State Street shells out $530 million to settle forex fraud accusations

State Street shells out $530 million to settle forex fraud accusations

- in All News, Forex Brokers
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State Street Corp. (NYSE: STT), a US custody bank and provider of financial services to institutional investors, has agreed to pay $530 million in order to settle several lawsuits alleging it was overcharging its clients by secretly adding mark-ups on their forex transactions.

“Matters of this nature can drain both time and resources; so where possible and appropriate we feel it is in State Street’s and our clients’ best interests to pursue settlements,” said Mike Rogers, president and chief operating officer of State Street, without admitting guilt.

According to State Street’s statement, it reached agreements with the Department of Justice, Department of Labor and the Massachusetts Attorney General and, subject to court approval, a class of State Street’s custody customers.

The bank will pay $167.4 million in penalties and disgorgement of profits to the US Securities Exchange Commission (SEC), $155 million to the Department of Justice and $60 million to the Department of Labor, which oversees pension funds, according to a statement from the three agencies. A further $147.6 million will settle the class action suit.

The case goes back to 2009, when several US state agencies accused State Street of misleading its clients.

A SEC investigation found the bank had been promising them “the most competitive rates available on their foreign currency exchange trades and assured them it provided “best execution,” or charged “market rates” on the transactions”, but instead “set prices largely driven by predetermined, uniform markups and made no effort to obtain the best possible prices for these clients.”

“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,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, commenting on the proposed settlement.  “Financial institutions cannot mislead their customers about their trading costs.”

The $530 million is peanuts to State Street, which has $27 trillion in assets under custody and administration and $2 trillion* in assets under management as of March 31, 2016, as per its own financial report and has set aside $585 million to cover all forex claims.

The corporation is the second oldest financial institution. It has offices in 29 countries and operates on more than 100 markets, including the US, Canada, Europe, the Middle East and Asia and provides investment management, servicing and administration; research and trading; and financial data analytics for institutional investors.

State Street is by far not the first financial services provider accused of “brazenly cheating clients” by either manipulating the forex spot market or overcharging them. Last year five major global banks Citigroup, JPMorgan Chase, Barclays Plc, UBS and Royal Bank of Scotland, were fined almost $6 billion for misconduct and manipulations back in 2013.

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