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SEC Settles Charges against Custodian for Allegedly Overcharging Investment Company Clients

On June 27, 2019, the SEC announced that it had settled administrative proceedings against State Street Bank and Trust Company relating to allegations that State Street charged registered investment company clients for out-of-pocket expenses in connection with its custody of client assets in amounts that exceeded State Street’s actual costs. The SEC alleged that in State Street’s role as custodian and keeper of its clients’ financial and other records, State Street violated Section 34(b) of the Investment Company Act of 1940, which prohibits making untrue statements of material fact in a fund’s required records or reports, and caused violations of Section 31(a) of the 1940 Act and Rules 31a-1(a) and 31a-1(b) thereunder, which requires that a fund keep and maintain financial and other records. Without admitting or denying the SEC’s findings, State Street agreed to pay disgorgement and prejudgment interest of $48.78 million, which State Street has been returning directly to the affected clients, and pay a civil penalty of $40 million. The order recognized that State Street self-reported its conduct to the SEC and provided substantial cooperation to the SEC staff during the investigation. On the same day, the Massachusetts Attorney General announced that State Street would pay a $5 million penalty to the state to resolve its investigation of the matter.

The SEC order.

© 2022 Vedder PriceNational Law Review, Volume IX, Number 212
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About this Author

Vedder Price P.C. attorneys provide a full range of services to a diverse financial services clientele. Attorneys practicing in the firm’s Investment Services Group are experienced in all aspects of investment company and investment adviser securities regulations, broker-dealer regulatory and compliance matters, derivatives and financial product matters, and ERISA and tax matters. Clients include mutual fund complexes, hedge and other private funds, money managers, broker-dealers, independent directors, and many other types of institutions such as banks, savings and loans,...

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