A broker-dealer agreed to settle charges brought by the SEC in two separate enforcement actions. The SEC alleged (i) fraudulent overcharges of various securities trading fees and mark-ups and (ii) misleading disclosures regarding trade functionality on a government securities trading platform.
In the first Order, the SEC alleged that certain subsidiaries of State Street Corporation ("State Street") used "secret markups" to overcharge several "transition management" customers. According to the SEC, the firm charged customers hidden commissions and markups in excess of agreed rates for various high volume securities transactions. Employees of the firm allegedly created fictitious spreads and market impact metrics to hide the overcharges. The SEC also claimed that a State Street employee played a significant role in facilitating and concealing the overcharges. The employee allegedly circumvented State Street compliance staff by arranging for repayment to the aggrieved party without properly recording it in the firm's internal system. The SEC charged the firm with violations of Securities Act Sections 17(a)(1) and (3), Exchange Act Sections 10(b) and 15(c)(1), and Rules 10b-5(a) and (c).
In a separate Order, the SEC found that State Street provided one subscriber to its government securities trading platform with "last look" capabilities that allowed the subscriber to reject trade matches with other subscribers on a post-match basis. The firm failed to disclose this "last look" arrangement to other subscribers while marketing the trading platform as "fair and transparent." With regard to these disclosure violations, the SEC charged State Street with violating Securities Act Section 17(a)(2).
To settle the charges, State Street agreed to pay (i) $32.3 million for the alleged overcharge and markup fraud undertook to institute a remediation program with a compliance consultant and (ii) $3 million for the "last look"-related disclosure violations.
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