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'This is a regrettable situation. I am shocked. It’s unacceptable,' said Michael Sabia, chief executive officer of the Caisse.

Ryan Remiorz/The Canadian Press

Canadian pension fund manager Caisse de dépôt et placement du Québec has dismissed the head of its commercial real estate financing subsidiary and three other executives after a sweeping probe into alleged employee misconduct that included conflicts of interest and, in one case, links to organized crime.

An external investigation led by Stéphane Eljarrat, a lawyer for Osler, Hoskin & Harcourt LLP, confirmed “serious” ethical breaches linked to personal activities by four employees at Otéra Capital, but no fraud or financial misappropriation, the Caisse said in a statement on Tuesday.

“This is a regrettable situation. I am shocked. It’s unacceptable,” Michael Sabia, chief executive officer of the Caisse, told reporters. “Every day, when I come in to work at the Caisse, I have in my head the question of the importance of our integrity. It’s essential that Quebeckers have confidence in the Caisse.”

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Alfonso Graceffa, Otéra’s CEO, is no longer employed by the organization, the Caisse said on Tuesday. Mr. Graceffa stepped away from his post voluntarily in February, when the allegations came to light.

The pension fund said it also severed ties with Martine Gaudreault, an Otéra vice-president, and Edmondo Marandola, one of its economists, as a result of the probe. Both were already suspended. A fourth individual, whom the company did not name, was let go for breaching confidentiality rules, the Caisse said.

The Caisse provided a summary of the external lawyer’s report that cites numerous transgressions but does not specify which person committed which violation.

“The nature, frequency, the sums and the quantity of personal commercial transactions by one of these people represent a reputational risk for the Caisse and Otéra," the summary said. "For example, some of these transactions were done through a person who has, or had, direct or indirect links to known members of organized crime.”

In one instance, one of the four individuals accepted $15,000 in cash at work related to payment of a debt from a person with a criminal record for drug-related offences, the summary said. In another, a staffer used the company’s e-mail system to conduct “personal commercial transactions involving substantial sums of money,” the summary said.

The Caisse manages the nest eggs of thousands of retirees, including Quebec civil servants. It is among Canada’s biggest financial institutions and has investments in some of the country’s largest companies.

The Caisse spent $5-million on the independent probe, which took three months to look into Otéra. More than 100 experts in accounting, criminal intelligence and other matters were consulted and more than 1.5 million documents were obtained but not necessarily reviewed, the pension fund said.

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Osler’s Mr. Eljarrat told reporters his team is in contact with police about his findings, but declined to say whether a police investigation was under way. The summary of his report mentions that certain individuals “did not act with the diligence required by law” in performing their work duties, without giving more details. No charges have been laid in connection with the probe.

Mr. Sabia is widely seen as having restored pensioners’ faith in the institution after a $40-billion loss in 2008. He was named CEO the year after, and has grown assets under management to $310-billion by simplifying investments and expanding internationally.

An active player in major real estate markets across Canada, Otéra is a Caisse subsidiary, but operates under its own ethics and compliance regulations. That will be changed so the unit’s practices fall into line with those of the Caisse, the pension fund said. Rana Ghorayeb, a former JPMorgan vice-president, will lead Otéra as CEO, and Otéra chairman Claude Bergeron will preside over a revamped board, the fund said.

Quebec’s political leaders on Tuesday generally voiced support for the Caisse and how it handled the matter.

“I’m very satisfied,” with the outcome of what was a comprehensive investigation, Eric Girard, Quebec’s Finance Minister, told reporters. “In an organization like this, where you have thousands of employees, is perfection possible? No. So that’s why there are rules in place on things like ethics, governance, audit committees and that you need the best management practices.”

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