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State Street to Pay $382Mn for Misleading Clients on Forex Trades - SEC
State Street Bank and Trust Company agreed to pay a total of $382.4 million to reach a final settlement with the SEC, the Department of Justice, and the Department of Labor over charges it misled mutual funds and other custody clients by applying hidden markups to foreign currency exchange (forex) trades. The financial penalties break down, as follows:
- SEC: $167.4Mn in disgorgement, prejudgment interest and penalties.
- DOJ: $155Mn in penalties.
- DOL: $60Mn in claims.
According to the SEC, as part of its custody bank line of business, State Street safeguards clients’ financial assets and offers such services as indirect foreign currency exchange trading (Indirect FX) for clients to buy and sell foreign currencies as needed to settle their transactions involving foreign securities. However, State Street realized substantial revenues by misleading custody clients about Indirect FX, telling some clients that it guaranteed the most competitive rates available on their forex trades, provided “best execution,” or charged “market rates” on the transactions. State Street instead set prices largely driven by predetermined, uniform markups and made no effort to obtain the best possible prices for these clients.
