Responding to allegations of fraud. You are the controller of Maple Ridge Finance Corp.

(MRFC). MRFC is an investment banking company that has recently encountered severe financial difficulties and has had to lay off more than 100 employees. The only bright spot in this picture is MRFC’s bond trading division, but you have just received the following anonymous letter:

Dear Sir, Last year’s reported earnings for the bond trading division are fictitious. The top three managers of the division recently received bonuses of more than $14 million, based on their share of last year’s reported earnings. The head of bond trading has been inventing bond trades that are supposed to be highly profitable. They are not. The division profits are like a house of cards about to collapse. The head of bond trading cares only about

“how much you reportedly made” and nothing about how you made it. The auditors don’t understand the complexity of today’s bond trading operations. This problem will blow up in your face unless handled quickly and carefully. I am sending a copy of this letter to the Ontario Securities Commission, the Financial Post, Canadian Business, The Globe and Mail, and all members of Maple Ridge’s board of directors.

Sincerely, Concerned Ex-employee INSTRUCTIONS Form groups of three or more students. One will be the chief financial officer, one the president, and one the chairperson of the board of directors. Other members are on the board of directors.

REQUIRED Develop a group consensus on how you should respond to this letter. Like many firms in the financial services industry, MRFC has no formal code of ethics. Should MRFC formalize a code of ethics statement?

LO1