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STATE STREET CORP 8-K Report, Material Agreement (Jan 18, 2017)

Filed January 18, 2017For Securities:STTSTT-PG

Summary

State Street Corporation (STT) has entered into a settlement agreement with the U.S. Department of Justice (DOJ) and the United States Attorney for the District of Massachusetts to resolve an investigation into overcharging clients for transition management services in EMEA during 2010 and 2011. As part of the agreement, State Street will pay a $32.3 million penalty and enter into a deferred prosecution agreement, which includes retaining an independent compliance monitor for three years. Furthermore, the company has reached an agreement in principle with the Securities and Exchange Commission (SEC) staff to also pay a $32.3 million penalty, subject to final negotiations and SEC review. State Street had previously accrued $42 million for these investigations and has recorded an additional $23 million in Q4 2016 related to these settlements. The company also settled with the U.K. Financial Conduct Authority in 2014 for similar conduct.

Key Highlights

  • 1State Street reached a settlement with the U.S. Department of Justice (DOJ) regarding an investigation into overcharging clients for transition management services.
  • 2The company will pay a $32.3 million penalty to the DOJ as part of the settlement.
  • 3State Street has entered into a deferred prosecution agreement with the DOJ, requiring a three-year independent compliance monitor.
  • 4An agreement in principle has been reached with the SEC staff to also pay a $32.3 million penalty, pending finalization.
  • 5The company has increased its accrual for these investigations by $23 million in the fourth quarter of 2016.
  • 6This settlement resolves issues related to EMEA-based clients that were overcharged in 2010 and 2011.
  • 7A prior settlement with the U.K. Financial Conduct Authority in 2014 addressed similar conduct.

Frequently Asked Questions

State Street will pay a $32.3 million penalty to the DOJ and has an agreement in principle to pay another $32.3 million to the SEC, totaling $64.6 million in penalties. The company had already accrued $42 million and added an additional $23 million in Q4 2016 for these matters.

The deferred prosecution agreement with the DOJ requires State Street to retain an independent compliance and ethics monitor for a period of three years, subject to potential extension. This agreement is contingent on State Street adhering to its terms.

While an agreement in principle has been reached with the SEC staff, the resolution is subject to completion of negotiations on other terms and subsequent review by the SEC. Therefore, final settlement terms with the SEC are not yet fully determined and could change.

The investigation concerned overcharging for transition management services provided to six EMEA-based (Europe, Middle-East and Africa) clients during the years 2010 and 2011.