Massachusetts' top securities regulator looks as if it will insist on a full breakdown of fees in its ongoing case with a State Street subsidiary.

Back in December, State Street Global Markets admitted it incorrectly overcharged its asset servicing clients, mostly in the US, at least $200m over the past 18 years.

A complaint from Boston’s chief securities watchdog William F. Galvin followed in April, charging the division with violating the Massachusetts Securities Act.

“State Street commonly charged out-of-pocket expenses to custodial clients, including pension fund, mutual fund, hedge fund and institutional investors,” the document claims.

Charges for secure electronic messages, known as SWIFT messages, relating to payments were labeled as out-of-pocket expenses but reportedly contained concealed markups as high as 1,900%.

“The regulators are demanding full and transparent disclosure of all fees earned, regardless of amount or materiality,” said Todd Cipperman, founder and managing partner of Cipperman Compliance.

“Also notable is the involvement of the Massachusetts Securities Division in what appears to be more of a banking regulation issue than securities fraud”, added Cipperman, who helps broker-dealers and funds with regulation.

In the enforcement section, Galvin is seeking a censure, an administrative fine, and other action, including client reimbursement, “which may be in the public interest and necessary and appropriate for the protection of Massachusetts investors.”

State Street has already said it deeply regrets the error and has been in discussions with affected clients and with governmental authorities.

“We are committed to compensating affected clients fully, including interest. Given that our internal review is ongoing, we cannot comment any further," a company spokesperson said. 

In a separate case, two former State Street executives Ross McLellan and Edward Pennings were indicted in early April on scheming to defraud at least six institutional investor clients.

McLellan and Pennings added “secret commissions” to billions of dollars of trades for the bank’s transition management clients between February 2010 and September 2011, claimed the US Attorney for Massachusetts and Federal Bureau of Investigation.

Massachusetts Securities Division's complaint, found here, claims there was a “dishonest and pervasive culture of overbilling” at the US custody bank.

As early as 2004, one State Street employee indicated the overhead expense associated with sending SWIFT messages was only $2 and not the standard $5 fee being passed onto clients.

In 2009, an email from a State Street employee suggested the true cost to US custodian bank was as low as $0.25.

A year later, another State Street employee acknowledged that the SWIFT message fee was not “<…> a true ‘out-of-pocket’ (OOP) as we have portrayed”.

One even remarked the firm was “taking them to the cleaners on SWIFT charges” according to Galvin's complaint.