aiCIO: Sources Say FBI, SEC and Post Office are Investigating ConvergEx, a BNY Mellon Affiliate

aiCIO cover story examines alleged indiscretions at major custodian banks

Feb 28, 2012, 10:22 ET from Asset International

NEW YORK, Feb. 28, 2012 /PRNewswire/ -- The cover story of the latest aiCIO explains why the FBI, SEC and Postal Service have reportedly focused their attention on the transition management practices of ConvergEx Group, an affiliate of leading global custodian BNY Mellon.

"Outside of public and corporate pension plans, few people know what transition management is," said Kip McDaniel, aiCIO editor in chief. "However, this little-known business has created an outsized stench in recent months and embarrassed some of the world's largest custodian banks."

He noted that State Street reimbursed at least one major pension fund recently because of transition management overcharges.

According to aiCIO, ConvergEx Group's Bermuda operation appears to have attracted the attention of investigators for similar indiscretions. A ConvergEx spokesperson told aiCIO that the firm terminated multiple employees in recent months "after learning that certain employees violated our code of conduct," including an individual described as central to the Bermuda operation.

Transition managers that claim to act as agents can legally charge a client a commission or a mark-up when helping pension plans liquidate one set of securities in order to shift to another. However, they are prohibited from charging both a commission and mark-up.

"ConvergEx claims that its compensation policies are fully disclosed to clients and no laws have been violated, but is increasingly apparent that pension plans are vulnerable to excess fees from custody banks and other providers of this service," McDaniel said.

In addition to transition management, some of the industry's largest custodians in the past several years have been cited for improper billing practices in regard to securities lending and foreign exchange trading. "In each of these instances, the unifying thread is that the custodian bank has more transaction data than the pension plan, which can place the client at a decided disadvantage," McDaniel observed.

He added, "The multiple occurrences of overcharging have given some of the leading global custodians a black eye, and may prompt regulatory bodies to consider widening the investigation."

About Asset International
Asset International is a privately-held provider of information and technology to global pension funds, asset managers, financial advisers, banking service providers, and other financial institutions in the private and public sector. Its industry-leading brands include Strategic Insight, SIMFUND, Plan For Life, PLANSPONSOR, PLANADVISER, aiCIO, Global Custodian, and The Trade. The company has offices in New York, Hong Kong, London, Melbourne and Stamford, CT.

SOURCE Asset International