State Street Will Become the World’s #1 Provider of Asset Servicing1
Brings Together Two Premier Businesses with Significant Scale to Drive Benefits for Clients and Shareholders
Earnings Accretion Expected in Year 12
State Street Increases Pre-Tax Margin Medium-Term Financial Target
Boston and New York, September 7, 2021 – State Street Corporation (NYSE: STT) and Brown Brothers Harriman & Co. (BBH) today announced that they have entered into a definitive agreement for State Street to acquire BBH’s Investor Services business, including its custody, accounting, fund administration, global markets and technology services, for $3.5 billion in cash. Following the transaction, BBH will continue to independently own and operate its separate Private Banking and Investment Management businesses. The parties are targeting year-end 2021 to complete the acquisition, subject to regulatory approvals and customary closing conditions.
BBH Investor Services is a global asset servicer with a track record of exceptional client service and deep expertise in cross-border, alternatives, ETFs, and other high-growth asset classes. As of June 30, 2021, BBH Investor Services had $5.4 trillion in Assets Under Custody (AUC), adding to State Street’s $31.9 trillion in AUC.3
The acquisition is expected to advance State Street’s strategy as an enterprise outsource solutions provider by creating the number one asset servicer globally,1 strengthening competitive positioning, expanding geographic coverage and enhancing client experience.
“The Investment Servicing industry enjoys strong fundamentals as worldwide growth in financial assets drives industry revenues. This combination with BBH Investor Services helps us consolidate our position as the industry innovator and leader,” said Ron O'Hanley, Chairman and Chief Executive Officer of State Street Corporation. “We are enhancing our leadership position across a range of services, augmenting our position in a number of key markets, growing relationships with many of the leading global asset managers and owners, and increasing our capabilities and scale. Additionally, BBH Investor Services brings us strong talent, including industry leading service excellence and quality execution.”
“We made this decision after careful consideration of the current and future landscape of the global securities servicing industry, including how best to support and innovate for the growing breadth and complexity of our clients’ servicing requirements,” said Bill Tyree, managing partner of BBH. “State Street is the ideal partner – a firm that shares our core values of unmatched client service, integrity, trust, and a long-term commitment to sustainability.”
Upon closing of the transaction, BBH Investor Services employees will move to State Street. The senior management team will transition to State Street in executive leadership roles, and Seán Páircéir, currently partner and Global Head of Investor Services at BBH, will join State Street’s Management Committee.
The acquisition creates meaningful shareholder value by increasing State Street’s earnings growth potential and its pre-tax margin medium-term target. As a result of the anticipated earnings growth from this transaction, State Street is now targeting an increased pre-tax margin of 31%.4
Post close, the transaction provides the potential for significant benefits for State Street shareholders from estimated fully-phased in expense synergies5 of $260 million in year 3 as a result of efficiencies in operational systems and infrastructure, as well as overhead consolidation. Additionally, State Street has identified an estimated $35 million of EBIT from known balance sheet actions and $40 million of EBIT from estimated net revenue synergies5 in Investment Servicing and Global Markets in year 3.
State Street expects the transaction will be primarily financed through the issuance of common equity, the suspension of common share repurchases before resuming during 2Q22, and cash on hand. The acquisition is expected to be accretive to earnings per share in year 1.2
Propels State Street’s Core Strategy
Leveraging the best technology and capabilities from each company will enhance State Street’s current set of product solutions for new and existing clients. BBH Investor Services brings innovative data connectivity tools to the broad marketplace that will be additive to State Street’s product suite and provides a toolset that represents an important enhancement to its service offering. BBH Investor Services’ Infomediary® platform, which facilitates data transmission and integration among buy-side and sell-side systems, will also support the State Street AlphaSM platform and facilitate integration of clients onto the platform while mitigating future development cost. Adding BBH Investor Services’ list of premier clients to State Street will also expand the base of potential users of State Street Alpha.
The addition of BBH Investor Services will further State Street's strategic goal of expanding and deepening its presence in key non-US markets, including developed markets such as Japan, Luxembourg, and Ireland, as well as Latin America, which State Street has targeted for growth.
Client Focused Organization with Deep Expertise
The transaction will also add additional depth to State Street’s expertise in relationship management, client service, operations and technology that can be integrated across all of State Street’s global client segments. “One of the most attractive elements for us is BBH Investor Services’ first-rate talent and team of professionals with client service excellence, which strengthens our value proposition and is completely aligned with our focus and vision of being our clients’ enterprise outsourcer and essential partner,” added O’Hanley.
“We found in State Street a partner who shares our singular focus on delivering exceptional client outcomes, without exception,” said Páircéir, head of BBH Investor Services. “We are committed to adopting best practices from both organizations to create an unmatched offering for the world’s most sophisticated asset managers and financial institutions.”
Goldman Sachs & Co. LLC served as financial advisor and Davis Polk & Wardwell LLP served as legal advisor to State Street in connection with the transaction. Lazard served as financial advisor and Sullivan & Cromwell LLP served as legal advisor to BBH in connection with the transaction.
A conference call to discuss the proposed acquisition will be held at 8:00 a.m. ET today, on Tuesday, September 7, 2021. The call will be open to the public. A webcast of the conference call will be accessible on State Street’s Investor Relations website, http://investors.statestreet.com, and by telephone at (866) 211-3118 or (647) 689-6605 (Conference ID# 9389324). A replay of the conference call will be available for approximately two weeks following the conference call on State Street’s Investor Relations website, http://investors.statestreet.com, and by telephone at (800) 585-8367 or (416) 621-4642 (Conference ID# 9389324).
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $42.6 trillion in assets under custody and/or administration and $3.9 trillion* in assets under management as of June 30, 2021, State Street operates globally in more than 100 geographic markets and employs approximately 39,000 worldwide. For more information, visit State Street's website at www.statestreet.com.
*Assets under management as of June 30, 2021 includes approximately $64 billion of assets with respect to SPDR® products for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street Global Advisors are affiliated.
About Brown Brothers Harriman
BBH is a privately-held, global financial services firm founded in 1818 and headquartered in New York City. It counts among its clients institutions, privately-held companies, families and wealthy individuals which it serves through its three business lines: Investor Services, Investment Management and Private Banking. The firm is known for its advanced technology, exceptional client service and selectivity.
BBH’s Investor Services business provides cross-border custody, accounting, administration, execution and technology services to many of the world’s leading asset managers and financial institutions. BBH’s Investment Management and Private Banking businesses manage public and private securities portfolios, advise banking clients on strategic direction, provide debt financing and banking services and offer trust and estate services.
BBH, including BBH Investor Services, operates in over 90 markets worldwide from 17 offices. BBH employs approximately 6,000 professionals. For more information, please visit www.bbh.com.
1. World’s #1 asset servicer based on AUC. Source: Global Custodian for AUC data and State Street and BBH Investor Services internal analysis as of 2Q21 excluding central securities depositories. Also see endnote 3.
2. Expected earnings per share (EPS) accretion does not reflect estimated acquisition and restructuring costs. This is a non-GAAP presentation. See the slide presentation available on State Street's website and included in the presentation materials referenced above under "Conference Call" for a description of State Street's use of non-GAAP measures and related information. Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in conformity with GAAP.
3. As of June 30, 2021, Assets Under Custody and/or Administration (AUC/A) for State Street was $42.6 trillion.
4. Medium-term financial targets to be met by the end of 2023 or on a run-rate basis for FY2024. Pre-tax margin target assumes the closing of the announced acquisition of BBH Investor Services on December 31, 2021 (which closing is subject to regulatory approvals and customary closing conditions).
5. Gross cost synergies represent the reduction in pre-tax expenses achieved in a given year relative to 2020. Revenue synergies primarily represent opportunities to redirect certain Foreign Exchange (FX) trading activity onto State Street’s platform, expand share of wallet with clients and to redirect cash and deposits onto State Street’s balance sheet. Synergies are on an EBIT basis and are net of associated incremental operating costs. Synergies are on an EBIT basis and do not reflect acquisition and restructuring costs.
This News Release (and the conference call referenced herein) contains forward-looking statements within the meaning of United States securities laws, including statements about State Street’s planned acquisition of BBH’s Investor Services business and related business, financial, capital, staffing and operational effects and considerations.
Forward-looking statements are often, but not always, identified by such forward-looking terminology as “will” “expect,” “target,” “estimate,” “potential,” “plan,” “can,” “outlook,” “guidance,” “priority,” “objective,” “intend,” “forecast,” “believe,” “anticipate,” “seek,” “may,” “trend,” “strategy” and “goal,” or similar statements or variations of such terms. These statements are not guarantees of future performance, are inherently uncertain, are based on current assumptions that are difficult to predict and involve a number of risks and uncertainties. Therefore, actual outcomes and results may differ materially from what is expressed in those statements, and those statements should not be relied upon as representing our expectations or beliefs as of any time subsequent to the time this News Release is first issued.
Important factors that may affect future results and outcomes include, but are not limited to:
- The possibility that some or all of the anticipated business, financial, capital, staffing, operational or other benefits or synergies of the acquisition will not be realized when expected or at all, including as a result of the impact of, additional costs or unanticipated negative synergies associated with, or problems arising from, the integration of BBH’s Investor Services business (including challenges in transitioning clients, systems, technology or personnel), as a result of regulatory or operational challenges we may experience, as a result of disruptions from the transaction harming relationships with our clients, employees or regulators, or as a result of the strength of the economy and competitive factors in the areas where we and BBH’s Investor Services business do business;
- The failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect us or the expected benefits of the transaction, perhaps materially), to satisfy any of the other conditions to the acquisition or to arrange financing consistent with our expectations or at all, in each case, on a timely basis or at all; and, if delayed, the resulting effects, including in magnitude and timing of the expected financial benefits of the acquisition of BBH's Investor Services business, of a delayed closing of the acquisition (which expected financial effects are presented and determined assuming a closing date of 12/31/21);
- The occurrence of any event, change or other circumstances that could give rise to the termination of the definitive purchase agreement in respect of the acquisition;
- Potential adverse reactions or changes to client, regulatory, business or employee relationships, including those resulting from the announcement or completion of the acquisition;
- Demand for the products and services of State Street and of BBH’s Investor Services business;
- We are subject to intense competition, which could negatively affect our profitability;
- We are subject to significant pricing pressure and variability in our financial results and our AUC/A and AUM;
- Our development and completion of new products and services, including State Street Alpha, may involve costs and dependencies and expose us to increased risk;
- Our business may be negatively affected by our failure to update and maintain our technology infrastructure;
- The COVID-19 pandemic continues to create significant risks and uncertainties for our business;
- Acquisitions, strategic alliances, joint ventures and divestitures, and the integration, retention and development of the benefits of our acquisitions, pose risks for our business;
- The integration of BBH Investor Services may be more difficult, costly or time consuming than expected, and the anticipated benefits and cost synergies may not be fully realized;
- Competition for qualified members of our workforce is intense, and we may not be able to attract and retain the highly skilled people we need to support our business;
- We could be adversely affected by geopolitical, economic and market conditions;
- We have significant International operations, and disruptions in European and Asian economies could have an adverse effect on our consolidated results of operations or financial condition;
- Our investment securities portfolio, consolidated financial condition and consolidated results of operations could be adversely affected by changes in the financial markets;
- Our business activities expose us to interest rate risk;
- We assume significant credit risk to counterparties, who may also have substantial financial dependencies with other financial institutions, and these credit exposures and concentrations could expose us to financial loss;
- Our fee revenue represents a significant portion of our consolidated revenue and is subject to decline based on, among other factors, the investment activities of our clients;
- If we are unable to effectively manage our capital and liquidity, our consolidated financial condition, capital ratios, results of operations and business prospects could be adversely affected;
- We may need to raise additional capital or debt in the future, which may not be available to us or may only be available on unfavorable terms;
- If we experience a downgrade in our credit ratings, or an actual or perceived reduction in our financial strength, our borrowing and capital costs, liquidity and reputation could be adversely affected;
- Our business and capital-related activities, including common share repurchases, may be adversely affected by capital and liquidity standards required as a result of capital stress testing;
- We face extensive and changing government regulation in the jurisdictions in which we operate, which may increase our costs and compliance risks;
- We are subject to enhanced external oversight as a result of the resolution of prior regulatory or governmental matters;
- Our businesses may be adversely affected by government enforcement and litigation;
- Any misappropriation of the confidential information we possess could have an adverse impact on our business and could subject us to regulatory actions, litigation and other adverse effects;
- Our calculations of risk exposures, total RWA and capital ratios depend on data inputs, formulae, models, correlations and assumptions that are subject to change, which could materially impact our risk exposures, our total RWA and our capital ratios from period to period;
- Changes in accounting standards may adversely affect our consolidated financial statements;
- Changes in tax laws, rules or regulations, challenges to our tax positions and changes in the composition of our pre-tax earnings may increase our effective tax rate;
- The transition away from LIBOR may result in additional costs and increased risk exposure;
- Our control environment may be inadequate, fail or be circumvented, and operational risks could adversely affect our consolidated results of operations;
- Cost shifting to non-U.S. jurisdictions and outsourcing may expose us to increased operational risk and reputational harm and may not result in expected cost savings;
- If we, or the third parties with which we do business, experience failures, attacks or unauthorized access to our or their respective information technology systems or facilities, or disruptions to our continuous operations, this could result in significant costs, reputational damage and limits on our business activities;
- Long-term contracts expose us to pricing and performance risk;
- Our businesses may be negatively affected by adverse publicity or other reputational harm;
- We may not be able to protect our intellectual property;
- The quantitative models we use to manage our business may contain errors that could result in material harm;
- Our reputation and business prospects may be damaged if our clients incur substantial losses or are restricted in redeeming their interests in investment pools that we sponsor or manage;
- The impacts of climate change could adversely affect our business operations;
- We may incur losses as a result of unforeseen events including terrorist attacks, natural disasters, the emergence of a new pandemic or acts of embezzlement.
Other important factors that could cause actual results to differ materially from those indicated by any forward-looking statements are set forth in our 2020 Annual Report on Form 10-K and our subsequent SEC filings. We encourage investors to read these filings, particularly the sections on risk factors, for additional information with respect to any forward-looking statements and prior to making any investment decision. The forward-looking statements contained in this News Release (and the conference call referenced herein) should not by relied on as representing our expectations or beliefs as of any time subsequent to the time this News Release is first issued, and we do not undertake efforts to revise those forward-looking statements to reflect events after that time.
According to State Street’s admissions, for 17 years—from 1998 to 2015—bank executives conspired to add secret markups to “out-of-pocket” (OOP) expenses charged to the bank’s clients, which State Street tacked on to the cost of sending secured financial messages through the Society for Worldwide Interbank Financial Telecommunication network.
“These 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 mark-up,” the Justice Department stated.
State Street executives took steps to conceal the mark-ups from clients, including by not disclosing certain details on invoices and by misleading clients when they inquired about what they were being charged for OOP-related activities, according to the Justice Department.
Through these actions, State Street defrauded its clients out of more than $290 million, the Justice Department stated.
Under the terms of the deferred prosecution agreement, in addition to the $115 million penalty, State Street agreed to continue to cooperate with the U.S. Attorney’s Office in any ongoing investigations and prosecutions relating to the conduct. It also agreed to enhance its compliance program and retain an independent corporate compliance monitor for two years.
The Justice Department said it considered numerous factors in reaching the settlement, “including that State Street voluntarily disclosed the misconduct, fully cooperated with the investigation, and agreed to fully reimburse the victims of the misconduct for amounts they were overcharged.”
Remedial measures: Among the enhancements State Street made to its compliance program were terminating employees responsible for the misconduct; enhancing governance and oversight related to the accuracy of customer invoicing; enhancing controls to monitor and test costs for expenses to be billed to customers; developing new standard fee schedules to clarify the company’s invoicing methodologies; and taking additional steps to ensure consequences to both individuals and business units for misconduct.
The Justice Department said it also considered State Street paid disgorgement, prejudgment interest, and a civil penalty totaling approximately $89 million in a related settlement with the Securities and Exchange Commission in 2019. State Street has also paid civil penalties to state regulators in the amount of $8.6 million.
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 Street’s admissions, between 1998 and 2015, bank executives conspired to add secret markups to “out-of-pocket” expenses charged to the bank’s 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. attorney’s 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.
BOSTON – Massachusetts-based global financial services company State Street Corporation entered into a deferred prosecution agreement and agreed to pay a $115 million criminal penalty to resolve charges that it engaged in a scheme to defraud a number of the bank’s clients by secretly overcharging for expenses related to the bank’s custody of client assets.
“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,” said the Acting United States Attorney Nathaniel R. Mendell. “The resolution requires State Street to take responsibility for the damage it caused and is a signal from us that financial giants will be held accountable for fraudulent conduct.”
“With today’s settlement, State Street Corporation is finally acknowledging that it has defrauded its clients out of more than $290 million, through a deceitful scheme that was in practice for 17 years,” said Joseph R. Bonavolonta, Special Agent in Charge of the FBI Boston Division. “The consequences for companies who cheat the marketplace and American consumers are significant and clear. The FBI will aggressively investigate those who engage in illegal business practices while ensuring their activity is brought to a halt.”
According to State Street’s admissions, between 1998 and 2015, bank executives conspired to add secret markups to “out-of-pocket” (OOP) expenses charged to the bank’s clients while letting clients believe that State Street was billing OOP expenses as pass-through charges on which the bank was not earning a profit. These 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 mark-up. State Street executives also took steps to conceal the mark-ups from clients, including by not disclosing the details underlying OOP expenses on invoices and by misleading clients when they inquired about what they were being charged for OOP-related activities. Through this scheme, State Street defrauded its clients out of more than $290 million.
State Street entered into a deferred prosecution agreement in connection with a criminal information charging the company with one count of conspiracy to commit wire fraud. Pursuant to the agreement, State Street agreed to pay a criminal penalty of $115 million. State Street also agreed to continue to cooperate with the U.S. Attorney’s Office in any ongoing investigations and prosecutions relating to the conduct, to enhance its compliance program, and to retain an independent corporate compliance monitor for a period of two years.
This resolution is based on a number of factors, including that State Street voluntarily disclosed the misconduct, fully cooperated with the investigation, and agreed to fully reimburse the victims of the misconduct for amounts they were overcharged.
Acting U.S. Attorney Mendell and FBI Boston SAC Bonavolonta made the announcement today. Valuable assistance was provided by the U.S. Securities and Exchange Commission. Assistant U.S. Attorneys Justin D. O’Connell, of Mendell’s Securities, Financial & Cyber Fraud Unit, and Abraham George, of Mendell’s Affirmative Civil Enforcement Unit, are prosecuting the case.
Street and enforcement corporation state
Defendant Name: State Street Bank and Trust Company
Defendant Type: Subsidiary of Public Company
Public Company Parent: State Street Corporation
SIC Code: 6022
Initial Case Details
Legal Case Name In the Matter of State Street Global Markets, LLC, State Street Global Advisors Funds Distributors, LLC and State Street Bank and Trust Company
First Document Date07-Sep-2017
Initial Filing FormatAdministrative Action
Allegation Type Broker Dealer
•Sec 10(b) + Rule 10b-5
First Resolution Date 07-Sep-2017
Headline Total Penalty and Disgorgement $3,000,000
33-10411 07-Sep-2017 Administrative Proceeding
Order Instituting Administrative and Cease-and- Desist Proceedings, Pursuant to Section 8A of the Securities Act of 1933, and Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order
According to the SEC: "Respondents carried out a scheme to defraud six transition management customers from February 2010 to September 2011, by charging those customers hidden and unauthorized mark- ups and commissions beyond the fees, mark-ups, or commissions that the customers had agreed to pay on trading in U.S. and European securities."
2017-159_3-18159 07-Sep-2017 Press Release--Administrative Proceeding
State Street Paying Penalties to Settle Fraud Charges and Disclosure Failures
The SEC announced in a press release on September 7, 2017 "that State Street has agreed to pay more than $35 million to settle charges that it fraudulently charged secret markups for transition management services and separately omitted material information about the operation of its platform for trading U.S. Treasury securities."
Build 20210421122703Sours: https://research.seed.law.nyu.edu/Search/ActionDetail/1925/564
Fed Removes Enforcement Action on State Street
The Federal Reserve has lifted an enforcement action it placed on State Street(NYSE:STT) back in 2015 after it found deficiencies with the bank's compliance risk management program, the agency said today.
Specifically, the deficiencies were found regarding internal controls, customer due diligence procedures, and transaction monitoring processes related to the bank's anti-money-laundering (AML) and Bank Secrecy Act (BSA) systems.
Image Source: Getty Images
AML laws are put into place so criminals can't use banks to mask illegal money as legitimate income. The BSA requires banks to file reports with regulators whenever there is a suspicious cash transaction of more than $10,000.
The initial Federal Reserve enforcement action in 2015 does not specify what exactly triggered the order, but it does task State Street with improving a number of its controls and compliance processes, which likely required a lot more spending.
The Boston Business Journal at time of the enforcement action said State Street had taken a $150 million expense in the first quarter of 2015 for a legal dispute regarding indirect foreign exchange client activities.
Ross Delston, an anti-money-laundering lawyer, also told the publication at that time that it could cost State Street at least $10 million to improve its systems to get up to the Fed's standards.
M&T Bank received a similar order from the Federal Reserve in 2013, and it also took a comparable amount of time to free itself from the action.
The removal of the enforcement should bode well for State Street, a stock that has looked better relative to its peers in the banking industry in the midst of the coronavirus pandemic.
The bank increased profits 25% year over year in the first quarter, and its stock is now only down about 14% from the start of 2020.
You will also like:
- 2007 dodge charger body parts
- Are camels native to mexico
- Home goods glitter wall art
- Egr valve 2002 honda odyssey
- Solar bird bath big lots
- Medium layers with bangs
- 2015 dodge journey fuel filter
- Apartments for rent plymouth nc
- Fortnite skin of the day
- Photos of jesus christ
The Securities and Exchange Commission today announced that State Street Bank and Trust Company has agreed to pay over $88 million to settle charges for overcharging mutual funds and other registered investment company clients for expenses related to the firm's custody of client assets. The overcharges included a secret markup that State Street tacked on to the cost of sending secured financial messages through the Society of Worldwide Interbank Financial Telecommunication (SWIFT) network.
As described in the order, State Street's clients agreed to pay the firm back for out-of-pocket custodial expenses that the firm paid on the clients' behalf. Instead of charging clients for the actual amount of the expenses, however, the SEC order finds that State Street routinely overbilled its clients. According to the SEC’s order, from 1998 to 2015, State Street collected $170 million from the overcharges, with $110 million coming from the hidden SWIFT markup charged to thousands of its registered investment company clients. Subsequently, State Street has been and undertakes to continue reimbursing these overcharges, with interest, to affected clients.
"For years, State Street sent clients a bill for expense reimbursement, without disclosing that State Street had added extra compensation for itself – compensation that clients had not agreed to pay," said Paul G. Levenson, Director of the SEC's Boston Regional Office. "Fund expenses make a big difference to mutual fund investors and advisers; they have a right to receive honest information about what they’re paying for."
The SEC's order finds that State Street violated Section 34(b) of the Investment Company Act of 1940 and caused violations of Section 31(a) of the Investment Company Act and Rules 31a-1(a) and 31a-1(b) thereunder. Without admitting or denying the SEC's findings, State Street agreed to cease and desist from committing or causing any future violations of these provisions, to pay disgorgement and prejudgment interest of $48.78 million, which State Street has been returning directly to the affected registered investment companies, and to pay a civil penalty of $40 million. The order recognizes that State Street self-reported its conduct to the Commission and that it provided substantial cooperation to the Commission staff during the investigation.
The SEC's investigation was conducted by Michael Moran, Eric Forni, Jonathan Allen, and Amy Gwiazda of the Boston Regional Office, as well as Ruth Anne Heselbarth, formerly of the Boston Regional Office.