The Office of the Attorney General in Switzerland (OAG) has charged a former portfolio manager of the St Gallen Pensionskasse with insider trading, raising questions about governance and internal controls at Swiss pension funds.
The portfolio manager was indicted for coordinating his personal equity investments with orders placed for the funds he managed both at the St Gallen Pensionskasse and at the treasury of the canton of St Gallen, according to a statement by the attorney general.
The manager worked for the treasury of the canton of St Gallen from 2003 to 2014, and for the Pensionskasse from 2014 to 2018, investing pension fund’s assets. He risks four years in jail.
Under a system put in place over the years, according to the prosecutor, the manager profited from opening personal stock positions before or after orders were placed in the funds – an unlawful exercise called front-running – using confidential information.
The portfolio manager made personal profits of CHF3.12m (€3.2m) “through hundreds of transactions”, by exploiting changes in the prices of equities resulting from orders made for the funds he managed, the prosecutor said in a statement. The manager has also been charged with money laundering.
St Gallen Pensionskasse, which had assets worth CHF1.45bn at the end of 2021, declined to comment directly on the case or on how it was possible that a portfolio manager was able to set up an unlawful scheme that went undetected for years, saying that the investigation was ongoing.
However, a spokesperson for the pension fund said the subject of the proceeding was whether St Gallen Pensionskasse had suffered damage as a result of the criminal acts of the former employee.
The Pensionskassen has complied with control mechanisms prescribed by the legislator and by the law on occupational pensions (BVG), the spokesperson said, adding that the internal control system (IKS) ensures the implementation of mechanisms in accordance with the law and is checked annually by the auditors of the Pensionskasse.
The pension fund has, meanwhile, ended the employment relationship with the portfolio manager.
The Swiss Financial Market Supervisory Authority (FINMA) first filed charges for the case with the investigating authority of the canton of St Gallen against the portfolio manager in 2017.
The Office of Public Prosecutor III of the canton of Zurich (Staatsanwaltschaft lll des Kantons Zürich), which specialises in white-collar crimes, opened a formal investigation in April 2018.
The Office of the Attorney General took over the investigation in April 2020, after the classification of the alleged crime changed from front-running to insider trading, prosecuted under federal jurisdiction in Switzerland.
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