Vancouver Sun

Judge’s de­ci­sion in credit union fraud hits sour note

- DAVID BAINES

On July 3, a Sur­rey Pro­vin­cial Court judge handed An­gela Keat­ley a two-year con­di­tional sen­tence for em­bez­zling $537,267 from her em­ployer, En­vi­sion Credit Union, over a 14-month pe­riod.

While I ap­pre­ci­ate that each case has its own nu­ances, the sen­tence handed down by Judge Michael Hicks in this case struck a dis­cor­dant note with me.

The rea­son is that I have sat through sev­eral cases that were re­mark­ably sim­i­lar, and they all re­sulted in three­year jail terms.

Crown pros­e­cu­tor Shelly Smith asked for a prison term of three to four years, but Hicks ob­vi­ously felt a great deal of sym­pa­thy for Keat­ley.

His sen­tence calls for 12 months of house ar­rest, with pro­vi­sion to leave her home for work, ed­u­ca­tion pro­grams, church, med­i­cal ap­point­ments, bank­ing “or sim­i­lar busi­ness pur­pose.” The fol­low­ing year, she is sub­ject to a daily cur­few from 9 p.m. to 6 a.m.

Keat­ley worked as En­vi­sion’s as­sis­tant man­ager of sup­port ser­vices. She su­per­vised all as­pects of pay­ment sys­tems, in­clud­ing au­to­matic bank­ing, cash de­liv­ery and credit cards.

From De­cem­ber 2006 to Fe­bru­ary 2007, she ex­e­cuted more than 60 fraud­u­lent trans­ac­tions, reap­ing $537,267 in the process. When in­ter­nal au­dits re­vealed in­con­sis­ten­cies in au­to­matic bank­ing records, she pro­vided explanatio­ns that were ac­cepted. She was, af­ter all, a highly trusted em­ployee.

On March 3, 2008, an au­dit re­vealed she had been us­ing an En­vi­sion ac­count to pay her own per­sonal credit card and bank ac­count. The next day she sent an e-mail to her su­per­vi­sor say­ing she had a gam­bling ad­dic­tion. The fol­low­ing day, she ad­mit­ted the fraud.

Keat­ley co­op­er­ated in the in­ves­ti­ga­tion and pro­vided En­vi­sion with a civil con­sent or­der for the amount of its loss: “This will place sig­nif­i­cant fi­nan­cial pres­sure on her and her hus­band, and will re­sult in their home be­ing mort­gaged. She is com­mit­ted to the re­pay­ment of the money that she took,” the judge said.

Let’s com­pare this case with two sim­i­lar cases:

• Paulette Thom­son was a Bank of Montreal branch man­ager in 1991 when she made her first fraud­u­lent loan. Over the next 10 years, she cre­ated 87 fic­ti­tious loans and em­bez­zled a net amount of $1.57 mil­lion. The bank re­cov­ered only $100,000.

In the spring of 2001, her scheme was dis­cov­ered. Af­ter ini­tial de­nials, she ad­mit­ted to the phony loans, co­op­er­ated with po­lice and bank of­fi­cials, and plead guilty.

An in­de­pen­dent psy­chi­a­trist con­cluded that Thom­son was suf­fer­ing from a ma­jor de­pres­sive or­der, chronic post­trau­matic stress dis­or­der and patho­log­i­cal gam­bling, but Van­cou­ver Pro­vin­cial Court Judge Cather­ine War­ren said her sit­u­a­tion was not unique.

“The ma­jor­ity of the in­di­vid­u­als who come be­fore this court have also ex­pe­ri­enced tragedy, in­clud­ing the loss of loved ones, se­ri­ous ill health, as well as ad­dic­tion to al­co­hol, drugs, gam­bling and some­times all of th­ese. ... Re­gret­tably, th­ese hard­ships seem to be part of the hu­man con­di­tion.”

She said there was no need for spe­cific de­ter­rence as Thom­son had al­ready lost her job, her as­sets and her for­mer good rep­u­ta­tion. She also said Thom­son had largely re­solved her un­der­ly­ing prob­lems and posed no risk to the com­mu­nity.

How­ever, she said, it was nec­es­sary to de­nounce her “ab­hor­rent breach of trust” and de­ter oth­ers “who are tempted to steal from their em­ploy­ers to solve their own fi­nan­cial prob­lems.” She sen­tenced Thom­son to three years in jail.

• Wade Ch­er­noff, a cer­ti­fied gen­eral ac­coun­tant, was work­ing as fi­nan­cial con­troller for Taiga For­est Prod­ucts in Septem­ber 2002 when he set up a pri­vate com­pany called SPF Lum­ber Ltd.

Dur­ing the next three years, he caused this com­pany to sub­mit 45 in­voices to Taiga for fic­ti­tious de­liv­er­ies of lum­ber. In to­tal, he em­bez­zled $981,979.

On sev­eral oc­ca­sions, an ac­count­ing clerk raised ques­tions about the SPF ac­count, but Ch­er­noff sloughed her off. It wasn’t un­til af­ter Ch­er­noff re­signed that the fraud was dis­cov­ered.

Ch­er­noff took full re­spon­si­bil­ity, plead guilty and re­paid all the em­bez­zled funds — plus in­ter­est and costs — a to­tal of $1,262,592.

New West­min­ster Pro­vin­cial Court Judge Deirdre Pothe­cary said four years would nor­mally be an ap­pro­pri­ate sen­tence, but in view of Ch­er­noff’s resti­tu­tion, three years would suf­fice.

Th­ese cases have much in com­mon with the Keat­ley case. All three de­fen­dants worked in po­si­tions of fi­nan­cial trust. All breached that trust by perpetrati­ng lengthy, com­plex and large frauds on their em­ploy­ers. None con­fessed un­til they were caught or on the verge of de­tec­tion. Once caught, all co­op­er­ated with au­thor­i­ties and en­tered early guilty pleas. All ap­peared gen­uinely con­trite.

So why did Thom­son and Ch­er­noff get three years in jail, and Keat­ley only house de­ten­tion?

In his de­ci­sion, Judge Hicks said let­ters sub­mit­ted by credit union em­ploy­ees on Keat­ley’s be­half re­ferred “to spe- cific acts of char­ity, kind­ness and gen­eros­ity. ... Each let­ter con­firms that this gen­er­ous spirit was at work re­lent­lessly do­ing pos­i­tive good in the work­place.”

“Th­ese let­ters ... pro­vide a more com­plete pic­ture of Ms. Keat­ley’s char­ac­ter and are rel­e­vant in as­sess­ing the weight to be given re­ha­bil­i­ta­tion as a rel­e­vant sen­tenc­ing prin­ci­ple in this case.”

Prob­lem is, the Crim­i­nal Code specif­i­cally states the court “shall not con­sider as mit­i­gat­ing cir­cum­stances the of­fender’s em­ploy­ment skills or sta­tus or rep­u­ta­tion in the com­mu­nity if those cir­cum­stances were rel­e­vant to and con­trib­uted to, or were used in the com­mis­sion of the of­fence.”

There is no doubt that Keat­ley used her sta­tus and rep­u­ta­tion to per­pe­trate her crime. The judge him­self noted that Keat­ley’s explanatio­ns for ir­reg­u­lar­i­ties that showed up “were ac­cepted, at least in part, be­cause she was a highly trusted em­ployee at En­vi­sion.”

Judge Hicks tries to ar­gue he is not us­ing Keat­ley’s prior rep­u­ta­tion as a mit­i­gat­ing fac­tor, but he makes far too fine a dis­tinc­tion for me to com­pre­hend.

I also think the judge over­stated his as­sess­ment of Keat­ley’s plans for resti­tu­tion. He said she had taken “sig­nif­i­cant steps to be­gin the process of resti­tu­tion. ... Whether or not it has occurred yet, it is ex­pected that her home will be mort­gaged to as­sist in the resti­tu­tion process.”

How­ever, there is no in­di­ca­tion how much eq­uity there is in the prop­erty, if any. If Keat­ley was se­ri­ous, she could have mort­gaged her home by now, but she hasn’t paid a cent. Con­trast this with Ch­er­noff, who re­paid ev­ery cent he em­bez­zled, plus in­ter­ests and costs, be­fore he was sen­tenced, and he still got three years in jail.

While I ap­pre­ci­ate that Judge Hicks is try­ing to put a hu­man face on this case, his de­ci­sion cre­ates a bad prece­dent and flies in the face of Par­lia­ment’s at­tempts to get tough on whitecol­lar crime.

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