Oversight failures allowed fraud to flourish: IIROC

After banning a former representative and fining her $1 million for exploiting elderly clients, the Investment Industry Regulatory Organization of Canada (IIROC) has sanctioned her former firm, MD Management Ltd., for supervisory failures.

In a settlement with the self-regulatory organization (SRO), MD Management admitted it didn’t have adequate internal controls over the security of cheques payable to its clients.

The admission followed an earlier enforcement case against a former MD Management rep, Joan McCarthy, in St. John’s who was permanently banned, fined $1 million and ordered to pay over $100,000 in costs after an IIROC hearing panel found that, between 2006 and 2019, McCarthy misappropriated “approximately $775,000 from the accounts of six elderly clients by forging their signatures on over 160 cheques.”

According to the settlement, the firm’s “failure to have adequate internal controls” involving oversight of client cheques “resulted in a failure to promptly detect the fraudulent activity of McCarthy.”

Among other things, the SRO found that the firm didn’t properly enforce its own policies, which required clients to pick up cheques in person with photo identification, and it didn’t reconcile cheques issued by its head office with the branch logs.

The harmed clients have been “fully compensated” by the firm, the settlement noted. And it said the firm has adopted controls to prevent similar violations in the future.

Under the settlement, the firm also agreed to pay a $200,000 fine and $25,000 in costs.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.