State Street Settles Final Transition Management Appeal

(March 21, 2013) — State Street has settled its final claim for wrongful dismissal brought by one of the team involved in the overcharging affair that hit its transition management unit two years ago.

The bank confirmed to aiCIO that it had settled with Rick Boomgaardt, who worked on the European team until the autumn of 2011. By doing so, the bank has avoided heading to an employment tribunal that had been scheduled to take place in London next week.

Terms of the settlement have not been revealed.

The action comes less than a month after a judge at the East London Employment Tribunal returned a reserved judgement on a claim for unfair dismissal brought by Boomgaardt’s boss Ed Pennings. He had claimed that his superiors had full knowledge of mark-ups that were being applied to client’s accounts. State Street strenuously denied this was the case.

The head of the unit, Ross McLellan, also left the bank around the same time but unlike Pennings he departed with a severance package and confidentiality agreement.

The judge concluded that State Street had dismissed Pennings unfairly, but only due to failings in the process carried out by the human resources department. He said that Pennings’ conduct had warranted dismissal but the bank’s actions during the process had complicated the affair. The tribunal did not award Pennings any damages.

The settlement with Boomgaardt may bring to a close some 18 months of exposure for the bank, which dug up the intricacies of the business policies of the transition management unit. However, it is widely believed that the UK’s Financial Services Authority is due to publish an investigation into the affair and transition management practices more widely. The authority has denied to comment on the issue.

Several high-profile investors, including the Kuwait Investment Authority and the UK’s Royal Mail Pension Fund, were overcharged by the unit. The affair caused the CEO of Ireland’s National Treasury Management Agency (NTMA) to claim “fraud” and “internal collusion” were occurring within State Street’s transition management unit in London. A report to Ireland’s Comptroller and Auditor General revealed mark-ups of an estimated €2.65 million-5.5 times the contractual fee- were made at the expense of NTMA.

After the round of dismissals, State Street began to rebuild its transition management unit. In January last year, aiCIO revealed the bank had hired John Minderides, who had led JP Morgan’s transition management business. The entire sector in which the transition management unit sat saw sweeping executive changes.

A statement from State Street said: “We can confirm that State Street and Rick Boomgaardt have mutually agreed settlement terms in respect of an Employment Tribunal claim. The terms of the settlement are confidential to the parties.  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.”

Boomgaardt had not returned requests for comment at the time of going to press.

Related content: Reluctant Voices – aiCIO‘s first full investigation into the affair.