State Street Corp. will pay a combined $64.6 million to the Department of Justice and the SEC to settle criminal and civil charges that the custody bank charged secret commissions on transition management services to six clients.
State Street will pay $32.3 million to settle the criminal charges, according to a DOJ news release Wednesday. In a separate release from State Street, the bank said it has reached an agreement in principle with the Securities and Exchange Commission to settle civil charges for the same amount.
The Justice Department said State Street conspired to add secret commissions to fees agreed to with six transition management clients for fixed-income and equity trades, and hid those commissions from clients.
“State Street cheated its customers by agreeing to charge one price for its services and then secretly charging them something else,” William D. Weinreb, acting U.S. attorney, said in the DOJ release.
Also, in January 2011, State Street was fined £22.9 million ($28.1 million) by U.K.'s Financial Conduct Authority for the overcharging.
The settlements do no impact the criminal case against Ross McLellan, former State Street executive vice president, and Edward Pennings, one-time senior managing director, who were charged April 5, 2016, with conspiracy, securities fraud and wire fraud in connection with the same scheme. They also face civil charges from the SEC.
Messrs. McLellan and Pennings are scheduled to go to trial before U.S. District Court Judge Leo T. Sorokin in Boston in October.
State Street said it has “significantly strengthened its risk, compliance and controls infrastructure,” including increasing its investment in compliance, audit and risk management, and instituting employee programs on ethical decision-making, according to a statement from Anne McNally, State Street spokeswoman.
