SEC Charges State Street for Pay-to-Play Scheme

The Securities and Exchange Commission today announced that State Street Bank and Trust Company agreed to pay $12 million to settle charges that it conducted a pay-to-play scheme through its then-senior vice president and a hired lobbyist to win contracts to service Ohio pension funds (see here).

An SEC investigation found that Vincent DeBaggis, who headed State Street’s public funds group responsible for serving as custodians or sub-custodians to public retirement funds, entered into an agreement with Ohio’s then-deputy treasurer to make illicit cash payments and political campaign contributions.  In exchange, State Street received three lucrative sub-custodian contracts to safeguard certain funds’ investment assets and effect the settlement of their securities transactions.

DeBaggis agreed to settle the SEC’s charges by paying $174,202.81 in disgorgement and prejudgment interest and a $100,000 penalty.
“Pension fund contracts cannot be obtained on the basis of illicit political contributions and improper payoffs,” said Andrew J. 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 further alleges that Robert Crowe, a law firm partner who worked as a fundraiser and lobbyist for State Street, participated in the scheme and 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 SEC filed a complaint against Crowe today in U.S. District Court for the Southern District of Ohio.

“Our complaint alleges that Crowe served as a conduit for corrupt payments from State Street to influence decisions about public pension fund service contracts,” said David Glockner, Director of the SEC’s Chicago Regional Office.  “Pay-to-play schemes are intolerable, and lobbyists and their clients should understand that the SEC will be aggressive in holding participants accountable.”

According to the SEC’s orders instituting the settled administrative proceedings against State Street and DeBaggis

  • DeBaggis caused State Street to enter into a purported lobbying agreement with an immigration attorney named Mohamed Noure Alo, who had no lobbying experience but had connections to Ohio’s then-deputy treasurer Amer Ahmad.
  • The purported lobbying agreement was devised to funnel money through Alo to Ahmad in exchange for the Ohio pension funds contracts.
  • From February 2010 to April 2011, State Street paid $160,000 in purported lobbying fees to Alo and a substantial portion was routed to Ahmad.
  • DeBaggis understood that Alo was acting on Ahmad’s instructions and would be sharing his purported lobbying fees with Ahmad.
  • DeBaggis and Crowe additionally arranged for at least $60,000 in political contributions to the Ohio treasurer’s election campaign in return for Ahmad awarding State Street the sub-custodian contracts.

According to the SEC’s complaint against Crowe:

  • In March 2010, Crowe met Ahmad’s demand for campaign contributions by illegally filtering $16,000 through his personal bank account and reimbursing individuals for contributions made in their own names.
  • Crowe continued to make secret illicit campaign contributions until at least September 2010 in response to Ahmad’s threats that State Street would lose the business.

Ahmad and Alo have been criminally convicted for other misconduct occurring during Ahmad’s tenure and are currently in federal prison.
State Street and DeBaggis consented to the SEC’s orders without admitting or denying the findings that they violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The $12 million that State Street agreed to pay in the settlement comprises $4 million in disgorgement and prejudgment interest and an $8 million penalty.  The SEC’s complaint against Crowe seeks disgorgement and penalties as well as injunctive relief.

The SEC’s investigation was conducted by Thu Ta, Sally Hewitt, Ariella Guardi, Brian Fagel, and C.J. Kerstetter of the Chicago office.  The litigation against Crowe will be led by Alyssa Qualls and Dan Hayes of the Chicago office.  The case has been supervised by Robert Burson and Timothy Warren. 

The SEC’s Asset Management Unit and Municipal Securities and Public Pension Unit were involved in the investigation.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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