SEC: State Street Engaged in Pay-to-Play

State Street will pay $12 million to settle charges that it conducted a pay-to-play scheme to win contracts to service Ohio pension funds.

An investigation by the US Securities and Exchange Commission (SEC) found that while a senior vice president at State Street, Vincent DeBaggis made “illicit cash payments and political campaign contributions” to Ohio’s former deputy treasurer, Amer Ahmad. In exchange, the regulator said State Street received three “lucrative” contracts to safeguard the state pension funds’ investment assets and effect the settlement of their securities transactions.

“Pension fund contracts cannot be obtained on the basis of illicit political contributions and improper payoffs,” said Andrew Ceresney, director of the SEC’s enforcement division. “DeBaggis corruptly influenced the steering of pension fund custody contracts to State Street through bribes and campaign donations.”

The SEC said Robert Crowe, a law firm partner who worked as a fundraiser and lobbyist for State Street, also served as a “conduit for corrupt payments” in the scheme. He entered into “undisclosed arrangements with the then-deputy treasurer to make secret illegal campaign contributions to obtain and retain business awarded to State Street,” the regulator added.

“Pay-to-play schemes are intolerable, and lobbyists and their clients should understand that the SEC will be aggressive in holding participants accountable,” said David Glockner, director of the SEC’s regional office in Chicago. 

The investigation revealed State Street had engaged in a lobbying arrangement “devised to funnel money” to Ahmad in exchange for the Ohio pension funds contracts from February 2010 to April 2011. 

Ahmad and another participating lobbyist are currently in federal prison, having been criminally convicted for other misconduct that occurred during the deputy treasurer’s tenure.

State Street and Debaggis agreed to pay settlements of $12 million and $274,000, respectively, but did not admit or deny the charges. The complaint against Crowe remains ongoing.

A State Street spokesperson told CIO June 2015 that it has since “eliminated the hiring of consultants and lobbyists for our asset servicing dealings with US retirement plans.” Without lobbyists, she said the firm had retained 20 of 21 existing public pension fund clients’ asset servicing contracts over the past two years.

“No person or entity was retained to solicit these businesses on State Street’s behalf and the proposals were evaluated independently on merits,” she said.

Related: State Street Under Investigation for Public Pension Pitch Tactics & State Street’s Pension Pitch Questioned