SEC Hits State Street with $95M Fine for Overcharging Clients

State Street Corp. has agreed to pay a $94.3 million civil penalty to resolve the SEC’s allegations that it overcharged its asset-servicing clients, including mutual funds and other investment firms with expenses related to the custody of their assets.

The US Securities and Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term Commission issued an order filing and simultaneously settling charges against the Boston-based bank. State Street neither admitted nor denied wrongdoing under the Settlement Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Read this Term.

State Street also faced investigations by the Massachusetts attorney general Maura Healey’s office related to the invoicing errors and paid over $5 million to settle the class action lawsuit.

The regulators said State Street systematically overbilled roughly 5,000 clients of its investment fund clients for custodial services — primarily by adding markups for sending messages through the SWIFT network.

According to the order, the bank systems were unfair with their asset servicing clients for over 17 years, causing the firm to overcharge some customers more than $110 million in excess fees from at least 1998 through 2015.

However, the financial services giant (NYSE: STT) claimed it self-identified the problem and that the majority of customers’ accounts have been adjusted and fully refunded, and the firm has otherwise taken responsibility to resolve any remaining discrepancies.

A long history of invoicing errors

State Street has previously faced several allegations of invoicing errors, which occurred in 2010 and 2011 and got the company into trouble with regulators. In 2017, a handful of State Street executives were found guilty of defrauding clients by secretly overcharging them on fixed-income and equity trade fees.

Four State Street’s executives devised the scheme to overcharge clients without their consent although they were told that commissions would be fully disclosed and agreed upon in advance.

During the three weeks trial, jurors investigated the defendants’ communications with six institutional investors, who were charged hidden markups on State Street’s electronic platform for trading US Treasuries.

The overcharging scheme began in February 2010 through at least September 2011 as the fierce competition in the sector squeezed profit margins. According to court filings, the asset managers conspired to target large fixed-income and equity trades for unauthorized charges, which they believed would be less likely to draw the attention of regulators.

This case related to the same indictments for which the UK arm of State Street was fined $32.4 million to settle related criminal charges with the Financial Conduct Authority in 2014.