspiracy at stage one of the Carter test include both some hearsay (i.e., evidence provisionally  
admissible under the co-conspirator’s exception), and non-hearsay statements.  
369  
Alcantara, supra, note 367 at para. 57  
370  
Alcantara, supra, note 364.  
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[319] It must be noted that the existence of a conspiracy cannot be established simply by  
referring to the convictions of certain co-conspirators. This was affirmed by the Ontario Court of  
Appeal in R. v. Kim:371  
[17] Evidence was led at trial that the Parum brothers, Norman and Barron all  
pleaded guilty to charges arising from the robberies. The trial judge failed to give  
the jury a "clear and sharp" limiting instruction to disregard that evidence in  
arriving at its verdicts. See R. v. Paquet (1999), 140 C.C.C. (3d) 283 (N.B.C.A.);  
R. v. Caron (1971), 9 C.C.C. (2d) 447 (Ont. C.A.).  
[18] The failure to provide such a limiting instruction is not fatal, however, if it is  
shown there is no prejudice to the accused: see R. v. Simpson and Ochs, [1988] 1  
S.C.R. 3, 38 C.C.C. (3d) 481 at 492-94 (S.C.C.). In this case, the co-conspirators'  
guilty pleas were in no way inconsistent with the appellants' defence. Indeed, the  
appellants acknowledged that Felix Parum was part of a conspiracy to rob, but  
disclaimed their own involvement so that, on the facts of this case, the jury would  
not have imputed guilt to the appellants from the guilty pleas of their co-  
conspirators.  
[320] In summary, in order to move on to step two of the Carter test, the trier of fact must find  
beyond a reasonable doubt on all the evidence (including acts and declarations of co-conspirators  
made in furtherance of the conspiracy) that a conspiracy existed. If step one of the Carter test is  
not proven, the trier of fact cannot move on to stage two of the Carter analysis, and the accused  
cannot be found guilty of conspiracy. If, however, step one is satisfied, the trier of fact must then  
consider whether on a balance of probabilities the accused is party to the conspiracy.  
Step 2: On a balance of probabilities is the accused a member of the conspiracy?  
[321] There is no controversy as to the standard of proof to be applied at the second stage of the  
Carter test. The Supreme Court of Canada in Carter, supra, held that the appropriate standard at  
the second stage is the civil standard: the trier of fact must find that the accused was a member of  
the conspiracy on a balance of probabilities. At page 576, the Court wrote (emphasis added):  
Turning to the case at bar, it is my opinion that the trial judge in his charge left  
with the jury the idea that they would have to be satisfied, according to the  
ordinary criminal standard of proof beyond a reasonable doubt, on the preliminary  
issue of membership of the accused in the conspiracy. In this, he imposed upon  
the Crown a higher burden of proof on the issue than that required by law. He  
charged the jury early in his charge on the general requirement of proof beyond a  
reasonable doubt and in the extract from his charge, reproduced above, he used  
the expression "does the evidence convince you that there was a conspiracy". This  
referred, of course, to the existence of the conspiracy but, in going on to deal with  
the question of Carter's membership in the conspiracy, he gave no indication that  
any lesser standard of proof could apply and, in my view, the effect of this  
omission, taken with the earlier instruction on the general requirement for proof  
beyond a reasonable doubt, was that the jury were left with the direction to apply  
the reasonable doubt standard on this preliminary issue of membership. In my  
opinion, the jury was thus misinstructed and the Crown put to a standard of proof  
371  
(2005) 199 C.C.C. (3d) 372, [2005] O.J. No. 2748  
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greater than that required by law on the threshold issue of membership in the  
conspiracy. I would, accordingly, allow the appeal and direct a new trial.  
[322] In deciding whether, on a balance of probabilities, the accused is a member of the  
conspiracy, the trier of fact may only consider evidence that is directly admissible against the  
accused, but is free to consider this evidence in context.372 Such evidence may include out-of-  
court admissions made by the accused against the accused’s own interests, which is a traditional  
exception to the hearsay rule.373 Further, Sulyma, J. in Alcantara374 stated that the accused’s acts  
and declarations viewed within their proper context need not be divorced from the acts and  
declarations of the co-conspirators which can be of assistance in understanding the meaning of  
the accused’s acts and declarations. In the Alcantara matter before her, Sulyma, J. considered the  
admissibility of hearsay statements made during a wiretap recording. At paragraph 59, Sulyma,  
J. said:  
At the second stage of Carter, an admission made by A in a wiretap recording of  
a telephone conversation between A and B may be used against A for the truth of  
its contents. B’s statements in that conversation may be used in the case against A  
only as context, i.e. as proof the statement by B was made to A. As noted by  
Bruce A. MacFarlane in Drug Offences in Canada, 3rd ed. (Aurora, Ont.: Canada  
Law Book, 1996) at p. 8-33:  
On the basis of the Carter rule, there is a temptation to believe that  
the accused’s own acts and declarations must be examined in  
isolation, totally detached from the rest of the evidence and, more  
particularly, detached from the acts and declarations of the co-  
conspirators. That notion was laid to rest in R. v. Filiault (1981),  
63 C.C.C. (2d) 321 (Ont. C.A.), aff’d 15 C.C.C. (3d) 352n  
(S.C.C.), where Dickson C.J.C. adopted the reasons outlined in the  
Court of Appeal by Martin J.A. who emphasized, at p. 326, that the  
accused’s acts and declarations must be viewed in the context in  
which they occurred.  
[323] While the trier of fact is entitled to view the accused’s own acts and declarations against  
the picture provided by the acts and declarations of the alleged co-conspirators, the assessment of  
probable membership in the conspiracy must be made on the basis of the evidence admissible  
against the individual accused.375  
Step 3: Is the accused a member of the conspiracy beyond a reasonable doubt?  
[324] In order to move to step three of the Carter analysis, the trier of fact must be satisfied that  
step two of the Carter test has been met. If step two is not met, then the trier of fact cannot move  
to step three, and the accused cannot be found guilty of conspiracy. However, if the non-hearsay  
evidence at stage two of the Carter analysis shows that the accused is part of the conspiracy not  
only on a balance of probabilities but also beyond a reasonable doubt, then there is no need to  
move to stage three of the Carter test in order to introduce the out of court statements made by  
372  
Alcantara, supra, note 364 at para. 54.  
373  
Alcantara, supra, note 364 at para. 55.  
374  
Alcantara, supra, note 367 at para. 56..  
Hill, Tanovich & Strezos, McWilliam’s Canadian Criminal Evidence, 5th ed. (Ontario: Thomson  
375  
Reuters, 2013) at 7-148.  
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the co-conspirators in furtherance of the conspiracy.376 Consequently, “if there is no relevant  
hearsay evidence of the acts and declarations of a co-conspirator in furtherance of the  
conspiracy, the accused’s guilt must be proven beyond reasonable doubt at the second stage of  
the Carter test, if at all.”377  
[325] If step two of the Carter analysis only establishes that the accused’s membership in the  
conspiracy is probable, the trier of fact must go to step three of the Carter test. Step three of the  
Carter test allows certain out-of-court acts and declarations of the alleged co-conspirators to be  
used against the accused. Specifically, only acts and declarations made “in furtherance” of the  
conspiracy are permitted. Therefore, acts and declarations made before the formation of the  
conspiracy are not admissible for the truth of their contents, or to prove the non-declarant’s role  
in the subsequent conspiracy. Since these acts and declarations preceded the conspiracy, there is  
no basis for the acts or declarations of one person to constitute evidence against another, even if  
both become members of a conspiracy at a later date.378 Such acts and declarations, however,  
may be relevant to prove the origin, character and object of the conspiracy.379  
[326] It would seem that acts or declarations made after the successful completion of the  
conspiracy would be inadmissible because such acts and declarations are not technically “in  
furtherance” of the conspiracy. This, however, is not always the case. There are instances in  
which acts and declarations, made after the effects of the conspiracy have been fully realized, are  
still considered to be in furtherance of the conspiracy. If the subsequent acts are sufficiently  
involved in the achievement of the common goal, they may be in proof of the whole transaction.  
In order for these acts and declarations to be admitted, the trier of fact must conclude that these  
subsequent acts are “immediately connected with the crime specified as the object of the  
conspiracy and necessary for its successful completion, are within the common design, and in  
furtherance of the conspiracy.”380 At page 549 of R. v. Baron and Wertman, Martin, J.A.  
wrote:381  
It is well established that, as a general rule, the acts and declarations of one  
conspirator after the object of the conspiracy has been achieved are not admissible  
against a co- conspirator, since they are not in furtherance of the common  
purpose. Phipson on Evidence, 11th ed. (1970), p. 120; R. v. Blake and Tye  
(1844), 6 Q.B. 126, 115 E.R. 49. However, acts (the Supreme Court of the United  
States has held that subsequent declarations are not included: Lutwak et al. v. U.S.  
(1953), 344 U.S. 604) immediately connected with the crime specified as the  
object of the conspiracy and necessary for its successful completion, are within  
the common design, and in furtherance of the conspiracy. Such acts would  
include, for example, the disposal of the body where there is a conspiracy to  
murder, or the disguising of a stolen car where there is a conspiracy to steal the  
376  
Alcantara, supra, note 367 at para. 60  
377  
Ibid.  
378  
Hill, Tanovich & Strezos, McWilliam’s Canadian Criminal Evidence, 5th ed. (Ontario: Thomson  
Reuters, 2013) at 7-151.  
379  
R. v. McNamara (1981), 56 C.C.C. (2d) 193 (Ont. C.A.) at page. 453, R. v. Alcantara, 2012 ABQB 521  
at para. 63.  
380  
R. v. Baron and Wertman (1976), 31 C.C.C. (2d) 525 (Ont. C.A.) at p. 549  
381  
Ibid.  
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car: see McCormick's Handbook on the Law of Evidence, 2nd ed. (1972), p. 646;  
Tripodi v. The Queen (1961), 104 C.L.R. 1.  
[327] On the other hand, narrative statements which are divorced from the operation of the  
conspiracy are not considered statements made in the furtherance of the conspiracy. The Court in  
R. v. Maugey,382 clarified what includes acts and declarations made in furtherance of the  
conspiracy:  
[29] (…) Normally such evidence would be inadmissible hearsay, but because  
conspirators are agents of each other, their acts in the agency are admissible  
against each other. Acts and words in furtherance of the conspiracy are those  
which moved the conspiracy forward, not narrative discussions or descriptions, or  
statements made after the object of the conspiracy has been carried out, such as  
statements made to the police after the fact.  
[328] At paragraph 33, the Court added:  
[33] The matter was particularly open to confusion in this case where the two  
appellants each gave statements to police after the alleged conspiracy was  
concluded. Such statements, once ruled voluntary, are admissible against the  
person who made them, but are never admissible against another co-conspirator,  
as they are not made in furtherance of the conspiracy, but after the conspiracy was  
completed. Also, the two other co-accused, Ally and Ecker, made admissions  
about their own involvement and gave evidence explaining the involvement of the  
appellants. That evidence was exculpatory for the appellants, as was their own  
evidence. This exculpatory evidence was also admissible evidence for the jury to  
consider on the issue of probable participation, but the admissions of Ally and  
Ecker about their own involvement were not, as those admissions were not  
declarations made in furtherance of the conspiracy.  
[329] The requirement that the acts and declarations be made in furtherance of the conspiracy  
was also stressed by the Ontario Court of Appeal in R. v.Chang.383 At paragraph 120 the court  
wrote (emphasis added):  
[120] The third requirement in Carter provides a further safeguard against the use  
of unreliable hearsay. Assuming the hurdles in steps one and two are cleared, the  
trier of fact may rely on hearsay declarations, but importantly only if they are  
made in furtherance of the conspiracy. This is critical. It is not enough that the  
hearsay words or acts pertain to the conspiracy. They must be found to further the  
specific unlawful object which has been found to exist beyond a reasonable doubt  
under step one and to which the direct evidence links the accused under step two.  
[330] Greckol, J. at paragraphs 62-63 of in R. v. Alcantara,384 also commented on what acts or  
statements will be, or will not be, considered as acts or statements made in furtherance of the  
conspiracy:  
[62] Reassurances and updates given by one member to another in the context of  
an ongoing enterprise have been held to be "in furtherance" of the common  
382  
(2000) 146 C.C.C. (3d) 99, [2000] O.J. No. 2438.  
383  
(2003) 173 C.C.C. (3d) 397 at para. 120, [2003] O.J. No. 1076.  
384  
Alcantara, supra, note 364.  
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design. Acts done to avoid detection may also be within the objectives of the  
conspiracy and, therefore, evidence of these acts may be admissible where the  
common enterprise is established.  
[63] Acts and declarations made before the formation of the conspiracy or  
common enterprise are not admissible for the truth of their contents or to prove  
the non-declarant's role. Since these acts precede the conspiracy, there is no basis  
for the acts or declarations of one person to constitute evidence against another,  
even though both may have become members of the conspiracy at a later date.  
They may, however, be relevant to prove the origin, character and object of the  
conspiracy.  
[331] Statements of past events and confessions of one conspirator are inadmissible against  
other conspirators. However, such statements may be admissible against the actor or maker of  
the declaration. The general rule that subsequent acts or declarations are admissible against the  
actor or maker applies to conspiracy charges.385  
Jury Instructions at Stage 2 and 3 of the Carter analysis  
[332] Justice David Watt, in the Ontario Specimen Jury Instructions (Criminal) (Toronto:  
Thomson Carswell, 2003) at pages 914- 917, sets out a form of instruction to be given to a jury  
(the trier of fact) on the second and third stage of the Carter analysis. The instruction is a useful  
summary of what evidence can and cannot be relied upon at each of the second and third  
stages:386  
Your first task is to consider only what (NOA) (the particular accused whom you  
are considering) said and did in the context of the conspiracy to (commit) (specify  
indictable offence alleged). From this evidence, and only this evidence, it is for  
you to say whether (NOA) (the particular accused whom you are considering) was  
probably a member of the conspiracy. By “probably”, I mean more likely than  
not. In other words, based on his/her own words and acts, considered in the  
context of the words and acts of other alleged members of the conspiracy, is it  
more likely than not that (NOA) (the particular accused whom you are  
considering) was a member of the conspiracy to (commit) (specify indictable  
offence alleged)?  
(Review relevant evidence of particular accused's own acts and  
declarations)  
If you do not conclude, from the evidence of his own words and conduct, that  
(NOA) (the accused whom you are considering) was probably (more likely than  
not) a member of the conspiracy to (commit) (specify indictable offence alleged),  
then you must find (NOA) (the accused whom you are considering) not guilty.  
Your deliberations would be over.  
If you conclude, from the evidence of his own words and conduct, that (NOA)  
(the accused whom you are considering) was probably (more likely than not) a  
385  
Hill, Tanovich & Strezos, McWilliam’s Canadian Criminal Evidence, 5th ed. (Ontario: Thomson  
Reuters, 2013) at 7-151.  
386  
“NOA” means “name of accused”.  
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member of the conspiracy to (commit) (specify indictable offence alleged), you  
must go on to consider the evidence of what other members of the conspiracy said  
and did while the conspiracy was ongoing and to further its purpose. This  
evidence, may help you decide whether Crown counsel has proven beyond a  
reasonable doubt that (NOA) (the accused whom you are considering) was a  
member of the conspiracy.  
A finding from (NOA)’s (an accused)’s own words and acts that s/he was  
probably (more likely than not) a member of the conspiracy is not enough for you  
to find (NOA) (that accused) guilty of conspiracy. Probable membership is not  
enough. Nor does it follow from a finding that (NOA) (an accused) was probably  
(more likely than not) a member of the conspiracy that you must find beyond a  
reasonable doubt that (NOA) is guilty of conspiracy. You may or may not find  
(NOA)’s (an accused)’s membership proven beyond a reasonable doubt.  
To determine whether you are satisfied beyond a reasonable doubt that (NOA) (a  
particular accused) was a member of the conspiracy to (commit) (specify  
indictable offence alleged), you are entitled to consider all the evidence. You are  
not limited to (NOA)’s (the) own words and conduct (of the accused whom you  
are considering). Besides that evidence, you may take into account anything that  
any other member of the conspiracy said or did while the conspiracy was ongoing  
for the purpose of achieving its object or purpose, (specify indictable offence  
alleged).  
It is not everything said or done by any member of the conspiracy, charged or  
uncharged, on trial or not on trial, on which you may rely to decide whether  
Crown counsel has proven beyond a reasonable doubt that (NOA) (or, a particular  
accused) was a member of that conspiracy. There are two (2) requirements. The  
words must be spoken and the acts done:  
- while the conspiracy remains in existence; and  
- in furtherance of the object or purpose of the conspiracy.  
To be ‘in furtherance of’ the object or purpose of the conspiracy, the words or acts  
must be for the purpose of advancing the objects of the conspiracy, carrying  
forward the common design, or taking steps in order to achieve its purpose.  
Recruiting others to join, obtaining any necessary funds or equipment, arranging  
for delivery of items required, and checking out escape routes are examples of  
words or acts in furtherance of the object or purpose of a conspiracy. The acts  
done do not have to be unlawful, but what is said must not be solely a recounting  
of prior events or reference to other crimes unrelated to the conspiracy.  
It is not necessary that (NOA) (the accused whom you are considering) be the  
person who actually did the act in furtherance of the conspiracy, or even that s/he  
understood it or knew about it. Similarly, it is not necessary that (NOA) (the  
accused whom you are considering) be the person who actually spoke the words  
in furtherance of the conspiracy, or even that s/he was there when they were  
spoken. A conspiracy is like a partnership in crime. Each member is an agent or  
partner of every other member and is bound by or responsible for the words and  
conduct of every other member spoken or done to further their unlawful scheme.  
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The co-conspirators’ exception and the “principled approach”  
[333] In R. v. Starr, supra, the Supreme Court of Canada held that the traditional categorical  
exceptions to the general exclusionary rule for hearsay are to be interpreted in a manner  
consistent with the principled approach to determine the admissibility of hearsay evidence.  
Iacobucci J., at paragraphs 213 and 214, wrote:  
[213] All this being said, it is also clear that the logic of the principled approach  
demands that it must prevail in situations where it is in conflict with an existing  
exception. For example, had there been any doubt in this appeal whether the  
present intentions exception required that the statement not be made under  
circumstances of suspicion, the principled approach would require holding that it  
does now. Hearsay evidence may only be admitted if it is necessary and reliable,  
and the traditional exceptions should be interpreted in a manner consistent with  
this requirement.  
[214] In some rare cases, it may also be possible under the particular  
circumstances of a case for evidence clearly falling within an otherwise valid  
exception nonetheless not to meet the principled approach's requirements of  
necessity and reliability. In such a case, the evidence would have to be excluded.  
However, I wish to emphasize that these cases will no doubt be unusual, and that  
the party challenging the admissibility of evidence falling within a traditional  
exception will bear the burden of showing that the evidence should nevertheless  
be inadmissible. The trial judge will determine the procedure (whether by voir  
dire or otherwise) to determine admissibility under the principled approach's  
requirements of reasonable necessity and reliability.  
[334] Following Starr, supra, the question arose whether the co-conspirators’ exception  
satisfies the requirements of necessity and reliably pursuant to the principled approach. Whether  
or not the co-conspirators exception to the hearsay rule is consistent with the principled approach  
was addressed by the Ontario Court of Appeal in R. v. Chang.387 The court formulated the  
question in the following way:  
[101] The evaluation of the Carter approach against the two requirements of  
necessity and reliability can be carried out by asking - if the trier of fact concludes  
that a declaration of an alleged co-conspirator may be used against an accused as  
a result of the Carter process, does the declaration as a general rule meet the  
principled requirements of necessity and threshold reliability? In other words,  
does compliance with Carter bring with it presumptive compliance with the two  
requirements?  
[335] The Court in R. v. Chang, supra, recognized the potential dangers of admitting statements  
of alleged co-conspirators. At paragraph 85, the Court wrote:  
However, the fact that the co-conspirators' rule is grounded in those principles  
does not alter the fact that a statement that becomes admissible under the Carter  
process is hearsay and concerns about unreliability are very real. Indeed, the  
dangers attached to the use of hearsay that give rise to the general exclusionary  
rule are all present in the case of a statement admitted under the Carter process.  
387  
(2003) 173 C.C.C. (3d) 397, [2003] O.J. No. 1076  
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The statement is not made under oath, is not subject to contemporaneous cross-  
examination, and the trier of fact has no opportunity to observe the declarant at  
the time the statement was made.  
[336] Despite, these concerns, however, the Court in R. v. Chang, supra, held that the co-  
conspirators’ exception to the hearsay rule was consistent with the principled approach to the  
admission of hearsay. When determining whether the co-conspirators’ exception met the test of  
necessity, the Court held that the “co-conspirators' rule clearly meets the requirement of  
necessity in cases where the declarant is not available to testify.”388 At paragraph 105, the Court  
in Chang, supra, added that “in the case of co-conspirators' declarations, necessity will arise  
from the combined effect of the non-compellability of a co-accused declarant, the undesirability  
of trying alleged co-conspirators separately, and the evidentiary value of contemporaneous  
declarations made in furtherance of an alleged conspiracy.” And at paragraph 106 the Court said:  
[106] Therefore, in a case where two accused charged with the same conspiracy  
are jointly tried and one of them is a declarant of hearsay statements, implicating  
the other in the conspiracy, the necessity requirement for the admission of hearsay  
evidence, in our view, has been met.  
[337] On the issue of reliability, the Court in Chang, supra stated that the court must consider  
whether the co-conspirators exception “will result in the use of hearsay that meets the threshold  
reliability, that is, evidence about which there are sufficient guarantees of trustworthiness to  
warrant presumptive admissibility.”389 Due to the long-standing acceptance of the rule, and the  
safeguards at each stage of the Carter analysis, the Court in Chang, supra, concluded that the co-  
conspirators’ exception provides reliability. At paragraph 115, the Court wrote:  
[115] There are several safeguards against the admission of unreliable evidence  
found in the Carter approach to co-conspirators' declarations. The cumulative  
effect of the Carter requirements provides safeguards against the dangers  
traditionally associated with hearsay evidence and, in our view, provides  
sufficient guarantees of trustworthiness to permit the use of hearsay that satisfies  
those requirements.  
[338] At paragraphs 116-117, and 120, the Court specified the safeguards at each stage of the  
Carter analysis:  
[116] The first requirement of the Carter approach is that the trier of fact must be  
satisfied beyond a reasonable doubt that the alleged conspiracy in fact existed.  
Although not a reliability-enhancing requirement itself, this is the web that  
connects the members. This step points to the commonality of interest among  
those who may be shown to be connected to the common unlawful object.  
[117] The second requirement is that it be shown on a balance of probabilities, on  
the basis of evidence that is directly admissible against the accused, that the  
accused was a member of the conspiracy found to exist under step one. Notably,  
the corroborative value of the direct evidence requirement goes beyond the mere  
fact that it is evidence that supports what is asserted in the hearsay statement. It  
also lends itself to reasoning based on the unlikelihood of coincidence; the  
388  
Ibid., at para. 102  
389  
Ibid., at para. 111  
- 133 -  
unlikelihood of the coincidence that the direct evidence incorrectly points to the  
accused and that the statement of the co-conspirator also incorrectly points to the  
accused becomes a circumstance of some probative force.  
…
[120] The third requirement in Carter provides a further safeguard against the use  
of unreliable hearsay. Assuming the hurdles in steps one and two are cleared, the  
trier of fact may rely on hearsay declarations, but importantly only if they are  
made in furtherance of the conspiracy. This is critical. It is not enough that the  
hearsay words or acts pertain to the conspiracy. They must be found to further the  
specific unlawful object which has been found to exist beyond a reasonable doubt  
under step one and to which the direct evidence links the accused under step two.  
[339] The majority in the Supreme Court of Canada in R. v. Mapara,390 in adopting the Ontario  
Court of Appeal’s reasoning in R. v. Chang, supra, held that the co-conspirator’s exception to the  
hearsay rule satisfies the principled approach. On the issue of necessity, Chief Justice McLachlin  
(speaking for 5 members of the 7 member panel) said:  
[18] (…) The criterion of necessity poses little difficulty. As stated in Chang,  
"necessity will arise from the combined effect of the non-compellability of a co-  
accused declarant, the undesirability of trying alleged co-conspirators separately,  
and the evidentiary value of contemporaneous declarations made in furtherance of  
an alleged conspiracy" (para. 105).  
[340] On the issue of reliability, the Chief Justice said at paragraphs 23-27:  
[23] The appellant argues that Carter cannot satisfy the reliability requirement  
because it amounts to using corroborating evidence to bolster the reliability of  
hearsay declarations against the accused, contrary to Starr, per Iacobucci J., at  
para. 217.  
[24] I do not agree. The question is whether the first two stages of the Carter  
process provide circumstantial indicators of reliability that do not amount to  
simply corroborating the statements in issue. In my view, they do. Proof that a  
conspiracy existed beyond a reasonable doubt and that the accused probably  
participated in it does not merely corroborate the statement in issue. Rather, it  
attests to a common enterprise that enhances the general reliability of what was  
said in the course of pursuing that enterprise. It is similar in its effect to the res  
gestae exception to the hearsay rule, where surrounding context furnishes  
circumstantial indicators of reliability. The concern is not with whether a  
particular statement is corroborated, but rather with circumstantial indicators of  
reliability.  
[25] The evidence under the first two stages of Carter is not inherently  
corroborative of the hearsay statement, in the sense of confirming the truth of its  
contents. Indeed the evidence establishing the conspiracy and the accused's  
probable participation may conflict with the hearsay evidence subsequently  
adduced. More often than not, the trier of fact will find corroboration, rather than  
390  
(2005) 195 C.C.C. (3d) 225, 2005 SCC 23  
- 134 -  
conflict, in the direct evidence implicating the accused. However, this ultimate  
use of the evidence should not be confused with its initial role in establishing  
threshold reliability. Here it is relevant with respect to the context of the hearsay  
evidence, and not to its contents. The use of the Carter approach in the present  
inquiry thus stays within the boundaries of threshold reliability, as explained in  
Starr.  
[26] In addition to these preliminary conditions, the final Carter requirement, i.e.,  
only those hearsay statements made in furtherance of the conspiracy can be  
considered, provides guarantees of reliability in the more immediate  
circumstances under which the statement is made. "In furtherance" statements  
"have the reliability-enhancing qualities of spontaneity and contemporaneity to  
the events to which they relate" (Chang, at paras. 122-23). They have res gestae-  
type qualities, being "the very acts by which the conspiracy is formulated or  
implemented and are made in the course of the commission of the offence"  
(Chang, at para. 123). This "minimizes the motive and opportunity for  
contrivance" (Chang, at para. 124). The characters' doubtful reputation for  
veracity is not a factor at this stage of the analysis. Rather, it is to be taken into  
account by the jury when assessing the ultimate reliability of such characters'  
statements.  
[27] In sum, the conditions of the Carter rule provide sufficient circumstantial  
guarantees of trustworthiness necessary to permit the evidence to be received.  
[341] At paragraph 31, the Court definitively stated:  
[31] I conclude that the co-conspirators' exception to the hearsay rule meets the  
requirements of the principled approach to the hearsay rule and should be  
affirmed.  
Necessity and the ability of the co-conspirator to testify  
[342] In Chang, supra, the court did not consider whether the requirement of necessity would  
be met where the co-conspirator was available to testify.391 This issue, however, was addressed  
by the Court in R. v. Simpson.392 In that case, the recipient of the hearsay utterances was an  
undercover officer who later recorded what she had heard. The person who made the statements  
was no longer a co-accused, and was able to testify. Despite the declarant’s availability, the  
Crown wanted to rely on the co-conspirators’ exception to avoid the risk of unforeseen  
circumstances such as the witness disagreeing with the undercover officer’s evidence about what  
he said, retreating from his earlier declarations, claiming an inability to fully recall, or giving an  
exculpatory explanation.393 After reviewing the potential of this happening, the Court held that a  
sufficient evidentiary foundation for necessity had not been made out:  
[47] The fact that Mr. Williams, in this case, resolved his matter before the  
appellant's trial suggests that he has reason to lessen his role in the offences he  
391  
Supra, note 387 at para. 110  
392  
(2007), 230 C.C.C. (3d) 542 at para. 36 (Ont. C.A.), leave to appeal to S.C.C. refused 230 C.C.C. (3d)  
vi.  
393  
Ibid., at paragraph 43.  
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faced and to place a greater role on the appellant, both of which are at least  
indicative that he might be a cooperative Crown witness. Importantly, whether or  
not Mr. Williams would be a cooperative witness, or whether there was any  
meaningful prospect of obtaining evidence from him, was never established in  
this case: see R. v. Dionne, 193 C.C.C. (3d) 228 (Alta. C.A.). Cooperation,  
however, is just one factor in the analysis. A declarant's willingness to be a  
cooperative witness will not in and of itself determine whether the declarant's out-  
of-court statements will be excluded.  
[343] R. v. Simpson, supra, however, was distinguished in two subsequent cases where the test  
of necessity was met despite the fact the co-conspirator was able to testify in court. In R. v.  
Lepage,394 the British Columbia Court of Appeal distinguished Simpson, supra on the basis that  
although the unindicated co-conspirators were able to testify, the intercepted telephone  
conversations constituted the strongest and most reliable evidence, and, therefore, satisfied the  
necessity requirement. At paragraph 43, the Court wrote:  
Telephone conversations between participants in a conspiracy furnishes cogent  
and reliable evidence of the very essence of the conspiracy. It is undeniably the  
best evidence that exists concerning what is occurring between the conspirators.  
The ability to record conversations and communications between parties engaged  
in a conspiracy greatly altered the evidentiary landscape in conspiracy  
prosecutions. Unlike the situation in earlier times where the evidence had to be  
adduced from participants who may have been granted immunity or inferred from  
observations of the actions of alleged participants, in the wiretap era, the whole  
framework and details of the criminal enterprise can now be exposed to view. It is  
difficult to see how one could obtain evidence of similar quality by calling  
unindicted co-conspirators or parties not charged to testify to what they said at an  
earlier time.  
[344] Simpson, supra, was also distinguished in R. v. Y.(N.).395 The Court first commented on  
the availability of the co-conspirators’ exception where the declarant is available to testify. At  
paragraphs 75-76, Blair J.A. said:  
[75] Like the trial judge, however, I do not understand Simpson to stand for the  
proposition that the co-conspirators' exception to the hearsay rule - that is, that the  
out-of-court declarations are presumptively admissible - may never apply where  
the declarant is available to testify. Indeed, at para. 36, LaForme J.A. said:  
There is no doubt in my mind that the availability of the declarant,  
in some circumstances, can support the "rare exception" in which  
the Carter test might yield to that required by Starr. In other words,  
the availability of the co-conspirator declarant as a witness, may  
require that the declaration be adduced through the testimony of  
the declarant. [Emphasis added.]  
[76] This is a far cry from stating that the co-conspirators' exception cannot apply  
at all when the declarant is available to testify.  
394  
(2008) 232 C.C.C. (3d) 411 (B.C.C.A.), leave to appeal to S.C.C. refused 233 C.C.C. (3d) vi.  
395  
(2010) 294 C.C.C. (3d) 313, 2012 ONCA 745  
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[345] In paragraph 77 of R. v. Y.(N.), supra, Blair, J.A., relied on O'Connor A.C.J.O’s and  
Armstrong J.A.’s reasoning in R. v. Chang, supra, particularly that necessity needs to be  
interpreted in a flexible way:  
[77] Indeed, such a proposition would be inconsistent with the flexible approach  
taken to the notion of necessity in the jurisprudence since the development of the  
principled approach. As the trial judge noted in his ruling on admissibility,  
necessity is broader than unavailability of the declarant and extends to the nature  
and quality of the evidence. He relied upon the following statement in Chang, at  
para. 105, for that opinion:  
... under the principled approach, necessity can be grounded in  
more than just the unavailability of the declarant. In Smith, Lamer  
C.J.C. held at pp. 933-934 that "the criterion of necessity must be  
given a flexible definition, capable of encompassing diverse  
situations. What these situations will have in common is that the  
relevant direct evidence is not, for a variety of reasons, available.  
Necessity of this nature may arise in a number of situations". He  
then cited Wigmore's suggestion that the categories of necessity  
should include not only instances where the declarant is  
unavailable for the purpose of testing through cross-examination,  
but also situations where "we cannot expect ... to get evidence of  
the same value from the same or other sources".... In our view, in  
the case of co-conspirators' declarations, necessity will arise from  
the combined effect of the non-compellability of a co-accused  
declarant, the undesirability of trying alleged co-conspirators  
separately, and the evidentiary value of contemporaneous  
declarations made in furtherance of an alleged conspiracy.  
[Emphasis added.]  
[346] In applying the reasoning in Chang, supra, the Court in R. v. Y.(N.), supra, held that the  
trial judge was correct to find that the necessity requirement had been met despite the fact that  
the declarants were able to provide in court testimony. First, the trial judge relied on the fact that  
the nature and quality of the evidence at the time that it was spoken (provided in reports, notes  
and in intercepted communications) was the “far superior” evidence. Secondly, the trial judge  
concluded that even though the declarants were available to testify they were unlikely to be co-  
operative witnesses, therefore the true nature of their evidence would not be available.396  
Additionally, R. v. Y.(N.), supra, relied on the case of United States v. Inadi.397 In that decision,  
the United States Supreme Court made the point that statements made by co-conspirators in  
furtherance of the common design assist in providing a picture of the conspiracy that is unlikely  
to emerge if the evidence is to be given directly by the co-conspirator at trial several years after  
the event. The Court noted that because “conspirators are likely to speak differently when talking  
to each other in furtherance of their illegal aims than when testifying on the witness stand.”  
[347] The co-conspirator’s exception to the hearsay rule is viewed as presumptively admissible,  
and it remains open to defence counsel to challenge the admissibility of the evidence under the  
396  
Ibid., at para. 92  
397  
(1986) 106 S.Ct. 1121, at 1126  
- 137 -  
exception as offending the principled approach.398 The Supreme Court of Canada in Mapara,  
supra, acknowledged the accused’s ability to challenge the presumption at paragraph 28  
(emphasis added):  
[28] This conclusion makes practical sense. First, the rule does not operate  
unfairly to accused persons. Indicia of reliability exist. In this way, unreliable  
evidence that is likely to mislead the jury can be excluded. It remains open to the  
accused to cross-examine the deponent, call contrary evidence, and argue the  
unreliability of the co-conspirators' evidence before the jury. Moreover, it is not  
unfair to expect people who enter into criminal conspiracies to accept that if they  
are charged, the evidence of their co-conspirators about what they said in  
furtherance of the conspiracy may be used against them. Finally, the hearsay rule  
is supplemented by the discretion of the trial judge to exclude evidence where its  
prejudicial effect outweighs its probative value, discussed below.  
[348] Words to the same effect are found in the case of R. v. Chang, supra (emphasis added):  
[132] We wish to add a few observations of a practical nature. We are concerned  
that conspiracy trials, many of which are already complicated, may become more  
so if every time the Crown seeks to introduce co-conspirators' declarations, the  
trial judge is required to hold a voir dire to determine if there is compliance with  
the principled approach. We do not anticipate that will be the case. A voir dire  
addressing the principled approach should be the exception. It will only be  
required when an accused is able to point to evidence raising serious and real  
concerns about reliability emerging from the circumstances in which a declaration  
was made, which concerns will not be adequately addressed by use of the Carter  
approach. As a general rule, the presumption that evidence that meets the Carter  
requirements also meets the principled approach should obviate the need for a  
voir dire. Moreover, when a court determines that a voir dire is warranted, the  
voir dire should focus solely on the issue of whether the circumstances emerging  
from the evidence are sufficient to rebut the presumption that, if the evidence  
complies with the Carter regime, it will also satisfy the necessity and reliability  
requirements.  
Application of the Co-Conspirator’s Rule to the case at bar  
Step 1: Is there a conspiracy?  
[349] At the first stage of the Carter analysis, the trier of fact must determine whether a  
conspiracy exists beyond a reasonable doubt. To determine whether a conspiracy exists, the trier  
of fact is permitted to consider “all the evidence” introduced at trial, including hearsay  
statements made in furtherance of the conspiracy.  
[350] The Criminal Code does not define conspiracy. Instead, the definition is found at  
common law. Conspiracy was classically defined by the House of Lords in England by Willes J.  
in Mulcahy v. The Queen.399 At page 317, Willes J. wrote:  
398 R. v. Mango, 2012 ONSC 4001, at para. 63, [2012] O.J. No. 3353  
399 (1868), L.R. 3 H.L. 306.  
- 138 -  
A conspiracy consists not merely in the intention of two or more, but in the  
agreement of two or more to do an unlawful act, or to do a lawful act by unlawful  
means. So long as such a decision rests in intention only, it is not indictable.  
When two agree to carry it into effect, the very plot is an act in itself, and the act  
of each of the parties, promise against promise, actus contra actum, capable of  
being enforced if lawful, punishable if for a criminal object or for the use of  
criminal means.  
[351] This statement of the law was adopted by the Supreme Court of Canada in R. v. O'Brien  
at page 3.400 Since O'Brien, supra, Canadian courts have fine-tuned the definition of conspiracy.  
In United States of America v. Dynar,401 for example, the Supreme Court of Canada outlined the  
essential elements of conspiracy as: (a) an act of agreement (tactic or express); (b) the intention  
to agree; (c) a criminal purpose; and (d) an intention to effect the criminal purpose.  
[352] Conspiracies are usually proven by way of circumstantial evidence; direct evidence of an  
agreement tends to be a rarity.402 Circumstantial evidence requires the drawing of an inference  
from either an individual piece of evidence or more commonly, several pieces of evidence.  
Where the Crown asks the trier of fact to draw an inference from the circumstantial evidence  
presented, the Crown will need to show that the inference is the only reasonable inference  
available in the circumstances, and that no other inconsistent, rational, or reasonable conclusion  
can be available.403  
[353] In the present case the alleged co-conspirators are Murray Stark [Stark], Robert Fyn  
[Fyn], and the accused, Garth Bailey [Bailey]. No direct evidence of an agreement was  
introduced at trial. Instead, the Crown builds its case on circumstantial evidence, and asks this  
court to infer that both the conspiracy to commit fraud, and the conspiracy to launder proceeds of  
crime, existed.  
Evidence establishing conspiracy to commit fraud and conspiracy to launder proceeds of  
crime  
[354] I am satisfied beyond a reasonable doubt that Stark and Fyn were the principal operators  
of HMS Financial, a private investment scheme. Around, 2001 the accused began to do legal  
work for HMS Financial. The HMS investment plan usually promised a return in the range of  
120 percent per annum. Before investors agreed to invest, they were referred to the accused by  
both Fyn and Stark. The accused would then specify, sometimes orally, sometimes in writing,  
that he held bonds in trust for HMS Financial in the amount of $30-40 million USD, and that he  
had authority to liquidate these bonds in the event that HMS Financial was not meeting its  
contractual obligations. The accused further specified that the bonds were not subject to any  
liens, claims or encumbrances.  
400  
(1954) 110 C.C.C. 1 at page 9, [1954] S.C.R. 666  
401  
(1997) 115 C.C.C. (3d) 481, [1997] 2 S.C.R. 462  
402  
R. v. J.F., (2013) 293 C.C.C. (3d) 377, 2013 SCC 12  
403  
Hodge’s Case (1838) 168 E.R. 1136. Also see R. v. Cooper (1977), 34 C.C.C. (2d) 18 (S.C.C.), and  
now R. v. Griffin (2009) 244 C.C.C. (3d) 289 (S.C.C.)  
- 139 -  
[355] The Crown relies on an admission by Bailey to Sheridan, and circumstantial evidence to  
show that the bonds said to be held by the accused in trust were of no value. This evidence  
includes the fact that the bonds were never liquidated and did not provide a return of each  
investor’s principal. The witnesses at trial testified that most investors did not receive a return of  
their principal investment. Law Society of Alberta records also indicated that the accused’s S  
Form, which is required to be filled out by members of the Society annually, did not provide any  
information about the accused holding bonds in trust for HMS Financial. Further, at a meeting  
between the accused, Peter Sheridan, and Blaine Cisna, at Perkins Restaurant in Calgary, the  
accused admitted that the bonds held in trust by him for HMS Financial were historical railways  
bonds and worthless.  
[356] I have accepted the testimony of Amin Ramji [Ramji], an investor and HMS Customer  
Care Specialist, that Fyn told Ramji that the bonds which Bailey held in trust were the originals  
of the copies of bonds which were hanging on the wall at the HMS office.404 Exhibit 21, which is  
a DVD of a search of the HMS Financial Office, conducted by Staff Sergeant Jesperson on April  
29, 2004, shows that the bonds framed on the wall at the HMS Office were copies of historical  
bonds.405  
[357] Fyn’s declaration to Ramji, though hearsay, is admissible in this stage of the analysis as a  
conspirator’s declaration in furtherance of the conspiracy. I am satisfied that Fyn, a co-  
conspirator made the declaration to Ramji in order to give him comfort about the protection of  
his principal investment. At this stage of the Carter test, in order to be admitted, this statement  
must be viewed as either circumstantial evidence, or as hearsay that meets the requirement of  
necessity and reliability.406  
[358] Evidence also shows that all three of Fyn, Stark, and Bailey played a number of roles in  
encouraging members of the public to invest their money in the HMS Financial Investment  
program. Stark and Fyn invited potential investors to the HMS office, or to other locations, in  
order to present to them the investment opportunities at HMS Financial. At some of these  
meetings, the accused was present. On other occasions, Stark and Fyn organized public  
gatherings where Stark, Fyn and the accused gave public presentations about HMS Financial and  
the bonds which the accused held in trust.  
[359] The accused, with the approval of Stark and Fyn, also wrote letters which represented  
that any investments made were protected by the security which the accused held in trust. These  
letters were distributed to HMS investors.407 Bailey recommended to Stark and Fyn that  
investment companies be incorporated by the Customer Care Specialists to escape the operation  
of certain securities commissions’ rules. Bailey, Stark and Fyn implemented that arrangement  
and assisted CCCs with creation of those investment companies. Each CCS sold shares to  
investors who then loaned money to the company under a shareholder’s loan agreement. The  
loaned monies gathered by each CCS were then invested into the HMS Financial program.  
404  
Transcript, November 18, 2013, pp. 883-884.  
405  
Exhibit 21, DVD of HMS Office Search- still image at 2:09 min.  
406  
Alcantara, supra, note 367 at para. 55.  
407  
Exhibits 93, 94, and 95.  
- 140 -  
[360] The monies received from investors were transferred to bank accounts in Canada, the  
United States and the Bahamas. The receiver of the money was the accused, who then deposited  
the money into the numerous accounts.  
[361] I am satisfied beyond a reasonable doubt that there was a conspiracy to induce investors  
to invest money in HMS by telling the investors that sufficient security (bonds) were held by a  
lawyer who was instructed to use those bonds to repay investors if HMS defaulted. The unlawful  
act agreed to was making a fraudulent misrepresentation to potential investors to induce them to  
invest (fraud). That agreement to do the unlawful act was acted upon as the evidence clearly  
proves.  
[362] Further, it is clear that there was an agreement, which was acted upon, to transmit to bank  
accounts the proceeds of fraud. I am satisfied beyond a reasonable doubt that there was also a  
conspiracy to launder the proceeds of the fraud.408  
Step 2: On a balance of probabilities, is the accused a member of the conspiracy?  
[363] At the second stage of the Carter analysis, the trier of fact must determine whether, on a  
balance of probabilities, the accused was a member of the conspiracy. At this stage of the  
analysis, the trier of fact is limited to considering evidence that is directly admissible against the  
accused. This evidence, however, need not be divorced from the acts and declarations of the co-  
conspirators. Considering the evidence in context can be of assistance in determining the  
meaning of the accused’s acts and declarations.  
[364] The following evidence proves that on a balance of probabilities the accused was a  
member of the conspiracy to commit fraud and proves beyond a reasonable doubt that the  
accused was a member of the conspiracy to launder proceeds of crime:  
(a) The accused agreed to hold historical railway bonds in trust for HMS  
Financia,l and made representations to potential investors that these bonds were  
worth $30-40 million USD. The accused also made representations that the bonds  
could be liquidated in order to cover the principal investment in the event that  
HMS Financial failed to meet its contractual obligations.  
(b) The accused made the representations set out in part (a) via letters, e-mails,  
and orally at both private and public meetings.  
(c) In one meeting, the accused made the representation that money invested into  
HMS Financial was safer than money in the bank.  
(d) The accused recommended and helped initiate a course of action in which  
Customer Care Specialists, with the assistance of the accused, incorporated  
companies to faciltate the acquisition and pooling of investment funds.  
408 The actus reus of laundering proceeds of crime pursuant to section 463.31 includes: uses; transfers the  
possession of; sends or delivers to any person or place; transports; transmits; alters; or disposes of. The  
mens reas of the offence of laundering proceedings of crime was defined by the Supreme Court In R. v.  
Daoust, 2004 1 S.C.R. 217, as “(1) intent to conceal or convert property or proceeds of property, and (2)  
knowledge or belief that the property or proceeds were derived from an enterprise crime offence or a  
designated substance offence.”  
- 141 -  
(e) The accused opened bank accounts in Canada, the United States and the  
Bahamas in order to deposit money from investors into the HMS Financial  
Scheme.  
(f) The accused accepted cheques from investors on behalf of HMS Financial.  
(g) The accused drafted letters, opinion letters, Shareholder Loan Agreements,  
and Joint Venture Agreements for HMS Financial.  
Step 3: Has it been proven beyond a reasonable doubt that the accused was a  
member of the conspiracy?  
[365] Because steps 1 and 2 of the Carter analysis have been met, at this stage of the analysis,  
out-of-court statements made in furtherance of the conspiracy by the co-conspirators can be  
admitted in evidence. Evidence shows that acts and declarations in furtherance of the conspiracy  
include:  
(a) Testimony of witnesses that both Stark and Fyn advised them to contact the  
accused in order to receive assurances that the bonds held in trust by the accused  
would provide security for their investment.  
(b) A number of witnesses testified to statements made by Stark and Fyn in the  
absence of the accused. These include:  
(i) The testimony of Ramji, an investor and HMS  
Customer Care Specialist, reveals, and I accept, that  
Fyn told Ramji that the bonds which the accused  
held in trust were the originals of the copies of the  
railway bonds which were hanging on the wall at  
the HMS office.  
(ii)Arie Schalk [Schalk], an investor in HMS  
testified, and I accept, that he was told by Fyn at a  
private meeting that the bonds which provided  
security for his investment, were held in trust by the  
accused, and that they were municipal and corporate  
bonds. While stating this, Fyn was referring to a  
bundle of railways bonds that he kept in a safe.  
[366] On the basis of this evidence, I am satisfied beyond a reasonable doubt that Bailey was a  
member of the conspiracy to commit fraud. On the basis of the already noted and accepted  
evidence about the conspiracy to launder the proceeds of crime, I am satisfied that the accused  
was also a member of that conspiracy.  
Necessity and Reliability  
[367] As noted in the cases referred to, there is a rebuttable presumption that the co-  
conspirator’s exception to the hearsay rule will meet the requirements of necessity and reliability.  
[368] In the case at bar, there is nothing which rebuts the presumption of reliability.  
- 142 -  
[369] Was the hearsay evidence necessary? In my view it was, and I have come to that  
conclusion because, in my view, Fyn and Stark were “unavailable”. In its written Brief the  
Crown said:  
[30] In this instance, the Crown did consider calling Fyn and Stark, and made  
attempts to ascertain whether they would be willing to provide evidence at trial.  
Fyn advised the Crown through his counsel that he was not prepared to testify  
without, at least, some form of consideration. The Crown was not prepared to  
exchange any consideration for Fyn’s evidence.  
[31] The Crown attempted to contact Stark through counsel and ultimately was  
not successful in so doing, which prevented any inquiry as to whether Stark would  
tell the truth or attend without consideration.  
[370] First, I am of the view that I am entitled to rely upon, and I do rely upon, these  
unchallenged factual assertions made by Crown counsel to the Court.  
[371] Second, Fyn made himself “unavailable” by demanding “consideration” for his  
testimony. The Court must not put the Crown in the position of having to succumb to what  
amounts to a form of blackmail by the convicted offender in order for the Crown to avoid the  
possibility of the presumption of necessity being rebutted. That puts control in the hands of the  
convicted offender, and the Court should not be a party to that. Fyn was unavailable to the  
Crown.  
[372] Third, the Crown was unable to contact Stark. I find their efforts to contact Stark  
(through his counsel) to have been reasonable, though unsuccessful. Stark was unavailable to the  
Crown.  
Conclusion  
[373] The co-conspirator’s exception to the hearsay rule applies in the case at bar.  
[374] The otherwise hearsay statements of Stark and Fyn made in furtherance of the conspiracy  
are admissible against Bailey.  
What did Mr. Bailey know about the bonds?  
[375] I have accepted from the evidence of Mr. Sheridan that sometime after the RCMP  
executed the HMS search warrant on April 29, 2004, Mr. Bailey told Sheridan that the bonds  
were worthless and were historical railway bonds. One can conclude from that evidence alone, as  
I do, that at least as of the time of that conversation, Mr. Bailey knew the bonds were worthless,  
historical railway bonds.  
[376] However, based on the statements of Fyn, made in furtherance of the conspiracies, and  
which are admissible against Bailey, we know that the bonds in Bailey’s possession were always  
railway bonds (and not municipal bonds as sometimes represented by Bailey and Fyn and Stark).  
The only reasonable conclusion to draw is that Bailey always knew the bonds he held were  
railway bonds (even when investors were being told that some of the bonds were municipal  
bonds). That intentional misrepresentation alone, made as it was to induce individuals to invest  
in HMS, is enough to establish criminal fraud.  
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[377] The next question is: Did Bailey always know that the bonds were worthless? Did he  
know the bonds were worthless when he was making representations that they had a value of  
thirty to forty million United States Dollars?  
[378] That the historical railway bonds held by Bailey were, at all times, worthless; that those  
bonds did not, at any of the times when he was making representations about their value to  
potential investors, have the value he represented; and that he made those representations for the  
purpose of inducing those individuals to invest money in HMS, are facts which, in my view, are  
all proven beyond a reasonable doubt.  
[379] The remaining question, as noted, is: When did Bailey know the bonds were worthless?  
Did he know that when he was making the representations about their value?  
[380] Certainly, the evidence does not indicate why Bailey’s understanding of the bonds would  
be any different at the time of his conversation with Sheridan than it was throughout 2002-2004.  
When making his declaration to Sheridan that the bonds were worthless, he certainly did not  
indicate that such information was newly acquired by him. With respect, Sheridan’s stated belief  
that the worthlessness of the bonds “was news to [Bailey] as well” is, without more, of no value  
or assistance because we have no evidence to suggest that Mr. Sheridan had any particular ability  
or skill in interpreting Mr. Bailey’s emotional state.  
[381] However, Mr. Bailey will be deemed to have known the fact that the bonds were  
worthless at the time when he was representing that they had a value between thirty million and  
forty million United States Dollars if he was wilfully blind to that fact.  
Wilful Blindness  
[382] The latest pronouncement of the Supreme Court of Canada on wilful blindness is R. v.  
Briscoe,409 (emphasis added):  
[21] Wilful blindness does not define the mens rea required for particular  
offences. Rather, it can substitute for actual knowledge whenever knowledge is a  
component of the mens rea. The doctrine of wilful blindness imputes knowledge  
to an accused whose suspicion is aroused to the point where he or she sees the  
need for further inquiries, but deliberately chooses not to make those inquiries.  
See Sansregret v. The Queen, [1985] 1 S.C.R. 570, and R. v. Jorgensen, [1995] 4  
S.C.R. 55. As Sopinka J. succinctly put it in Jorgensen (at para. 103), "[a] finding  
of wilful blindness involves an affirmative answer to the question: Did the  
accused shut his eyes because he knew or strongly suspected that looking would  
fix him with knowledge?"  
[383] At paragraph 24, the Court added:  
[24] Professor Don Stuart makes the useful observation that the expression  
"deliberate ignorance" seems more descriptive than "wilful blindness", as it  
connotes "an actual process of suppressing a suspicion". Properly understood in  
this way, "the concept of wilful blindness is of narrow scope and involves no  
departure from the subjective focus on the workings of the accused's mind"  
409  
(2010) 253 C.C.C. (3d) 140, 2010 SCC 13  
- 144 -  
(Canadian Criminal Law: A Treatise (5th ed. 2007), at p. 241). While a failure to  
inquire may be evidence of recklessness or criminal negligence, as for example,  
where a failure to inquire is a marked departure from the conduct expected of a  
reasonable person, wilful blindness is not simply a failure to inquire but, to repeat  
Professor Stuart's words, "deliberate ignorance".  
[384] The Supreme Court in Briscoe, supra, adopted Professor Don Stuart’s description of  
wilful blindness, and concluded that the trial judge erred in not instructing the jury that wilful  
blindness was available as a substitute fault element for knowledge. In that case the Court found  
that the accused had a “strong, well-founded suspicion” that the victim would be sexually  
assaulted and killed, but responded in the following manner: “Whatever you guys want to do just  
do it. Don’t do it around me. I don’t want to see anything.”410  
[385] Briscoe, supra further reflects the Supreme Court’s reasoning in its earlier decisions in R.  
v. Jorgensen,411 and R. v. Sansregret.412 In Jorgensen, supra, at paragraph 102, the Court adopted  
Glanville Williams’ explanation of wilful blindness as he defined it in Criminal Law: The  
General Part (2nd ed. 1961), at pp. 157-158:  
[T]he rule is that if a party has his suspicion aroused but then deliberately omits to  
make further enquiries, because he wishes to remain in ignorance, he is deemed to  
have knowledge (. . . )  
(. . .) In other words, there is a suspicion which the defendant deliberately omits to  
turn into certain knowledge. This is frequently expressed by saying that he "shut  
his eyes" to the fact, or that he was "wilfully blind".  
[386] At pp. 158-159 Williams added:  
Before the doctrine of wilful blindness applies, there must be realisation that the  
fact in question is probable, or, at least, "possible above the average" (. . . .)  
(. . .) A court can properly find wilful blindness only where it can almost be said  
that the defendant actually knew. He suspected the fact; he realised its probability;  
but he refrained from obtaining the final confirmation because he wanted in the  
event to be able to deny knowledge. This, and this alone, is wilful blindness. It  
requires in effect a finding that the defendant entended to cheat the administration  
of justice. Any wider definition would make the doctrine of wilful blindness  
indistinguishable from the civil doctrine of negligence in not obtaining  
knowledge.  
[387] Jorgensen, supra, characterized wilful blindness as “deliberately choosing not to know”  
when the accused strongly suspects that further inquiry would result in guilty knowledge.  
Therefore, mere failure to inquire, though it may be evidence of negligence, will not be enough  
for a finding of wilful blindness. It is important, therefore, to note that deliberate blindness has a  
very narrow application.  
[388] Prior to Jorgensen, supra, the Supreme Court provided a similar analysis by writing the  
following on the topic in Sansregret, supra:  
410  
Ibid, at para 25  
411  
(1995) 102 C.C.C. (3d) 97, [1995] 4 S.C.R. 55  
412  
(1985) 18 C.C.C. (3d) 223, [1985] 1.S.C.R. 570  
- 145 -  
[22] Wilful blindness is distinct from recklessness because, while recklessness  
involves knowledge of a danger or risk and persistence in a course of conduct  
which creates a risk that the prohibited result will occur, wilful blindness arises  
where a person who has become aware of the need for some inquiry declines to  
make the inquiry because he does not wish to know the truth. He would prefer to  
remain ignorant. The culpability in recklessness is justified by consciousness of  
the risk and by proceeding in the face of it, while in wilful blindness it is justified  
by the accused's fault in deliberately failing to inquire when he knows there is  
reason for inquiry.  
[389] The reasoning in Sansregret, supra, and Jorgensen, supra, was succinctly summarized in  
R. v. Duong,413 by Doherty J.A. At paragraph 23, Doherty J.A wrote the following:  
[23] These authorities make it clear that where the Crown proves the existence of  
a fact in issue and knowledge of that fact is a component of the fault requirement  
of the crime charged, wilful blindness as to the existence of that fact is sufficient  
to establish a culpable state of mind. Liability based on wilful blindness is  
subjective. Wilful blindness refers to a state of mind which is aptly described as  
"deliberate ignorance" (D. Stuart, Canadian Criminal Law, 3rd ed. (1995) at p.  
209). Actual suspicion, combined with a conscious decision not to make inquiries  
which could confirm that suspicion, is equated in the eyes of the criminal law  
with actual knowledge. Both are subjective and both are sufficiently blameworthy  
to justify the imposition of criminal liability.  
[390] Despite the Supreme Court’s explanation, wilful blindness is still a difficult concept to  
apply, especially with respect to the statement that an accused will only be wilfully blind if the  
accused “suspects” the prohibited consequence or circumstance.414 What degree of suspicion is  
necessary for a finding of wilful blindness? Kent Roach, in Criminal Law (5th ed. 2012), says at  
p. 191:  
In order to be equated with knowledge and distinguished from recklessness, wilful  
blindness should require more than a subjective suspicion about a mere possibility  
but rather a well founded suspicion that is closer to knowledge or a probability  
that the prohibited circumstances or consequences will occur. The fact the  
accused should have been suspicious or only recognized the possibility as  
opposed to the probability of the unlawful act occurring should not be sufficient if  
wilful blindness is truly to be equivalent of guilty knowledge.  
[391] The issue of the level of suspicion seems to have been addressed by the Supreme Court of  
Canada. In Jorgensen, supra, at paragraph 103, where Sopinka J. wrote:  
[103] A finding of wilful blindness involves an affirmative answer to the  
question: Did the accused shut his eyes because he knew or strongly suspected  
that looking would fix him with knowledge? Retailers who suspect that the  
materials are obscene but refrain from making the necessary inquiry in order to  
avoid being contaminated by knowledge may be found to have been wilfully  
blind. The determination must be made in light of all the circumstances. In  
Sansregret v. The Queen, [1985] 1 S.C.R. 570, this Court held that the  
413  
124 C.C.C. (3d) 392 at para 23, [1998] O.J. No. 1681  
414  
R v. Comtois Barbeau, 110 C.C.C. (3d) 69 (Que. C.A.) at para 95, [1996] J.Q. no 1030  
- 146 -  
circumstances were not restricted to those immediately surrounding the particular  
offense but could be more broadly defined to encompass, for example, past  
events.  
[392] In addition, at paragraph 102 of Jorgensen, supra, the Court adopted Glanville Williams’  
reasoning that “before the doctrine of wilful blindness applies, there must be a realization that the  
fact in question is probable, or, at least, ‘possible above the average.’” Therefore, it is not  
sufficient to support a finding of “wilfulness” that the accused suspected that the fact in question  
was only a mere possibility.  
[393] The Ontario Court of Appeal in R. v. Malfara,415 provides a practical summary on wilful  
blindness: “where wilful blindness is an issue, the question is not whether the accused should  
have been suspicious, but whether the accused was in fact suspicious.” Further, Malfara, supra,  
states that a court can find willful blindness “only where it can almost be said that the defendant  
actually knew, he suspected the fact, realized its probability, but he refrained from obtaining the  
final confirmation because he wanted in the event to be able to deny knowledge.”416  
[394] There is no need to quantify the level of suspicion beyond saying that it must be a real  
suspicion in the mind of the accused such that it caused the accused to see the need for inquiry.  
This is reflected in Doherty J.A.’s comment in R. v. Lagace417: “the potential application of the  
wilful blindness doctrine does not require that the trial judge describe the level of suspicion  
beyond the finding that it was sufficient in the appellant's mind to call for an inquiry.”  
[395] It must also be noted that the doctrine of wilful blindness can still operate against an  
accused who made an inquiry after his or her suspicions were aroused. In Lagace, supra, the  
Ontario Court of Appeal stated that after the accused makes inquiries, the question remains  
whether any suspicions still exist after the inquiries are made. If further inquiries remain, the  
question is whether the accused addressed them further (emphasis added):  
[28] (…) An accused who suspects that property is stolen but declines to make the  
inquiries that will confirm that suspicion, preferring instead to remain ignorant is  
culpable. Where an accused makes some inquiry, the question remains whether  
that accused harboured real suspicions after that inquiry and refrained from  
making further inquiries because she preferred to remain ignorant of the truth.  
Where some inquiry is made, the nature of that inquiry will be an important  
consideration in determining whether the accused remained suspicious and chose  
to refrain from further inquiry because she preferred to remain deliberately  
ignorant of the truth. For example, a finding that an accused took all reasonable  
steps to determine the truth would be inconsistent with the conclusion that the  
accused was wilfully blind: R. v. Mara, [1997] 2 S.C.R. 630 at para. 51.  
[29] I, of course, do not suggest that there is any onus on the accused to  
demonstrate that all reasonable steps were taken. In any case where the Crown  
relies on the doctrine of wilful blindness and some inquiry has been made, the  
trier of fact will have to decide whether the Crown has proved beyond a  
reasonable doubt that despite that inquiry the accused remained suspicious and  
415  
[2006] O.J. No. 2069 at para 2, 211 O.A.C. 200.  
416  
Ibid., at para 3.  
417  
(2013) 181 C.C.C. (3d) 12 at para 26, [2003] O.J. No 4328.  
- 147 -  
refrained from making any further inquiry because she preferred to remain  
ignorant of the truth.  
[396] From the case law, a Court may wish to ask the following questions:  
[1] Has the accused’s suspicion been aroused about a fact that would reveal a  
prohibited consequence or circumstance?  
[2] Is the accused’s suspicion about the prohibited consequence or circumstance  
probable or at least “possible above the average”?  
[3] Did the accused inquire about the suspicion?  
[4] If the accused inquired about the suspicion did the accused harbour any real  
remaining suspicion after the inquiry?  
[5] If the accused harboured any real remaining suspicions after the inquiry, did  
the accused inquire further about the suspicion?  
Fraud- section 380 (1)  
[397] Section 380 (1) of the Criminal Code identifies the offence of fraud. In order for the  
Crown to establish the existence of the actus reus of fraud the Crown must prove beyond a  
reasonable doubt that all of the prescribed circumstances exist, that the prohibited conduct  
occurred, and that the prohibited consequence was caused by the prohibited conduct. The  
requirements can be separated into three parts:  
[398] The prohibited conduct within section 380 (1) is identified as:  
(1) an act of deceit; or  
(2) an act of falsehood; or  
(3) an act which is some other fraudulent means.  
[399] The prohibited circumstances within section 380(1) which must occur in relation to the  
prohibited conduct are identified as:  
(1) everyone;  
(2) the public; or  
(3) any person;  
(4) whether ascertained or not; and  
(5) property; or  
(6) money; or  
(7) valuable security; or  
(8) any service.  
[400] The prohibited consequence under section 380(1) is identified as:  
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(1) defrauds.418  
[401] The definition of fraud, as an offence compromised of both prohibited conduct and  
prohibited consequences, was most clearly defined by the Supreme Court of Canada in R. v.  
Olan,419 and re-affirmed by the Supreme Court more recently in R. v. Theroux.420 Amongst other  
things Theroux, supra, makes it clear that what constitutes a deceitful act for the purpose of the  
actus reus of fraud by “other fraudulent means” is determined objectively, by reference to what a  
reasonable person would consider to be a dishonest act. Theroux defined the actus reus of fraud  
as follows:  
Since the mens rea of an offence is related to its actus reus, it is helpful to begin  
the analysis by considering the actus reus of the offence of fraud. Speaking of the  
actus reus of this offence, Dickson J. (as he then was) set out the following  
principles in Olan:  
(1) the offence has two elements: dishonest act and deprivation;  
(2) the dishonest act is established by proof of deceit, falsehood or "other  
fraudulent means";  
(3) the element of deprivation is established by proof of detriment, prejudice,  
or risk of prejudice to the economic interests of the victim, caused by the  
dishonest act.  
Olan marked a broadening of the law of fraud in two respects. First, it overruled  
previous authority which suggested that deceit was an essential element of the  
offence. Instead, it posited the general concept of dishonesty, which might  
manifest itself in deceit, falsehood or some other form of dishonesty. Just as what  
constitutes a lie or a deceitful act for the purpose of the actus reus is judged on the  
objective facts, so the "other fraudulent means" in the third category is determined  
objectively, by reference to what a reasonable person would consider to be a  
dishonest act. Second, Olan made it clear that economic loss was not essential to  
the offence; the imperilling of an economic interest is sufficient even though no  
actual loss has been suffered. By adopting anexpansive interpretation of the  
offence, the Court established fraud as an offence of general scope capable of  
encompassing a wide range of dishonest commercial dealings.  
Subsequent cases followed Olan's lead, fleshing out the elements of the offence  
set out in Olan in a broad and purposive manner. One of the first questions which  
arose was whether the third type of dishonest conduct, "other fraudulent means",  
was a super-added element which the Crown must prove in addition to proving  
either deceit or falsehood. This was rejected in R. v. Doren (1982), 36 O.R. (2d)  
114 (C.A.); see also R. v. Kirkwood (1983), 42 O.R. (2d) 65 (C.A.). In a number  
of subsequent cases, courts have defined the sort of conduct which may fall under  
this third category of other fraudulent means to include the use of corporate funds  
for personal purposes, non-disclosure of important facts, exploiting the weakness  
of another, unauthorized diversion of funds, and unauthorized arrogation of funds  
418  
B. Nightingale and M. Sennek, The Law of Fraud and Related Offences, Release 1 (Toronto: Carswell,  
2014) at 2-3.  
419  
(1978) 41 C.C.C. (2d) 145, 2 S.C.R. 1175  
420  
(1993) 79 C.C.C. (3d) 449 at pages 456-457, 2 S.C.R. 5  
- 149 -  
or property: R. v. Black and Whiteside (1983), 5 C.C.C. (3d) 313 (Ont. C.A.); R. v.  
Shaw (1983), 4 C.C.C. (3d) 348 (N.B.C.A.); R. v. Wagman (1981), 60 C.C.C. (2d)  
23 (Ont. C.A.); R. v. Rosen (1979), 55 C.C.C. (2d) 342 (Ont. Co. Ct.); R. v. Côté  
and Vézina (No. 2) (1982), 3 C.C.C. (3d) 557 (Que. C.A.); R. v. Hansen (1983),  
25 Alta. L.R. (2d) 193 (C.A.); R. v. Geddes (1979), 52 C.C.C. (2d) 230 (Man.  
C.A.); R. v. Currie; R. v. Bruce (1984), 5 O.A.C. 280, and R. v. Kirkwood, supra.  
As noted above, where it is alleged that the actus reus of a particular fraud is  
"other fraudulent means", the existence of such means will be determined by what  
reasonable people consider to be dishonest dealing. In instances of fraud by deceit  
or falsehood, it will not be necessary to undertake such an inquiry; all that need be  
determined is whether the accused, as a matter of fact, represented that a situation  
was of a certain character, when, in reality, it was not.  
[402] At p. 458, the court also re-affirmed that it is not necessary for the accused to profit from  
the fraud in order for the Crown to establish the actus reus:  
A further question, whether it was necessary for the accused to have profited by  
the fraud, had been uniformly answered in the negative prior to Olan: Welham v.  
Director of Public Prosecutions, [1961] A.C. 103 (H.L.); R. v. Melnyk (1947), 90  
C.C.C. 257 (B.C.C.A.); R. v. Rodrigue, Ares and Nantel (1973), 17 C.C.C. (2d)  
252 (Que. C.A.); R. v. Allsop (1976), 64 Cr. App. R. 29, and R. v. Huggett (1978),  
42 C.C.C. (2d) 198 (Ont. C.A.). In Olan, this Court affirmed this rule at pp. 1182-  
83.  
[403] In Theroux, supra, the appellant was the directing mind of a company involved in  
residential construction and entered into agreements with a number of individuals for the  
purchase of residences. The appellant took deposits on the representation that the deposits were  
insured, which was untrue. The appellant’s company never paid the insurance premiums due on a  
first application for participation in the insurance program, and a second application was never  
completed. In the end, the company became insolvent, the project was not completed, and most  
of the depositors lost their money. After determining that the actus reus of fraud was established  
on the facts, the court had to consider whether the mens rea was also established.  
[404] In Olan, supra, the court provided a comprehensive definition of the actus reus of the  
offence of fraud. However, the court did not clarify what was required to establish the mens rea  
of the offence. What remained uncertain was whether the test for the guilty mind was objective  
or subjective; and whether an honest belief that no one will be harmed by the deceit, falsehood or  
“other fraudulent means” negates the mens rea of fraud.  
[405] It was not until Theroux, supra, and R. v. Zlatic,421 that the Supreme Court took the  
opportunity to clarify the confusion existing in Canadian law with respect to fraudulent intent.  
McLachlin J.(as she then was), writing for the majority in Theroux, supra, adopted the traditional  
approach to mens rea, which holds that “the question is whether the accused subjectively  
appreciated that certain consequences would follow from his or her acts, not whether the accused  
believed the acts or their consequences to be moral.”422 After considering the general comments  
on mens rea in Canadian law, McLachlin J. (as she then was), at pp. 459-460, defined the mens  
rea of fraud as follows:  
421  
(1993) 79 C.C.C. (3d) 466, [1993] S.C.J. No. 43  
422  
Ibid, at page 458  
- 150 -  
(...) The prohibited act is deceit, falsehood, or some other dishonest act. The  
prohibited consequence is depriving another of what is or should be his, which  
may, as we have seen, consist in merely placing another's property at risk. The  
mens rea would then consist in the subjective awareness that one was undertaking  
a prohibited act (the deceit, falsehood or other dishonest act) which could cause  
deprivation in the sense of depriving another of property or putting that property  
at risk. If this is shown, the crime is complete. The fact that the accused may have  
hoped the deprivation would not take place, or may have felt there was nothing  
wrong with what he or she was doing, provides no defence. To put it another way,  
following the traditional criminal law principle that the mental state necessary to  
the offence must be determined by reference to the external acts which constitute  
the actus of the offence (see Williams, supra, c. 3), the proper focus in  
determining the mens rea of fraud is to ask whether the accused intentionally  
committed the prohibited acts (deceit, falsehood, or other dishonest act) knowing  
or desiring the consequences proscribed by the offence (deprivation, including the  
risk of deprivation). The personal feeling of the accused about the morality or  
honesty of the act or its consequences is no more relevant to the analysis than is  
the accused's awareness that the particular acts undertaken constitute a criminal  
offence.  
This applies as much to the third head of fraud, "other fraudulent means", as to  
lies and acts of deceit. Although other fraudulent means have been broadly  
defined as means which are "dishonest", it is not necessary that an accused  
personally consider these means to be dishonest in order that he or she be  
convicted of fraud for having undertaken them. The "dishonesty" of the means is  
relevant to the determination whether the conduct falls within the type of conduct  
caught by the offence of fraud; what reasonable people consider dishonest assists  
in the determination whether the actus reus of the offence can be made out on  
particular facts. That established, it need only be determined that an accused  
knowingly undertook the acts in question, aware that deprivation, or risk of  
deprivation, could follow as a likely consequence.  
[406] At p. 460, McLachlin J. went on to summarize the requirements of mens rea for fraud:  
(…) Correspondingly, the mens rea of fraud is established by proof of:  
1. subjective knowledge of the prohibited act; and  
2. subjective knowledge that the prohibited act could have as a  
consequence the deprivation of another (which deprivation may  
consist in knowledge that the victim's pecuniary interests are put at  
risk).  
[407] In applying the principles outlined above, the Supreme Court in Theroux, supra, held the  
appellant was guilty of fraud as both the actus reus and mens rea were established by the Crown.  
The appellant committed deliberate false hoods by stating that deposits were protected by  
insurance when this was untrue. Further, this falsehood caused or gave rise to deprivation: the  
depositors did not get the insurance protection that they were told they would receive and the  
money given to the appellant’s company by the depositors was put at risk. In summary the  
Supreme Court held that the mens rea was established because (a) the appellant told the  
depositors that they had insurance protection when he knew that they did not have that  
- 151 -  
protection, and (b) the appellant knew that by this act he was depriving the depositors of  
something they thought they had: insurance protection. The Supreme Court inferred from this  
knowledge that the appellant knew that he was placing the depositors’ money at risk; and the fact  
that the appellant sincerely believed that the houses would be built and the risk would not  
materialize, did not negate the mental element of fraud.  
[408] The same approach was taken by the majority in Zlatic, supra, where the accused was  
charged with several offences including four counts of fraud pursuant to s. 380 (1) of the  
Criminal Code. The accused received goods worth more than $370,000 from his suppliers in  
return for post-dated cheques or on credit, and used the money obtained from the sale of the  
goods for gambling. Eventually, the accused went bankrupt. At trial, the accused testified that he  
had a system which he believed would increase his odds of winning, and allow him to pay his  
suppliers. The trial judge held that the speculative use of the funds constituted fraud by “other  
fraudulent” means, and put the pecuniary interests of the supplier at risk. The accused was  
convicted of fraud, and the Court of Appeal upheld his conviction.  
[409] The central issue before the Supreme Court in Zlatic, supra, was whether a businessman  
who diverts to a gambling scheme the proceeds of goods received for resale may be found guilty  
of fraud. The Supreme Court held that the combined act of taking the goods without concern for  
payment, and gambling away the value they represented, constituted dishonest conduct  
amounting to “other fraudulent means” within the meaning of section 380(1) of the Code. The  
Supreme Court also acknowledged that while most frauds involve either deceit or falsehood,  
fraud by “other fraudulent means” encompasses all other means which can properly be  
stigmatized as dishonest. When defining the mens rea of fraud, at p. 481, McLachlin J., wrote:  
The findings of the trial judge establish that the appellant, when he received the  
goods, did not care whether or not he paid for them, and then proceeded to sell  
them and divert the money received from their sale to gambling. As is pointed out  
in Théroux, released concurrently, fraud by "other fraudulent means" does not  
require that the accused subjectively appreciate the dishonesty of his or her acts.  
The accused must knowingly, i.e. subjectively, undertake the conduct which  
constitutes the dishonest act, and must subjectively appreciate that the  
consequences of such conduct could be deprivation, in the sense of causing  
another to lose his or her pecuniary interest in certain property or in placing that  
interest at risk.  
[410] More recently, in R. v. Johnston,423 the Crown alleged that the accused defrauded his own  
lawyer by depositing a series of fraudulent cheques unsupported by funds in order to cover legal  
costs. The accused submitted that the evidence was insufficient to connect him to the fraudulent  
cheques, or to impute knowledge. In considering the elements of fraud, the Ontario Superior  
Court of Justice applied both Theroux, supra and Zlatic, supra, to re-affirm the principle that in  
certain cases the subjective knowledge may be inferred from the act itself, and that the accused’s  
belief that the conduct was not wrong or that no one will in the end be hurt does not defeat the  
mental element of fraud. At paragraphs 88-92, the court summarized the law on fraud as follows:  
[88] R. v. Théroux, [1993] 2 S.C.R. 5 and R. v. Zlatic, [1993] 2 S.C.R. 29 are the  
seminal cases defining the elements of fraud in accordance with s. 380(1)(a) of  
423  
2013 ONSC 2256; [2013] O.J. No. 2142  
- 152 -  
the Criminal Code. These decisions confirm that the following elements must be  
proved by the Crown beyond a reasonable doubt:  
1. The actus reus of fraud is established by:  
a. proof of a prohibited act, be it an act of deceit,  
falsehood or other fraudulent means, and  
b. proof of deprivation caused by the prohibited act  
(which may consist in actual loss or the placing of  
the victim's pecuniary interests at risk).  
2. Correspondingly, the mens rea of fraud is established by:  
a. proof of subjective knowledge of the prohibited  
act, and  
b. proof of subjective knowledge that the  
performance of the prohibited act could have as a  
consequence the deprivation of another (which  
deprivation may consist in knowledge that the  
victim's pecuniary interests are put at risk).  
[89] What constitutes a falsehood or a deceitful act for the purpose of the actus  
reus is judged on the objective facts. The actus reus of fraud by "other fraudulent  
means" is determined objectively, by reference to what a reasonable person would  
consider to be a dishonest act.  
[90] The mens rea requires proof of the accused's subjective knowledge of the  
prohibited act - in other words, the accused knowingly undertook the conduct  
which constitutes the prohibited act - and proof of knowledge that the act could  
cause the deprivation of another, including financial deprivation. In certain cases,  
the subjective knowledge of the risk of deprivation may be inferred from the act  
itself, barring some explanation casting doubt on such an inference.  
[91] Where the conduct and knowledge required by these definitions are  
established, the accused is guilty whether he actually intended the deprivation or  
was reckless as to whether it would occur. The accused's belief that the conduct is  
not wrong or that no one will in the end be hurt affords no defence to a charge of  
fraud.  
[92] While the scope of the offence may encompass a broad range of dishonest  
commercial dealings, the mens rea will not catch conduct which does not warrant  
criminalization. Only the deliberately practised fraudulent acts which, in the  
knowledge of the accused, actually put the property of others at risk will  
constitute fraud. The requirement of intentional fraudulent action excludes mere  
negligent misrepresentation or sharp business practice.  
[411] In Johnston, supra, it was held that the timing of the deposit, the accused’s personal  
depositing of the cheque directly to the lawyer’s account, and the accused’s assurances that the  
cheques were genuine, were relevant factors supporting subjective intent and an inference that  
the accused knew the cheque was forged. The court further stated that the accused depositing  
fraudulent and unsupported cheques was an attempt by the accused to “appear” to pay for legal  
- 153 -  
services; it was an act which caused the lawyer to suffer actual financial deprivation, and one  
that constituted fraud.  
Relationship Between Wilful Blindness and Fraud  
[412] The requirement of subjective knowledge of the circumstances and the consequences of  
the offence of fraud does not mean that the mens rea of fraud will be established only if direct  
knowledge can be proven. “The offence of fraud is like any other criminal offence in that  
criminal liability can be imposed by using the doctrines of recklessness and wilful blindness.”424  
[413] The traditional approach to recklessness and wilful blindness was utilized in the context  
of the offence of fraud by the Alberta Court of Queen’s Bench in R. v. Souter.425 In that case the  
accused was charged with fraud in relation to the sale of stolen motor vehicles. During his  
testimony, the accused stated that he did not have any direct or imputed knowledge that the  
motor vehicles were stolen, however, the accused was aware that there were problems with the  
vehicle identification plates. Also, the accused was notified by a member of the police that one of  
the vehicles in particular was allegedly a stolen vehicle and that an investigation was being  
conducted. Despite being told this information, the accused continued to sell the vehicles.  
[414] In Souter, supra, the Crown submitted that at some point the accused was wilfully blind  
to the true situation involving the vehicles, and was reckless to their true status. After reviewing  
the case law on recklessness and wilful blindness, Belzil J., accepted the Crown’s theory, and at  
paragraph 107 wrote:  
[107] It is clear that knowledge can be imputed to the accused on the basis of  
wilful blindness or recklessness, and thus I am satisfied that as of February 10,  
1994 the accused either had actual knowledge that vehicles coming from Vallieres  
were stolen or such knowledge can be imputed to him.  
[415] The accused appealed the decision of the Alberta Court of Queen’s Bench on three  
grounds, one of which was that the learned trial judge erred in his application of the doctrine of  
“wilful blindness” to the mens rea required for the offence fraud and other offences for which the  
appellant was charge.426 The Alberta Court of Appeal held that the trial judge did not commit an  
error when he found that, in the alternative to ‘actual knowledge’, the appellant was reckless or  
wilfully blind as to whether the cars were stolen, and that either state of mind satisfied the mens  
rea requirement for the offences charged. At paragraphs 9-10, Côté, J.A., wrote the following  
(emphasis added):  
[9] For the Appellant to prevail on this appeal, he must succeed on each ground of  
appeal because the trial verdict was founded on three alternatives to proving  
knowledge. In our opinion, consideration of grounds of appeal pertaining to  
"actual knowledge" or "recklessness" would be redundant because the Appellant's  
submissions on "wilful blindness" have not convinced us that the learned trial  
judge erred on that point.  
424  
B. Nightingale & M. Sennek, The Law of Fraud and Related Offences, Release1 (Toronto: Carswell,  
2014) at 11-1.  
425  
[1997] A.J. No 330  
426  
1998 ABCA 215 at para 4, [1998] A.J. No. 736  
- 154 -  
[10] Wilful blindness is sufficient mens rea for an offence that requires  
knowledge. In R. v. Jorgensen (1995), 102 C.C.C. (3d) 97 (S.C.C.) a case dealing  
with alleged possession of obscene material, the Supreme Court said, at p. 135:  
It is well established in criminal law that wilful blindness will also  
fulfil a mens rea requirement. If the retailer becomes aware of the  
need to make further inquiries about the nature of the videos he  
was selling yet deliberately chooses to ignore these indications and  
does not make any further inquiries, then the retailer can be none  
the less charged under s. 163(2)(a) for "knowingly" selling obscene  
materials.  
Deliberately choosing not to know something when given reason  
to believe further inquiry is necessary can satisfy the mental  
element of the offence (...)  
A finding of wilful blindness involves an affirmative answer to the  
question: Did the accused shut his eyes because he knew or  
strongly suspected that looking would fix him with knowledge?  
[416] At paragraphs 17-18, Côté, J.A., added (emphasis added):  
[17] The Appellant also argued that, given the submissions of Crown Counsel, the  
learned trial judge erred in relying on wilful blindness. It was submitted that in his  
trial argument, Crown Counsel narrowed the issue as to applicability of wilful  
blindness to whether or not the Appellant's evidence of making inquiries of  
Vallieres was accepted or not. In his judgment, the learned trial judge did not  
specifically disbelieve the Appellant on that point. Therefore, it was submitted  
that, there being evidence of an inquiry, the learned trial judge misapplied the  
doctrine of wilful blindness. A trial judge is not bound to follow ill-founded  
submissions of counsel. In this case, the learned trial judge concluded that even if  
the Appellant made inquiries, considering their nature, they were tantamount to  
no inquiries at all. Wilful blindness would lose all meaning if an accused,  
suspicious that goods were stolen, was absolved of guilt merely by receiving a  
negative answer on inquiring of the seller, or the thief, whether the goods were  
stolen. The Crown belatedly made that argument on this appeal. The learned trial  
judge was not wrong to see through the error of the Crown's submission at trial.  
[18] The learned trial judge found that as of February 10, 1994, the Appellant  
became aware that at least some of the vehicles being provided by Vallieres were  
stolen. Together with the history of previous problems, that was sufficient to  
impose an obligation on the Appellant to make reasonable and meaningful  
inquiries about each and every vehicle coming from Vallieres. To fail to make  
such inquiries because not all previous purchases from Vallieres were stolen  
vehicles, displays a preference to remain ignorant as to which were stolen and  
which were not. That chosen preference is sufficient to impute knowledge of the  
status of the vehicle once it is proven that it was stolen. The preference to remain  
ignorant when circumstances demand meaningful inquiry is wilful blindness. In  
this case, it was open to the learned trial judge to apply that doctrine and imputed  
knowledge to the Appellant that the vehicles specified in the charges for which he  
was convicted had been stolen. In summary, the conclusions of the learned trial  
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judge on imputed knowledge through wilful blindness were correct in law and  
supported by the evidence.  
[417] Another detailed and more recent analysis of the application of the doctrines of wilful  
blindness and recklessness in the context of fraud was set out in the Alberta Court of Queen’s  
Bench decision, R. v. Ellis.427 In that case, the accused was charged with multiple counts of  
committing fraud for the benefit of a criminal organization, conspiracy to commit fraud, fraud,  
and forgery. The learned trial judge in Ellis, supra, noted that the mens rea for fraud is  
established by proof of subjective knowledge of the essential elements of the actus reus, and  
could also be proved on the basis of wilful blindness or recklessness:  
[171] Guilt on a charge of fraud can also be proven on the basis of recklessness or  
wilful blindness. In R. v. Sansregret, [1985] 1 S.C.R. 570, the Supreme Court  
defined recklessness as the attitude of one who, aware that there is a danger that  
his conduct could bring about the result prohibited by the criminal law,  
nevertheless persists, despite the risk.  
[172] Wilful blindness was described in R. v. Jorgensen, [1995] 4 S.C.R. 55 as  
"deliberately choosing not to know". In R. v. Sansregret at para. 24, wilful  
blindness was described as being deliberately ignorant as a result of blinding  
oneself to reality. In R. v. Souter, [1998] A.J. No. 736, 1998 ABCA 215 at para.  
12, the Court of Appeal stated that the test for wilful blindness is not an objective  
one; the person must be proven to have suspected a fact and to have refrained  
from seeking confirmation or denial of it. Wilful blindness must be assessed in  
light of all of the circumstances, including past events: R. v. Hucal (2001), 291  
A.R. 1 (Q.B.) at para. 240 and cases cited therein.  
[418] At paragraphs 174-175, the learned trial judge added:  
[174] Watson J. in R. v. Ticknovich (2003), 343 A.R. 243, 2003 ABQB 854  
reviewed the law on fraud and noted that the proof of the mental element of fraud  
is often solely an inference. The Crown can meet its burden by proving an  
inference of guilty knowledge and intent that is so compelling and unanswered  
that no reasonable doubt arises.  
[175] In R. v. Hucal, [2001] A.J. No. 944, 2001 ABQB 606, R. v. Poonai, [2003]  
O.J. No. 1927 (Ont. Ct. Just.), and R. v. Yates, [2001] B.C.J. No. 170, 2001  
BCCA 45, the courts found that fraudulent intent was established upon proof that  
the accused was reckless or wilfully blind with respect to either or both of the  
conduct and consequence elements of the actus reus of fraud. Poonai contains a  
helpful analysis of the elements of fraud in a similar factual context.  
[419] The approach taken in R. v. Ellis, supra, with respect to wilful blindness and the offence  
of fraud was recently re-affirmed by R. v. Dube.428  
[420] In summary, fraudulent intent can be established upon proof that the accused was wilfully  
blind with respect to either or both the conduct or the consequences elements of the actus reus of  
fraud. B.L Nightingale and M.P. Sennek, in The Law of Fraud and Related Offences, at pp. 11-  
8.7-11.9, summarized the application of wilful blindness to the offence of fraud:  
427  
2007 ABQB 722; [2007] A.J. No. 1331  
428  
2011 ABQB 299, [2011] A.J. No. 507  
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(4) An accused is wilfully blind with respect to the conduct element of the actus  
reus of fraud when he or she is aware that certain facts exist which would make  
such conduct a deceit, falsehood, or other fraudulent means, but deliberately  
refrains from making inquiries so as to remain ignorant;  
(5) An accused is wilfully blind with respect to the consequence of the actus reus  
of fraud when he or she is aware that certain facts exist giving rise to a belief that  
the prohibited consequences will flow from such conduct, but deliberately refrains  
from making inquiries so as to remain ignorant.  
Conspiracy- section 465(1)(c)  
[421] The Canadian Criminal Code does not define conspiracy; instead the definition is found  
at common law. Conspiracy was classically defined by House of Lords in England by Willes J.  
in Mulcahy v. The Queen.429 At page 317, Willes J. wrote:  
A conspiracy consists not merely in the intention of two or more, but in the  
agreement of two or more to do an unlawful act, or to do a lawful act by unlawful  
means. So long as such a decision rests in intention only, it is not indictable.  
When two agree to carry it into effect, the very plot is an act in itself, and the act  
of each of the parties, promise against promise, actus contra actum, capable of  
being enforced if lawful, punishable if for a criminal object or for the use of  
criminal means.  
[422] This statement of the law was adopted by the Supreme Court of Canada in R. v. O'Brien  
at page 3.430 Since O'Brien, supra, Canadian courts have fine-tuned the definition of conspiracy.  
In United States of America v. Dynar,431 for example, the Supreme Court outlined the essential  
elements of conspiracy as: (a) an act of agreement; (b) the intention to agree; (c) a criminal  
purpose; and (d) an intention to effect the criminal purpose.  
[423] The actus reus of conspiracy is the formation of an agreement, tacit or express, between  
two or more individuals, to act together in pursuit of a mutual criminal objective. Co-  
conspirators share a common goal, in that each agrees to act together with the other to achieve a  
common goal. Due to the mutuality of the objective requirement, neither knowledge of nor  
participation in a criminal scheme can be equated with the actus reus of conspiracy432. “The  
actus reus of conspiracy emphasizes the need to establish a meeting of the minds to achieve a  
mutual criminal objective.”433  
[424] The mens rea of conspiracy lies in the intent to agree or carry out a criminal purpose.  
Taschereau J. in R. v. O’Brien, supra summarized the intention required to constitute the element  
of conspiracy at p. 2-3:  
I think there has been some confusion as to the element of intention which is  
necessary to constitute the offence. It is, of course, essential that the conspirators  
429  
(1868), L.R. 3 H.L. 306, at p. 317:  
430  
(1954) 110 C.C.C. 1 at page 9, [1954] S.C.R. 666  
431  
(1997) 115 C.C.C. (3d) 481, [1997] 2 S.C.R. 462  
432  
Halsbury’s Laws of Canada, Criminal Offences and Defences, First Ed. (Markahm, ON: LexisNexis,  
2012 Reissue) at 878, paragraph. HCR-481.  
433  
R. v. H.A., (2005) 206 C.C.C. (3d) 233 at para 48, [2005] O.J. No. 3777  
- 157 -  
have the intention to agree, and this agreement must be complete. There must also  
be a common design to do something unlawful, or something lawful by illegal  
means. Although it is not necessary that there should be an overt act in  
furtherance of the conspiracy, to complete the crime, I have no doubt that there  
must exist an intention to put the common design into effect. A common design  
necessarily involves an intention. Both are synonymous. The intention cannot be  
anything else but the will to attain the object of the agreement. I cannot imagine  
several conspirators agreeing to defraud, to restrain trade, or to commit any  
indictable offence, without having the intention to reach the common goal.  
[425] In summary, a mere agreement, without the intention of both parties to carry into effect  
the common design, is not sufficient to establish conspiracy. There must exist an intention not  
only to agree, but also an intention to put the common design into effect. Therefore, in a two-  
person conspiracy, if one party has no real intention, but merely pretends to agree, there is no  
conspiracy.434 Also, because conspiracy is a crime of intention, the goal of the agreement (the  
commission of the substantive offence) is part of the mental element of conspiracy. Where the  
goal of conspiracy involves the commission of a substantive offence for which knowledge of  
certain circumstances is an essential element, the “mental element is belief” as to “future  
conduct” to be carried out as the unlawful object of the agreement. This was stated by Justice  
Watt in R. v. Roots,435 at paragraph 71:  
Conspiracy, like attempt, is a crime of intention. Its factual element or actus reus  
is established upon proof of the agreement to commit the predicate offence, for  
example to possess or launder the proceeds of crime. The factual element in the  
conspiracy need not correspond with the factual elements of the substantive  
offence that is the object of the conspiracy. The goal of the agreement, the  
commission of the substantive offence, is part of the mental element or mens rea  
of the offence of conspiracy. Dynar at para. 103. Where the goal of a conspiracy  
involves the commission of a substantive offence of which knowledge of certain  
circumstances is an essential element, the mental element is belief. The subjective  
state of mind of anyone who conspires with others to launder money is the belief  
that the money has illegitimate origins. Dynar at para. 108.  
[426] The “crime of conspiracy” is committed once the conspirators agree to pursue the  
common unlawful object, and intend to adhere to the agreement. The commission of the offence  
of conspiracy occurs when these elements co-exist whether or not any steps are actually taken  
pursuant to the conspiracy.436 Therefore, no overt act, in furtherance of the conspiracy, needs to  
be committed. However, even though the offence requires no overt act done in pursuance of the  
conspiracy to be established, a conspiracy is usually proved by reference to overt acts and  
declarations which appear to have been undertaken or made in concert in furtherance of the  
conspiracy, from which a prior agreement can be logically inferred.437  
[427] It is worth noting that if a person, with one or several others, agrees to commit an  
unlawful act, and later changes his or her mind and refuses to put the plan into effect, that person  
434  
Supra, note 431.  
435  
(2008) 241 C.C.C. (3d) 125 (Ont. C.A.) at paragraph 71, leave to appeal to the SCC refused: 2(2009) 47  
C.C.C. (3d) vi  
436  
R. v. Cotori, (1979) 45 C.C.C. (2d) 1, [1979] 2 S.C.R. 256  
437  
R. v. Gassyt,(1998) 127 C.C.C. (3d) 546 (Ont. C.A.), leave denied [1999] S.C.C.A. No. 143  
- 158 -  
is nevertheless guilty of conspiracy, as all the elements of the offence are in place. This was  
stated by Taschereau J. in the case of R. v. O’Brien, supra at page 4:  
If a person, with one or several others, agrees to commit an unlawful act, and  
later, after having had the intention to carry it through, refuses to put the plan into  
effect, that person is nevertheless guilty, because all the ingredients of conspiracy  
can be found in the accused's conduct. But, when the conspiracy has never  
existed, there can be no withdrawal.  
The definition of conspiracy itself supposes an aim. People do not conspire unless  
they have an object in view. The law punishes conspiracy so that the unlawful  
object is not attained. It considers that several persons who agree together to  
commit an unlawful act, are a menace to society, and even if they do nothing in  
furtherance of their common design, the state intervenes to exercise a repressive  
action, so that the intention is not materialized, and does not become harmful to  
any one. The intention must necessarily be present because it is the unlawful act  
necessarily flowing from the intention, that the state wishes to prevent.  
[428] Further, the courts have stressed that mere knowledge of, discussion of, or passive  
acquiescence in a plan of criminal conduct is not, of itself, sufficient to establish conspiracy.438  
In Paplia v. R.,439 the Supreme Court concluded that a conspiracy is more than a group of people  
committing an offence together. Conspiracy, therefore, should not be confused with aiding and  
abetting, (sections 21(1)(b) and 21(1)(c) of the Criminal Code, respectively). It is necessary to  
distinguish between the aiding or abetting of the commission of a substantive offence which two  
or more parties have agreed to pursue, and conspiracy to commit the same substantive offence.  
The difference is that one accused may aid or abet another accused who actually commits or  
attempts to commit an offence without the former accused necessarily agreeing to pursue the  
contemplated unlawful object.  
[429] As previously noted, in order to prove conspiracy the Crown must establish that each  
person entered into a common plan with a common objective. This was re-affirmed in the more  
recent case of United States v. Akrami [Akrami],440 where the Supreme Court of British  
Columbia explained what is required to form an agreement:  
[40] The offence of conspiracy requires there to be a mutually agreed upon plan to  
commit a criminal offence. A unilateral decision by someone to join others in the  
commission of an offence is not an agreement. Neither is mere assisting in the  
commission of an offence. However, at some point the person assisting may join  
the conspiracy where his assistance is by mutual agreement of the other  
conspirators and he does so in furtherance of the common object.  
[41] The agreement does not have to be explicit; an implied or tacit agreement  
may provide the actus reus of a conspiracy. What is necessary is that the evidence  
indicate there has been a meeting of the minds with regard to the commission of  
the offence. Where there is a tacit agreement, i.e. the parties have not formally  
adhered to it, there must be evidence which proves each conspirator had  
knowledge of and agreed to act in furtherance of the common goal: Atlantic Sugar  
438  
R v. McNamara, (1982) 56 C.C.C. (2d) 193 (Ont. C.A.), [1982] O.J. No. 3254  
439  
Papalia v. R., (1979) 45 C.C.C. (2d) 1, [1979] 2 S.C.R. 256  
440  
(2001) 157 C.C.C. (3d) 75, 2001 BCSC 781  
- 159 -  
Refineries Co. Ltd. v. Attorney-General of Canada (1980), 54 C.C.C. (2d) 373  
(S.C.C.)  
[42] Whether an agreement has been reached between the parties to the alleged  
conspiracy or whether it is still in the stage of discussion and negotiations is a  
question of fact to be determined by the trier of fact. It is not necessary for each or  
any of the members to know all of the details of the plan so long as the agreement  
includes substantially all the elements of the offence which is being conspired to:  
R. v. Lessard (1982), 10 C.C.C. (3d) 61 (Que. C.A.).  
[430] In Atlantic Sugar Refineries Co. v. Canada (Attorney General) [Atlantic],441 as explained  
in Akrami, supra, the Supreme Court of Canada stated that the mutual agreement need not be  
explicit. “[A]n implied or tacit agreement may provide the actus reus of a conspiracy. What is  
necessary is that the evidence indicate that there has been a meeting of the minds with regard to  
the commission of the offence. Where there is a tacit agreement, i.e. the parties have not formally  
adhered to it, there must be evidence which proves each conspirator had knowledge of and  
agreed to act in furtherance of the common goal.”442 It is not necessary for each member of the  
conspiracy to know all the details of the plan so long as the agreement includes substantially all  
the elements of the offence which is the object of the conspiracy.443  
[431] Further, to establish the guilt of an accused for conspiracy to commit a specific offence,  
the Crown must prove not only the unlawful agreement alleged, but also the accused’s  
participation or membership in it. In R. v. Yummu,444 the Ontario Court of Appeal took the  
opportunity to review the governing principles surrounding the offence and outlined the two step  
analysis used in proving an individual’s membership in a conspiracy.  
[432] The first step, “probable membership,” is determined on the basis of an individual’s own  
words and conduct. In other words, proof of an individual’s probable membership in a  
conspiracy must be established exclusively on the basis of evidence directly admissible against  
the accused. The second step, labeled as “actual membership”, permits recourse to acts and  
declarations of other conspirators in furtherance of the common design. However, it is not every  
act or word of fellow co-conspirators that may be used by the Crown to prove of an accused’s  
membership in the conspiracy. The act or declaration must be made while the conspiracy is  
ongoing, and must be in furtherance of the common design. In Yummu, supra, Watt, J.A., wrote:  
[338] The first step in conspiracy prosecutions involves proof of the existence of  
the conspiracy alleged. A determination of the adequacy of the prosecutor's proof  
on this issue is to be made on all the evidence, including but not only what  
alleged conspirators have said and done in furtherance of the common purpose: R.  
v. Paradis, [1934] S.C.R. 165, at p. 168.  
[339] The agreement may be established in a variety of ways, including by  
inference from the manner in which the substantive offence, the object of the  
conspiracy, was committed. A reasonable doubt about the fact or object of the  
agreement ends the jury's deliberations without consideration of the membership  
issue in relation to any accused.  
441  
(1980) 54 C.C.C. (2d) 373, [1980] 2 S.C.R. 644  
442  
Paragraph 41 of Akrami, supra.  
443  
R v. Roach, (2004) 192 C.C.C. (3d) 557 (Ont. C.A.); [2004] O.J. No. 2566  
444  
(2010) 260 C.C.C. (3d) 421, 2010 ONCA 637  
- 160 -  
[340] Proof of an individual's membership in a conspiracy involves two steps. The  
first step, probable membership, is determined on the basis of the individual's  
own words and conduct. Put in another way, proof of an individual's probable  
membership in a conspiracy must be made exclusively on the basis of evidence  
directly admissible against that person: Carter at p. 947. The second step, actual  
membership, permits recourse to acts and declarations of other conspirators in  
furtherance of a common design. The purpose of this additional evidence is to  
convert direct proof of probable participation into completed proof of actual  
participation.  
[341] It is not every act or word of fellow co-conspirators that may be summoned  
to complete the prosecutor's proof of an individual accused's membership in the  
conspiracy. The act or declaration must be made while the conspiracy (or  
common venture) is ongoing and be in furtherance of the common design: Carter  
at p. 947; R. v. Mapara, [2005] 1 S.C.R. 358, at para. 8. Sometimes, acts or  
declarations that occur after the offence object of the agreement has been  
committed may be "in furtherance" of a common design: R. v. Sauvé (2004), 182  
C.C.C. (3d) 321 (Ont. C.A.), at paras.115-118.  
[342] We should also keep in mind that when an alleged co-conspirator testifies  
and describes acts and declarations of others alleged to be involved in the  
conspiracy, the co-conspirator exception to the hearsay rule is not engaged.  
Rather, the evidence is directly admissible against the person whose acts or  
declarations the co-conspirator describes in his or her testimony: Canada  
(Attorney General) v. LaForme, 2010 ONCA 532, at para. 1; R. v. Connelly  
(2001), 176 C.C.C. (3d) 292 (Nfld. C.A.), at para. 22.  
[433] Another aspect of conspiracy to be considered in the case at bar is party liability to  
conspiracy. Before the case of R. v. J.F.445 there were two schools of thought in Canada as to  
how, and under what circumstances, a person can be found liable as a party to the offence of  
conspiracy. The narrower approach, adopted in R. v. Trieu,446 limits such liability to the aiding  
or abetting of the formation of the agreement. In other words, party liability to a conspiracy is  
made out where the accused aids or abets the actus reus of conspiracy, namely the conspirator’s  
act of agreeing. The wider approach, adopted in R. v. McNamara,447 extends liability to aiding or  
abetting the furtherance of the conspiracy’s unlawful object.  
[434] The Supreme Court of Canada in R. v. J.F., supra, had to consider which of the two  
approaches, Trieu or McNamara, should be adopted. After considering the elements of  
conspiracy, the court concluded that party liability to conspiracy should be restricted to the  
conduct that aids and abets the formation of the agreement that compromises the essence of the  
crime of conspiracy. Moldaver J., who delivered the judgment in R. v. J.F., supra, stated the  
following at paragraphs 42-45 (emphasis added):  
[42] That brings me to the broader approach endorsed in McNamara and the  
central issue in this appeal -- namely, whether party liability can attach to  
445  
(2013) 293 C.C.C. (3d) 377, 2013 SCC 12  
446  
2008 ABCA 143, [2008] A.J. No. 410  
447  
(1981) 56 C.C.C. (2d) 193, [1981] O.J. No. 3254  
- 161 -  
someone who knows of a conspiracy and who does (or omits to do) something for  
the purpose of furthering its unlawful object.  
[43] With respect to those who hold a different view, I have concluded that it  
should not. Party liability should be restricted to conduct that aids or abets the  
formation of the agreement that comprises the essence of the crime of conspiracy.  
In all other cases, a conviction for conspiracy will not lie absent proof of  
membership in the conspiracy.  
[44] As I have explained, agreement is a central element to the offence of  
conspiracy. Conversely, an act done in furtherance of the unlawful object is not an  
element of the offence of conspiracy. Although such acts can serve as  
circumstantial evidence to support the existence of a conspiracy, they are not  
themselves a component of the actus reus of conspiracy. Indeed, a conspiracy can  
be established in the absence of any overt acts done in furtherance of its unlawful  
object. In other words, "[t]he crime of conspiracy is complete once the agreement  
is reached": Trieu, at para. 31.  
[45] It follows, in my view, that the broader approach as endorsed in McNamara  
must be rejected. Aiding or abetting the furtherance of the unlawful object does  
not establish aiding or abetting the principal with any element of the offence of  
conspiracy. It cannot ground party liability for conspiracy.  
[435] The Supreme Court in R. v. J.F., supra, held that aiding or abetting the furtherance of the  
unlawful object does not establish aiding or abetting the principal with any element of the  
offence of conspiracy, and therefore cannot establish party liability for conspiracy. However,  
where a person, with knowledge of the conspiracy does, or omits to do, something for the  
purpose of furthering the unlawful object, with the knowledge and consent of one or more of the  
existing conspirators, this provides strong circumstantial evidence from which membership in the  
conspiracy can be inferred. At paragraphs 52-53, Moldaver J., stated:  
[52] In my view, where a person, with knowledge of a conspiracy (which by  
definition includes knowledge of the unlawful object sought to be attained), does  
(or omits to do) something for the purpose of furthering the unlawful object, with  
the knowledge and consent of one or more of the existing conspirators, this  
provides powerful circumstantial evidence from which membership in the  
conspiracy can be inferred. To be precise, it would be evidence of an agreement,  
whether tacit or express, that the unlawful object should be achieved. Ultimately,  
that issue is one for the trier of fact, who must decide whether any inference other  
than agreement can reasonably be drawn on the evidence. But, as I will explain,  
the case at hand illustrates how a constellation of such facts can make a finding of  
membership a virtual certainty.  
[53] In so concluding, I note that conspiracies are often proved by way of  
circumstantial evidence. Direct evidence of an agreement tends to be a rarity.  
However, it is commonplace that membership in a conspiracy may be inferred  
from evidence of conduct that assists the unlawful object. Justice Rinfret made  
this basic point in Paradis v. The King (1933), [1934] S.C.R. 165, some eight  
decades ago:  
- 162 -  
Conspiracy, like all other crimes, may be established by inference  
from the conduct of the parties. No doubt the agreement between  
them is the gist of the offence, but only in very rare cases will it be  
possible to prove it by direct evidence. [p. 168]  
[436] In summary, party liability does not extend to acts done in furtherance of the unlawful  
object of conspiracy. Instead, party liability to a conspiracy is limited to cases where the accused  
encourages or assists in the initial formation of the agreement, or when he or she encourages or  
assists new members to join a pre-existing agreement.448 However, even though acts done in  
furtherance of the unlawful object are not themselves a component of the actus reus of  
conspiracy, such acts can serve as circumstantial evidence to support a finding of membership in  
the conspiracy.  
Relationship between Wilful Blindness and Conspiracy  
[437] As described above the crime of conspiracy is one of intention, and crucial to it is proof  
of the agreement. As stated by Dussault J.A. in R. v. Lamontage,449 the factual and mental  
elements of the offence of conspiracy overlap: the actus reus being the fact of agreeing, whereas  
the mens rea is true intent to agree to put the criminal scheme into play.  
[438] In United States of America v. Tavormina,450 the Quebec Court of Appeal held that mere  
knowledge of the general nature of a conspiracy is insufficient to ground liability as a member of  
the conspiracy in the absence of an agreement to participate in the conspiracy. At page 568  
[translation] the court stated:  
To adhere to an existing conspiracy is much more than knowing of its existence,  
discussing it, having an interest in its success or even giving one's approval to it; a  
conspiracy does not constitute only an agreement, it must manifest itself by  
"consent... and the agreement to co-operate in the attaining of the evil end"  
(approved in R. v. McNamara (No.1) (1981), 56 C.C.C. (2d) 193 (Ont. C.A.). Our  
Court in R. v. Lessard (1982), 10 C.C.C. (3d) 61, per Bisson J.A., approved this  
definition according to which the agreement "... must be to participate together in  
the co-operative pursuit of a common object" (p. 87). To the same effect, Doherty  
J., then sitting in the High Court on a review of a committal order, wrote:  
Before the applicant could be required to stand trial on the  
conspiracy alleged, there had to be evidence from which a jury  
could reasonably find that the applicant not only was aware of this  
general scheme but had made its object her own and agreed to  
work with the co-accused in achieving that object. [R. v. Cebulak  
(1988), 46 C.C.C. (3d) 437 (Ont. H.C.J.) p. 441.]  
[439] On the other hand, where there is an agreement, the doctrine of wilful blindness may  
apply in respect of a conspirator’s knowledge of the unlawful object of the conspiracy charge. In  
R. v. Cedeno,451 the Quebec Court of Appeal had to consider whether a trial judge erred by  
448  
R. v. J.F., (2013) 293 C.C.C. (3d) 377 at para 63, 2013 SCC 12  
449  
(1999) 142 C.C.C. (3d) 561 at page 575, [1999] J.Q. no 5416  
450  
(1996) 112 C.C.C. (3d) 563, [1996] J.Q. no. 3765  
451  
(2010) 276 C.C.C. (3d) 238, 2010 QCCA 2359  
- 163 -  
holding that wilful blindness could not substitute as proof of actual knowledge of the conspiracy.  
In that case the accused was a customs officer for the Canada Border Services Agency. On a  
number of different occasions, the accused provided an individual called Riahi pre-stamped  
declaration forms as well as daily codes to avoid search of luggage upon arrival in Canada. The  
accused alleged that she did not know that Riahi and his associates’ plan was to import narcotics.  
[440] The trial judge concluded that the Crown had to prove that the respondent was aware of  
the purpose of conspiracy (i.e. the importation of cocaine) but that this proof could not be made  
by arguing her wilful blindness. The Quebec Court of Appeal concluded that the trial judge did  
err in law and accepted that wilful blindness of a fact may substitute for actual knowledge of that  
fact whenever knowledge is a component of mens rea. At paragraphs 32 the court referred to R.  
v. Briscoe, supra, and highlighted that wilful blindness may substitute for knowledge when  
knowledge is a component of the mental element of an offence:  
[32] In [2010] 1 S.C.R. 411, 2010 SCC 13, the Supreme Court, per Charron J.,  
stated that wilful blindness of a fact may substitute for actual knowledge of that  
fact whenever knowledge is a component of the mens rea (at para. 21):  
Wilful blindness does not define the mens rea required for  
particular offences. Rather, it can substitute for actual knowledge  
whenever knowledge is a component of the mens rea. The doctrine  
of wilful blindness imputes knowledge to an accused whose  
suspicion is aroused to the point where he or she sees the need for  
further inquiries, but deliberately chooses not to make those  
inquiries. See Sansregret v. The Queen, [1985] 1 S.C.R. 570 and R.  
v. Jorgensen, [1995] 4 S.C.R. 55. As Sopinka J. stated so  
succinctly in Jorgensen (para. 103), " A finding of wilful blindness  
involves an affirmative answer to the question: Did the accused  
shut his eyes because he knew or strongly suspected that looking  
would fix him with knowledge? (Emphasis added.)  
[441] At paragraphs 37-38 of R. v. Cedeno, supra, the Court added:  
[37] In my view, it would be no more appropriate or prudent to enter a guilty  
verdict on the conspiracy charges than it would to uphold the acquittals despite  
the judge's error concerning the application of the doctrine of wilful blindness  
with respect to the respondent's knowledge of the purpose of the conspiracy.  
[38] Indeed, it is true that many of the respondent's statements both upon her first  
arrest on May 8, 2006, and at trial support the conclusion that she was closing her  
eyes to the purpose of the conspiracy because she knew or strongly suspected that  
if she were to open them, she would discover that the conspiracy was indeed to  
import narcotics. Is that not what was in the judge's mind when he wrote, at para.  
44: [TRANSLATION] “It is undeniable that it could be concluded, in light of the  
circumstances as whole, the veiled language used in the telephone conversations,  
and Omar Riahi's attitude, that she ought to have been aware of the purpose of the  
conspiracy” (emphasis added)? The fact remains, however, that he did not make a  
definitive finding on the issue; rather, he related various incidents that led him to  
conclude that there remained [TRANSLATION] “a strong doubt” in his mind as  
to the accused's knowledge of the purpose of the conspiracy. The application of  
the doctrine of wilful blindness is closely connected with the assessment of the  
- 164 -  
evidence and intimately connected with the assessment of the credibility of the  
accused; in my view, it is more prudent to leave these two issues to the trial court  
to determine.  
[442] R. v. Barbeau452 is another case that considered whether the mens rea requirement for  
conspiracy may be satisfied where wilful blindness is established. In that case, the accused and  
her husband were jointly charged with conspiracy to import cocaine. The theory of the Crown  
was that the accused knew that her husband was involved with others in the conspiracy to import  
cocaine and that she participated in it by her own acts in furtherance of the objective of the  
conspiracy. At trial, the jury found the accused and her husband guilty of conspiracy to import  
narcotics into Canada, contrary to section 465.1 of the Criminal Code, and guilty of illegal  
importation of narcotics contrary to section 5.2 of the Narcotics Control Act. On appeal, one of  
the issues raised was whether the trial judge erred in his instructions to the jury on the  
application of the concept of wilful blindness in deciding whether or not the appellant knew that  
her husband was involved with others in the conspiracy to import cocaine.  
[443] The Court in R. v. Barbeau, supra, summarized the trial judge’s instructions at p. 92  
(translation):  
Now in criminal law, there is a concept which is called wilful blindness, which is  
equivalent to knowledge. So, what is wilful blindness? It is something that you  
know about. Wilful blindness is the fact, for a person who is face with a situation  
or with specific circumstances, who should normally be alerted to some things,  
who should normally open her eyes or his eyes, who should normally ask  
questions, and who refuses to do so because he or she does not want to see ...  
This is wilful blindness. Not opening your eyes when you should normally be  
asking yourself a question or some questions. So wilful blindness is equivalent to  
knowledge.  
[444] In response to the trial judge’s instructions, the Quebec Court of Appeal stated the  
following at p. 92:  
Given appellant's testimony that she did not know of any conspiracy or, if she did,  
she thought it related to the importation of contraband cigarettes and not cocaine,  
and given the evidence of the circumstances surrounding the numerous  
communications using coded terms she sent to the other members of the  
conspiracy, I believe an instruction as to wilful blindness was not inappropriate.  
(R. v. Sansregret, [1985] 1 S.C.R. 570, 584; R. v. Aiello, [1979] 2 S.C.R. 15,  
affirming (1978), 38 C.C.C. (2d) 485, 486 (Ont. C.A.); R. c. Rathod, C.A.M. 500-  
10-000403-863, September 15, 1993, coram: McCarthy, Proulx, Otis [reported at  
61 Q.A.C. 171])  
But, with respect, I do not believe that the trial judge, in his instructions, was  
sufficiently alert to the limited scope of the doctrine of wilful blindness and the  
subjective test required for its application.  
[445] After reviewing the law on wilful blindness, the Court held that the trial judge made an  
error in his instructions. At paragraphs 90-91, Rothman, J.A., the court wrote the following:  
452  
(1996) 110 C.C.C. (3d) 69 (Que. C.A.), [1996] Q.J. No. 1030  
- 165 -  
In my respectful opinion, these instructions might easily have misled the jury into  
believing that they could infer appellant's knowledge of the conspiracy if they  
concluded that the circumstances were such that appellant should have known of  
the conspiracy but chose not to ask questions so that she would remain in the dark  
and not know. The test was not whether appellant "should" have known or should  
"normally" have known from the suspicious circumstances that her husband was  
probably involved in a conspiracy to import cocaine. The question was whether  
the circumstances were such that she, herself, was, in fact, suspicious that this was  
the case but deliberately refrained from making inquiries so that she could remain  
in ignorance as to the truth.  
From the instructions given to the jury, as set out above, I fear the jury could have  
been left with the impression that the test to be applied for wilful blindness was an  
objective test and not a subjective one. Since appellant's knowledge of her  
husband's involvement in the conspiracy to import cocaine was of critical  
importance to the jury's determination as to whether or not she was a participant  
in the conspiracy, such an error in the application of the wilful blindness principle  
was a serious error.  
[446] Worth noting is not only the Court’s clarification of wilful blindness and the way in  
which the doctrine operates, but the Court’s reliance on the doctrine as a substitute for  
knowledge in respect of a crime of conspiracy. Nothing in the Court’s finding indicates that  
wilful blindness cannot satisfy the mens rea requirement for conspiracy.  
[447] However, it is also worth noting, that there are instances where wilful blindness will not  
be enough to prove the mens rea of conspiracy. This was demonstrated in the case of R v.  
Lamontagne, supra, where the distinguishing feature was that before the appellant learned that  
he was being asked to transport stolen goods, the conspiracy to possess property obtained by  
crime had already been ongoing for several days. This feature alone does not prevent conviction  
for conspiracy, as in law, a person will be held to have joined a previously formed conspiracy if  
the Crown proves beyond a reasonable doubt that the person had knowledge of an unlawful plan,  
adopted it as his or her own, and consented to participate in achieving it. The court in R. v.  
Lamontagne, supra, stated the following at page 576:  
Reading this extract, one notes that the crime of conspiracy cannot be committed  
by mere recklessness as to the object of the agreement (R. v. Lessard (1982), 10  
C.C.C. (3d) 61 (Que. C.A.) at p. 86). It follows that the trial judge could not have  
inferred that the appellant had conspired with Mario Demers and Guy Laroche, to  
commit the possession of the property obtained by crime solely from his  
conclusion that the appellant had committed the crime of possession of property  
obtained by crime. It was not sufficient for the Crown to prove that the appellant  
was wilfully blind as to the unlawful provenance of his load, in order to prove that  
the appellant voluntarily participated in the conspiracy. The Crown had to prove  
beyond a reasonable doubt that the appellant agreed with the other conspirators to  
commit the crime of possession of property obtained by crime and to participate  
in achieving it. In my view, the Crown did not prove this. I would therefore quash  
the verdict of guilty entered against the appellant on the charge of conspiracy.  
[448] R. v. Lamontagne, supra demonstrates that where the conspiratorial agreement was  
formed by others, and evidence shows that the accused was willfully blind as to a fraudulent act  
- 166 -  
in which he later participated, this may not be enough to infer participation in a conspiracy. It  
would even be less cogent where the accused had been reckless. However, such evidence, along  
with other evidence, may be capable of raising an inference that the accused agreed with the  
other conspirators to commit the crime and to participate in achieving that object.  
[449] In R. v. Park,453 the accused was charged with conspiracy to commit fraud on various  
lending institutions. The Crown alleged that the accused recruited individuals to obtain mortgage  
financing based on false representations. Defence counsel admitted that a conspiracy to commit  
fraud existed, but denied that the accused was a member of the conspiracy. The Crown argued  
that every time the accused requested funds from a mortgage lender for a mortgage his actions  
furthered the purpose of the conspiracy. The Crown further argued that the accused requested  
and advanced the mortgage funds with the knowledge of his role in the conspiracy and with an  
intention to agree to perform his role or that he was wilfully blind to the role that he was  
conducting. In determining the mens rea for conspiracy, Ouelette, J., at paragraph 530, adopted  
R. v. Barbeau, supra, and stated the following:  
The mens rea requirement for conspiracy may be satisfied where wilful blindness  
is established: R. v. Barbeau, [1996] Q.J. No. 1030, 110 C.C.C. (3d) 69 (C.A.).  
However, one cannot commit conspiracy by mere recklessness with respect to the  
object of the agreement when the discussions concern a variety of possible actions  
some of which are not of a criminal nature; recklessness may only be applied with  
respect to the method of execution of the agreement: R. v. Lessard (1982), (1984),  
10 C.C.C. (3d) 61 (Que. C.A.), United States of America v. Tavormina (1996),  
112 C.C.C. (3d) 563 at 568 (Que. C.A.), R. v. Lamontagne (1999), 142 C.C.C.  
(3d) 561 at 576 (Que. C.A.), R. v. Roach, [2004] O.J. No. 2566, 192 C.C.C. (3d)  
557 (C.A.).  
[450] At paragraph 568, the Court added (emphasis added):  
[568] If the Crown attempts to establish guilt for conspiracy to commit fraud on  
the basis of fraudulent acts, those acts may be established in the usual way,  
including through establishing at least a state of mind of recklessness as to  
whether the fraud would occur. However the trier of fact nevertheless would need  
to find, in relation to the charge of conspiracy, that the accused intended to enter  
into the agreement to commit fraud or entered into it with suspicions raised that it  
was an agreement to commit fraud, but failed to make any inquiries so as to  
remain ignorant (wilful blindness). In this context, recklessness could come into  
play, but only with respect to the method of execution of the agreement and not  
with respect to the adherence to the agreement itself.  
[451] After conducting an extensive summary and analysis of case law related to the elements  
of fraud,454 conspiracy, and party to a conspiracy, R. v. Park, supra, adopted the narrow approach  
in R. v. Trieu, supra, in relation to party liability to conspiracy (ultimately agreed with by the  
Supreme Court of Canada in R. v. J.F., supra). At paragraphs 569-571 of Park, the Court  
concluded that wilful blindness could satisfy the mens rea of conspiracy (emphasis added):  
[569] To be a party to an offence, a person must have some knowledge of the  
essential nature of the offence to be committed, but not necessarily knowledge of  
453  
(2009) 465 A.R. 20; 2009 ABQB 470; [2009] A.J. No. 846.  
454  
Ibid., at paras 525-575.  
- 167 -  
all of the details. Only actual subjective knowledge or wilful blindness will  
suffice for party liability under s. 21(1), regardless of the mens rea requirements  
for the offence which was aided or abetted. Therefore, an accused cannot be  
convicted on the basis of being a party to the offence of fraud where nothing more  
than recklessness has been established.  
[570] Trieu is binding on this Court. Therefore, in order to find liability as a party  
to conspiracy under s. 21(1), the accused must have aided or abetted in the  
formation of the agreement, for example by encouraging someone to become a  
member of the conspiracy, or by otherwise facilitating the formation of the  
agreement. Such aiding or abetting may occur after the original agreement is  
formed, but must relate to the agreement itself.  
[571] However, actual intent or wilful blindness regarding a conspiracy and its  
nature, along with acts which abetted or encouraged any of the conspirators to  
pursue its object may be evidence that the accused had in fact become a member  
of the conspiracy.  
[452] The above cases mark a distinction between (a) circumstances where the accused enters  
an agreement, tacit or express, with another person or persons to pursue a mutual criminal  
objective; and (b) where the accused becomes party to a conspiracy after the agreement is  
already formed. In both scenarios, wilful blindness will satisfy the mental element of conspiracy  
as a substitute for knowledge. However, in scenario (b), before the doctrine of wilful blindness  
can apply, the Crown will need to establish that the accused had knowledge of the unlawful plan,  
adopted it as his or her own, and consented to participate in achieving it.  
Laundering Proceeds of Crime- Section 462.31  
[453] The offence of laundering proceeds of crime contrary to section 462.31 of the Criminal  
Code complements the offence of possession of property obtained by crime under section 354 of  
the Code.455 “In cases where the accused is found in possession of proceeds of a crime, the  
Crown will generally prefer to allege a possession offence, mostly due to the extensive  
investigation which may be required to prove a laundering transaction.”456 When investigators  
seek to retrace the flow of laundered money and charge those who took part in the process, then  
the Crown’s pursuit of a charge under section 462.31 is a more viable option.457 The complexity  
of investigations conducted pursuant to section 462.31 is summarized by Peter German in  
Proceeds of Crime and Money Laundering. At p. 6-2, Peter German writes:  
Proof of elements of the laundering offence will often require intense, prolonged  
and highly specialized investigation. By their very nature, many laundering  
offences will be transitional in character, and may require that police gather  
455 Section 354 of the Criminal Code reads as follows:  
354. (1) Every one commits an offence who has in his possession any property or thing or any proceeds of  
any property or thing knowing that all or part of the property or thing or of the proceeds was obtained by or  
derived directly or indirectly from  
(a) the commission in Canada of an offence punishable by indictment; or  
(b) an act or omission anywhere that, if it had occurred in Canada, would have constituted an  
offence punishable by indictment.  
456  
Peter German, Proceeds of Crime and Money Laundering, Release 5 (Toronto: Carswell, 2013) at 6-2.  
457  
Ibid., at 6-2.  
- 168 -  
evidence abroad. Various tools are viable to assist police and prosecutors in  
acquiring evidence. As laundering is a designate offence under s. 462.31, the  
various search, restrain and forfeiture provisions of Part XII.2 (of the Criminal  
Code) are available. In addition, it is a predicate offence in Part VI of the  
Criminal Code, allowing for an authorization to intercept private  
communications.  
[454] Shortly after section 462.31 was in force, Professor Alan D. Gold, summarized the  
elements of the offence in Proceeds of Crime ‘Manual with Commentary on Bill C-61’, at p.  
27:458  
1. the conduct: “uses, transfers the possession of, sends or delivers to any  
person or place, transports, transmits, alters, disposes of or otherwise deals  
with, in any manner and by any means;”  
2. the subject matter: “any property or any proceeds of any property obtained  
or derived directly or indirectly as a result of (a) the commission in  
Canada of an enterprise crime offence or a designated drug offence; or (b)  
an act or omission anywhere that, it had occurred in Canada, would have  
constituted an enterprise crime offence or a designated drug offence;”  
3. the mens rea specific intent: “with intention to conceal or convert that  
property or those proceeds;”  
4. the mens rea knowledge: “knowing that all or part of that property or of  
those proceeds was obtained or derived directly or indirectly as a result of  
(a) the commission in Canada of an enterprise crime offence or a  
designated drug offence; or (b) an act or omission anywhere that, it had  
occurred in Canada, would have constituted an enterprise crime offence or  
a designated drug offence.”  
[455] The conduct and subject matter under Section 462.31 has a wide ambit as it includes a  
broad range of activities not previously considered to be criminal. Alan Gold warned of the  
section’s implications and also wrote that the section goes far beyond any mere laundering or  
illicit dealings in proceeds of crime. At page 28, Mr. Gold wrote:459  
Under this provision it becomes extremely easy to label as proceeds of crime any  
property or proceeds that derives, no matter how remotely, from any tainted  
source.  
The illegal conduct: to deal in any manner and by any means is equally unlimited,  
so that the actus reus of this offence in effect is astounding, and is performed  
every day by untold number of innocent citizens.  
[456] Mr. Gold’s concerns, particularly in relation to the wide ambit of the phrase “in any  
manner and by any means,” were addressed by the Supreme Court of Canada in R. v. Daoust,460  
where the apparent oversight in the drafting process of section 462.31 was for the first time  
458  
Alan D. Gold, Proceeds of Crime ‘A manual with commentary on Bill C-61’ (Toronto: Carswell, 1989)  
at page 27.  
459  
Ibid., at page 26.  
460  
2004 SCC 6, [2004] 1 S.C.R. 217.  
- 169 -  
addressed. The oversight was related to the difference between the English and French version of  
section 462.31 and the Supreme Court had to consider which version it should adopt.  
[457] The English version of section 462.31 under the Code reads as follows (emphasis added):  
462.31 (1) Every one commits an offence who uses, transfers the possession of,  
sends or delivers to any person or place, transports, transmits, alters, disposes of  
or otherwise deals with, in any manner and by any means, any property or any  
proceeds of any property with intent to conceal or convert that property or those  
proceeds, knowing or believing that all or a part of that property or of those  
proceeds was obtained or derived directly or indirectly as a result of  
a. the commission in Canada of an enterprise crime offence or  
a designated substance offence; or  
b. an act or omission anywhere that, if it had occurred in  
Canada, would  
[458] The French version of section 462.31 under the Code reads as follows:  
462.31 (1) Est coupable d'une infraction quiconque -- de quelque façon que ce  
soit -- utilise, enlève, envoie, livre à une personne ou à un endroit, transporte,  
modifie ou aliène des biens ou leurs produits -- ou en transfère la possession --  
dans l'intention de Les cacher ou de les convertir sachant ou croyant qu'ils ont été  
obtenus ou proviennent, en totalité ou en partie, directement ou indirectement :  
a) soit de la perpétration, au Canada, d'une infraction de  
criminalité organisée ou d'une infraction désignée;  
b) soit d'un acte ou d'une omission survenu à l'extérieur du Canada  
qui, au Canada, aurait constitué une infraction de criminalité  
organisée ou une infraction désignée.  
[459] The difference between the French and English versions lies in the phrase “or otherwise  
deals with, in any manner and by any means,” which the French version is missing. In other  
words, the English version of section 462.31 makes it an offence to perform any of the  
enumerated acts in relation to property that is known or thought to be proceeds of crime or to  
otherwise deal with it in any manner and by any means, whereas the French version makes it an  
offence in any manner to perform the listed enumerated acts only. The French version, therefore,  
limits the scope of the actus reus of the offence.  
[460] After considering principles of bilingual statutory interpretation at paragraphs 26-31, the  
Court in R. v. Daoust, supra, favoured the French version. At paragraphs 36-37 the Court wrote:  
[36] Here, the only possible common meaning is the most restrictive one. This  
common meaning is easily derived, as the two versions list similar prohibited acts,  
with the exception of the added phrase which appears in the English version only.  
Since the English version cannot represent the common meaning, the French  
version must. Thus, we are restricted to the elements of the actus reus enumerated  
in the French version.  
[37] As mentioned earlier, it is important to ensure that all accused persons,  
regardless of the official language in which they read s. 462.31, have the same  
understanding of the elements of the offence of laundering proceeds of crime. The  
- 170 -  
two versions must therefore publicize exactly the same description of the offence.  
It would not be fair to propose an interpretation whereby in one language the  
elements of the actus reus would be met, but not in the other. If we adopted the  
English version, which is broader than the French one, this Court would be  
making an undue judicial amendment of the statute. For these reasons, the Court  
must favour the French version.  
[461] After Daoust, supra, Parliament did not remove the words “or otherwise deals with, in  
any manner and by any means,” from section 462.31. Despite this, when applying the section,  
courts should avoid relying on the phrase “in any manner and by any means,” when interpreting  
the actus reus of the offence. It follows then that the actus reus of laundering proceeds of crime  
includes:  
- uses;  
- transfers the possession of;  
- sends or delivers to any person or place;  
- transports;  
- transmits;  
- alters; or  
- disposes of ...  
[462] As explained by Peter German in Proceeds of Crime and Money Laundering, supra,  
despite its wide application, the actus reus of laundering proceeds of crime captures only the  
active participant in the laundering process, and not the recipient of the property. Bastarache J.,  
writing for the Supreme Court of Canada in R. v. Daoust, supra, stated that the enumerated acts  
“are essentially unilateral ones” and “[t]he ‘transfer of possession’ is the act of the person who  
has the control or possession of the object and then tries to pass it on to another.” Therefore the  
Court concluded that Parliament’s intention in section 462.31 was that it would apply only to the  
party originally having control of the property and not the recipient:  
[49] Section 462.31 contains a list of acts that are essentially unilateral ones. The  
"transfer of possession" is the act of the person who has the control or possession  
of the object and then tries to pass it on to another. This interpretation is  
compatible with the ordinary meaning of the word "transfer/transfert", that is,  
[TRANSLATION] "[a]ct whereby a person transmits a right to another": Le  
Nouveau Petit Robert (2002); [TRANSLATION] "[t]ransmission of a right from  
one holder to another": Gérard Cornu, ed., Vocabulaire juridique (8th ed. 2000);  
"[a]ny mode of disposing of or parting with an asset or an interest in an asset":  
Black's Law Dictionary (7th ed. 1999). Although "transfer/transfert" necessarily  
implies a relationship between two persons and that a beneficiary of the transfer is  
an essential element of carrying it out, the offence is not aimed at the beneficiary.  
This is demonstrated by the text of s. 462.31 itself, which criminalizes the act of  
"deliver[ing] to any person or place". This clarification highlights the fact that  
Parliament intended that this provision apply only to the party originally having  
control of the property, rather than both parties. The recipient may, however, be in  
possession of the proceeds of crime or otherwise be a conspirator.  
- 171 -  
[463] It is also worth noting that the offence of laundering does not require that the accused be  
found in possession of proceeds of crime. However, the accused must have been involved in the  
process of laundering “any property or any proceeds of any property.” The reason for the use of  
“proceeds” as opposed to “proceeds of crime” was explained by Peter German461 in Proceeds of  
Crime and Money Laundering:  
The word “proceeds” is deliberately used in preference to “proceeds of crime,”  
because the definition of proceeds of crime in section 462.31 broadens proceeds  
of crime to include intangibles, that being property, benefit or advantage within or  
outside Canada.  
[464] The mens rea of money laundering was summarized by the Supreme Court in R. v.  
Daoust, supra, at paragraph 56:  
[56] The mens rea of the offence of laundering proceeds of crime has two  
elements: (1) intent to conceal or convert property or proceeds of property, and  
(2) knowledge or belief that the property or proceeds were derived from an  
enterprise crime offence or a designated substance offence. The issue raised in the  
present case hinges on the meaning of the word "convert".  
[465] From the outset, the first element, specifically the meaning of “conceal or convert”,  
attracted considerable attention. In R. v. Daoust, supra, the Supreme Court took the opportunity  
to clarify the two terms. In doing so, the court adopted the interpretation of “conceal and  
convert” provided by the Ontario Court of Appeal in R. v. Tejani,462 where it was held that the  
term “convert” does not require intent to conceal or disguise the illicit origin of the property  
(emphasis added):  
[28] The words "conceal" and "convert" are not synonymous. Conceal does mean  
to hide. But convert has a broader meaning; it means to change or transform13. By  
using the broader word "convert", Parliament no doubt recognized that a good  
deal of money laundering is effected by simple currency exchanges, by simple  
conversions from Canadian to U.S. dollars. In other words, although the purpose  
of laundering money is to disguise the source of the funds, this disguising is often  
accomplished by a mere currency exchange. To prohibit money laundering by  
simple currency exchanges, Parliament used the word "convert".  
[29] In doing so, Parliament has not simply re-stated the actus reus of the offence  
or set a trap for innocent currency traders. The mens rea of s. 19.2 has two parts:  
to support a conviction the intent to conceal or convert must be accompanied by  
the knowledge or belief that the money was derived from the commission of an  
offence under ss. 4, 5 or 6 of the Act. The two parts of the mens rea must be read  
together, not separately. A person who converts money from one currency into  
another believing the money was obtained from drug trafficking should be  
criminally liable. That person is not engaged in legitimate currency trading.  
[466] At paragraphs 62 and 65, Bastarache J., delivering the judgment in Daoust, supra, also  
added that it would be redundant for the expression “convert” in section 462.31 to mean  
461  
Peter German, Proceeds of Crime and Money Laundering, Release 5 (Toronto: Carswell, 2013) at 6-6.  
462  
(1999) 138 C.C.C. (3d) 366, [1999] O.J. No. 3182  
- 172 -  
“conceal”, as the term is already found in the wording of the provision. At paragraphs 63 and 65,  
Bastarache J., concluded:  
[63] I am therefore of the opinion that the interpretation given to "intent to  
convert" by the Ontario Court of Appeal in Tejani, supra, is the correct one. The  
verb "to convert", in my view, cannot be given the meaning of "disguise" or  
"conceal" unless there is an express indication to that effect in the enactment.  
Absent this, the term "convert" must be given its ordinary, literal meaning. While  
Parliament might have, in enacting s. 462.31, intended to prohibit acts to disguise  
or conceal the illicit origins of property or its proceeds, this was only a secondary  
purpose that was part of a much broader one, that is, to ensure that crime does not  
pay: Quebec (Attorney General) v. Laroche, [2002] 3 S.C.R. 708, 2002 SCC 72,  
at para. 25. Section 462.31 has a broad deterrent effect, in that it is designed to  
prevent offenders from profiting from their crimes or from engaging in illegal  
activities, an objective that has nothing to do with disguising the origins of  
property or its proceeds.  
(...)  
[65] In short, I believe Parliament's choice of words is indicative of its intention to  
forbid "conversion" pure and simple, thereby ensuring that those who convert  
property they know or believe to have illicit origins, regardless of whether they  
try to conceal it or not, do not profit from it. I am therefore of the opinion that  
Parliament's intent and purpose in enacting s. 462.31 favours an interpretation of  
the word "convert" that does not include an intent to disguise. The interpretation  
given by the Quebec Court of Appeal to the term "convert" is too narrow and  
excludes from the scope of s. 462.31 activities that Parliament intended to  
prohibit.  
[467] The second mens rea element, “knowledge or belief that the property or proceeds were  
derived from a designated offence” was considered by the Supreme Court in United States of  
America v. Dynar, supra. Peter German said:  
In that case, the Court considered whether an accused who attempts the  
“impossible” may be convicted of attempting to commit the offence. The accused  
attempted to launder money, which he believed was the proceeds of crime, but in  
reality was government money being fronted by an undercover police agent. The  
Court concluded that he could not be convicted of the substantive offence, as the  
money was not the proceeds of crime; however, he could be convicted of  
attempting the offence. Attempted laundering requires only a belief that money  
was derived from an illegal source, whether or not this belief is correct:  
[468] In United States of America v. Dynar, supra, the Court said, at paragraphs 67-70:  
[69] As we have already said, knowledge, for legal purposes, is true belief.  
Knowledge therefore has two components -- truth and belief -- and of these, only  
belief is mental or subjective. Truth is objective, or at least consists in the  
correspondence of a proposition or mental state to objective reality. Accordingly,  
truth, which is a state of affairs in the external world that does not vary with the  
intention of the accused, cannot be a part of mens rea. As one Canadian academic  
has said, [Translation] "[t]he truth of the accused's belief is not part of the mens  
- 173 -  
rea of s. 24(1) Cr.C.". See Rainville, supra, at p. 963. Knowledge as such is not  
then the mens rea of the money-laundering offences. Belief is.  
[70] The truth of an actor's belief that certain monies are the proceeds of crime is  
something different from the belief itself. That the belief be true is one of the  
attendant circumstances that is required if the actus reus is to be completed. In  
other words, the act of converting the proceeds of crime presupposes the existence  
of some money that is in truth the proceeds of crime.  
[469] Following United States of America v. Dynar, supra, Parliament added the word  
“believing” to the definition of laundering under section 462.31 of the Criminal Code.463 This  
amendment “prevents an accused, who may have believed in a certain state of affairs, from  
avoiding conviction due to an absence of actual knowledge of the illegal origin.”464 The  
knowledge requirement in relation to laundering proceeds of crime can also be satisfied by an  
accused person choosing to remain wilfully blind as to the source of the proceeds. Wilful  
blindness and its relationship to the mens rea under section 462.31 will be discussed later in  
these Reasons.  
[470] Another requirement under section 462.31 is that the accused knew or believed that “all  
or part of that property or of those proceeds was obtained or derived directly or indirectly as a  
result of (a) the commission in Canada of a designated offence; or (b) an act or omission  
anywhere that, if it had occurred in Canada, would have constituted a designated offence.” A  
generic knowledge or belief that the property is derived from crime is not sufficient. Section  
462.31 requires proof that the accused knew that the property or proceeds were derived from a  
“designated” offence, in other words, from an indictable offence. But, the Crown need not prove  
that the accused knew of, or believed, all the facts which gave rise to a predicate offence. For  
example, in Tejani, supra, where the laundering offence arose from a drug transaction, the court  
stated that the accused need not know the specific narcotic being trafficked or the method of  
trafficking:  
[36] I do not agree with the appellant's submission. Immediately following this  
passage, the trial judge correctly stated that "The mens rea of laundering consists  
of both the intent to either conceal or convert the property and the knowledge that  
the property is proceeds of an offence under ss. 4, 5 or 6 of Narcotic Control Act."  
In the passage the appellant relies on, the trial judge simply indicated, correctly in  
my opinion, that the Crown did not have to prove the appellant knew what  
specific narcotics were trafficked or how the trafficking was carried out. In other  
words, although the Crown was required to prove that the appellant believed  
Debellis' money was derived from the commission of an offence under s. 4 or s. 5  
of the Act, it was not required to prove that the appellant knew or had any belief  
about the details of the offence. The trial judge was aware of what the Crown was  
required to prove and found that it had done so.  
[471] At paragraph 37, “the Court added that the fact that a predicate offence was committed in  
Canada can be inferred in the case of Canadian money being exchanged into U.S funds”:465  
463  
Added by the Criminal Law Improvement Act, 1996, S.C. 1997, c. 18, s. 28  
464  
Peter German, Proceeds of Crime and Money Laundering, Release 5 (Toronto: Carswell, 2013) at at 6-  
10.  
465  
Ibid., at 6-10.  
- 174 -  
[37] A subsidiary point arises under this ground of appeal, not canvassed in the  
trial judge's reasons. Because the appellant was charged under s. 19.2(1)(a) of the  
Act, he must have believed not just that Debellis' money was derived from the  
commission of an offence under s. 4 or s. 5, but also that the offence was  
committed in Canada. In my view, one can reasonably infer that the appellant had  
this belief. He was asked to exchange Canadian funds into U.S. funds, the  
preferred currency in the drug trade. I would not give effect to this ground of  
appeal.  
[472] A basic summary of the elements of section 462.31 of the Criminal Code are set out at p.  
732 of Watt’s Manual of Criminal Jury Instruction, by David Watt:  
For you to find the accused guilty of laundering proceeds of crime, Crown  
counsel must prove each of these essential elements beyond a reasonable doubt:  
i.  
that the accused dealt with property (or proceeds of  
property);  
ii.  
that the (property) (proceeds of property) was (were)  
obtained by crime;  
iii. that the accused knew, or believed that the property  
(proceeds of crime) had been obtained by crime; and  
iv.  
that the accused intended to conceal or convert the property  
(proceeds of crime).  
Relationship between Wilful Blindness and Laundering Proceeds of Crime  
[473] The knowledge requirement under section 462.31 can also be satisfied by proving that an  
accused person chose to remain wilfully blind as to the source of the property or proceeds. In R  
v. Tejani,466 the Ontario Court of Appeal held that the trial judge did not make it clear to the jury  
that to convict the accused of the offences under section 19.1 and 19.2 of the Narcotic Control  
Act, the accused had to know or be wilfully blind to the fact that the money came from the  
commission of an offence under sections 4 and 5 of the Narcotic Control Act. At paragraphs 7-8,  
the court stated:  
[7] Read as a whole, there was no error in the charge with respect to wilful  
blindness. However, the jury subsequently asked two questions relating to wilful  
blindness:  
Question number 1: "For the purpose of the jury's interpretation of  
the charge, is the concept or term,"wilful blindness," to be treated  
as the equivalent of  
the term "knowing"? ...  
Question number 2: "If a person is wilfully blind to criminal  
activities and therefore was not aware that the source of the money  
was drugs, can he be found guilty under the Narcotic Control  
Act?"  
466  
[1995] O.J. No. 3895, appeal to Supreme Court of Canada denied: [1996] S.C.C.A. No. 77.  
- 175 -  
[8] It is evident from these questions that the jury was concerned about whether or  
not a conviction under the Narcotic Control Act could be registered if the accused  
was wilfully blind to the fact that the source of the money was criminal activity  
generally, but did not know that it was from drugs. Unfortunately, the trial judge  
answered question number 2 in the affirmative. He did not make it clear to the  
jury that, to convict the accused of the offences under ss. 19.1 and 19.2 with  
which he had been charged, the accused had to know or be wilfully blind to the  
fact that the money came from the commission of an offence under ss. 4 or 5 of  
the Narcotic Control Act. This, in our view, was an error, and contradicted the  
applicable law, as set out in Glanville Williams, Criminal Law: The General Part,  
2nd ed. (1961), at p. 159, approved by the Supreme Court of Canada in R. v.  
Sansregret (1985), 18 C.C.C. (3d) 223:  
... A court can properly find wilful blindness only where it can  
almost be said that the defendant actually knew. He suspected the  
fact; he realised its probability; but he refrained from obtaining the  
final confirmation because he wanted in the event to be able to  
deny knowledge. This, and this alone, is wilful blindness. It  
requires in effect a finding that the defendant intended to cheat the  
administration of justice. [Emphasis added.]  
[474] As a result, the Ontario Court of Appeal set aside the convictions and ordered a new trial.  
The Ontario Court of Appeal was asked to revisit this case in 1999, when the accused again  
appealed conviction and sentence for attempted money laundering under section 19.2 of the  
Narcotic Control Act.467 In this appeal, the accused argued that the learned trial judge erred in  
not explaining that an intent to convert criminal proceeds under section 19.2 included an intent to  
disguise the origin of the proceeds. Tejani also claimed that the judge erred in finding that he had  
the required mens rea, even though he knew only that the money was derived from unspecified  
criminal activity. The Ontario Court of Appeal held that a conviction could be sustained if the  
accused was wilfully blind to the fact that the source of money came from criminal activity. The  
Court made the following conclusions:  
[38] The mens rea of the offence of money laundering under s. 19.2 of the  
Narcotic Control Act can be satisfied not only by a finding of belief but also by a  
finding of wilful blindness. Counsel for the appellant submits that the trial judge  
erred in finding that the appellant was wilfully blind to the origin of the money he  
was asked to exchange. I need not consider this submission because I have  
already concluded the trial judge was correct in finding that the appellant believed  
the funds he was asked to exchange were the proceeds of illegal drug dealing.  
Nonetheless, because the trial judge addressed the argument on wilful blindness,  
so will I.  
[39] Mr. Gold argues that the trial judge erred in applying an objective standard -  
the reasonable person - as the measure of wilful blindness instead of considering  
the appellant's subjective state of mind (See: R. v. Duong, (1998) 39 O.R. (3d)  
161 (C.A.) at 168-9).The trial judge set out the test for wilful blindness approved  
by the Supreme Court of Canada in R. v. Sansregret (1985), 18 C.C.C. (3d) 223  
(S.C.C.) at 235:  
467  
R. v. Tejani, (1999) 138 C.C.C. (3d) 366, [1999] O.J. No. 3182  
- 176 -  
A court can properly find wilful blindness only where it can also  
be said that the defendant actually knew. He suspected the fact, he  
realized its probability but he refrained from obtaining the final  
confirmation because he wanted in the event to be able to deny  
knowledge.  
[40] He then applied the test in the following passage on which Mr. Gold relies:  
In my view, the conduct of the accused constitutes wilful blindness. Here, we find  
the accused familiar with Debellis having in the past converted large sums of  
money to U.S. dollars, being asked to convert a hundred thousand dollars to U.S.  
dollars, Debellis is reluctant to sign a form and he explains that he doesn't want  
his signature or fingerprints on any paper, he doesn't want to provide  
identification, he talks about a person being charged with drug trafficking and a  
friend being arrested for drugs. Surely, the above combined would trigger in the  
mind of a reasonable person that Debellis was a drug dealer and these funds are  
the proceeds of drug deals. Instead, the accused accepts the money from Debellis.  
[41] Although the trial judge referred to "the mind of a reasonable person", this  
reference has to be considered in its context. The test in Sansregret, which the trial  
judge quoted, contains the subjective requirement for wilful blindness. Therefore,  
I think that the trial judge was alive to this requirement. Moreover, on the  
evidence, he could reasonably conclude that the appellant shut his eyes to the  
source of Debellis' money because the appellant knew or strongly suspected that  
inquiring would fix him with the knowledge the funds were the proceeds of illicit  
dealing in drugs. Accordingly, the trial judge did not err in finding that the  
appellant was wilfully blind. On this alternative basis, the Crown has met the  
mens rea required by s. 19.2 of the Narcotic Control Act.  
Has the Crown proved beyond a reasonable doubt that the accused was wilfully blind to  
the fact that the representations that he made about the bonds and their value were  
untrue?  
[475] As previously discussed, wilful blindness is equated with actual knowledge of the  
circumstances of an offence, and, where it is established, it renders the accused culpable for  
crimes which must be committed knowingly, even though finding the accused to have been  
reckless would not. In order for wilful blindness to be kept distinct from recklessness, it cannot  
apply in circumstances where the accused merely suspected the truth and should have made  
inquiries. It can only apply to circumstances where the accused makes the subjective choice to  
close his or her eyes in order to avoid determining a particular fact, or realizes the likely truth,  
and deliberately refrains from inquiring so as to maintain a lack of knowledge.468 Where wilful  
blindness is established, the accused is deemed to know the prohibited consequence or  
circumstance.  
[476] In the case at bar, Crown counsel alleges that the accused was wilfully blind to the fact  
that the representations which he made about the value of the bonds that he held in trust for HMS  
Financial were untrue. Specifically, the accused is alleged to have been wilfully blind to the fact  
that the bonds were worthless and that they did not provide security for investors.  
468  
Manning, Mewet & Sankoff, Criminal Law 4th Ed. (Ontario: Lexis Nexis, 2009) at page 182.  
- 177 -  
[477] I have found that what Mr. Bailey held were worthless, historical railway bonds.  
Undoubtedly, the characteristics of the bonds should have aroused suspicion in the accused’s  
mind about the fact that the bonds were worthless. However, as already stated, this is not the test  
for wilful blindness. What the accused should have thought is immaterial. Instead, what the court  
needs to consider is what the accused subjectively thought, and whether his suspicions were in  
fact aroused.  
[478] In order to determine whether the accused was wilfully blind to the fact that the bonds  
were worthless, the following questions should be asked:  
[1] Were the accused’s suspicions aroused about a fact which would have  
revealed a prohibited consequence or circumstance?  
[2] Was the accused’s suspicion about the prohibited consequence or  
circumstance probable or at least “possible above the average”?  
[3] Did the accused inquire about the suspicion?  
[4] If the accused inquired about the suspicion, did the accused harbour any real  
remaining suspicion after the inquiry?  
[5] If the accused harboured any real remaining suspicions after the inquiry, did  
the accused inquire further about the suspicion?  
[479] While asking the above questions, and during the course of the wilful blindness inquiry, it  
is important to focus upon what the accused chose not to do.  
[480] Of particular significance is the letter that the accused wrote to Paget Capital Limited on  
January 2, 2003 (Exhibit 92). Paget Capital Limited, an incorporated company under HMS  
Financial, retained the accused to provide an opinion with respect to the corporate bonds owned  
by Paget Capital Limited, but held by the office of Garth S. Bailey Professional Corporation, i.e.  
the accused. The letter stated:  
In connection with the opinions expressed in this letter, we have considered such  
questions of law and examined such statues, public and corporate records, reports,  
opinions, officers’ certificates, certificates of compliance and status and such  
other certificates, opinions and other documents and conducted such other  
examinations as we have considered necessary to enable us to express the  
opinions hereinafter set forth. In such examinations we have assumed the legal  
capacity of all individuals, the genuineness of all signatures and the authenticity  
of all documents submitted to us as originals and the conformity to authentic  
original documents of all documents submitted to us as certified, conformed,  
photostatic or facsimile copies.  
[481] The opinion is provided at paragraph 5 of the letter:  
On the basis of the foregoing, and subject to the qualifications set forth herein, we  
are of the opinion that the assets have an obtainable value in excess of forty  
million United States Dollars, such value to be obtained by way of sale or a loan  
against the assets. It is our further opinion that, so far as we are aware, these  
assets are not encumbered at this time in any way and may be sold or used as  
collateral for financing at any time without restriction.  
- 178 -  
[482] What is especially important, however, is that the accused qualified the opinion, by  
stating the following at paragraph 4 (emphasis added):  
Whenever an opinion or other statement in this opinion is qualified by the phrase  
“so far as we are aware”, it is intended to indicate that during the course of our  
representation of the Purchaser, no information has come to our attention which  
would give us actual knowledge of the existence of (sic) absence of such facts.  
However, except as expressly set out in this opinion, we have not undertaken any  
specific investigation or conducted any specific research to determine the  
existence of (sic) absence of such facts and any limited enquiry undertaken by us  
during the preparation of this opinion should not be regarded as such an  
investigation and no inferences to our having constructive knowledge of the  
existence or absences of such facts should be drawn merely from the fact of our  
representation.”  
[483] Through this qualification, the accused acknowledged that only a “limited enquiry” had  
been undertaken by him during the preparation of the opinion. This also demonstrates that the  
accused was aware that more questions, relevant to the opinion being expressed, could have been  
asked. The accused also acknowledged that he deliberately did not undertake any specific  
investigation or conduct any specific research in order to determine whether the bonds could be  
sold or used as collateral. This again shows that the accused subjectively knew that more  
questions could have been asked. However, this is not enough to establish wilful blindness. The  
missing element at this point, is whether the accused strongly suspected that further inquiry  
would lead him to knowledge of the fact that the bonds were worthless. The law states that the  
finding of wilful blindness on mere “possibility” of the guilty consequence occurring will not  
suffice. Instead there must be a realization that the fact in question is probable, or, at least,  
“possible above the average,” and this must be determined by carefully evaluating the evidence.  
[484] The evidence shows that the accused held historical railway bonds. The accused being the  
holder of the bonds was aware of their content and characteristics, particularly, the fact that the  
bonds were historical railway bonds. The accused, when evaluating the bonds and preparing an  
opinion about their true value qualified the opinion by making assumptions the accuracy of  
which were fundamentally crucial to the opinion expressed. The qualification indicated that the  
accused had subjective knowledge of the fact that further inquiry and investigation could reveal  
that the opinion was inaccurate, and that the bonds were not worth $40 million USD.  
[485] Further, the accused specifically wrote (emphasis added): “any limited enquiry  
undertaken by us during the preparation of this opinion should not be regarded as such an  
investigation and no inferences to our having constructive knowledge of the existence or  
absences of such facts should be drawn merely from the fact of our representation.” On these  
words alone it is clear that the accused is trying to avoid knowledge when he in fact knows that  
further investigation, particularly in relation to historical railway bonds, would probably lead to  
the discovery by him of the existence or absence of facts which would alter his opinion. Despite  
having this knowledge, the accused failed to inquire further about his suspicions, and continued  
to make representations that the bonds were worth $40 million USD.  
[486] Finally, Bailey had Mr. Schalk remove his (Bailey’s) name from the letter referring to the  
bonds. He refused to sign similar letters for Mr. Gray. This infers subjective knowledge that  
there was very likely a problem with the representation of the bonds’ value.  
- 179 -  
[487] The accused’s initial review of the documents pertaining to the bonds did not absolve him  
from knowledge of the fact that there was a strong possibility that the bonds were worthless. This  
is clearly demonstrated by the contents of the letter written by the accused to Paget Capital  
Limited on January 2, 2003. The letter demonstrates that the accused harboured suspicions after  
his initial inquiry about the value and authenticity of the bonds, but refrained from asking more  
questions because he preferred to remain ignorant. The accused’s suspicions remained aroused,  
and he did not inquire further; consequently, at law, the accused is deemed to have known about  
the possibility that the bonds were worthless. As a result, the accused was wilfully blind.  
[488] This evidence further illustrates that the accused had suspicions about the value and  
authenticity of the bonds, but took no action to rid himself of his suspicions.  
[489] In consideration of the above, the evidence shows that the list of questions should be  
answered in the following way:  
[1] Had the accused’s suspicion been aroused about a fact which would reveal a  
prohibited consequence or circumstance? Yes  
[2] Was the accused’s suspicion about the prohibited consequence or  
circumstance probable or at least “possible above the average”? Yes  
[3] Did the accused inquire about the suspicion? Yes  
[4] If the accused inquired about the suspicion, did the accused harbour any real  
remaining suspicion after the inquiry? Yes  
[5] If the accused harboured any real remaining suspicions after the inquiry, did  
the accused inquire further about the suspicion? No  
[490] The accused was therefore wilfully blind to the prohibited consequence or circumstance  
(i.e., that the bonds were worthless).  
[491] Accordingly, I am satisfied beyond a reasonable doubt that Bailey deliberately chose not  
to make inquiries about the bonds when his suspicions had been so aroused that he saw the need  
for those inquiries. He did not want to be fixed with the knowledge that he strongly suspected  
would come from those inquiries. Consequently, Bailey is deemed to have known at least from  
January 2, 2003, that the bonds were worthless.  
Conclusions  
[492] Bailey conspired with Fyn and Stark to defraud potential investors by representing to  
those individuals that Bailey held bonds having a value of between thirty and forty million  
United States Dollars and that those bonds would provide protection to the investors in the  
amount of thirty to forty million United States Dollars. Bailey and his co-conspirators acted on  
the conspiracy agreement by making those representations; those representations were false and  
Bailey knew they were false. The false representations were intended to induce individuals to  
invest in HMS Financial or its subsidiary Paget Capital, and those false representations did  
induce many individuals to so invest, causing them to lose, in the aggregate, millions of dollars.  
[493] Bailey conspired with Fyn and Start to transfer and use the funds illegally obtained  
through the fraud committed by them, and Bailey did transfer and use those funds knowing that  
they were the result of his and his co-conspirators’ fraudulent acts.  
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Verdict  
[494] I find Mr. Bailey guilty of Counts 1, 2, 3, and 4 as set forth on the Information.  
Dated at the City of Calgary, Alberta this 13th day of May, 2014.  
A.A. Fradsham  
A Judge of the Provincial Court of Alberta  
Appearances:  
Steven Johnston & Bill Wagner  
for the Crown  
Andrea Serink  
for the Accused  
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Attachment “A”  
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Attachment “B”  
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Attachment “C”  
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Attachment “D”  
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Attachment “E”  
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Attachment “F”  
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Attachment “G”  
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Attachment “H”  


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