The Securities and Exchange Commission (SEC) announced that State Street Bank And Trust Company has agreed to pay $12 million to settle charges related to a “pay-to-play” scheme. The scheme involved a former senior vice president and a lobbyist who colluded to secure contracts with Ohio pension funds.
An SEC investigation revealed that Vincent DeBaggis, then Senior Vice President at State Street and head of its public funds group, orchestrated an agreement with Ohio’s then-deputy treasurer. This agreement involved illicit cash payments and political campaign contributions in exchange for lucrative sub-custodian contracts. These contracts allowed State Street to manage and safeguard the investment assets of Ohio pension funds and handle their securities transactions.
DeBaggis himself has agreed to settle charges, paying over $174,000 in disgorgement and prejudgment interest, along with a $100,000 penalty.
Andrew J. Ceresney, Director of the SEC’s Enforcement Division, stated, “Pension fund contracts cannot be obtained on the basis of illicit political contributions and improper payoffs. DeBaggis corruptly influenced the steering of pension fund custody contracts to State Street through bribes and campaign donations.”
The SEC also alleges that Robert Crowe, a law firm partner and lobbyist for State Street, was involved in the scheme. Crowe is accused of working with the then-deputy treasurer to make secret and illegal campaign contributions to secure and maintain business for State Street.
A complaint has been filed against Crowe in the U.S. District Court for the Southern District of Ohio.
David Glockner, Director of the SEC’s Chicago Regional Office, commented, “Our complaint alleges that Crowe served as a conduit for corrupt payments from State Street to influence decisions about public pension fund service contracts. Pay-to-play schemes are intolerable, and lobbyists and their clients should understand that the SEC will be aggressive in holding participants accountable.”
The SEC’s orders detail the scheme:
- State Street, through DeBaggis, entered into a lobbying agreement with Mohamed Noure Alo, an immigration attorney with connections to Ohio’s then-deputy treasurer, Amer Ahmad, despite Alo’s lack of lobbying experience.
- This agreement was a front to channel funds to Ahmad in exchange for the Ohio pension funds contracts.
- Between February 2010 and April 2011, State Street paid $160,000 in purported lobbying fees to Alo, a significant portion of which was passed on to Ahmad.
- DeBaggis was aware that Alo was acting under Ahmad’s direction and sharing the lobbying fees with him.
- DeBaggis and Crowe also arranged for at least $60,000 in political contributions to the Ohio treasurer’s election campaign as a quid pro quo for Ahmad awarding the sub-custodian contracts to State Street.
Further details from the SEC’s complaint against Crowe reveal:
- In March 2010, Crowe fulfilled Ahmad’s demand for campaign contributions by illegally funneling $16,000 through his personal account, reimbursing others for contributions made in their names.
- Crowe continued these secret, illegal contributions until at least September 2010, driven by Ahmad’s threats that State Street would lose the business if the payments stopped.
Amer Ahmad and Mohamed Noure Alo have both been criminally convicted for other misconduct during Ahmad’s tenure and are currently serving federal prison sentences.
State Street and DeBaggis consented to the SEC’s orders without admitting or denying the findings, which stated they violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The $12 million settlement for State Street includes $4 million in disgorgement and prejudgment interest, and an $8 million penalty. The SEC is seeking disgorgement, penalties, and injunctive relief against Crowe.
The SEC investigation was conducted by several members of the Chicago office, with litigation against Crowe being led by Alyssa Qualls and Dan Hayes. Supervision was provided by Robert Burson and Timothy Warren, with involvement from the SEC’s Asset Management Unit and Municipal Securities and Public Pension Unit.
This case underscores the SEC’s commitment to cracking down on pay-to-play schemes and ensuring fairness and integrity in the awarding of public pension fund contracts. The message is clear: financial institutions must compete fairly and ethically, without resorting to illegal contributions or payoffs to win business.
