Personal-Trading Probe Led to Firing of Two Scotiabank Analysts

(Bloomberg) — Two brothers are suing the Bank of Nova Scotia after they were laid off from their stock analyst jobs in 2024, according to court documents and people with knowledge of the matter. These layoffs ultimately led to the termination of three compliance employees.

At a hearing next year, brothers Michael Doumet and George Doumet are taking on Scotiabank over allegations they violated the bank’s personal trading policy. In the lawsuit filed against the bank, they claim they were unfairly dismissed and subjected to “celebratory” treatment by the company.

It took months for the brothers to separate after a compliance department review found that Michael Doumet frequently traded small-cap stocks and was in regular contact with the company’s chief financial officer, according to court records and a separate anonymous complaint filed with Scotiabank’s whistleblower program. A copy of the internal complaint filed with the company in January 2024 was seen by Bloomberg News. Both Doumets were fired for violations of Scotiabank rules, including its personal trading policy, the bank said in court filings.

Following an internal investigation at Scotiabank’s compliance department, the bank appointed law firm Torys LLP to conduct its own investigation, according to court filings. Within a week of Doumets’ firing, 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 layoffs came after compliance staff failed to escalate business concerns, two of the sources said.

The layoffs and resulting lawsuits come at a time when Canadian banks are under increased scrutiny for their compliance controls following Toronto-Dominion Bank’s historic anti-money laundering settlement in the United States. Scotiabank agreed to pay $127.4 million in 2020 to resolve allegations by U.S. officials that officials in its compliance department failed to prevent precious metals traders from manipulating markets in the U.S. gold fraud scandal. The bank now plans to revive its shuttered metals trading desk, Bloomberg reported last month.

Scotiabank declined to comment on Doumets and other terminated employees, citing ongoing litigation over the matter, Katie Raskina, a spokeswoman for Scotiabank, said. Michael and George Doumet did not respond to multiple requests for comment.

Michael Doumet said in his application to the Quebec Superior Court in Montreal that he worked for Scotiabank for 13 years, covering industrial inventories at the company’s Montreal office, and received total compensation of approximately C$400,000 ($290,000) in 2023 before being terminated for cause in May of the following year. In his own filing, he said his brother, George Doumet, who wrote research on Canadian consumer companies and earned about C$490,000, was also laid off the same day.

The brothers were called into separate five-minute meetings with Jeff Fan, head of equity research at Scotiabank, who traveled from Toronto to give them signed termination letters, according to a transcript of Fan’s deposition included in the lawsuit.

Michael Doumet monitored National Bank of Canada’s waste management company stock from last March until December and has since resigned from that position, according to a spokesman for the bank. George Doumet works at investor relations firm LodeRock Advisors Inc., according to his LinkedIn profile. The duo filed a lawsuit against Scotiabank for unfair dismissal in August 2024, demanding a total of 1.65 million Canadian dollars in severance pay and compensation. A five-day trial of the case is scheduled to begin in September 2027.

According to the whistleblower complaint and Fan’s testimony in court filings in November 2024, the terminations were rooted in personal dealings by Michael Doumet, who was found to be regularly communicating with James Lorimer, CFO of Data Communications Management Corp., a small document management company in Brampton, Ontario.

Routine compliance screening for stocks on the watch list showed Doumet frequently traded DCM shares, according to email correspondence included in the whistleblower complaint. Further internal monitoring showed that the bulk of his personal portfolio was in DCM shares, and Doumet was estimated to have made a C$1 million profit on the shares in the one-year period through August 2023, according to the whistleblower complaint.

Examination of the analyst’s emails revealed that accounting decisions made by DCM were discussed between Doumet and Lorimer. In one case, Doumet sought clarification on whether the earnings figure included certain rent adjustments, according to the whistleblower complaint. The analyst and the CFO also shared comments about how well Doumet was performing on its investments in DCM, and the two made lunch plans and phone calls, according to emails attached to the whistleblower complaint.

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

“Hahaha, you made me so successful that I have to think about the risk,” Doumet replied. “The old me wouldn’t have done that hahaha.”

That same day, Doumet emailed Lorimer to compliment him, seemingly implying that he would soon be rich enough to quit his job thanks to the DCM investment: “Another good quarter. A few more and I can email it to you in your gmail account.”

Lorimer did not respond to a request for comment. “DCM is not a party to this lawsuit, but we have concluded that material, non-public company information was not presented in any of our communications with the plaintiffs,” DCM spokesman Paul Fitzhenry said in an emailed statement.

Senior employees in the compliance department did not seem concerned about the communication and trading activity, which was flagged following routine monitoring. One compliance employee suggested in an email that the conversation was a normal “joke,” while another wrote in an email that he reviewed the correspondence and concluded he was not concerned about sharing material nonpublic information.

The second compliance worker said that while there were concerns in the email about how the behavior would reflect on Scotiabank, those concerns could be addressed by Doumet’s manager, Jeff Fan.

Scotiabank declined to comment on Fan’s behalf.

After the compliance department closed the matter in January 2024, the whistleblower complaint led Scotiabank’s internal legal department to launch its own investigation, court records show. The bank then hired Torys to lead an external investigation, according to the filing. Contacted by the compliance department earlier in the year, Fan was later interviewed by Scotiabank’s in-house lawyers as well as Torys partner Andrew Gray.

During those investigations, it was revealed that the brothers, who married after both started working at the bank, did not register their spouses’ business accounts as related-party investment accounts, according to court filings.

In their lawsuits, initially filed separately and joined by a judge in April, the brothers allege that when Scotiabank terminated them for cause, it provided no details as to the actual reason, leading them to “assume that the case was about an inadvertent and inadvertent failure” to register their spouses’ investment accounts with the bank.

In a brief written defense of Michael Doumet’s allegations, Scotiabank claimed that he was “terminated for serious reasons”; this includes “serious violations of the Respondent’s employment duties and the Respondent’s policies, including specifically the Respondent’s Personal Trading Policy.” The bank said it conducted a “thorough investigation” before Doumet was terminated “in an appropriate and reasonable manner.”

Scotiabank used the same statement in response to George Doumet’s allegations.

Questioned by a lawyer for the Doumet brothers about their reasons for firing the brothers, Fan stated that their failure to promptly disclose their wives’ investment accounts violated the bank’s business policy. According to Fan’s transcript, when asked about Michael Doumet, Fan said, “There were also aspects of DCM that violated the personal trading policy.”

Fan said he was not considering any disciplinary action other than dismissal “due to the serious nature of the violations.”

–With help from Chunzi Xu and Mathieu Dion.

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