Court File and Parties

COURT FILE NO.: CR-21-1210 DATE: 2022-07-25

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Her Majesty the Queen

– and –

Michael Cady Accused

Counsel: Carolyn Hackett, for the Crown Glenn Sandberg, for the Accused

HEARD: July 25, 2022

REASONS FOR JUDGMENT

CULLIN, J. (orally)

Charges

[1] The accused stands charged with:

1. Possession of property over $5,000.00 knowing it was obtained by the commission of an indictable offence.
2. Using or transferring proceeds that he knew or believed were obtained directly or indirectly as a result of a designated criminal offence (also known as money laundering).

[2] The offences are alleged to have occurred between February 10, 2016, and May 21, 2020. The victim of the alleged offences was Henninger’s Diesel Ltd. who was the employer of Mr. Cady’s wife, Karen Cady. Mrs. Cady was employed as Henninger’s bookkeeper.

Proceedings

[3] Prior to the commencement of Michael Cady’s trial, Karen Cady plead guilty to and was convicted of fraud over $5,000 and possession of a forged document.

[4] The trial of this matter was conducted on May 16, 17, 18 and 19, 2022. It was initially scheduled to proceed before a judge and jury. Mr. Cady re-elected to have the matter proceed before a judge alone. He plead not guilty to both charges before the court.

Witnesses

[5] The Court heard from four witnesses.

For the Crown: • Diana Fuller – The owner and principal of Henninger’s Diesel Ltd. • Ralph Waschulzik – A co-worker of Karen Cady and an acquaintance of Karen and Michael Cady. • Ian Wright – An Officer with the Ontario Provincial Police. At the time of this investigation, he was responsible for investigating serious fraud matters; in this case, he investigated and traced the path of the funds obtained through Karen Cady’s fraud.

For the Defence: • Michael Cady – The accused, who testified on his own behalf.

Agreed Statement of Facts

[6] Counsel filed an Agreed Statement of Facts, dated May 13, 2022. It confirmed the fact of Karen Cady’s fraud on her employer, Henninger’s Diesel Ltd. and set out particulars of how that fraud occurred, as well as personal background regarding the parties.

Summary of the Evidence

[7] The fraud committed by Karen Cady against her employer took place through a series of transactions which commenced on July 31, 2015 and ended on June 24, 2019. There were, in total, 136 transactions. They totalled $1,008,432.58 with the smallest being $46.62 and the largest being $60,830.57.

[8] The funds were deposited to an account at the Northern Credit Union (“NCU”) ending in number 3532. That account was opened in Karen Cady’s name on July 29, 2015. Michael Cady was added to the account on February 10, 2016. From the documents and oral evidence before me, I determined the following:

1. Karen Cady was the principal user of account 3532;
2. Michael Cady made direct withdrawals from account 3532 in or about November and December 2017 to purchase a hot tub. The net amount withdrawn was approximately $8,500;
3. Michael Cady made several deposits to account 3532 including, among other things, Employment Insurance (EI) benefits cheques in 2018, and mortgage proceeds totalling $55,472.76 in 2018;
4. In 2016, 2018 and 2019, insurance claim proceeds payable to Karen and Michael Cady totalling $67,288.43 were deposited to account 3532; and,
5. Between August 25, 2015, and February 24, 2020, there were 42 electronic money transfers (EMT’s) from account 3532 to Michael Cady’s personal bank account at the Royal Bank (“RBC”). Those transactions totalled $78,200.

[9] During the relevant time, Karen Cady was solely employed by Henninger’s Diesel Ltd. It was Michael Cady’s evidence that he was not specifically aware of his wife’s income, other than the fact that she earned more than him. He believed that she earned approximately $28 per hour, and that she received bonuses and participated in profit-sharing.

[10] During that same time, Michael Cady worked at Castec as a heavy equipment operator and he was intermittently in receipt of EI benefits. He also accessed some funds from his RRSP. At the time of these offences, he earned $25 per hour. He also earned overtime and living out expenses when he performed remote jobs. The documents and the oral evidence before me indicate that he earned:

• $58,701.00 in 2015 • $38,761.00 in 2016 ($7,405 of which were EI benefits) • $51,434.37 in 2017 ($12,025 of which were EI benefits) • $53,802.00 in 2018 • $71,290.00 in 2019 • $53,880.44 in 2020 (plus a $12,000 RRSP withdrawal)

[11] It was Mr. Cady’s evidence, and I accept, that his earnings between 2015 and 2020 were more money than he had ever made in his life.

[12] The Crown carefully laid out a series of purchases and transactions involving assets that were either registered to or owned (solely or jointly) by Michael Cady. They can be summarized as follows:

1. A residence located at 65 Hinds Road in Wahnapitae, Ontario was purchased on February 10, 2016, with a down payment of $28,581.37. It was subsequently remortgaged on March 16, 2018. Of significance with respect to the property: • The down payment was issued on February 4, 2016, from NCU account 3532, but the insurance cheque that Mr. Cady testified was used for the down payment was not deposited until February 10, 2016. • When the property was purchased in 2016, Michael and Karen Cady had difficulty securing a mortgage due to credit issues. Michael Cady acknowledged this fact during cross-examination. • When the refinancing occurred, the property was transferred from Karen and Michael Cady jointly to Michael Cady solely. The Court was advised that this occurred because Karen Cady had difficulty securing mortgage approval. The property was transferred solely into Michael Cady’s name because he was approved. It was re-financed through a different bank. • When the property was refinanced, Michael Cady received $55,472.76 from the equity in the property which, as previously noted, was deposited to NCU account 3532.

2. On October 31, 2017, Karen Cady paid the outstanding balance owing on Michael Cady’s 2014 Ram truck, in the amount of $26,324.96.

3. On December 20, 2018, Michael Cady traded in his 2014 Ram truck. He received $14,500 as a trade-in allowance, which he used to purchase a 2019 Ram truck. A further down payment of $10,000 was made from NCU account 3532.

4. On May 29, 2017, Michael Cady purchased a 1979 Ford truck from a third party. A payment of $6,000 was made for the purchase price from funds in the NCU account 3532.

5. On June 30, 2016, Michael Cady purchased a 2008 Dena Travel Trailer from Palladino RV. The sum of $25,000 was paid for the purchase from funds drawn on NCU account 3532. It was Michael Cady’s evidence that he had sold a 25-foot trailer to purchase this travel trailer, but there was no evidence of that and the bank accounts, in fact, contradicted this evidence.

6. On July 3, 2018, Michael Cady traded in the 2008 travel trailer. Using its trade-in value and the further sum of $14,338.22 from NCU account 3532, he purchased a 2012 Open trailer from Palladino RV.

7. On July 5, 2019, Michael Cady traded in the 2012 Open trailer and received a 2017 Cher trailer. This transaction was also with Palladino RV.

8. On May 8, 2017, Michael Cady purchased a 2007 Cross Zin trailer from a third party. The sum of $3,000 was paid for the purchase from NCU account 3532.

9. On December 17th and 18th, 2016, Michael Cady purchased an Arctic Cat snowmobile and trailer. The sum of $3,000 was paid to a third party from NCU account 3532.

10. On April 17, 2017, Michael Cady became the registered owner of a 2015 Arctic Cat off-road vehicle, purchased from Sturgeon Falls Sports & Marine. On April 15, 2017, the sum of $2,000 was paid to Sturgeon Falls Sports & Marine by debit from NCU account 3532 and the sum of $3,000 was transferred from NCU account 3532 to Michael Cady’s RBC account. I accept as fact that these transactions were related to this purchase.

11. On July 10, 2017, Michael Cady purchased a jet ski and trailer from Sturgeon Falls Sports & Marine. A down payment of $8,000 was made from NCU account 3532 and the balance of the transaction was financed through TD Auto Finance.

[13] Also of note were the following:

a. On May 24, 2017, Karen Cady purchased a pontoon boat from Legend Boats. She paid $39,010.37 for the boat. She paid for it without financing. It was Michael Cady’s evidence that he did not approve of the purchase, nor was he aware that it had been purchased without financing. b. During the period of the fraud, 138 transactions totalling $74,354.06 were made for home improvements, home furnishings, building supplies and construction. These included $11,325.99 for furniture, $14,433.02 for kitchen renovations, and $2,254.32 for windows. c. Karen and Michael Cady took trips to Puerto Plata in December 2017 and October 2018 and to Varadero in January 2019. d. There were multiple purchases of concert tickets: February 5, 2019 for $883.56; February 20, 2019 for $483.46; and, March 3, 2019 for $855.21. e. The trips and the concert tickets were purchased using credit cards. The credit cards were paid from NCU account 3532.

The Law

[14] It is a fundamental principle of the Canadian criminal justice system that every accused person is presumed to be innocent of charges he or she is facing. At trial, the Crown has the evidentiary burden of proving, beyond a reasonable doubt, that the accused committed the offences with which he or she is charged.

[15] As noted, Mr. Cady is charged with two offences.

[16] The first offence is possession of property over $5,000 knowing it was obtained by the commission of an indictable offence. To prove this offence, the Crown must establish:

1. Possession, which can be either personal possession or joint possession;
2. That the property was obtained by the commission of an indictable offence; and,
3. Knowledge by the accused of the origin of the property.

[17] As noted by the Court of Appeal in R. v. Pham 2005 CanLII 44671 (ON CA), [2005] O.J. No. 5127 (C.A.), at para. 16, this offence requires, “knowledge, consent, and a measure of control” over the property.

[18] In this case “property”, from the Crown’s perspective, includes both the funds that were fraudulently obtained by Karen Cady and the property that was purchased using those funds.

[19] The second offence is using or transferring funds that the accused knew or believed were obtained, directly or indirectly, as a result of a designated offence. Informally, this offence is known as money laundering.

[20] To prove this offence, the Crown must establish:

1. That the accused dealt with the property or proceeds of property;
2. That the property or proceeds of property were obtained by crime;
3. That the accused knew or believed that the property or proceeds of property had been obtained by crime; and,
4. That the accused intended to conceal or convert the property.

[21] In this case, the “crime” or the “designated offence” relied upon by the Crown is the fraud committed by Karen Cady.

[22] With respect to the element of intent, the Supreme Court of Canada in R. v. Daoust, 2004 SCC 6, [2004] 1 SCR 217, at para. 65, noted that one of Parliament’s objectives was:

…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.

[23] A key element of both offences is knowledge. The Crown can prove knowledge either by establishing actual knowledge by the accused or by establishing that the Court ought to impute knowledge to the accused as a result of his wilful blindness.

[24] The law is well-developed as to the definition of wilful blindness. The Supreme Court of Canada noted in Sansregret v. The Queen, 1985 CanLII 79 (SCC), [1985] 1 SCR 570 at para. 22:

…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.

[25] In the present case, the Crown alleges actual knowledge by Michael Cady and, in the alternative, imputed knowledge as a result of his wilful blindness.

Analysis – Possession of Property over $5,000

[26] In my view, the issue with respect to the charge of Possession of Property over $5,000 is Mr. Cady’s knowledge of the origin of the funds in NCU account 3532.

[27] Dealing first with the other elements of this offence:

a. There is no doubt in my mind that Michael Cady was in possession of the funds in NCU account 3532. Although he did not access the funds directly from that account on a regular basis, he had the ability to do so and did, indeed, do so in or about November and December 2017 when the hot tub was purchased. In my view, he had a measure of control over the funds in the account, even if he elected to exercise that control sparingly. b. I further find that Michael Cady was in possession of the funds through transfers from NCU account 3532 to his RBC account. He knew which account the funds originated from, he consented to the transfers, and he had control over the RBC account into which the funds were transferred. c. Finally, I find that Michael Cady was in possession of the property purchased using funds from NCU account 3532. Again, he knew that the property was being purchased using funds from the NCU account, he consented to the purchases of the property registered in his name, and he exercised control over the property that was purchased and registered in his name. d. It is also clear on the evidence before me that the funds in NCU account 3532 substantially consisted of funds obtained through the fraud of Karen Cady, and that those fraudulently obtained funds were the funds that were transferred to Michael Cady’s RBC account and were used to purchase property by and for Michael Cady.

Analysis – Money Laundering

[28] In my view, the issue with respect to the offence of money laundering is also Mr. Cady’s knowledge of the origin of the funds in NCU account 3532.

[29] Once again, dealing first with the other elements of this offence:

a. There is no doubt in my mind that Michael Cady dealt with the funds in NCU account 3532, both directly and indirectly. He withdrew funds from the account, he received transfers of funds from the account, and he purchased property using funds from the account. b. There is also no doubt, and indeed it is admitted as part of the Agreed Statement of Facts, that the funds in NCU account 3532 were obtained by crime, in this case by Karen Cady’s fraud. c. Finally, in my view, there is no doubt that Michael Cady converted the funds, and that he did so intentionally. He converted the funds into property by using them to purchase property, and to make payments toward the acquisition of property. He also converted the funds by accepting their transfer from the NCU account to his RBC account. The only issue, in my view is whether he knew that the funds were obtained through Karen Cady’s fraud.

Witness Evidence re: Knowledge

[30] This then leaves the element of Michael Cady’s knowledge. In assessing the element of knowledge, I have given consideration to the evidence of all of the witnesses who testified, as well as the documents filed with the Court as exhibits.

[31] Diana Fuller was a very straightforward witness, and I accepted all of her evidence to be both credible and reliable. Specifically, I accepted her evidence that she had a discussion with Michael Cady during which she asked him about receiving an inheritance from his father and he made statements which appeared to her to confirm that he had received such an inheritance. I also accepted her evidence that Michael Cady was present during workplace events in which the company’s difficult financial situation was discussed.

[32] Ralph Waschulzik was also a very straightforward witness and I accepted all of his evidence to be both credible and reliable. I accepted his evidence that Karen Cady advised him that Michael Cady received an inheritance. I also, however, noted his evidence that he did not discuss the inheritance with Michael Cady, nor did he discuss bonuses, job sharing, or the financial misfortunes of Henninger’s Diesel Ltd. with Michael Cady.

[33] Ian Wright was a very thorough and thoughtful witness. His evidence was not significantly disputed during cross-examination, and I noted that he made reasonable concessions which confirmed that he was unable to provide evidence or supporting documents confirming who had conducted transactions such as ATM withdrawals or electronic money transfers. He also acknowledged that the only person who had a bank card issued to them from NCU 3532 was Karen Cady, although I also noted his evidence that Michael Cady was still able to conduct at least some known transactions in the account in the absence of a card.

[34] I found Michael Cady, overall, to be a likeable witness. I accepted his evidence that his wife ran the family finances, and that he was content to let her do so, particularly given her work in finance. I also accepted his evidence that he did not question the underpinnings of the family finances, but rather that he deferred to his wife’s financial management because he believed that he and Karen were doing well as long as the bills were being paid and the bank was not calling.

[35] I also accepted Michael Cady’s evidence that he did not remember having a conversation with Diana Fuller or hearing anything about the company’s hard times during Christmas parties and social events. I did not view this as a lie or a misrepresentation by him, but rather a reflection of the fact that these interactions were likely less significant to him than they were to Ms. Fuller, who was making inquiries to allay her concerns about Karen. As well, Michael Cady struck me as a person who would have been uncomfortable being asked about his personal finances and disinterested in listening to speeches during a work party; it was my impression that he likely would have said or done anything to extricate himself from an awkward conversation, and he would not have directed his attention to the speeches.

[36] I also accepted Michael Cady’s evidence that he believed his wife. She was, after all, the same woman who convinced her employer that they were suffering a financial downturn while she siphoned more than $1,000,000.00 out of the company from under their noses. Clearly, she must have been a very persuasive fraudster.

Analysis – Knowledge

[37] On the evidence before me, I find that, at all relevant times, Michael Cady knew the following:

1. That Karen Cady was convicted on December 8, 2016, for committing a fraud upon a prior employer. Michael Cady was present during the sentencing for this fraud.
2. That Karen Cady had declared bankruptcy on two prior occasions and that she had bad credit.
3. That in 2016 when he and Karen Cady first purchased their house on Hinds Road, they were required to use a high-interest lender because they could not get a mortgage elsewhere due to their credit.
4. That Diana Fuller was operating under the belief that he had received an inheritance from his father when in fact he had not.
5. That several large payments were being made from the NCU account with no plausible explanation for the source of the funds. Specifically: i. The payment of $25,000.00 from the NCU account in June 2016 to purchase a trailer, mere months after the house was purchased and after he and Karen had difficulty securing a mortgage; ii. The purchase of a pontoon boat at a cost of $39,000.00 at a time when Michael Cady either was or was recently unemployed and Karen Cady had bad credit; iii. The kitchen renovations undertaken at a cost in excess of $14,000.00 in June and July 2017, again at a time when Michael Cady had been recently unemployed; and, iv. The payout of Michael Cady’s truck loan in the amount of $26,324.96 on October 31, 2017, again at a time when Michael Cady had been recently unemployed.

[38] I have given a great deal of consideration to the “shell game” of financing transactions which were conducted and approved to purchase trailers and recreational vehicles and whether they may have lulled Michael Cady into a false sense of security about his and Karen’s financial situation. I have also considered whether the refinanced funds and the insurance funds would also have created a false sense of security. While this may have explained his ease about some of the smaller transactions, or transactions that occurred in 2018 and onwards, it does not and simply cannot support Michael Cady’s decision to turn a blind eye to the extremely unusual and large disbursements of cash, as well as the cumulative spending which took place, particularly in 2017, in the absence of a plausible, legal source of income to support them.

[39] I find that Michael Cady either knew that the funds were obtained illegally by Karen Cady, or that he was wilfully blind to their origin.

[40] There were numerous red flags that Karen Cady was not obtaining the funds legally, and that Michael Cady should have made inquiries about their origin before withdrawing them, receiving them in his bank account, or using them to purchase property. His failure to do so leads me to impute knowledge to him of the only reasonable, viable explanation, which was that the funds were obtained by crime, and specifically by Karen Cady’s fraud.

[41] I therefore find that the knowledge element for both the possession of property charge and the money laundering charge have been satisfied by the Crown.

Disposition

[42] Having found that the Crown has proven the elements of both offences, I find Michael Cady guilty of both offences on the indictment and I enter convictions on both counts.

The Honourable Madam Justice K.E. Cullin Released (orally): July 25, 2022