The SEC settled charges against a bank for misleading mutual fund companies and other custody clients by applying hidden markups to foreign currency exchange trades.

The SEC's investigation found that the bank assured its custodial clients that it guaranteed the most competitive rates available on foreign currency exchange trades and provided "best execution" rates, or charged "market rates," on the transactions. Instead, the SEC alleged, the bank set prices that largely were "driven by predetermined, uniform markups and the bank made no effort to obtain the best possible prices for these clients."

SEC Boston Regional Office Director Paul G. Levenson emphasized that the bank's actions involved not only misstatements but also a violation of trust:

Mutual funds and other registered investment companies should not face overreaching by the very banks hired to safeguard their assets.

The bank agreed to pay $167.4 million in disgorgement and penalties to the SEC, a $155 million penalty to the Department of Justice, and at least $60 million to ERISA plan clients, as per an agreement with the Department of Labor.

The SEC will issue its order instituting the settled administrative proceeding only after a federal court approves the bank's proposed settlement with private plaintiffs in pending securities class action lawsuits concerning the bank's pricing of foreign currency exchange trades.

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