State Street Bank and Trust Company has agreed to pay $382.4m in global settlement for misleading mutual funds and other custody clients by applying secret markups to foreign currency exchange (forex) trades.
The bank has agreed to pay $167.4m in disgorgement and penalties to the Securities and Exchange Commission (SEC), $155m to the Department of Justice (DoJ), and at least $60m to ERISA plan clients in an agreement with the Department of Labor.
The DoJ alleged that the bank did not price foreign exchange transactions at prevailing interbank market rates, but carried out transactions by applying a predetermined, uniform mark-up to increase its profits.
SEC director of the division of enforcement Andrew Ceresney said: “State Street misled custody clients about how it priced their trades and tucked its hidden markups into a corner where they were unlikely to notice. Financial institutions cannot mislead their customers about their trading costs.”
The bank was also alleged of misleading custody clients by telling them that it offered the most competitive rates available on forex transactions, and that it priced forex transactions on a variety of factors. However, in reality prices were largely driven by hidden mark-ups to boost the bank’s profits.
U.S. Attorney Ortiz said: “State Street’s custody clients, many of whom were public pension funds, financial institutions and non-profit organizations, had a right to expect that State Street would execute transactions in an honest and forthright manner.
“Instead, State Street executed FX transactions in a manner that enabled it to reap substantial profits at the expense of its custody clients. Today’s settlement reflects a significant and appropriate penalty for State Street’s deceptive conduct.”