EINDHOVEN, The Netherlands - Dutch investigators arrested Fred Hendriks, director of investments for Philips Pensioenfonds, last week on suspicion of tax fraud and forgery.
His arrest is part of an evolving trading scandal centering on four Dutch brokerage firms as well as a London broker and a Swiss-controlled money manager. Investigations are spreading to other firms in Holland, and the fall-out could have widespread implications for the Dutch pension community.
Although a Philips NV spokesman said the allegations involve Mr. Hendriks' personal finances, and not the pension fund, the arrest has shocked the staid Dutch pension fund community.
Popular perceptions of personal corruption among pension executives could lead to sweeping changes in investment practices, including greater outsourcing of investment management and tougher scrutiny of industry practices.
At the very least, Mr. Hendriks' arrest seems certain to kill the Philips fund's efforts to market its money management expertise to other Dutch pension funds.
Mr. Hendriks, second in command of the 27 billion guilder ($13.9 billion) Philips pension fund in Eindhoven, was arrested Nov. 4.
His arrest is the latest development in a broader scandal involving charges of fraud, tax evasion, insider trading and money laundering dating to 1985.
Two weeks ago, about 200 investigators raided four brokerage firms in the Netherlands as well as the Amsterdam Stock Exchange. Raids also were conducted in London and Curacao, a Dutch Caribbean island. So far, six individuals have been arrested, but formal charges have not yet been made.
Investigations center on Leemhuis & Van Loon, a fast-growing independent Dutch brokerage house; Dutch broker Strating & Co.; Financial Trading and Consultancy, a London-based broker; and ESC Effectenbank, a Swiss-controlled money manager. Rotterdam-based Robeco Group owns a stake in ESC's Dutch Antilles-based holding company.
One of those arrested was Han Vermeulen, who had been managing director of Leemhuis & Van Loon. He previously had headed Van Meer James Capel, until he was dismissed in 1993 after racking up losses on accounts managed for ESC. James Capel's London offices were raided by investigators.
Sources believe the scandal will spread to other major Dutch pension funds. They said pension officials might be investigated for front-running and receiving kickbacks for steering brokerage through certain firms.
News reports have said investigators are looking at individuals who work or worked for the Dutch pension funds of Anglo-Dutch giants Royal Dutch Petroleum Co. and Unilever NV, and C&A, the London-based clothing-store chain.
Ton Gordijn, a spokesman for Unilever, Rotterdam, said: "As far as we know, no investigation has been done toward our pension fund."
Hank Bonder, a Royal Dutch spokesman, said the press reports are mere speculation, and the fund has nothing to hide.
A C&A spokesman in London said a former investment manager in C&A's Dutch pension fund had joined Leemhuis & Van Loon 41/2 years ago. He added the C&A fund, known as Brenka, had paid a 5,000-guilder commission to Leemhius somewhere around that time.
Some sources said some of the pension funds might have been pulled into the investigation because they had invested in a venture capital fund run by Adri Strating, head of broker Strating & Co., who was one of the individuals first arrested.
One consultant said pension trustees now will need to scrutinize internal portfolio managers.
One U.S.-based money manager doing business in Holland said there will be a "flight to quality" as trustees seek more professionally managed firms. He also predicted greater outsourcing by Dutch pension funds, which he said manage 60% of their assets internally. Consultants also agreed external management might receive a boost from the scandal.
Meanwhile, the Philips fund's board of trustees and the Philips' board of directors will conduct a hearing on Mr. Hendriks to determine his future with the pension fund.