Founder of collapsed brokerage firm Sonray Capital Markets has pleaded guilty to seven criminal charges in the Supreme Court of Victoria.
Russell Johnson had been the sole director of Sonray and yesterday pleaded guilty to charges of false accounting, submitting false documents to the Australian Securities and Investments Commission, theft and obtaining financial advantage by deception.
His brother-in-law, Scott Murray, also worked in the business and is already serving a five-year prison sentence for his role in the fraud and theft offences.
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Sonray, established in 2003, provided advice on contracts for difference (stock marketing betting based on whether shares or other financial transactions will go up or down), but collapsed in 2010 with $46.7 million in debt, resulting in 4000 clients’ accounts being frozen.
The charges against Johnson, who in the Murray case was treated as the brains behind the operation, relate to the withdrawal of funds from Sonray’s clients’ trading accounts from unfunded deposit entries.
This fraudulent money was then used predominantly within the business or for personal use.
Johnson is also charged with making a false statement to the ASIC about equity injections worth $5.2 million into Sonray. He claimed the money came from family and friends, rather than client accounts.
The theft charges equate to $742,641.
The origins of the fraud came through Sonray’s relationship with international investment bank Saxo Bank.
In December 2003, Sonray had signed an agreement with Saxo Bank which allowed it to trade using a platform provided by Saxo Bank, but due to difficulties with the logistics of these transfers Sonray designed a system which allowed it to trade separately.
Judge Lasry, when sentencing Murray, found the pair spent too much money designing the system, and the fraudulent behaviour resulted as a way to “fill large financial holes which appeared in Sonray’s financial structure”.
“As I understand, your offending … was primarily designed to meet the increasing shortfall between the company’s income and its operating expenses,” Lasry said in the judgement.
Murray said during the case Johnson instructed him it was necessary to “drag money out of a friendly account”, which he understood to mean client accounts.
Warfield and Associates chief executive Brett Warfield told SmartCompany it’s unusual for fraud to be motivated by a need to better a business financially.
“Usual motivating factors include bettering their lifestyle or funding a gambling addiction,” he says.
“Nonetheless this is deception by fraud and there has been a misrepresentation of money in Sonray’s operating account which was clients’ money.”
Warfield and Associates’ research revealed out of 89 fraud cases between July 2001 and July 2012, 46 cases were motivated by gambling, 35 were driven by a desire to improve lifestyle, but only three were motivated by a need to prop up a failing business.
Johnson faces a maximum of a 10-year sentence for each charge. He’s been released on bail until November 11, 2013 when he will be sentenced.
“Investors need to make sure they’re confident in the ability of the people who are managing their money,” Warfield says.
“When you have money invested with these people, you lose money when the business goes into liquidation.”