State Street Agrees To Pay $35M To Settle SEC Charges

11. September 2017.








The Securities and Exchange Commission (SEC) announced that financial services company State Street has agreed to pay more than $35 million to settle charges that it fraudulently charged secret markups. The company has also admitted to separately omitting material information about its platform for trading U.S. Treasury securities.

The SEC found the company’s scheme to mark up transition management services generated approximately $20 million in improper revenue for the firm. State Street used false trading statements, pre-trade estimates and post-trade reports to misrepresent its compensation on various transactions, especially purchases and sales of bonds and other securities that trade outside large transparent markets.

In addition, when a customer detected hidden markups and confronted State Street employees, they falsely called it a “fat finger error” and “inadvertent commissions” to conceal the scheme.

“Agreeing to a fee arrangement and then secretly tucking in hidden, unauthorized markups is fraudulent mistreatment of customers,” said Paul G. Levenson, director of the SEC’s Boston regional office, the department which investigated the overcharges.

In a separate order, the SEC found that State Street Corporation failed to make material disclosures to subscribers of its government securities trading platform, GovEx. Despite marketing the system as “fair and transparent,” it provided one early subscriber with a “Last Look” trading functionality that allowed it to reject 57 matches — each with a $1 million face value — in a short amount of time. State Street never informed the counterparties that their orders had been rejected through the Last Look trading functionality. In fact, The company even told one subscriber the platform did not have Last Look functionality enabled at all.

“Firms that run trading platforms cannot mislead subscribers about their order handling operations,” said Kathryn A. Pyszka, associate director of the SEC’s Chicago regional office, which investigated the GovEx-related disclosure failures.

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