BOSTON: State Street Corporation has agreed to pay a $115 million criminal penalty to resolve charges that it schemed to defraud clients by secretly overcharging some of its customers for as long as 17 years, federal investigators said Thursday.
All told, the Massachusetts-based global financial services company defrauded its customers to the tune of more than $290 million, investigators said. The company has agreed to fully reimburse victims of the misconduct for amounts they were overcharged.
State Street defrauded its own clients of hundreds of millions of dollars over decades in a most pedestrian way: they tacked on hidden markups to routine charges for out-of-pocket expenses, Acting U.S. Attorney for Massachusetts Nathaniel Mendell said in a written statement.
Investigators said that according to State Streets admissions, between 1998 and 2015, bank executives conspired to add secret markups to out-of-pocket expenses charged to the banks clients while letting clients believe that State Street was billing expenses as pass-through charges on which the bank was not earning a profit.
The markups were charged on top of fees that the clients had agreed to pay the bank, and despite written agreements that caused clients to believe the expenses would be passed through to them without a markup, investigators said.
State Street executives also took steps to conceal the markups from clients, prosecutors said.
A spokesperson for State Street said the company entered into the prosecution agreement to resolve its previously disclosed inquiry into the overcharges of some customers for items billed as out-of-pocket expenses, which the bank said it disclosed in 2015.
We regret these overcharges, which have also been the basis of prior settlements with regulators including the Securities and Exchange Commission, the company said. We have also invested, and continue to invest, significant resources to improve and strengthen our invoicing processes, controls and governance.
State Street has entered into a deferred prosecution agreement after being charged with one count of conspiracy to commit wire fraud and agreed to pay the $115 million penalty. The company also agreed to continue to cooperate with the U.S. attorneys office in any ongoing investigations.
Prosecutors said the resolution is based on a number of factors, including that State Street voluntarily disclosed the misconduct and fully cooperated with the investigation.
The company also said the amounts to be paid in connection with the agreement are included in a previously established reserve.
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