Former State Street manager pleads guilty to overcharging NTMA unit

Guilty plea in Boston court to overcharging of six customers including NPRF

State Street bank in Dublin. The Boston-based group agreed earlier this year to pay more than $64 million to end inquiries into alleged overcharging.

State Street bank in Dublin. The Boston-based group agreed earlier this year to pay more than $64 million to end inquiries into alleged overcharging.

 

A former executive at State Street has agreed to plead guilty to being involved in the fraudulent overcharging of six customers including the National Pension Reserve Fund (NPRF) as it helped the Irish agency sell off €10 billion of assets during the financial crisis.

Edward Pennings, a former senior managing director with State Street in London, faces up to five years in prison and a fine of $250,000 after agreeing to plead guilty to conspiring to commit wire fraud and securities fraud, according a filing from the US justice department to federal court in Boston this week.

The trial of another former State Street executive, Ross McLellan, who was indicted alongside Mr Pennings in April last year, is set to go ahead in October. On Tuesday, prosecutors charged another one-time senior Europe-based executive with the group, Richard Boomgaardt, in a related case.

Secret charges

State Street was hired along with Nomura and Citigroup in 2010 and 2011 to help the NPRF, a unit of the National Treasury Management Agency (NTMA), to liquidate €10 billion of bonds, shares and other assets, which the Government had committed to doing as part of its troika international bailout programme. The NPRF was among six large clients affected by the secret State Street charges, which also include a Middle Eastern sovereign wealth fund and a retirement fund for British government employees.

Indictment documents filed last year in relation to the case said that in December 2010, as it emerged that the NPRF would have to sell billions of euro of assets under the Republic’s €67.5 billion rescue programme, Mr Pennings wrote to Mr McLennan saying: “Gotta win this one! Any ideas how to get more revenue would be appreciated.”

He allegedly suggested charging a 0.01 per cent management fee for selling the Irish State pension assets and then taking an additional commission, or what was termed a “spread”, arguing: “My tax dollars are, after all, paying for their reckless spending.”

Mr Pennings subsequently allegedly wrote to another State Street executive saying they “just need to be very, very creative” in applying hidden commissions in addition to a flat fee of 0.0165 per cent fee to the value of assets it was selling for the NPRF. These included, according to the documents, a charge of 0.02 per cent on each of the US equities trades it carried out for the NPRF “without the commission being broken out on reports sent to the client”.

“We deeply regret this matter and accept responsibility for the actions of our former employees,” a spokeswoman for State Street told The Irish Times on Wednesday.

“We’ve reimbursed the impacted clients, terminated responsible employees, appointed new executives to lead [the unit involved in the matter] and more broadly to enhance our compliance programme, culture, and operating environments.”

A spokesman for the NTMA declined to comment.

State Street paid the NTMA €852,000 in compensation in 2014 as a final settlement for the controversial overcharging of the NPRF, which subsequently transferred its remaining assets into a new agency, called the Ireland Strategic Investment Fund, in December 2014. The Boston-based group also agreed earlier this year to pay more than $64 million to the US department of justice and the securities and exchange commission to end inquiries on the matter.