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FSA fines Scottish broker £335,204 for insurance fraud and bans his wife

The Financial Services Authority has fined Donald McKee Morgan, a partner in the Scottish firm of Donald Morgan Insurance Services, £335,204 for committing insurance fraud.

He has also been banned from carrying out any regulated financial services activity in the future.

Donald Morgan’s wife, Janet Morgan, who was the only other partner at DMIS, has also been publicly censured and banned from carrying out regulated financial services. Janet Morgan took no active part in the affairs of the firm, and failed to notice her partner’s fraudulent activity.

An FSA investigation found that, in an attempt to support the firm’s finances, Donald Morgan deliberately kept insurance premium payments from a number of DMIS’s clients which should have been paid to a broker network.

In order to conceal his fraudulent conduct from the broker network, Donald Morgan falsified monthly reports and manipulated the computer systems at DMIS. Donald Morgan then used the premium monies to pay staff salaries and to fund his lifestyle.

Donald Morgan informed the FSA of his misconduct in August 2010 after realising the financial situation at DMIS was not going to improve and he was not going to be able to repay the money he had misappropriated. He cooperated fully with the FSA throughout its investigation.

The financial penalty consists of a punitive element of £112,700 and £222,504 for disgorgement of financial benefit.

Donald Morgan agreed to settle at an early stage of the FSA’s investigation and therefore qualified for a 30% discount. Were it not for the discount, the punitive element of the penalty would have been £161,000 and the total fine £383,504.

Tom Spender, head of retail enforcement at the FSA, says: “Donald Morgan abused his position as an approved person and also abused the trust placed in him by his clients and business partners. Fortunately, his clients were never left uninsured, but his actions were unacceptable and the Network suffered significant financial loss as a result.

“Insurance brokers must adhere to our rules, ensure customers are treated fairly and trust in the industry is maintained. But Donald Morgan’s actions left much to be desired and that is why he has incurred a significant fine.”

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  • HW 14th May 2012 at 11:41 am

    I loved the comment by Tom Spencer (FSA) “and the Network suffered significant financial loss as a result.”

    What about the thousands and thousands of pounds of procuration fees lost by brokers/advisers when networkds have crashed? FSA – the silence is deafening.

  • Glen McKeown 13th May 2012 at 6:40 pm

    I think a little more attention should be paid to the fact that the wife was innocent of any wrong doing and still gets banned, presumably because she was a co-partner. If she took no active part in the firm, it is hardly a surprise that she failed to notice the fraud, so a ban appears to be gratuitous.
    Do all partners know completely what their other partners are doing at all times? If not they obviously should, which raises the question of the cost of administering the partnership in such a way that this knowledge is always available and seen. Regulation never comes cheap, but is the process cost effective?
    And what type of computer system exists in that “broker network” that allows such a level of fraud? If the co-partner has been disciplined, why is there no report of the “broker network” also being disciplined? They didn’t even know about the fraud until it was admitted, so how can the public have much confidence in those systems. And they cannot plead ignorance.
    Fraud will always occur, which is why systems should be as tamper free as possible. And why the eventual judgement should appear to tackle all the miscreants, but only the miscreants. One does get the impression that the FSA get a little excited by such cases and are a little too happy to lash out indiscriminately. Hardly professional.

  • Jim 11th May 2012 at 5:16 pm

    So what happens if he doesnt have that amount of money to pay the fine. How would it be enforceable?

  • Anon 11th May 2012 at 5:13 pm

    What would happen if he doesnt (and I highly doubt he does) have that sort of cash?

    How is it enforcable?

  • We're all doomed!! 11th May 2012 at 3:44 pm

    Who says he has £335k, Sam? That’s the amount he has been fined – doesn’t mean he has that kind of cash, does it!

  • Sarah 11th May 2012 at 12:32 pm

    This gives honest brokers a bad reputation, he is lucky he didnt go to prison, how on earth did he expect to get away with it.

  • Sam Jones 11th May 2012 at 11:59 am

    I don’t get it, he has £335K to pay a fine, but not enough money to repay the misappropriated funds, or staff salaries etc?