July 26, 2016

State Street Bank and Trust Company will pay $382.4 million in a global settlement for misleading mutual funds and other custody clients by applying hidden markups to foreign currency exchange trades.  As part of its custody bank line of business, State Street safeguards clients’ financial assets and offers such services as indirect foreign currency exchange trading (Indirect FX) for clients to buy and sell foreign currencies as needed to settle their transactions involving foreign securities.  An SEC 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 trades, provided “best execution,” or charged “market rates” on the transactions.  Instead, State Street set prices largely driven by predetermined, uniform markups and made no effort to obtain the best possible prices for these clients.  State Street will 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.  SEC

Tagged in: FIRREA, Foreign Exchange, Securities Fraud, Whistleblower Case,