North American financial institution State Street has agreed to a settlement of $60 million in a lawsuit which was brought against the firm by investors which claimed that it generated high revenues in an unjust manner by overcharging its clients for FX services.
The settlement from the company concludes almost four years of litigation which focused on a period between October 2006 and October 2009 when purchasers of stock in the bank complained. The preliminary accord which was filed in Boston Federal Court two days ago requires the approval of US District Judge George A. O’Toole.
“State Street falsely told investors that it was earning hundreds of millions of dollars from legitimate foreign exchange trading operations,” plaintiffs’ lawyers said in court papers. In reality, they said, the bank was “artificially inflating its FX revenues by improperly overcharging its clients for FX services.”
State Street owns Currenex, one of the major FX ECN participants, therefore it cannot claim that it is ignorant or naive as far as fair fX practices go. As an institution, State Street is very aware of how FX markets work.
A number of US states had sued State Street, the third-biggest custody bank with $21 trillion in assets as of March 31 this year according to Bloomberg, and Bank of New York Mellon Corp., accusing them of overcharging on some foreign-exchange transactions.
State Street has previously been on the receiving end of investigations into its FX pricing, having been the subject of an investigation by the U.S. Securities and Exchange Commission.
“We continue to deny the allegations made in these lawsuits and believe that they lacked merit,” the firm stated to Bloomberg. “We agreed that the cases should be settled to eliminate the uncertainty, distraction, burden and expense of litigation.”
Aside from its contretemps with US authorities, State Street has also found itself out of favor with British authorities, which was reported at the time by LeapRate. During the period between June 2010 and September 2011 the Financial Conduct Authority found out that the company had overcharged six of its clients for a total of £20,169,603. Those particular clients were part of State Street UK’s investment management client base, or pension funds. The misconduct was identified only after one of the clients complained that he found out about mark-ups on certain trades that were not agreed to.
With regard to the recent matter which has been settled this week, the Public Employees’ Retirement System of Mississippi and Union Asset Management Holding AG, which led the State Street investors’ suit, settled to avoid risks of having to prove liability and damages at trial, their attorneys said in yesterday’s filing.
Public sector retirement funds in North America are becoming increasingly risk averse when entrusting the future of employees to financial institutions, exemplified by the withdrawal of all funds by many state pension administrators across the United States from FX Concepts last year following a period of low performance, subsequently resulting in the bankruptcy of FX Concepts, one of the United States’ oldest and largest FX hedge funds to have ever existed.