State Street Bank and Trust Company and two affiliated entities (collectively, “State Street”) settled charges with the Securities and Exchange Commission that, from February 2010 through 2011, they engaged in fraud in connection with transition services provided to six institutional customers. Separately, State Street Bank also settled SEC allegations that it failed to advise other users of its “GovEx” government securities trading platform that it provided one user “Last Look” functionality in order to reject matches to submitted quotes from September 2009 through July 2015.
State Street agreed to pay a fine of US $32.2 million to resolve the SEC’s charges regarding transition services, as well as to commit to certain undertakings, while State Street Bank consented to remit a penalty of US $3 million to resolve the SEC’s allegations regarding Last Look.
In connection with State Street’s provision of transition services, the SEC claimed the entities defrauded customers by charging them nondisclosed and unauthorized mark-ups and commissions in addition to fees, mark-ups and commissions the customers had agreed to pay. (Some financial institutions, like State Street, offer transition services to institutional clients who are changing fund managers or investment managers in order to minimize their potential costs when there is likely to be a large cost associated with a large number of transactions.)
Regarding Last Look, the Commission claimed that State Street Bank marketed its system as “fair and transparent” and provided its GovEx subscribers with a description of the system’s order handling system, without disclosing the development of the Last Look capability. Moreover, on at least two occasions, said the SEC, the firm affirmatively misrepresented that there was no Last Look capability on GovEx.
In January 2017, State Street Corporation agreed to enter into a deferred prosecution agreement and pay a US $32.3 million penalty as a result of charges by the US Department of Justice also related to the firm’s handling of transition services (click here for background).