Custody bank to pay $115 million to end overbilling investigation

Courts Fees Department of Justice Indictment Wire Fraud

On May 13, a Massachusetts-based custody bank entered into a deferred prosecution agreement (agreement) with the DOJ related to a criminal indictment for a single count of conspiracy to commit wire fraud. According to the DOJ’s press release, the bank acknowledged that, from at least 1998 through 2015, it, along with eight co-conspirator bank executives (collectively, “defendants”), defrauded clients of more than $290 million by charging hidden markups to out-of-pocket (OOP) expenses “on top of fees that the clients had agreed to pay the bank, and despite written agreements that caused clients to believe the expenses would be passed through to them without a markup.”

Under the terms of the agreement, the bank agreed to (i) pay a $115 million monetary penalty; (ii) continue to cooperate with the U.S. Attorney’s Office; (iii) enhance its compliance practices; and (iv) hire an independent compliance and business ethics monitor for two years. The DOJ credited the bank for (i) voluntarily disclosing its misconduct; (ii) cooperating with the DOJ’s investigation; (iii) undertaking remedial measures to enhance its compliance program and to ensure consequences for individuals and business units involved in the misconduct; (iv) reimbursing affected clients for the overbilled amounts; and (v) previously paying $88 million in civil money penalties to the SEC and $8.575 million in civil penalties to state regulators.