Investment manager not disqualified from acting as QPAM because of deferred prosecution agreements entered into by affiliate

In an advisory opinion, the Employee Benefits Security Administration (EBSA) has concluded that certain deferred prosecution agreements entered into by an investment manager’s affiliate did not constitute criminal convictions for purposes of Part I(g) of Prohibited Transaction (PT) Class Exemption 84-14, which would have disqualified the investment manager from acting as a qualified professional asset manager (QPAM) under PT Class Exemption 84-14.

PT Class Exemption 84-14

PT Class Exemption 84-14 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 QPAM, if certain conditions are met. Part I(g) of PT Class Exemption 84-14 contains a condition for QPAMs under which QPAMs and their affiliates should not “within the 10 years immediately preceding the transaction ha[ve] been either convicted or released from imprisonment, whichever is later, as a result of: Any felony involving abuse or misuse of such person’s employee benefit plan position or employment, or position or employment with a labor organization; any felony arising out of the conduct of the business of a broker, dealer, investment adviser, bank, insurance company or fiduciary; income tax evasion; any felony involving the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds or securities; conspiracy or attempt to commit any such crimes or a crime in which any of the foregoing crimes is an element; or any other crime described in section 411 of ERISA.”

Deferred prosecution agreements

An asset management company based in Edinburgh, Scotland, that managed funds for numerous institutional clients, including large pension plans located in the United States, had an affiliate, a retail bank located in the United Kingdom. In 2009, the affiliate entered into separate deferred prosecution agreements with the U.S. Department of Justice (the DOJ) and the District Attorney of the County of New York (the DANY). The deferred prosecution agreements resulted from investigations into the affiliate’s payment processing services and other activities by the DANY, the DOJ, and the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury. The factual statement accompanying both of the deferred prosecution agreements provided that, from the mid-1990s until January 2007, the affiliate systematically violated both New York State and U.S. federal law by falsifying outgoing United States Dollar payment messages that involved countries, banks, or persons listed as sanctioned parties by OFAC.

In 2011, a court dismissed a criminal information filed by the DOJ against the affiliate, following a motion by the DOJ. Later, by letter, the DANY confirmed that the terms of its deferred prosecution agreement with the affiliate were satisfied, the deferred prosecution agreement was terminated, and there was no New York State criminal conviction against the affiliate.

An opinion was sought from EBSA as to whether the investment manager was disqualified from acting as a QPAM pursuant to Part l(g) of PTE 84-14 because of the deferred prosecution agreements entered into by the affiliate.

QPAM not disqualified

EBSA noted that the only judicial action described in Part I(g) of PTE 84-14 is a criminal conviction. The party seeking the EBSA opinion believed that the deferred prosecution agreements did not constitute criminal convictions and supported this position with the following representations: under a deferred prosecution agreement, the government files a charging document with the court, but at the same time requests that the prosecution be deferred to allow the defendant company to demonstrate its good conduct. If the company successfully completes the term of the agreement (usually two or three years), the government will then move to dismiss the filed charges. A company’s successful completion of a deferred prosecution agreement is not treated as a criminal conviction.

Based on the representations, EBSA concluded that the deferred prosecution agreements did not constitute criminal convictions of the affiliate. Thus, EBSA agreed that the investment manager was not disqualified from acting as a QPAM pursuant to Part I(g) of PTE 84-14 solely because the affiliate entered into the deferred prosecution agreements.

Source: EBSA Advisory Opinion 2013-05A.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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