The accountant took the money!

This fraud case involved the planned bankruptcy of Brittany Antiques, which was in the furniture business.

These cases are difficult, as one needs to prove that failure was not due to an inexperienced businessman but rather a guilty mind. The concept of “mens rea” is well suited to financial evidence through the effective documentation of patterns of business conduct, which are inconsistent with the normal course of business. It allows prosecution to assert that at a certain point in time, the accused knew or ought to have known that his course of conduct was fraudulent. This approach was the critical reason for the precedent established in the Scheel case, since it was the accounting schedules, which clearly presented the basis for counsel to argue for “mens rea” after a certain point in time.

An interesting deception occurred in March 1975 when Rosen advertised for an accountant. A real person by the name of John Geslak called and sent his resume. That was the last he heard about a job. However, in all cash transactions, it was John Geslak’s name that received the money.

Then in May 1975, Rosen wrote to his suppliers saying “Our accountant, John Geslak, has absconded with all deposits placing our firm in a terrible position.”

Rosen filed for bankruptcy, but when the police interviewed the real Geslak, he of course knew nothing. It was later determined that a man named Bill Brady from Boston had been forging Geslak’s name and had taken all the cash.

Trial proceeded without him, I gave the expert evidence and both accused received 4-year jail terms. Three years later, Bill Brady was found on a beach near Boston, enjoying the sun. He returned voluntarily and received one year. For me, this was another good lesson is using accounting information to address the issue of “mens rea”.

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School over-billed; documents destroyed by arson

As President, Kotowski operated the Central Fuel Oil Company, which delivered fuel oil to the local high school. For three years he over-billed the school by shutting off the delivery pipe while letting the meter run. Then, before the documents could be seized, the premises of the company were destroyed by arson.

While record reconstruction is a challenge, access to third parties usually produces the required relevant documents. That is why I have never been too concerned when people fear document destruction. In this case, an engineer was retained to determine how much fuel oil the school would burn had all the windows been open during the middle of winter. His findings then made the accounting report meaningful. In short, the annual billings for fuel oil consistently exceeded the engineer’s conservative “open during the middle of winter” approach.

In a jury trial, with a gray haired and grumbling defense counsel and with me as the last Crown witness, I presented my findings through the use of colored charts with over-lays for each year to present a contrasting and colorful picture of over-billing. Of course I had to agree with defense counsel that my findings would be wrong if the engineering expert was wrong.

Over the years, I have had the opportunity to attend the execution of many search warrants. These experiences taught me to quickly identify relevant documents from both the prosecution and defense perspectives, especially after the “grab all” approach was defeated.

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Diversion of loan proceeds

This was my first construction fraud case, one in which loan proceeds were applied for improper purposes.

I gave evidence for the Crown as its last witness outlining the use of the construction loan proceeds and again was permitted to sit with Crown counsel during the trial, which was conducted by Judge Hugh Locke without a jury.

What made this experience unique was the presentation to me of a document by defense counsel, which was later established to be fraudulent — but at the time it drew my admission that I had not seen it before…and therefore must have missed it and therefore my findings were wrong.

It was tough to make that statement when I knew something was amiss! From a precedent point of view, Rosen’s conviction was the first in Canada for criminal breach of trust in the diversion of building-mortgage funds.

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Deposits yes; skids no

In a jury trial in November 1976, Judge Couture ruled in favor of the admissibility of accounting schedules, “having heard,” as he stated, “the testimony of Mr. Lindquist.”

The ruling was appealed and in May 1978 the Supreme Court of Ontario, Court of Appeal set the precedent as to the admissibility of accounting schedules stating that the “learned trial judge did not err.”

Their ruling included reference to the two unreported judgments noted earlier, Parks and Waddilove & Steele. This case also made me appreciate that there is no simple fraud case when matters of principle arise. This case also gave me further experience with a “voir dire.” I appreciated the practice round with Crown Counsel (the late Honourable Justice) Archie Campbell before the second presentation to the jury.

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