A hearing panel of the Investment Industry Regulatory Organization of Canada (IIROC) accepted a settlement agreement imposing sanctions on MD Management Limited.
The firm admitted it did not have adequate internal controls to manage cheques made payable to clients after one of its registered representatives misappropriated approximately $775,000 by forging signatures on client cheques more than 160 times between 2006 and 2019.
IIROC formally initiated the investigation into MD Management’s conduct in December 2019.
“The inadequate controls prevented the respondent from identifying the fact that Joan McCarthy, a registered representative employed by the respondent at its St. John’s, Newfoundland and Labrador branch, was misappropriating approximately $775,000 by forging the signature on over 160 client cheques," the regulator writes in its settlement agreement with the firm. “Clients have been fully compensated by the respondent. Remedial measures have been implemented.”
McCarthy has been permanently barred from registration with any IIROC member in any capacity and was fined $1-million.
The settlement agreement states that between 2006 and 2019, policies and procedures were not adequately applied, allowing McCarthy to take personal possession of the client’s cheques after forging client signatures on the company’s cheque log. (She then forged signatures on the cheques themselves, before depositing them into her own personal bank account.) McCarthy obtained the cheques initially by submitting a requisition to the MD head office, directing the cheques drawn on client accounts to be sent directly to the St. John’s branch by internal mail.
In addition, there were no internal processes requiring that cheques sent out from the company’s head office be reconciled with logs filled out by branch staff. When a cheque reconciliation process was formally implemented in 2015, managers would ask branch staff to verify missing information but would not follow up further to ensure that discrepancies had in fact been verified by the branch staff.
Between 2014 and 2018, three separate internal examinations of the company’s Atlantic region branches identified similar or repeat findings related to the non-compliance of cheque logs and cheque reconciliation. Some of the findings related specifically to the St. John’s branch.
In addition to the $200,000 fine, MD Management agreed to pay IIROC’s costs in the amount of $25,000.