5. Alex was employed by a brokerage company. He devised a scheme to defraud his

Question

5. Alex was employed by a brokerage company. He devised a scheme to defraud his employer by issuing fraudulent orders to sell customers' securities. When the brokerage firm issued a check to the customer whose stock had been sold, Alex would obtain the check, forge the customer's endorsement, and pocket the money. When the fraud was discovered, the brokerage company sought to recover its losses from the bank on whom the checks were drawn. Is the bank liable for honoring the checks on a forged endorsement? Explain.

Explanation / Answer

Here Alex is the person who make fraud in the organisation. He forged cheques on behalf of the firm and making money. It is the responsibility of the firm to detect the fraud and correct it. Bank is only responsible for paying when cheques received. Fraud is taken internally. The bank is only concern about correctness of signatures , authorisation and intimation when it is required.

Here bank is not responsible for the fraud taken place in the firm. So the firm can not sue the bank for fraud because it is just an intermediary. Alex can be sued against fraud.

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