They give the term "bank robber" a new meaning
By Phil Mattera for the Dirt Diggers
Digest
Boston-based State Street Corporation traces its history back to
1792 and now manages more than $3 trillion in assets, yet it has always
maintained a lower profile than the goliaths of Wall Street. Recently, the
company was in the spotlight, though not in a good way.
Jesse Costa/WBUR
The U.S. Attorney’s Office for Massachusetts announced that State Street would pay a
$115 million criminal penalty to resolve charges that it engaged in a scheme to
defraud a number of its 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,” said Acting U.S. Attorney
Nathaniel Mendell. “They tacked on hidden markups to routine charges for
out-of-pocket expenses.”
What’s remarkable is this simple fraud went on, according to
prosecutors, for 17 years. This suggests that a large number of company executives
were in on the scheme. In effect, it became part of State Street’s standard
operating procedure.
It is disappointing that, aside from the monetary penalty—which can be easily absorbed by a company of its size–State Street was let off with what amounted to a slap on the wrist. Like numerous large corporate violators before it, State Street was allowed to enter into a deferred prosecution agreement rather than being compelled to enter a guilty plea.
The DPA is all the more controversial because State Street did not have a pristine record prior to this case. As shown in Violation Tracker, it has paid more than $1 billion in penalties in previous cases dating over a decade.
These
included a 2010 case in which it had to pay $313 million to resolve allegations by
the Securities and Exchange Commission and the Massachusetts Attorney General
that it misled investors about their exposure to subprime investments while
selectively disclosing more complete information to specific investors.
Later, in 2016, State Street paid $382 million to the resolve an SEC case
alleging that it misled mutual funds and other custody clients by applying
hidden markups to foreign currency exchange trades. Hidden markups seem to be a
recurring theme for State Street.
Since 2010 the company has paid out another $400 million in
cases brought by the SEC and state regulators as well as class action lawsuits
involving its management of pensions and benefit plans.
Yet perhaps the most disturbing entry on the Violation Tracker
list is a 2017 case in which State Street paid a $32 million penalty to the Justice
Department to resolve charges that it engaged in a scheme to defraud a number
of the bank’s clients by secretly applying commissions to billions of dollars
of securities trades.
As in this year’s criminal case, State Street was allowed to
wriggle out of those charges by signing a deferred prosecution agreement. That
puts the company in the dubious group of corporations that, as a 2019 Public
Citizen report showed, have been offered multiple
DPAs or non-prosecution agreements.
The ability of a corporation to obtain multiple leniency
agreements makes a mockery of DPAs and NPAs. These arrangements are justified
as a way to encourage a wayward company to change it practices, yet the ability
to obtain multiple get-out-of-jail-free agreements does nothing more than
incentivize more misconduct.
