Large Custody Bank to Pay $32 Million for Undisclosed Transition Management Compensation
A large custody bank agreed to pay $32.3 Million to settle allegations that it charged undisclosed commissions and mark-ups as part of its transition management services to large plans and sovereign wealth funds. According to the SEC, the respondent’s scheme involved bidding for transition management projects with artificially low commission schedules and then charging undisclosed mark-ups and concealing those mark-ups when reporting to clients. The SEC’s investigation included emails and recorded conversations where internal employees (i) referred to such concealed mark-ups as a “rounding error,” (ii) committed to “make it work” internally when forced to bid at low commission rates, (iii) bragged that they would “back the truck up” when describing the undisclosed commissions, and (iv) vowed that “This can of works stays closed” when discussing their scheme. A client’s consultant ultimately discovered the undisclosed commissions.
OUR TAKE: You do know that your emails are retained and your conversations are recorded? Right? The bad old ways of hoping you won’t get caught just have no place in the modern regulatory world where compliance officers, clients (and their consultants), and regulators all review sales activity and disclosure.