State Street Bank and Trust Company has agreed to pay $382.4 million in a global settlement for misleading mutual funds and ERISA plan clients by applying hidden markups to foreign currency exchange trades.
In announcing the settlement, the Securities and Exchange Commission noted that its investigation found that State Street realized substantial revenues by misleading custody clients about Indirect FX, telling some clients that it guaranteed the most competitive rates available on their foreign currency exchange trades, provided “best execution,” or charged “market rates” on the transactions. According to the SEC, State Street instead set prices largely driven by predetermined, uniform markups and made no effort to obtain the best possible prices for these clients.
State Street has agreed to pay $167.4 million in disgorgement and penalties to the SEC, a $155 million penalty to the Department of Justice, and at least $60 million to ERISA plan clients in an agreement with the Department of Labor.
Under the terms of the agreement, the SEC will issue its order instituting the settled administrative proceeding only after a federal court approves State Street’s proposed settlement with private plaintiffs in pending securities class action lawsuits concerning its pricing of foreign currency exchange trades. State Street has agreed to admit certain findings in the SEC’s order.
The SEC’s order will find that State Street willfully violated Section 34(b) of the Investment Company Act of 1940 and caused violations of Section 31(a) of the Investment Company Act and Rule 31a-1(b) by providing its registered investment company custody clients with trade confirmations and monthly transaction reports that were materially misleading in light of the representations it made about how it priced foreign currency exchange transactions.
State Street will be required to pay $75 million in disgorgement plus $17.4 million in interest to harmed clients as well as a $75 million penalty.
