Darren Naish summarizes the available research, and includes the wonderful speculative sketch of the beast below:
Loren Coleman, he is modern Cryptozoology's best friend--a real paleontologist who has stooped to take an interest in the unidentified animals that swim in our oceans and roam our forests. For instance, he has argued that the existence of "sea monsters" is really quite likely, if this term is interpreted to mean some hitherto unknown species of long-necked pinniped. He has even pointed out that descriptions of such an animal exist in the scientific literature from several centuries ago ( Parsons: A dissertation upon the Class of the Phocae Marinae):
1968 report by one to the effect that he had captured (and then released) a baby cadborosaur. Darren thinks he has I.D.ed the baby Caddy, and is publishing paper on the topic entitled ‘A baby sea-serpent no more: reinterpreting Hagelund’s juvenile “cadborosaur” report’. Alas! I fear he is right. You can read the whole argument through the link, but the picture below kind of sums it up:
A bay pipefish? Its kind of like a sea-horse. Now, it doesn't explain the adult Caddy, though a few have argued for the existance of some unknown species of gigantic pipefish as being the best explanation, generically speaking, for a number of sea serpents report. But it does seem a good explanation of this particular incident.