State Street hit with foreign exchange fine

State Street has agreed to pay a $382.4 million fine in a global settlement for misleading mutual funds and other clients by applying hidden mark-ups to foreign currency trades.

A Securities and Exchange Commission (SEC) investigation revealed that State Street obtained substantial revenues by misleading custody clients on foreign exchange currency trading.

Clients were informed that State Street guaranteed the most competitive rates available on foreign currency exchange trades, provided “best execution” or charged “market rates.”

Instead, set prices were largely driven by predetermined, uniform mark-ups and no effort was made by State Street to obtain the best prices for clients.

State Street will pay $167.4 million in disgorgement and penalties to the SEC, a $155 million penalty to the department of justice and a minimum of $60 million to the Employee Retirement Income Security Act (ERISA) plan clients in agreement with the department of Labour.

Under the agreement, the SEC will institute the settled administrative proceeding once a federal court approves State Street’s settlement proposition with private plaintiffs in pending securities class action lawsuits.

State Street has agreed to admit to certain findings in the SEC’s order.

“State Street misled custody clients about how it priced their trades and tucked its hidden mark-ups into a corner where they were unlikely to notice,” said Andrew J. Ceresney, director of the SEC’s division of enforcement.

“Financial institutions cannot mislead their customers about their trading costs.”