The B.C. Securities Commission has settled to “reprimand” the Bank of Montreal for failing to adequately supervise an employee who conducted illegal stock transfers between 2013 and 2017.
“BMO’s inadequate supervision permitted the employee to engage in conduct that was contrary to the public interest because it facilitated illegitimate securities transfers and enabled market participants to hide the true state of share ownership for a number of publicly traded companies,” noted a settlement agreement with the big bank.
Public companies hire transfer agents to keep track of who owns its securities by way of the Securities Transfer Agents Medallion Program, which is a key anti-fraud measure in the capital markets regime.
In this case, the employee, at the request of various directors of publicly traded companies, used the BMO medallion to guarantee signatures on approximately 100 security transfer forms related to six small B.C.-registered public companies, without ensuring that the signatures he was guaranteeing were authentic, the agreement stated.
This left the transfer system at the bank “vulnerable” to abuse by company directors.
BMO operates its Public Companies Group from its Burrard Street headquarters in downtown Vancouver, but ended its medallion program in 2020, according to the settlement.
The commission determined the bank failed to adequately supervise the employee nor did it ensure the employee adhered to BMO’s internal procedures and other pre-determined criteria to determine the authenticity of each signature he guaranteed, the agreement stated.
The employee and his supervisors are said to be retired.
The reprimand is a form of administrative penalty that carries no fine with it.
No one was named in the settlement agreement.
Commission spokesperson Brian Kladko told Glacier Media the employee was not penalized because the commission’s mandate is deterrence of future behaviour and “the employee is no longer in a position to do any further harm because he has retired.”
“The conduct in question represented a supervisory failure on an organizational level. Our goal was to hold the institution accountable for that failure, not an individual,” stated Kladko.
When asked why it took five years between the last infraction and the settlement, Kladko said: "The fact that the evidence is from five years ago does not mean that we have had the evidence for five years. We often do not discover evidence of misconduct or wrongdoing until years after it occurs."
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