(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?
Pennings: Yes.
TP: It is a lie, isn’t it?
P: No.
TP: But it is not true, is it?
P: No.
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.
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Judge Housego identified several shortcomings in the dismissal and appeal, which meant Pennings could apply to the tribunal.
He criticised the bank’s decision to put two people – Rick LaCaille, global CIO of State Street Global Advisors, and Anthony Carey, COO for State Street Global Services in Europe, the Middle East and Africa – with no previous experience of HR matters at the head of both disciplinary procedures.
The judge also remarked: “Neither decision-maker could explain why they did not express astonishment about a fiduciary agent taking secret profit. They focussed instead on the narrow grounds of lying to a client and misleading of compliance.”
The judge detailed “elemental errors” against the bank’s HR procedures. He added that after the appeal, Carey, who was leading it, had several meetings with the bank’s lawyers Freshfields, which was uncommon.
“We have no doubt that Mr Carey was led to the conclusion that Mr Pennings should be dismissed. It is impossible to see why someone of his seniority with HR support would have needed about six meeting with a magic circle law firm to assist him in making his decision, unless there was some direction of him,” the judge said.
A spokesperson from State Street told aiCIO today: “We are pleased by the ruling of the employment tribunal. State Street has consistently maintained that the actions of Ed Pennings fell seriously short of the standards and conduct expected of any employee at State Street, and we have zero tolerance for this. We are committed to maintaining the highest standards of conduct. As a result of this issue we have strengthened our transition management business and enhanced our governance and controls.”
McLellan declined to comment when contacted today. Members of Pennings’ legal counsel were unable to respond today.