U.S. Attorney Carmen M. Ortiz for the District of Massachusetts, Director Andrew J. Ceresney of the Division of Enforcement for the Securities and Exchange Commission (SEC) and Secretary Thomas E. Perez of the U.S. Department of Labor (DOL), announced that State Street Bank and Trust Company agreed to pay a total of at least $382.4 million to settle a lawsuit alleging fraudulent foreign currency exchange charges.
The settlement includes $155 million to the Department of Justice, $167.4 million in disgorgement and penalties to the SEC and at least $60 million to Employee Retirement Income Security Act (ERISA) plan clients in an agreement with the DOL, to settle allegations that it deceived some of its custody clients when providing them with indirect foreign currency exchange (FX) services.
According to a statement from the Justice Department, as part of the settlement with the Department, State Street admitted that contrary to its representations to certain custody clients, its State Street Global Markets division (SSGM) generally did not price FX transactions at prevailing interbank market rates. Instead, State Street admitted that SSGM executed FX transactions by applying a predetermined, uniform mark-up (if the custody client was a FX purchaser) or mark-down (if the custody client was an FX seller) to the prevailing interbank rate for FX.
State Street is also alleged to have falsely informed custody clients that it provided “best execution” on FX transactions, that it guaranteed the most competitive rates available on FX transactions and that it priced FX transactions based on a variety of factors when, in fact, prices were largely driven by hidden mark-ups designed to maximize State Street’s profits.
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