Ex-Employee Claims Overcharging Was “Accepted Business Practice” at State Street

A lawyer for Edward Pennings, formerly of the bank’s transition management unit, said his client was only following standard practices; State Street vigorously disputes the claim, labeling the dismissed employee a “liar.”

(November 27, 2012)—A lawyer for ex-State Street transition manager Edward Pennings has claimed in an East London Employment Tribunal that his client was following “accepted business practices” when overcharging occurred with multiple European pension clients.

Pennings, along with two others, were dismissed from State Street in 2011 when it was revealed that the Royal Mail pension plan was overcharged for a transition. The Sainsbury’s and Irish national pension plans were also overcharged, it was later revealed. State Street charged clients an undisclosed commission in addition to the agreed-upon management fee, an audit by the Irish government determined.

“This was an accepted business model, therefore [Pennings] had to defend the business model and the bank,” Jeffrey Bacon of law firm Littleton Chambers told the Tribunal. He added that Pennings was in “an impossible position” and that State Street’s refusal to look at the wider context of his actions was a mistake. “The wider context was crucial to this case,” he stated.

Bacon accused State Street of mishandling an internal investigation into Pennings’ conduct, asserting that the bank “took no steps to go to those people who were involved, including Ross McLellan, to ask them whether this was an approved business model.” McLellan was Pennings’ superior in Boston, and was also dismissed late last year.

State Street Responds

State Street, in the form of Executive Vice President Richard Lacaille, responded that Pennings was fired for “lying” to the client. Lacaille was the disciplinary manager overseeing the initial internal hearing regarding Pennings’ conduct in October 2011. That hearing led to Pennings being dismissed shortly after.

Pennings “had a business model that he believed he was basically required to lie to your clients,” Lacaille told the Tribunal. “I disagreed.” Lacaille also stated that he did not think Pennings’ business model “did exist as an authorized, legitimate business model” within State Street.

“However, it was the lies that were by far the most important issue,” Lacaille added. “I spoke to Ed Pennings during his disciplinary hearing and there was a very clear set of evidence that he lied to his client.”

Lacaille also mentioned that others seemed to know of Pennings actions. “Clearly, other people were involved because he [Pennings] was involved in correspondence with McLellan,” he said. “Ross McLellan was certainly knowledgeable about the business model.”

Yet fault still lies with Pennings, Lacaille said. “Whether or not the business model was approved, the dismissal was based on the fact that he lied,” he said. “I think the idea that he lied to [the client] and continued, in a way, to conceal it is just not acceptable.”

According to Lacaille, the investigation gave him a “liberal mandate and I could talk to anyone I needed to” within the bank. In response to Bacon’s assertions that the bank failed to look at the wider context, Lacaille asserted: “I wasn’t asked to judge whole swathes of the organization. I was asked to judge one person.”

When contacted for comment following the day’s hearing, a State Street representative gave the following statement to aiCIO: “Mr. Pennings’ actions fell seriously short of the standards and conduct expected of any employee at State Street and we have zero tolerance for this. We have addressed the issues directly with the clients that were impacted. We are disappointed that Mr. Pennings has been unable to take responsibility for his behavior and that he has chosen this current course of action.”

During the investigation, Pennings’ codename was “Parker.”

Much of the first day of the Tribunal was spent debating procedural motions and evidence presentation. It is expected to continue for the rest of the week.


Additional reporting from London by aiCIO Contributor Lucy Pawle.