Big Six bank employee guaranteed transfers while failing to verify or record key information and documents
The British Columbia Securities Commission (BCSC) has formally reprimanded the Bank of Montreal (BMO) for inadequately supervising an employee who facilitated the illegitimate transfer of securities.
BMO admitted in a settlement agreement that an employee at its Vancouver main branch was authorized to use an imprint stamping device called a medallion to guarantee signatures on securities transfer forms. From 2013 to 2017, the employee reportedly guaranteed signatures on around 100 security transfer forms for shares of six venture companies upon the request of those companies’ directors, who assured him that the signatures were authentic.
The employee, who worked at BMO for more than 50 years, guaranteed signatures on the forms, but failed to properly verify the registered owners’ identity by meeting them in person. He also did not record the names of the people whose signature he guaranteed, nor did he record or retain copies of the documents used to demonstrate the validity of the guarantee.
“The employee's conduct left the securities transfer system vulnerable to abuse by the company directors, who had issued the shares to nominees and wanted to transfer the shares back to themselves or others whenever it was convenient to do so,” the BCSC said.
In failing to adequately supervise the employee, BMO enabled him to conduct himself and perform activities that abused the capital markets and were contrary to the public interest, the regulator said.
The employee has retired from the bank, which since 2017 has improved its supervisory practices and policies with respect to Medallions. BMO’s Public Companies Group, which is where the employee worked within the Vancouver branch, no longer provides that service.
BMO also extended its full cooperation to the BCSC during the investigation.
"The BCSC will take action against anyone who acts contrary to the public interest while engaging in trading-related activities," Peter Brady, Executive Director of the BCSC, said in a statement. "Even if the abusive activity doesn't violate specific provisions of the Securities Act and we can't impose financial penalties, we will use the breadth of our power to deter future misconduct."