(November 25, 2012) — “Fraud” and “internal collusion” were occurring within State Street’s transition management unit in London, according to John Corrigan—the man in charge of managing assets for Ireland’s national pension scheme.
Corrigan, the head of the National Treasury Management Agency (NTMA)—which manages investments for the National Pension Reserve Fund (NPRF)—told Ireland’s Committee of Public Accounts that State Street’s actions amounted to fraudulent acts—although he admitted that the bank would argue otherwise.
State Street had been hired by the NTMA to execute an asset transition in 2010. The fund later learned that the bank had overcharged for the transaction.
“What happened here was fraudulent in nature; we have communicated this view to State Street,” Corrigan told the committee, according to numerous media reports.
“What we are dealing with here is fraud. Fraud, for it to be successful, has to have internal collusion,” he added. He added that, as a result, three employees were no longer with State Street.
The incident has been reported to Ireland’s police force, according to the Irish Times.
FSA Investigating
Multiple sources tell aiCIO that the UK’s Financial Services Authority (FSA) is conducting an in-depth look at State Street’s transition management practices. The FSA can neither confirm nor deny that this is occurring, as per official policy.
“As previously discussed, this relates to a transition management matter that we self-reported to the FSA in September 2011,” a State Street spokesperson told aiCIO. “In a limited number of instances, we charged commissions on transition management mandates that were not consistent with our contractual agreements. As a result of our own internal analysis, we have determined that certain employees failed to comply with the high standards of conduct, communication and transparency that we expect. Those individuals are no longer with the company.”
Corrigan’s testimony before the Committee stemmed from an audit performed by Ireland’s Comptroller and Auditor General. According to the report, markups of an estimated €2.65 million—5.5 times the contractual fee—were applied to transition fees paid by the fund. This amount was fully reimbursed by State Street.
“In December 2010, the NTMA awarded…one transition contract…to London-based State Street Bank Europe Ltd (SSBE), for the disposal of assets for a management fee based on the value of the assets disposed,” the audit, released in late September, stated. “No other compensation, other than certain foreign exchange costs, was to be paid to SSBE.” After disposing of the assets—valued at €4.7 billion—the bank collected the contracted amount of €698,000. However, “[i]n October 2011, the NTMA became aware through media reports that two senior executives, one based in the United Kingdom and one based in the United States, had departed from the transition team of SSBE,” prompting the NTMA to ask State Street for more information.
“In response, on 12 October 2011, SSBE wrote to the NTMA explaining that it had reimbursed a UK client following the application of a commission that had not been expressly agreed with the client,” the report stated.
According to the audit, in November 2011 State Street informed the NTMA that “it had concluded that a commission for which there was no contractual agreement had been applied to the NPRF transactions in transition number 14.” In December, State Street reimbursed the client “€2.65 million which was SSBE’s estimate of the aggregate amount of the mark-ups applied.”
The NTMA is not the only European fund affected. It is known that State Street also overcharged both the Sainsbury’s and Royal Mail pension plans. The bank reimbursed both funds.
Corrigan is a member of aiCIO’s Power 100.