Personal-Trading Probe Led to Firing of Two Scotiabank Analysts

(Bloomberg) -- Two brothers are taking Bank of Nova Scotia to court after they were terminated from their stock-analyst jobs in 2024, firings that ultimately led to the dismissal of three compliance employees as well, according to court documents and people with knowledge of the matter.

In a trial set for next year, the brothers Michael Doumet and George Doumet are fighting Scotiabank over allegations they breached the bank’s personal-trading policy. They claim in a lawsuit against the bank that they were unjustly dismissed and subject to “cavalier” treatment by the company.

The brothers’ departures were months in the making after a compliance-department review found Michael Doumet was frequently trading in one small-cap stock and in regular communication with that company’s chief financial officer, according to the court filings and a separate anonymous complaint sent to Scotiabank’s whistleblower program. A copy of the internal complaint, made to the company in January 2024, was seen by Bloomberg News. Both Doumets were fired over breaches of Scotiabank rules, including its personal-trading policy, the bank said in court filings.

Following the internal probe, which started in Scotiabank’s compliance department, the bank tapped law firm Torys LLP to conduct an investigation of its own, the court filings show. Within a week of the Doumets being fired, three senior compliance employees were also let go, according to four people with knowledge of the matter, who asked not to be identified discussing confidential information. The dismissals came after the compliance staffers failed to escalate the trading concerns, two of the people said. 

The dismissals and resulting litigation come as Canadian banks are under greater scrutiny for their compliance controls in the wake of Toronto-Dominion Bank’s historic US anti-money-laundering settlement. Scotiabank agreed to pay $127.4 million in 2020 to settle allegations by US authorities that officers in its compliance department failed to stop precious-metals traders from manipulating markets in a US gold-spoofing scandal. The bank is now planning to revive its shuttered metals-trading desk, Bloomberg reported last month.

Scotiabank declined to comment on the Doumets and other employees dismissed, citing the ongoing litigation in the matter, spokesperson Katie Raskina said. Michael and George Doumet didn’t respond to multiple requests for comment.

Swift Firings

Michael Doumet worked for Scotiabank for 13 years and covered industrial stocks out of the the company’s Montreal office, taking home about C$400,000 ($290,000) of total compensation in 2023, before he was terminated for cause in May of the following year, he said in application filed with the Superior Court of Quebec in Montreal. His brother George Doumet, who wrote research on Canadian consumer companies and earned about C$490,000, was let go the same day, he said in his own application.

The firings were swift, with the brothers called into separate five-minute meetings with their supervisor, Jeff Fan, head of equity research at Scotiabank, who had flown in from Toronto to hand them signed termination letters, according to a transcript of Fan’s deposition included in the case.

Michael Doumet covered waste-management company stocks for National Bank of Canada from last March until December, when he resigned from that role, according to a spokesperson for the bank. George Doumet is working at investor-relations firm LodeRock Advisors Inc., according to his LinkedIn profile. The two sued Scotiabank for wrongful dismissal in August 2024, seeking a combined C$1.65 million in severance pay and damages. The case is scheduled for a five-day trial starting in September 2027.

Personal Trades

The terminations have their roots in personal trades made by Michael Doumet, who was found to have communicated regularly with James Lorimer, CFO of Data Communications Management Corp., a small document-management company in Brampton, Ontario, according to the whistleblower complaint and a November 2024 deposition of Fan included in court filings.

According to email correspondence included with the whistleblower complaint, a routine compliance screening for stocks on a watch list indicated that Doumet made frequent trades of DCM shares. Further internal monitoring showed a large portion of his personal portfolio was in DCM stock and estimated Doumet made a profit of C$1 million on the shares over a one-year period through August 2023, according to the whistleblower complaint.

A search of the analyst’s emails surfaced exchanges between Doumet and Lorimer discussing accounting decisions made by DCM — in one case, Doumet asked for clarification about whether an earnings figure included certain lease adjustments, according to the whistleblower complaint. The analyst and CFO also swapped comments about how well Doumet was doing on his investments in DCM, and the two made lunch plans and arranged phone calls, according to emails included with the whistleblower complaint.

‘So Successful’

“You shouldn’t have sold last week,” Lorimer wrote Doumet in one email, adding a smiley-face emoji.

“Lol - you’ve made me so successful that I have to think about risk,” Doumet replied. “Old me wouldn’t have done that lol.”

On the same day, Doumet emailed Lorimer to compliment him, seemingly implying that he would soon become wealthy enough on his DCM investment that he could quit his job: “Nice quarter. A few more and I might be sending you this from email from gmail account.”

Lorimer didn’t respond to a request for comment. DCM spokesperson Paul Fitzhenry said in an emailed statement that “DCM is not a party to this litigation but we have concluded there was no material, nonpublic company information provided in any of our communications with the plaintiffs.”

Senior employees in the compliance department didn’t appear concerned about the communications and trading activity, which was flagged following routine monitoring. One compliance staffer suggested in an email that the conversation was normal “banter” and another wrote in an email that he reviewed the correspondence and concluded he wasn’t worried about the sharing of material nonpublic information.

While there may be concerns about how the conduct reflected on Scotiabank, the second compliance employee said in the email, they could be addressed by Jeff Fan, Doumet’s manager.

Scotiabank declined to comment on Fan’s behalf.

External Probe 

After the compliance department closed the matter in January 2024, the whistleblower complaint prompted Scotiabank’s internal legal department to start its own investigation, according to court filings. The bank later hired Torys to lead an external probe, the filings show. Fan, who had been contacted by the compliance department earlier in the year, was then interviewed by Scotiabank’s in-house lawyers as well as Torys partner Andrew Gray.

During the course of those reviews, it later came up that the brothers — who both got married after starting their jobs with the bank — had failed to register their wives’ trading accounts as related-party investment accounts, according to court filings.

The brothers both claim in their lawsuits — originally filed separately and combined by a judge in April — that when Scotiabank terminated them for cause, it provided no details as to the actual reason, leaving them to “to surmise that the cause relates to an inadvertent and unintentional failure” to register their wives’ investment accounts with the bank.

In a brief written defense to Michael Doumet’s claims, Scotiabank alleged he “was terminated for serious reasons,” including “serious breaches of his employment duties and policies of Defendant, including notably Defendant’s Personal Trading Policy.” The bank said it conducted “a thorough investigation” before terminating Doumet’s employment “in a proper and reasonable manner.”

Scotiabank used the same wording in response to George Doumet’s claims.

Fan, who was questioned by a lawyer for the Doumet brothers about his reasons for firing the brothers, cited their failure to promptly disclose their wives’ investment accounts as violating the bank’s trading policy. According to the transcript of Fan’s deposition, when asked about Michael Doumet, Fan said, “There were aspects related to DCM that violated the personal-trading policy as well.”

Fan didn’t consider any disciplinary actions short of termination, he said, “because the violations were serious.”

--With assistance from Chunzi Xu and Mathieu Dion.

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