The State Street Corporation exudes an image of rock-solid, Yankee inventiveness and accountability. In business since 1792, with its headquarters in Boston and the impressive logo of a clipper ship on the high seas, the company is seemingly above reproach.
After all, the worldwide investment and financial firm boasts more than $3.15 trillion in assets under management, with nearly $12 billion in annual revenues. Yet, the publicly-traded entity keeps getting into trouble.
Within just the past decade, give or take, they have faced – and paid off currency trade charges, discrimination lawsuits, a 2017 fraud case (costing them about $65 million) which spilled over into 2018 when two former employees were sentenced for their roles in the scam.
Now, they are looking into a deferred litigation that is going to cost them a penalty of $115 million.
Between 1998 to 2015
The company with the powerful image of the sailing ship, has just admitted to resolve charges of client fraud over a 17-year period. Executives confessed to a scheme of “secret markups” on supposedly non-profit trades.
According to the Justice Department:
“Executives also tried to conceal the markups by not disclosing expense details on invoices and misleading clients who asked about the charges, ultimately defrauding clients out of more than $290 million, according to prosecutors.”
They have just been charged with conspiracy to commit wire fraud.
From my point of view, what is most interesting (again from the Justice Department):
“The corporation also agreed to enhance its compliance program and hire an independent corporate compliance monitor for a period of two years.”
Company spokesman Edward Patterson was just quoted as saying:
“We regret these overcharges, which have also been the basis of prior settlements with regulators including the Securities and Exchange Commission. We have also invested, and continue to invest, significant resources to improve and strengthen our invoicing processes, controls and governance.”
Is it Enough?
State Street has reimbursed the victims who were defrauded of millions in hidden markups and “routine charges for out-of-pocket expenses.”
The company has resolved to do better in the future than to tack on hidden fees and overcharge for services.
But is it enough?
The multi-billion-dollar entity with trillions in assets might be sincere in its intentions, or are they secretly willing to keep bending the rules to squeeze out every penny it can to impress shareholders and analysts? Do they view the penalties resulting in fraud as a serious wake-up call or is it a shrug of the shoulders and a wink that it was just the cost of doing business? And while the executive culture hasn’t been analyzed here, there is a seeming pattern in place that is disturbing.
The answer is ethics training.
However, in stressing ethics training, I am not suggesting independent “compliance” officers who are looking at the regulatory picture, but prevention of future wrong-doing and on-going training of officers. For the State Street Corporation lists nearly 40,000 employees and it’s a virtual guarantee that there will always be those who will note a lack of oversite and will try to take advantage of it.
Among that large group in branches throughout the world, there will be those with a need for money and power, and even if they could face getting caught, they will rationalize their actions.
Ethics training reinforces an ethical sense in those who are already ethical. They are the prime defense against those committing unethical acts. Ethical training creates a sense of awareness, and a sense of ethical obligation to the organization.
There is no price-tag on the value of an ethical workforce, but after this latest fine, State Street Corporation might appreciate it.
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