State Street Says SEC, U.S. Attorney Probe U.K. Allegations

Feb 21, 2014 6:14 pm ET

(Updates with details of claims in third paragraph.)

Feb. 21 (Bloomberg) -- State Street Corp., the third- biggest custody bank, said the U.S. Securities and Exchange Commission and the U.S. Attorney’s Office are conducting separate investigations into claims that it overcharged clients in the U.K.

State Street paid a fine of $37.8 million to settle allegations made in January by the U.K. Financial Conduct Authority that it charged clients in excess of contractual terms, the Boston-based firm said today in a regulatory filing.

State Street deliberately overcharged six clients a total of $20.2 million from June 2010 until September 2011, the FCA said last month. The firm “developed and executed a deliberate strategy” to charge undisclosed fees on top of agreed management or commission payments at a unit that helps institutions restructure investments, according to the FCA.

The firm “dismissed individuals centrally involved in the overcharging” in 2011, State Street said in a Jan. 31 statement posted on its website. The firm has also enhanced controls to address the “unacceptable situation,” State Street said.

Custody banks keep records, track performance and lend securities for institutional investors including mutual funds, pension funds and hedge funds. State Street also manages investments for individuals and institutions. The hidden fees came on a service State Street provides to large customers such as asset managers and pension funds, helping them switch money between outside asset managers or when they restructure investments.

--Editors: Josh Friedman, Christian Baumgaertel