State Street Bank has agreed to pay $530 million to settle allegations
that it had charged clients hidden markups to foreign currency exchange trades.
According to the US Securities and Exchange Commission
(SEC), one of a number of investigating authorities, State Street gained “substantial revenues
by misleading custody clients.”
The SEC alleged that while State Street told clients it
would guarantee “the most competitive rates available” on FX trades, it instead
fixed prices “driven by predetermined, uniform markups and made no effort to
obtain the best possible prices for these clients.”
“State Street misled custody clients about how it priced
their trades and tucked its hidden markups into a corner where they were
unlikely to notice,” said Andrew Ceresney, director of the SEC’s division of
As part of the settlement, the Boston-based firm admitted it
had “generally” failed to price FX transactions at market rates.
The financial agreement includes a $167.4 million fine to
the SEC, $155 million to the Department of Justice, at least $60 million to
settle cases with the Department of Labor, and $147.6 million to resolve
private class-action lawsuits. State Street has also settled with the
Massachusetts Attorney General.
The FX trades in question occurred between 1998 and 2009,
State Street said, and since then the firm has improved operations.
“In 2009, we significantly strengthened our disclosures
around indirect foreign exchange, including publishing the spread relative to
indicative interbank market rates at the time of pricing, and today believe we
provide our clients with the most comprehensive disclosures in the industry,”
Mike Rogers, State Street’s president and COO, said in a statement.
The settlement comes just three months after former State
Street executives Ross
McLellan and Edward Pennings were indicted on scheming to defraud at least
six institutional clients of its transition management business.
US authorities claimed the duo had overcharged “secret
commissions” to billions of dollars of trades between February 2010 and September 2011.
The allegedly defrauded clients include the UK’s Royal Mail
Pension Plan, Ireland’s National Pension Reserve Fund, and the Kuwait Investment
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