(October 17, 2013) – ConvergEx, once a major player in transition management, is deep into settlement negotiations with US regulators regarding its alleged overcharging of clients, according to the Financial Times.
The US Securities and Exchange Commission (SEC) and Department of Justice are preparing civil and criminal cases against the New York-based firm, the report said, citing unnamed sources.
A civil settlement may or may not include an admission of wrongdoing on the part of ConvergEx, which was a leading service provider to public pension funds and other institutional asset owners.
ConvergEx publically disclosed the investigations in December, 2011. A spokesperson for the firm had no comment on their status, but said in a statement that the firm continues to "cooperate fully with authorities" and is "hopeful that they will be concluded shortly so that we can put these legacy matters behind us."
aiCIO reported in July that the firm had closed its non-US transition management business. This came after JPMorgan began “winding down” its division in June, a spokesperson confirmed at the time. Likewise, Credit Suisse stopped bidding on American transitions in May in order to shutter its US operations.
ConvergEx is alleged to have presented itself as an agent—as opposed to a principal—in marketing its transition services.
However, as aiCIO reported in February, 2012, through a complicated structure that seemingly fractured its business units into different legal entities, ConvergEx as a whole was charging both a commission and a spread on transitions, among other transactions, when dealing with pension plans.
"These legacy matters center on certain high-touch global program trading and global transition management orders routed through the former Bermuda trading desk of CGM, a ConvergEx subsidiary, which was effectively shut down in late 2011," the firm's statement sent to aiCIO on October 16, 2013 said. "ConvergEx discontinued this activity almost two years ago."
The Bermuda division was set to be taken over by CVC Capital Partners in July 2011. However, the following December ConvergEx announced that the agreement had been terminated at least in part due to parallel investigations by the SEC and Department of Justice.
"Significantly, the investigations do not involve any of our US program and sales trading, options services, prime services, ATSs, commission management and recapture services, clearing, or technology businesses," the firm noted. "Nor do they involve orders executed through ConvergEx’s electronic direct market access platform. ConvergEx is in a strong financial position, with no debt, significant cash flow and substantial cash on hand.”
The SEC declined to comment on the situation, and the Department of Justice was closed due to the federal government shutdown.
Related Content:Reluctant Voices