State Street Nears Settlements to End Probes Into Alleged Overcharges
May 16 2016 - 11:45AM
Dow Jones News
By Aruna Viswanatha
State Street Corp. is nearing a deal to pay more than $500
million to end long-running investigations from federal authorities
and others into allegations that the custody bank unlawfully
overcharged clients on foreign currency transactions, according to
people familiar with the matter.
The settlement, which could be announced this summer, is
expected to resolve claims from the U.S. Justice and Labor
departments and the Securities and Exchange Commission, as well as
lawsuits from clients including pension funds, these people
said.
The lawsuits accuse State Street of promising to execute foreign
exchange trades for clients at market prices, but instead using
inaccurate or fake rates that included hidden markups. The alleged
overcharges occurred between 1998 and 2009, according to the
lawsuits.
Earlier this month, State Street said in a securities filing it
had set aside $565 million to resolve related claims. But the deal
has been held up as the Justice Department and the bank work on a
statement of facts that the bank will admit to, people familiar
with the talks said.
In June 2015, the bank disclosed it set aside $585 million to
cover all of the claims. In November, it quietly entered into a
related $13 million settlement with the California Attorney
General's office, according to a copy of the agreement.
State Street said in a statement that "settlement agreements
have not been finalized," but it believes that the money it has set
aside will resolve the claims and investigations. "Matters of this
nature can drain both time and resources; so where possible and
appropriate we feel it is in State Street's and our clients' best
interests to pursue settlements, " the bank said.
In a May 6 filing and in the statement Monday, State Street said
that "although we believe this recorded legal accrual will address
the financial demands associated with these claims, significant
nonfinancial terms remain outstanding." Those terms include the
admissions, the people said.
Last year, the world's largest custody bank, Bank of New York
Mellon, paid $714 million to resolve similar allegations from
federal and state authorities and clients.
As in the BNY case, the Justice Department is expected to bring
civil fraud claims against State Street under the Financial
Institutions Reform, Recovery, and Enforcement Act, the people
said.
The private cases had been put on hold in January 2015 as the
bank sought to reach a settlement with the plaintiffs and
regulators.
Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com
(END) Dow Jones Newswires
May 16, 2016 11:30 ET (15:30 GMT)
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