In a statement, State Street said it considered a settlement to be in the “best interests” of both the bank and its clients.
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The Securities and Exchange Commission on Tuesday announced that State Street Corporation (NYSE: STT) has agreed to pay $382.4 million in a global settlement deal for allegedly misleading custody clients about how it priced exchange rates for foreign currency trades.
Pursuant to the proposed settlements and other agreements, State Street will pay a total of $382.4 million, of which $155 million will be paid as a civil penalty to the United States to resolve the allegations made by the Department of Justice that State Street violated the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), by committing fraud affecting financial institutions.
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The Department of Justice also alleged that State Street falsely assured clients that it performed “best execution” on its FX transactions, and that it “guaranteed” the most competitive rates available.
“State Street’s custody clients, many of whom were public pension funds, financial institutions and non-profit organisations, had a right to expect that State Street would execute transactions in an honest and forthright manner”, Carmen M Ortiz, US Attorney for the District of MA said. That allowed State Street take in profits from marked-up or marked-down trades. “Financial institutions can not mislead their customers about their trading costs”. “Rather, State Street performed FX deals in a manner that enabled it to reap significant earnings at the cost of its custody clients”. The bank will also pay $60 million to retirement fund clients covered by Labor Department regulations.
“State Street’s custody customers, many of whom were public pension funds, banks and non-profit organizations, had a right to expect that State Street would carry out transactions in a truthful and forthright manner”, Carmen Ortiz, the US lawyer for MA, 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.
The case goes back to 2009, when several USA state agencies accused State Street of misleading its clients.
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According to State Street’s statement, it reached agreements with the Department of Justice, Department of Labor and the Massachusetts Attorney General and, subject to court approval, a class of State Street’s custody customers.
