(February 22, 2013) -- A former top executive in State Street's transition management team repeatedly lied to clients, a judge at a London Employment Tribunal has concluded.
Ed Pennings, formerly head of the unit in Europe, Middle East, and Africa at the bank, was guilty of gross misconduct, which led to his dismissal from the bank in 2011 Judge Housego said today.
However, failings within the bank's HR processes, against which Pennings brought the tribunal in November, meant State Street dismissed Pennings unfairly, the judge said in a reserved judgement published today.
As a result, State Street was not bound to reinstate Pennings or award him compensation, the judgement stated.
"Our considered judgement is that the claimant's [Pennings] actions were entirely responsible for his dismissal, which was a conduct dismissal, and given that the conduct relates to the integrity within a trading environment where he owed a fiduciary duty to his client, which he breached, was gross misconduct," the judgement said.
Much of the case, heard in November, centred on a transition carried out for the Royal Mail Pension Fund (RMPF). The investment manager at the fund discovered excess charges had been taken by State Street, but rather than admitting this was the case, Pennings denied what he knew to be true, the judge said.
"Mr Pennings told us that he was caught in a paradox whereby the obligation of confidentiality meant that he could not tell the client the truth. This is nonsense," the judgement states.
Pennings said at the tribunal that the meaning of the word "inadvertent", which was used by his boss Ross McLellan to describe commissions earned on these transactions when admitting the amount to the client, eluded him, as he was of Dutch birth rite.
The judge's report today said this was term clearly meant to deceive the client and that he and the tribunal panel "simply do not believe him".
The report continued: "He is an intelligent man, well used to the use of words. We heard him give evidence for a whole day. His English is full, with a wide vocabulary, impeccable grammar and minimal accent. He has lived his working life in English for many years. He was well versed enough in English to deconstruct the text of the contract between the bank and the RMPF. It was deceptive language and that was why it was so written to attempt to conceal that it had always been intended to take a secret profit and instead imply that an erroneous processing of a legitimate order have accidentally resulted in a mark-up that was being refunded (precisely because the bank was not entitled to it.)"
The judgement then paraphrased a series of questions and answers at the tribunal:
"Tribunal Panel: You told Mr McKnight [RMPF] that you had made only £227,500 and some £400k as the only income from the transaction, didn't you?
TP: It is a lie, isn't it?
TP: But it is not true, is it?
TP: So why isn't it a lie?
P: Because I didn't think I had to tell the truth.
This is a truly astonishing moral precept."
Pennings admitted that "the man on the street" would not look favourably on his actions but he believed it is what the client signed up to within their contract.
The judge said Mr Pennings failed to show that he was acting within the culture of the bank and that he was dismissed for "normal" behaviour.
"Mr Pennings asserts that what he did was entirely proper," the report concludes, "whereas we have found great difficulty in distinguishing it from embezzlement."
However, State Street's continued failure to follow correct HR proceedings meant the judge had to state that Pennings had been unfairly dismissed.