State Street Corp. (STT) will pay $32.3M to the US Securities and Exchange Commission and $32.3 to the federal government to resolve probes accusing the firm of bilking six clients on billions of dollars of trades by charging them secret commissions. As part of the settlement, the Massachusetts-based bank agreed to a deferred prosecution deal and admitted to conspiring to include these secret commissions on the trades conducted. State Street reportedly made at least $20M in commissions without these clients knowing they were paying.
According to prosecutors, from ’10 to ’11, former State Street executive Ross McLellan and ex-senior managing director Edward Pennings conspired to charge the secret commissions involving equity and fixed income trades that were conducted for these clients.
These commissions were in addition to fees that clients had consented to pay even though there had been written instructions given to State Street traders noting that these six customers didn’t have to pay these fees. The clients had been working with a State Street unit that supports institutional customers in liquidating big investment portfolios or moving investments between asset managers.
Pennings and McLellan are accused of hiding these secret commissions. They pleaded not guilty to the criminal charges of wire fraud and securities fraud after they were indicted last year.
State Street not only fired the employees purportedly involved in the scheme, but also they’ve reimbursed the customers that were affected and put into place stronger controls. The Boston-based bank accepted responsibility for the ex-employees alleged wrongdoing.
It was in 2014 that State Street arrived at a $37.8M settlement with the UK Financial Conduct Authority for allegedly charging these mark-ups on a number of transactions for these six clients. Also, last year, the bank agreed to pay $530M to resolve lawsuits and federal probes accusing it of overcharging clients on transactions involving foreign currency.
No one should have to pay excessive commissions or other fees, let alone secret ones that they don’t even know about, when working with a financial firm or one of its representatives. At The SSEK Partners Group, we represent institutional investors in trying to recoup their securities fraud losses. Contact one of our institutional investor fraud lawyers today.
State Street Corporation Agrees to Pay More than $64 Million to Resolve Fraud Charges, Justice Department, January 18, 2017