Lead Securities Regulator
British Columbia Securities Commission
Type of Misconduct Committed
Inadequate supervision of employee, permitting conduct abusive to the capital markets
Case Description
From 2013 to 2017, the Bank of Montreal (BMO) inadequately supervised an employee in Vancouver who enabled illegitimate transfers of securities by misusing a Medallion, leaving the securities transfer system vulnerable to abuse by company directors.
A Medallion stamp guarantees the signature on securities transfer forms, signaling to a securities transfer agent that a share transfer is authentic. During the time of the misconduct, directors of six venture companies asked the BMO employee to guarantee signatures on share certificates. The employee, who was authorized to use the Medallion, guaranteed signatures on approximately 100 security transfer forms for shares of those companies.
The BMO employee accepted assurances from company directors that signatures on the forms were authentic. He provided the guarantees, but did not do the following required steps:
- Verify the identities of the registered owners by meeting them in person, verifying their identification, and requiring them to sign in person
- Record the names of people whose signatures the employee guaranteed, the dates it was done, or the name of the issuer of the certificates
- Record or hold on to copies of documents the employee examined to prove validity of the guarantee
In a settlement agreement with the B.C. Securities Commission, the bank admitted that it failed to properly supervise the employee. In doing so, it permitted conduct that was abusive to the capital markets and contrary to the public interest. The BCSC formally reprimanded BMO.
Since 2017, BMO has improved its supervision policies and practices in respect to Medallions, and its public companies group no longer provides that service. The employee, who had worked with BMO for over 50 years, has since retired.
Penalties Issued
Formal reprimand
Key Takeaways for Investors
Securities regulators have the power to deter a broad array of misconduct:
The abusive behaviour outlined in this case does not meet the criteria for the specific types of misconduct outlined in the Securities Act, and regulators cannot impose financial sanctions in cases of public interest violations. But regulators can and will take action against anyone who acts contrary to the public interest while engaging in trading-related activities. They have the authority to deter future misconduct in other ways, including by issuing a formal reprimand.
Employers should carefully supervise employees in positions of trust:
Financial institutions that participate in the Securities Transfer Agents Medallion Program (STAMP) are trained and received a Medallion from a program administrator. BMO did not adequately supervise how its employee used the Medallion. This reprimand serves as a warning to institutions that it is their responsibility to ensure processes are adequately supervised to avoid abuse and risk.
Additional Information
For more information about the BMO settlement, visit the BCSC website.