State Street Global Markets has been charged with violating the Massachusetts Securities Act through the overcharging over many years of custodial clients by the holding company that controls it, State Street Corp., show documents filed Wednesday by William F. Galvin, Massachusetts secretary of the commonwealth and chief securities regulator.
“State Street commonly charged out-of-pocket expenses to custodial clients, including pension fund, mutual fund, hedge fund and institutional investors,” the administrative complaint asserts. Charges for secure electronic messages, known as SWIFT messages, relating to payment, securities and trade were labeled as out-of-pocket expenses but contained concealed markups as high as 1,900%, the complaint said.
Brian McNiff, a spokesman for Mr. Galvin's office, said State Street Global Markets is the broker-dealer on the transactions, but since it’s a subsidiary of State Street Corp., the activity of one would be reflected in the other.
The enforcement section of the law seeks a censure, an administrative fine, and other action, including client reimbursement, “which may be in the public interest and necessary and appropriate for the protection of Massachusetts investors.” Mr. McNiff added that restitution for any affected Massachusetts investor is also being sought.
In December, State Street Corp. acknowledged that over an 18-year period millions of dollars in expenses might have been “incorrectly invoiced.” Information provided to the Massachusetts Securities Division by State Street indicated that SWIFT message expenses represented about $200 million of the total expenses under review.
SWIFT messages are transmitted by a global member-owned cooperative. The complaint says that State Street charged $5 per message and continued to do so even as the cost of transmitting the messages dropped. “In 2009, State Street employee e-mails suggested the true cost to State Street as $0.25, reflecting a drastic reduction in overhead expense associated with sending SWIFT messages,” the complaint said.
State Street spokeswoman Anne McNally issued the following statement: “In December of last year, we disclosed to our global services North America clients that we had determined that errors had occurred in invoices with respect to certain categories of expense. At the same time, we notified a number of governmental authorities, including the Massachusetts secretary of state, of the error, our intent to repay clients and our commitment to make any necessary changes to our billing practices.”
The statement continued: “We deeply regret this error and have been in discussions with affected clients and with governmental authorities. We are committed to compensating affected clients fully, including interest. We have been and are also committed to cooperating with governmental authorities.”
The full complaint can be found on the secretary of the commonwealth’s website.
