State Street Corp. will pay $530 million to resolve federal and proposed class claims that it overcharged customers on foreign exchange transactions. This resolves a long-running investigation into those practices. The settlement with the U.S. Department of Justice (DOJ), the U.S. Department of Labor, the U.S. Securities Exchange Commission (SEC) and the Massachusetts attorney general wraps up claims by the regulators that State Street improperly allowed traders to mark up and mark down foreign currency trades in a way that benefited the Boston-based custody bank’s bottom line to the detriment of investors. Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, said in a statement:
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.
State Street also faced lawsuits from pension funds alleging that the bank’s practices and lack of oversight violated the Employment Retirement Income Security Act (ERISA), as well as other investor lawsuits. This settlement resolved those claims as well.
Specifically, Global Markets priced the trades based on the worst price of the trading day and kept profits at the plans’ expense. The activities took place from 1998 through 2009. The settlement comes in the wake of Bank of New York Mellon Corp.’s $714 million settlement with New York Attorney General Eric Schneiderman and Manhattan U.S. Attorney Preet Bharara, the SEC and the Labor Department over similar claims.
That settlement also resolved class actions against BNY Mellon, the world’s largest custody bank. Those banks safeguard assets for money managers and other institutional investors. State Street, with $27 trillion in assets under custody and another $2 trillion in assets under management, is the second largest custody bank.
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