State Street cops $125m penalty

State Street has paid more than $125 million to settle charges for adding undisclosed markups on expenses related to the custody of client assets.

In a settlement, State Street Bank and Trust Company has paid $125 million (USD88 million) after the Securities and Exchange Commission brought charges against the institution for routinely overbilling clients between 1998 and 2015.

The overcharges included a secret markup that State Street attached to the cost of sending secured financial messages through the Society of Worldwide Interbank Financial Telecommunication (SWIFT) network.

The SEC said State Street's clients agreed to pay the firm back for out-of-pocket custodial expenses that the firm paid on their behalf but instead of charging clients for the actual amount owed, State Street overcharged them to the tune of $170 million. About $110 million of this came from the secret markup on SWIFT transactions.

According to the SEC, State Street has been reimbursing and continues to reimburse these overcharges, with interest. State Street self-reported the conduct to the regulator and cooperated with the SEC throughout the investigation.

"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," SEC Boston Regional Office director Paul G. Levenson said.

"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."

Without admitting or denying the SEC's findings, State Street agreed to cease and desist the conduct and to pay disgorgement and prejudgment interest of $69.8 million (USD48.78 million), which State Street has been returning directly to the affected registered investment companies.

It will also pay a civil penalty of $57.2 million (USD40 million).

Read more: State StreetSECSecurities and Exchange CommissionPaul G. LevensonSociety of Worldwide Interbank Financial Telecommunication
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