State Street Corporation Agrees to Pay More than $64 Million to Resolve Fraud Charges
https://www.justice.gov/usao-ma/pr/state-street-corporation-agrees-pay-more-64-million-resolve-fraud-charges
Department of Justice
U.S. Attorneys Office
District of Massachusetts
FOR IMMEDIATE RELEASE
Wednesday, January 18, 2017
State Street Corporation Agrees to Pay More than $64 Million to Resolve Fraud Charges
BOSTON Boston-based global financial services company State Street Corporation has entered into a deferred prosecution agreement and agreed to pay a $32.3 million criminal penalty to resolve the governments criminal investigation into a scheme to defraud at least six of the banks clients through secret commissions applied to billions of dollars of securities trades. State Street also agreed to offer an equal amount as a civil penalty to the Securities and Exchange Commission (SEC).
In April 2016, the government charged two former high-ranking State Street executives, former Executive Vice President Ross McLellan and former Senior Managing Director Edward Pennings, with conspiracy, securities fraud and wire fraud in connection with the same scheme. McLellan and Pennings are scheduled to go to trial before U.S. District Court Judge Leo T. Sorokin in October 2017.
According to admissions made in the resolution documents, State Street conspired to add secret commissions to fixed income and equity trades performed for at least six clients of the banks transition management business, which helps institutional clients move their investments between and among asset managers or liquidate large investment portfolios. The commissions were charged on top of fees the clients had agreed to pay the bank, and despite written instructions to the banks traders that generally reflected that the clients were not to be charged trading commissions. State Street also took steps to hide the commissions from clients and misrepresented its performance to one of these clients in order to conceal a trading loss.
As part of the deferred prosecution agreement, State Street has agreed to pay the criminal penalty; to offer an identical amount to the SEC to resolve civil charges; to continue to cooperate with the Department of Justice and with foreign authorities in any ongoing investigations and prosecutions relating to the conduct, including of individuals; to enhance its compliance program; and to retain an independent corporate compliance monitor for three years. The Justice Department reached this resolution based on a number of factors including the fact that State Street has already fully repaid the clients who were victims of the scheme, has paid a substantial penalty to the UK Financial Conduct Authority, and has offered to pay a civil penalty to the SEC that is equal to the criminal penalty.
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