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? Explan.

Explanation / Answer

Yes the bank would be liable because it is responsible to check the cheque and it's status before releasing funds. Normally in such cases the bank must refund. But it will have the chance to investigate and decide whether the case needs refund or not. As Alex is a part of the company , the case can be diverted towards him and he will be held responsible for the fraud.

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