- Office of Attorney General Maura Healey
Media Contact for State Street to Pay $54 Million to Resolve Overcharge Allegations
Boston — Attorney General Maura Healey announced today that State Street will pay millions in restitution and penalties to resolve an investigation into allegations that the company overcharged many clients for certain services that were supposed to be billed on an “out-of-pocket” basis.
Under the terms of an assurance of discontinuance filed today in Suffolk Superior Court, State Street will pay restitution to customers expected to exceed $48 million and a penalty of $5.5 million to the state, in addition to agreeing to changes in its business practices. The AG’s Office will monitor the restitution process, which must be completed in 90 days.
“It’s important that SWIFT customers are treated fairly,” said AG Healey. “Our office will continue monitoring the reimbursement process to help ensure that every client is paid what they are owed.”
The Society of Worldwide Interbank Financial Telecommunication (SWIFT) is a messaging service used by financial institutions to transmit financial information and client instructions. State Street, which acts as a custody bank for certain mutual fund clients and investment companies, overcharged clients instead of billing them on an “out-of-pocket” basis. These charges, which consisted mainly of bills for the use of the SWIFT messaging system, were in many instances charged at rates far greater than State Street’s out-of-pocket cost to deliver the service.
While for many clients the charge for SWIFT fees may have been accurate at first, State Street failed to update the rate over time as the cost for the services decreased. This resulted in what certain senior State Street personnel described as a “mark-up” of the actual SWIFT expense. As noted by one vice president at the company “[t]he issue is we make money on this product, not charged at the true costs.” State Street did lower the charge – from $5 to 25 cents – after reviewing the matter, but only charged that reduced, more accurate rate to new clients or clients that State Street had not previously charged for SWIFT. Absent client-specific exemptions, other customers continued to pay $5 per message. As late as 2015, State Street secured a contract renewal with a client by offering to reduce the client’s SWIFT costs going forward, without disclosing to the client that State Street had overcharged the client for SWIFT for years.
From 1998-2015, State Street clients were overcharged by approximately $170 million. The company has been repaying those clients and this settlement will complete the reimbursement process for SWIFT overcharges.
This matter is being handled by the staff of AG Healey’s Insurance and Financial Services Division, including Special Assistant Attorney General Lilia DuBois, Paralegal Michael Beaulieu, and Division Chief Glenn Kaplan.