On January 14, 2016, the SEC entered into two no-admit, no deny settlements regarding an alleged pay-to-play scheme to obtain contracts from the Treasury Office for the State of Ohio. The first was with State Street Bank and Trust Company (“State Street” or “the Bank”) - a custodian bank that provides asset servicing to institutional clients, and the second with Vincent DeBaggis, a former State Street executive. On the same day, the SEC filed suit against attorney Robert Crowe for his role in the scheme which allegedly involved causing concealed campaign contributions to be made to the Ohio Treasury Office to influence the awarding of contracts to State Street. Mr. Crowe is a partner at the law firm of Nelson Mullins Riley & Scarborough and a former lobbyist for the Bank.

According to the SEC, in early 2010, DeBaggis and Crowe entered into an agreement with Amer Ahmad, Ohio’s then Deputy Treasurer, for State Street to make cash payments and political campaign contributions to Ahmad in exchange for State Street’s receipt of sub-custodian contracts to service certain Ohio pension funds. To further the scheme, DeBaggis allegedly caused the Bank to pay “lobbying fees” to Mohamed Noure Alo, an attorney and State Street lobbyist, who funneled most of the fees to Ahmad as kickbacks. Crowe allegedly directed campaign contributions to the Ohio Treasurer. By April 2011, DeBaggis had caused State Street to pay $160,000 in lobbying fees to Alo, and Crowe allegedly engineered payments of $60,000 in campaign contributions to Ahmad. In exchange, Ahmad awarded State Street the sub-custodian contracts for three state pension funds. DeBaggis and Crowe allegedly conducted this scheme in violation of State Street’s policies, which prohibited direct or indirect payments to government officials in exchange for contracts, as well as unapproved campaign contributions, without informing Bank management.

In January 2011, the Department of Justice subpoenaed State Street for documents concerning its Ohio pension funds’ sub-custodian bids and campaign contributions. In response, the Bank launched an internal investigation, through which it learned of DeBaggis’s violation of its policies. It disciplined DeBaggis, terminated its agreements with Alo and Crowe, and implemented new policies regarding political contributions. The SEC commenced a formal investigation in August 2014. A month later, the Bank formed a special committee, retained an independent law firm to conduct a second internal investigation, and terminated DeBaggis.

The SEC contended that DeBaggis and State Street violated Section 10(b) of the Securities Exchange Act of 1934 (“the 1934 Act”) and Rule 10b-5. In settling with the SEC, DeBaggis agreed to pay $174,000 in disgorgement and interest and $100,000 in civil penalties. Despite the remedial actions taken by State Street and its cooperation with the agency, State Street paid $12 million to settle the matter with the SEC.

The SEC also filed suit against Crowe, who repeatedly invoked his Fifth Amendment privilege against self-incrimination in response to the agency’s attempts to obtain his testimony. The complaint alleges that Crowe violated Section 10(b) and Rule 10b-5 of the 1934 Act, Section 17 of the Securities Act of 1933, and aided and abetted violations of the same. The complaint seeks injunctive relief, disgorgement, and civil penalties.

The settlements with State Street and DeBaggis, as well as the action against Crowe, demonstrate the federal government’s increased focus on holding individuals personally responsible for securities law violations undertaken on behalf of their corporate employers. They also reflect the need for corporations to implement and enforce robust political contribution policies and to be vigilant about lobbying efforts and political actions conducted by their employees on their behalf.