IN THE COUNTY COURT OF VICTORIA Revised AT MELBOURNE THE QUEEN v

Document Sample
IN THE COUNTY COURT OF VICTORIA Revised AT MELBOURNE THE QUEEN v Powered By Docstoc
					IN THE COUNTY COURT OF VICTORIA                                                       Revised

AT MELBOURNE




THE QUEEN

v

LUKE EDWARD DUFFY


                                                               ---


JUDGE:                                     CHETTLE
WHERE HELD:                                Melbourne
DATE OF HEARING:                           15 June 2005
DATE OF SENTENCE:                          15 June 2005
CASE MAY BE CITED AS:                      R v. Duffy
MEDIUM NEUTRAL                             [2005] VSC 1039
CITATION:


                                                               ---

Catchwords:

                                                               ---

APPEARANCES:                               Counsel                       Solicitors

For the Plaintiff                          Mr T. Forrest & Ms S. Dawes

For the Defendant                          Mr J. Dickinson &
                                           Mr M. Gollan




VICTORIAN GOVERNMENT REPORTING SERVICE                                                          !Undefined Bookmark, I




Level 2 565 Lonsdale Street, Melbourne – Telephone 9603 2430
VCC:
82646
      HIS HONOUR:


      1     Luke Edward Duffy, you have pleaded guilty to three counts of dishonest use

            of your position as an employee, contrary to S.184(2)(a) of the Corporations

            Act 2001.     The maximum penalty for each such offence is 5 years

            imprisonment and 2000 penalty units or both. The facts surrounding your

            offending are set out in Exhibit A, the prosecution summary of facts, and I

            incorporate that document into these reasons for sentence.


      2     In brief compass, you were employed by the National Australia Bank as head

            trader and chief dealer of the Foreign Exchange Options Desk. In October

            2002 you were promoted to the position of Global Head of Currency Options

            and were located at the Bourke Street, Melbourne National Bank office. You

            reported to one Gary Dillon, and in your team and reporting to you were David

            Bullen, Vincent Vacara and Gianni Gray. Gray was located at the National

            Bank London office from March 2003.


      3     Bullen has been committed for trial in this court in respect to the charges of

            which you have pleaded guilty, and Gray and Vacara are to face committal

            proceedings in the Magistrate's Court in August this year. You and your team

            were responsible for conducting foreign exchange option trades, foreign

            exchange spot trades and foreign exchange forward trades on behalf of the

            National Australia Bank. The nature of these trades is set out at p.3 of Exhibit

            A.


      4     Your trading on behalf of the bank was conducted using a computer system

            known as Horizon. That system was designed to record and manage the

            National Bank Foreign Exchange Option Trading. In theory these trades were

            subsequently processed and accounted for by a back room operations office.

            The profit or loss resulting from these trades was integrated into the National

            Australia Bank account system and the figures purportedly demonstrated the

            profitability or otherwise of the foreign exchange trading conducted by you and


VCC: .TJ:KG LL16                         184                                   SENTENCE
                                                                                    R v. Duffy
            your team on behalf of the National Bank.


      5     The accounting process took place on an end of day basis and occurred

            automatically using Horizon. The resultant figures were incorporated into the

            bank's profit and loss account after the use of another computer system

            known as Capiti. That explanation is convoluted and necessarily so, and the

            full history of the accounting process and systems are fully set out at pp.5-6 of

            Exhibit A.


      6     You and your team discovered a window of time between the end of day

            procedures and the Capiti processing that enabled you, Bullen, Gray and

            Vicara to generate fictitious profit from false one sided internal foreign

            exchange spot trades that would not be detected and that would cause false

            profit figures to be recorded in the National Australia Bank profit and loss

            accounts.


      7     You embarked upon a course of behaviour between September 2003 and

            January 2004 that was designed by you and your co-accused to deliberately

            conceal the losses you had made in your trading activities and to create the

            false impression that your trading was profitable and further that such trading

            had surpassed budgets set by the National Australia Bank for your trading.


      8     The National Bank financial year concluded at the end of the day for trading

            on 30 September 2003. To meet set budgets your foreign exchange option

            desk was required to generate $A37 million for the year ended 30 September

            2003. In reality, your operation had a mark to market loss of $A5 million. You

            and your co-accused created wholly fictitious option trades in the Horizon

            system with a value of $42,131,125, utilising the window of opportunity in the

            accounting system. Only one side, the profit side of these trades was entered

            in the system, brought to account in the National Bank profit and loss account

            and then cancelled before their nature was exposed by checks by the Capite

            system. This calculated and sophisticated fraud resulted in the end of year


VCC: .TJ:KG LL16                          185                                   SENTENCE
                                                                                     R v. Duffy
            results for your foreign exchange trading desk being reported as $37.1 million,

            just above the budget rather than the true position of the $5 million loss.


      9     The loophole you used to perpetrate this fraud required the false one sided

            trades to be entered and cancelled on a daily basis in the same manner

            thereafter.


      10    Count 1 on the indictment relates to the entry of the first set of false trades on

            1 October 2003, the repeated process on 2 October 2003 and a later example

            on 9 January 2004. As I said, the process occurred on a daily basis. This

            activity hid the true picture of your trading losses thereby avoiding scrutiny of

            your activities by National Bank upper management. It kept your well paid job

            secure and enabled you and your co-accused to demonstrate your apparent

            worth by meeting budget projections.


      11    In addition, each of you and your co-accused were paid bonuses predicated in

            part on the purported profits you had generated for the year. It is clear on the

            evidence that you and your co-accused would not have been paid bonuses

            had management been aware of the true state of the operations desk trading

            results. on 17 December 2003 you were paid $129,338, Ficcara, Bullen and

            Grey each also received substantial bonuses.


      12    Count 2 relates to these bonus payments. If the true position had been known

            to National Bank management you would have been required to justify your

            continued employment by the bank.


      13    Subsequent to 1 October 2003 the trading position of the foreign exchange

            desk continued to deteriorate.      Losses increased and you and your co-

            accused took advantage of the fact that no checks were conducted by the

            back office in respect of foreign exchange options trades to dishonestly create

            seven one sided active option trades in the Horizon system that had the

            advantage that such trades did not have to be cancelled and re-entered on a

            daily basis as the spot trades did. These false option trades were calculated

VCC: .TJ:KG LL16                          186                                    SENTENCE
                                                                                      R v. Duffy
            by you to offset the ever increasing losses the trading activity of your foreign

            exchange desk was generating. This conduct is the subject of Count 3 on the

            indictment and artificially inflated the profitability of your trading position by

            $145,212,527.00.


      14    You and your team had gambled heavily on the decline of the Australian dollar

            as against the American dollar. You hoped that your well educated bet on the

            Australian dollar would recover accumulated losses and enable you to

            conceal your criminal conduct. The bank, you hoped, would be truly profitable

            from foreign exchange trading and your jobs, futures and reputations would

            thereafter remain intact. You got it completely wrong. The Australian dollar

            soared in value against the US dollar and I refer to Exhibit B, the chart

            tendered in evidence.


      15    Your trading losses rapidly escalated. The accounts, thanks to your dishonest

            activities, indicated a $17,941,000.00 odd trading profit. Your false entries

            generating a false profit of $178,561,516.00 meant that the truth was that the

            National Australia Bank had suffered a loss of $160,620,000.00 approximately

            as a result of the foreign exchange trading. I emphasise that this loss is not

            the subject of any criminality. It is the concealment of that loss by dishonest

            means that is the subject of Counts 1 and 3. No doubt your trading became

            more frenetic and desperate as you strove to rectify the mess you had

            created. However, you are not to be, and will not be sentenced for your poor

            trading decisions.


      16    In early January 2004 the false trades were partially discovered by another

            National Bank employee. Mr Dillon was notified and he spoke to you. You

            made partial admissions as to your conduct.            Subsequently you were

            interviewed by many and diverse people. National Bank auditors and officers

            were given full cooperation by you in unravelling the financial chaos hidden by

            your crimes. You cooperated with APRA, Price Waterhouse, the National

            Bank and subsequently the Federal Police and ASIC. That cooperation has

VCC: .TJ:KG LL16                          187                                    SENTENCE
                                                                                      R v. Duffy
            been ongoing. You have made another statement recently, Exhibit C, and

            given substantial assistance to the investigators to locate relevant material in

            the mass of evidence available to them. In addition, you have signed an

            undertaking to cooperate and give evidence pursuant to the Crimes Act,

            s.21E, and given evidence on oath before me testifying to your intention to

            assist.


      17    Mr Dickinson, who appeared on your behalf on your plea, in a compelling and

            well constructed plea, urged many matters in mitigation of your offending. I

            turn now to these matters and to your personal background.


      18    You are now 35 years of age, being born on 22 September 1969. You are

            married and have a very young son. You are of impeccable character as

            demonstrated by Exhibit 1, the reference material, and such is conceded by

            the learned prosecutor.    You are the eldest of four children, your parents

            migrated to Australia from England in 1966 and settled in outer Sydney. You

            attended Hurlstone Agricultural High School in Glenfield, New South Wales,

            and excelled academically and at sport. You have a strong work history. You

            worked part time whilst at school and at university. You completed a Bachelor

            of Business from the University of Technology in Sydney in 1990. You met

            your now wife when so studying. Upon graduation you went to London and

            worked with Westpac Bank as a trainee analyst in commodities and

            derivatives. You returned to Sydney in October 1992 with Westpac before

            being recruited by the Union Bank of Switzerland in 1994. That organisation

            relocated you to Hong Kong.


      19    Mr Dillon, previously referred to, approached you in 1996 to join him at the

            Commonwealth Bank of Australia in Sydney as chief dealer and you were

            subsequently recruited to National Australia Bank by Mr Dillon after he moved

            to that organisation.


      20    You have been a loyal, loving and supportive son, husband and sibling. You


VCC: .TJ:KG LL16                          188                                  SENTENCE
                                                                                    R v. Duffy
            are described as much loved and respected by your relatives and friends.

            You have moved on with your life since being dismissed, or you resigned,

            depending on which view one takes of it, by the National Bank and you are

            now employed by Magellan Logistics, a freight forwarding and customs

            broking company. Mr Thatcher, your current employer has a high regard for

            you and it appears that you have a future with that organisation, albeit, not as

            bright as the one you destroyed in late 2003.


      21    You are clearly truly remorseful for your conduct, although it is clear that you

            were well aware that your conduct was criminal at the time you committed

            these offences.


      22    You simply believed that you would be able to rectify the position and conceal

            your crimes. The telephone conversation between you and Mr Bullen on 2

            October 2003 demonstrates that state of mind.             These offences were

            committed by you in a culture of profit driven morality. To succeed you had to

            take risks. To further your career you had to succeed.


      23    You and your team saw yourselves as invincible and justify your criminal

            conduct by asserting that your principal motivation was to make money for the

            bank. That is simply no excuse. The mixture of personal ambition, arrogance

            and corporate culture made you forget the legal responsibilities you had to the

            bank, it's management and it's shareholders.


      24    Your conduct and it's aftermath means that you will never be employed in your

            chosen career again.      You destroyed your prospects together with your

            reputation when you committed these crimes.


      25    I take into account in your favour firstly your plea of guilty. I accept that those

            pleas were made at the earliest opportunity.


      26    Secondly I take into account the genuine remorse you have for your crimes.

            When coupled with your pleas of guilty you are entitled to and you will receive


VCC: .TJ:KG LL16                          189                                     SENTENCE
                                                                                       R v. Duffy
            a substantial reduction to the sentence I would otherwise impose to reflect

            both the remorse and your pleas of guilty.


      27    Thirdly I take into account your total and far reaching co-operation with the

            authorities, your employers and various investigators. That co-operation has

            been ongoing and of real assistance to the prosecuting authorities. Although

            you do not strictly qualify for what Mr Dickinson described as the Ellis

            discount, I propose to substantially reduce your sentence to reflect your

            extensive past co-operation.


      28    Fourthly I take into account the fact that you have fully refunded to the

            National Australia Bank the bonus you received as a result of your criminal

            conduct.   Admittedly such payment has been made at the eleventh hour,

            however I take into account in your favour the fact that at considerable cost to

            your family personally you have in fact returned your ill-gotten gain.


      29    Fifthly I take into account your prior excellent character and background,

            together with your strong work ethic. Your fall from grace has been profound

            and painful for you and your family.      Your previously good character was

            clearly corrupted by the culture you found yourself in and the arrogance you

            and your co-accused developed as to your infallibility. I take into account your

            lack of prior convictions and your previous good character in sentencing you.


      30    Sixthly I take into account pursuant to the Crimes Act your undertaking to co-

            operate with the authorities in the future and your promise to give evidence

            against your co-accused.


      31    Seventhly, I accept that you have, and take into account, excellent prospects

            for total rehabilitation. When you put these offences behind you you have real

            prospects of being a valued and respectable member of society.


      32    Eighthly I take into account and accept that for all the reasons stated you will

            find time served in prison to be particularly harsh. Your co-operation with the


VCC: .TJ:KG LL16                           190                                   SENTENCE
                                                                                     R v. Duffy
            authorities places you in peril in gaol where informers are viewed as

            anathema. You may need to be in protection.


      33    General deterrents must be the principal sentencing consideration for crimes

            such as yours. Offences like these are difficult to detect. Indeed, in this case,

            you intended that they would never be detected. Your crimes were motivated

            by a desire to conceal the crimes you had previously committed and that you

            believed were part of your occupational duties.      Your offences were well-

            planned, sophisticated and involved enormous sums of money. Your crimes

            were ongoing and continuous for several months. You breached the high

            level of trust your employer placed upon your conduct.


      34    I have considered all the sentencing options available to me, however, have

            ultimately concluded that no sentence other than a period of imprisonment is

            available or appropriate for your conduct.      I have considered all matters

            stipulated by s.16 of the Crimes Act and, as indicated, I propose to very

            substantially reduce the sentence I would otherwise impose to reflect the

            matters I have taken into account in your favour.


      35    Stand up, please. The sentence of the court is on Count 1 you are sentenced

            to be imprisoned for 20 months;       on Count 2 you are sentenced to be

            imprisoned for 12 months; on Count 3 you are sentenced to be imprisoned for

            12 months and I direct that six months of the sentence imposed on Count 2

            and nine months of the sentence imposed on Count 3 be served cumulatively

            to the sentence imposed on Count 1. That is an effective sentence of 29

            months imprisonment. I order that you serve 16 months of that sentence

            before being released upon a recognisance to be of good behaviour.


      36    I have ordered that all sentences imposed commence today. I record that but

            for your undertaking to cooperate in the future I would have imposed a

            sentence of 33 months on Count 1, 20 months on Count 2 and 20 months on

            Count 3. The effective sentence after cumulation would have been four years


VCC: .TJ:KG LL16                          191                                   SENTENCE
                                                                                     R v. Duffy
            and three months with a minimum terms of two years and three months.


      37    I should say this to the parties. One of the spectators in court has handed to

            my associate an envelope marked to "Judge Chettle, County Court". I have

            not opened it. I do not propose to open it and I will direct that my associate

            return it to whoever it was who gave it to me. I do not propose to receive

            material from anybody who is not a party to the proceedings.


      38    MR FORREST: I think the only procedural matter that Your Honour may need

            to attend to is you need to specify the period of the recognisance, that is, how

            long the prisoner is to be of good behaviour and the amount of the

            recognisance.


      39    HIS HONOUR: Recognisance in the sum of $500 to be of good behaviour for

            the expiration of the period which will be 13 months. Does that cover it?


      40    MR FORREST: I will find out; yes, it does, Your Honour, thank you.


      41    HIS HONOUR: Mr Dickinson, you have got something too?


      42    MR DICKINSON: Only the matter of clarification. I know exactly what Your

            Honour meant, I believe. Your Honour has said effectively a head sentence of

            29 months and that is derived from the sentence on Count 1 and cumulation

            from Counts 2 and 3. On Count 2, six months cumulative and on Count 3

            nine months.


      43    HIS HONOUR: No, no; if I said nine months that is an error.


      44    MR DICKINSON: Your Honour did say nine months.


      45    HIS HONOUR: I thought I said three.


      46    MR DICKINSON: Your Honour said six on Count 2 and nine on - - -


      47    HIS HONOUR: That is a mistake, because what I have got and what I mean

            and make sure this is correct. Twenty months on Count 1, 12 months on

VCC: .TJ:KG LL16                         192                                   SENTENCE
                                                                                    R v. Duffy
            Count 2, 12 months on Count 3. I direct that six months of the sentence on

            Count 2 and three months of the sentence on Count 3 be served cumulative

            to the sentence imposed on Count 1 and each other. So that is an effective

            sentence of 29 months' imprisonment.


      48    Mr Officer, I will need to have Mr Duffy sign a recognisance now, won't I. His

            solicitor can approach him to explain it.


      49    HIS HONOUR: Is there a problem, Mr Forrest?


      50    MR FORREST: There is. I think to achieve the effect that Your Honour

            wished, that is 29 months I am told that the way Your Honour originally

            expressed the sentence, nine months being cumulative on Count 3 would be

            correct, rather than three.


      51    HIS HONOUR: I actually - if I expressed it that way it is purely fortuitous

            because I wrote down - - -


      52    MR FORREST: We all know what Your Honour means.


      53    HIS HONOUR: I give him six months of Count 2 be cumulative on Count 1,

            and three months of the sentence imposed on Count 3 be cumulative upon

            the sentence imposed upon Count 1 and Count 2.

      54    MR FORREST: Yes, it is 1 and 2.


      55    HIS HONOUR: So that gives an effective 29 months.


      56    MR FORREST: Thank you, Your Honour.


      57    HIS HONOUR: Do I need to sign that recognisance; I have signed that

            recognisance release order.


      58    Would you remove Mr Duffy, please.

                                            ---



VCC: .TJ:KG LL16                          193                                 SENTENCE
                                                                                  R v. Duffy

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:19
posted:4/25/2010
language:English
pages:11
Description: IN THE COUNTY COURT OF VICTORIA Revised AT MELBOURNE THE QUEEN v ...