State Street Bank and Trust Co. has agreed to pay $88.8 million to settle charges of overcharging mutual funds and other registered investment company clients for expenses related to the firm's custody of client assets, the Securities and Exchange Commission announced Thursday.
The SEC order said State Street, which did not admit or deny the findings, routinely overbilled clients from 1998 to 2015. State Street's clients had agreed to pay the firm back for out-of-pocket custodial expenses, but the SEC found that the firm regularly charged more. According to the SEC's order, from 1998 to 2015, State Street collected $170 million from the overcharges, with $110 million coming from a hidden markup tacked on to the cost of sending secured financial messages through the Society of Worldwide Interbank Financial Telecommunication network.
The SEC said State Street self-reported its conduct and provided substantial cooperation to the commission staff during the investigation.
State Street first disclosed the issue in 2015 and in a statement said it regrets the invoicing errors and the impact on its clients. "We have compensated the affected clients with interest, and we have and continue to invest significant resources to improve and strengthen our invoicing processes, controls and governance," State Street said. "The costs associated with this settlement are within our previously established reserve."
The payment includes a $40 million civil fine and $48.8 million in disgorgement and interest, which State Street has already paid.
"For years, State Street sent clients a bill for expense reimbursement, without disclosing that State Street had added extra compensation for itself — compensation that clients had not agreed to pay," said Paul G. Levenson, director of the SEC's Boston regional office, in a news release. "Fund expenses make a big difference to mutual fund investors and advisers; they have a right to receive honest information about what they're paying for."