The SEC has levied a massive 95 million US Dollar fine on financial services giant State Street. The firm is also facing an investigation by the Massachusetts attorney general office. The investigation will be with regards to invoicing errors that firm has been perpetuating for the longest time.
State Street agrees to SEC fine
The 93.4 million US Dollar penalty levied by the SEC was agreed to by State Street Corp., and with that agreement, it has allowed the firm to resolve allegations by the SEC that it has been overcharging its asset-servicing clients. This includes mutual funds, among many other investment firms, and is with regards to expenses that relate to custody of assets issues.
The US SEC issued an order that both filed and settled charges against the Boston based bank, however, the bank did not admit any wrongdoing – nor did they deny it.
State Street Corp. also faced a class action civil lawsuit that was investigated by the Massachusetts attorney general Maura Healey. The lawsuit was settled for 5 million dollars. The regulators that were involved in the case said that the bank had systematically overbilled around 5000 of its clients. These clients were mainly investment funds that used the bank for custodial services. The overbilling was done by adding obscenely high markups for sending messages via the SWIFT network.
Systematic and unfair billing found in investigation
The US watchdog said that the bank had abused its position by systematically and unfairly overbilling their clients for the better part of 17 years. This caused the firm to overcharge some clients to the tune of more than 110 million US Dollars in the period from 1995 to 2017.
The bank, however, paints another picture – that the problem was self-identified and that the accounts of their clients have been both adjusted and fully refunded. They have also undertaken some semblance of responsibility, claiming that they will resolve any remaining discrepancies that can be found in their records.
These allegations are nothing new to Boston banking giant. They have faced allegations of overcharging and billing errors in 2010 and 2011. This caused some trouble for the bank with regulators, but it was only in 2017 that executives of the bank were found guilty of defrauding clients by overcharging them on fixed-income and equity trade deals.
Four executives of the financial services company were proven to have devised a scheme that would overcharge clients without their consent. However, they were told that any commissions would be fully disclosed and would also be agreed upon in advance.
The fierce competition in the sector that State Street operates during the period between 2010 and 2012 is what “forced their hand”. Much slimmer profit margins meant that they had to find alternate ways of satisfying the never-ending need for growth and increased profits. The reason the executives chose fixed-income and equity trades is that they were hoping those would draw less suspicion from regulators.