State Street Corp. received some bad news from the U.S. Securities and Exchange Commission, receiving a Wells notice regarding its solicitation of business in the public pension plan domain.
State Street: Wells notice investigation said to center on use of lobbyists
The SEC is investigating how State Street used lobbyists and consultants to influence the decision making process, a growing focus of SEC enforcement actions. Federal rules prohibit an asset manager from contributing to a political campaign where the official has authority over pension assets the firm manages.
“Since 2012, we’ve eliminated the hiring of lobbyists and consultants for our asset servicing dealings with U.S. public retirement plans in support of our sales efforts,” Anne McNally, a State Street spokeswoman, said in a Bloomberg interview. The report noted that in May of 2014 the SEC subpoenaed State Street records from the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio. The inquiry is related to a 2010 request for proposals that led to State Street gathering $32 billion in assets from three Ohio pension funds.
A request by the SEC to see all documents and communications surrounding Amer Ahmad, a former Ohio deputy treasurer who pleaded guilty to separate bribery and money laundering and is currently a fugitive, having fled to Pakistan through Mexico in April. He is reported to be in Pakistani custody but it is unclear if they will extradite him. Ahmad, a Harvard University graduate, landed in Chicago working as the city comptroller after his stint in Ohio and just before his exit from the country.
Receiving a Wells notice results in charges in 80 percent of cases
Receiving a Wells notice is not a guarantee of action, but indicates a high degree of criminal suspicion. A Wall Street Journal report notes that nearly 80 percent of those who receive Wells notices are charged. Earlier in June State Street was ordered by regulators to revamp its compliance programs after issues were uncovered related to internal controls, customer due-diligence and transaction monitoring.
State Street provides custody bank services to professional investors on $28.5 trillion assets, managing records and tracking portfolio performance. The firm directly manages $2.42 trillion in assets. In a quarterly filing last November, the firm declared unfavorable outcomes from the investigation could cause “a material adverse effect on our business and reputation” an article in Chief Investment Officer noted.
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