Claims Against State Street Securities for Pay-to-Play Violations

Last week, the Financial Industry Regulatory Authority (FINRA) charged State Street Securities and 11 of its bank officers and directors for fraud. The Securities and Exchange Commission (SEC) also alleged pay-to-play violations on behalf of the brokerage firm. State Street will pay $12 million for the transgressions. Additionally, FINRA censured and fined BNP Paribas for deficiencies in its large open position reporting system and position limit and Citadel Securities on written supervisory procedure failures. The SEC charged State Street $12 million to settle charges that it conducted a pay-to-play scheme through its senior vice president and hired a lobbyist to win contracts to service Ohio pension funds.

The SEC also filed charges against 11 former executives and board members at Superior Bank in Birmingham, Alabama and its holding company. It is alleged that the bank and the holding company tried to conceal their loan losses as the bank was failing. Employees mislead investors and bank regulators by talking up the bank’s financial conditions, using straw borrowers, phony appraisals and insider deals. The bank also allegedly proposed, structured and documented nonrecourse joint venture agreements with defaulted borrowers and a now-deceased outside director of the bank that made their loans look current, even when they were not. Superior Bank overstated its net income in public filings by 99% for 2009 and 50% for 2010. The bank failed in 2011. The investigation is ongoing.

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