Bank AG received a temporary exemption that allows asset managers affiliated
with a South Korean subsidiary to continue serving retirement plans even if
employees at the subsidiary are convicted of stock market manipulation.
granted the nine-month prohibited transaction exemption because without it,
retirement plans and individual retirement accounts with assets managed by
qualified professional asset managers affiliated with Deutsche Securities Korea
Co. (DSK) “may incur substantial costs in being forced to liquidate and
reinvest their portfolios, and hire new investment managers on short notice,”
the department said in a notice issued Sept. 3.
conviction against DSK was expected on or about Sept. 3 in Seoul Central
District Court, South Korea. The company would be held liable for the alleged
spot- and futures-linked market price manipulation under Korea's criminal
vicarious liability provision, the DOL said when the exemption was proposed
spokesman said the department didn't know whether the employees had been
convicted Sept. 3.
allows the asset managers to continue relying on Prohibited Transaction
Exemption 84-14, which permits certain transactions between a party in interest
with respect to an employee benefit plan and an investment fund in which the
plan has an interest and which is managed by a qualified professional asset
manager, if the exemption's conditions are met.
DSK-affiliated asset managers will be able to rely on the temporary exemption
only if no individual involved with the alleged market manipulation activities
is employed by one of the asset managers, if they meet requirements under PTE
84-14 and several other conditions, the DOL said.
PTE 84-14 dates to 1984, it was most recently amended in 2010 to allow
financial institutions to act as qualified professional asset managers for
their own plans.
expressed rationale really is right on,” Andrew L. Oringer, a partner at
Dechert LLP in New York, said Sept. 3. “It would be of unclear benefit—and in
some ways least of all to the plans at the heart of these protections—to force
plan investors to consider terminating managers because of some legal violation
with incredibly attenuated connection to the manager. Putting aside for the
moment whether it would make any policy-based sense at all not to grant this
exemption in light of the connection between the conviction in question and
investment management, a failure to allow continued service would appear to
hurt the very plans that the system is trying to protect.”
clear whether the DOL is developing a broader policy regarding banks convicted
of financial misbehavior, but “it certainly feels like they're taking longer
than they used to” to make a decision, said James S. Henry, managing director
for the Sag Harbor Group, in Sag Harbor, N.Y.
According to a DOL official at a public hearing in January on Credit Suisse's application for a PTE, the DOL makes some of its decisions quietly, Henry said. And often, the DOL isn't required to make its decisions on the record, so “the whole process is kind of murky,” he said.
Excerpted from a story that ran in Pension & Benefits Daily (09/04/2015).
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