Indictment filed against former pension fund manager
Bern, 27.07.2022 - Bern. The Office of the Attorney General of Switzerland (OAG) has filed an indictment against a former employee of the treasury of the canton of St. Gallen and of the pension fund of the canton of St. Gallen. The defendant has been charged with having brought about damage to the assets of his former employer and of the fund manager through managing pension fund assets unlawfully and in violation of his duties as well as with obtaining an unlawful advantage for himself.
The OAG has charged the former public official, a Swiss citizen, with multiple counts of misconduct in public office (Art. 314 Swiss Criminal Code), multiple counts of criminal mismanagement (Art. 158 (1) (1 and 3) Swiss Criminal Code), alternatively multiple violations of the Law on occupational pension schemes (Art. 76 al 6 + 7 LPP), one count of aggravated taking advantage of insider information as well as multiple counts of attempts of taking advantage of insider information (Art. 154 (1) (a) in conjunction with (2) Financial Market Infrastructure Act [FinMIA] / Art. 40 (1) (a) in conjunction with (2) Financial Institutions Act [FinIA][1]) and multiple counts of money laundering (Art. 305bis (1) Swiss Criminal Code).
Criminal charges
The criminal charges brought against the defendant can be summarized as follows: The defendant worked for the treasury of the canton of St. Gallen from 2003 to 2014, and for the pension fund of the canton of St. Gallen from 2014 to 2018. In both positions he acted as portfolio manager, managing 2nd pillar pension fund moneys of canton of St. Gallen employees, and implementing, on the basis of an established investment concept and existing investment guidelines and on his own authority, the investment strategy of the fund managed by him. His position allowed him to make decisions both about building or reducing stock positions at his sole discretion and without consulting with other departments, as well as about how the parameters of the transactions in question, such as their date and volume, were to be set.
According to the indictment, the defendant unlawfully and in violation of his duties coordinated his personal stock transactions with those he carried out in his position as a public official. To illustrate: Applying the practice of “front running” he opened personal stock positions a few days before or on the day that stock orders were placed for the funds managed by him. The funds' orders then caused stock prices to change, which in turn enabled the defendant in many cases to sell his personal positions at a profit. He followed this coordinated trading approach using the same stocks in each case with the intention of taking advantage of confidential information for his personal gain and hence achieving an unlawful pecuniary advantage.
Through hundreds of transactions relevant to the criminal charge, the defendant gleaned profits to the tune of CHF 3.116 million, which he would have had to disclose to both his former employer and the fund manager and which both his former employer and the fund manager would have been entitled to.
The money laundering charge results from the fact that by failing to declare the assets he had obtained unlawfully and in violation of his duties to the tax authorities as well as by making numerous cash withdrawals, the defendant has made it more difficult for the law enforcement agencies to confiscate, seize and collect these sums.
New form of cooperation between the Swiss federal government and the cantons
These criminal charges and the criminal proceedings date back to a charge filed by the Swiss Financial Market Supervisory Authority FINMA with the investigating authority of the canton of St. Gallen against the defendant in December 2017. Because it was the St. Gallen district attorney's aim to avoid giving the impression of any prior involvement, in January 2018, the case was handed over to the Office of Public Prosecutor III of the canton of Zurich (Staatsanwaltschaft lll des Kantons Zürich) specializing in white-collar crime, where two special public prosecutors were appointed to handle the criminal proceedings on behalf of the canton of St. Gallen. Criminal proceedings were formally opened in April 2018.
Over the course of the investigation it became evident that these criminal proceedings could result in a leading decision with regard to a question still in need of an answer both in legal theory and practice, namely, if and to what extent “front running” is to be deemed insider trading. Since the prosecution and assessment of insider trading is subject to mandatory federal jurisdiction, criminal proceedings were taken over by the OAG in April 2020. In order to streamline proceedings and to prevent any delays due to the considerable time expenditure associated with familiarization, the public prosecutors handling criminal proceedings were simultaneously appointed by the OAG as special federal attorneys. This allowed the officials in charge of currently handling criminal proceedings to continue to do so under federal jurisdiction. What it also means is that these proceedings represent a new form of coordination and cooperation with regard to criminal proceedings between the federal and cantonal law enforcement agencies.
Additional indictment information
In its indictment the OAG seeks a sentence of four years. The defendant is presumed innocent until issued with a final sentence. As the indictment has been filed, the Federal Criminal Court is now responsible for providing further information.
[1] a FinIA, FinMIA as of January 1st, 2016
Address for enquiries
Communications Service of the Office of the Attorney General of Switzerland, T +41 58 464 32 40, info@ba.admin.ch
Publisher
Office of the Attorney General of Switzerland
http://www.ba.admin.ch/
