Types Of SEC Cases: Pay To Play
SEC Fines State Street $12 Million For Pay To Play Fraud Involving Ohio Pension Funds
The SEC charged State Street Bank and Trust Company (“State Street”) with conducting a pay to play fraud scheme.
The SEC alleged that State Street conducted an illegal pay to play scheme in which one of its senior vice presidents paid bribes to a lobbyist to win contracts for the servicing of several Ohio pension funds.
Kickbacks To The Ohio Deputy Treasurer In Furtherance Of The Pay To Play Fraud
In the SEC’s Administrative Orders, it charged Vincent J. DeBaggis, a former Senior Vice President and Head of Public Funds at State Street, and Amer Ahmad, Deputy Treasurer of the State of Ohio, with carrying out the pay to play scheme.
The Orders alleged that DeBaggis and Ahmad agreed to a series of illegal payments and political campaign contributions in exchange for State Street being granted a number of sub-custodian contracts awarded by the Office of the Treasurer of the State of Ohio.
In 2010 and 2011, on behalf of State Street, DeBaggis paid $160,000 to Mohamed Noure Alo for supposed lobbying fees. Alo had no prior lobbying experience, but held himself out as someone who had connections to the Ohio Treasurer and Ahmad.
The SEC alleged that a large portion of those fees were in fact kickbacks to Ahmad. According to the SEC, DeBaggis knew that Alo was acting on Ahmad’s instructions, and also that Alo was sharing his supposed lobbying fees with Ahmad as part of the pay to play scheme.
The SEC’s Court Case Against Another Lobbyist In The Pay To Play Fraud
Another State Street lobbyist, Robert B. Crowe, along with DeBaggis allegedly arranged for at least $60,000 in illicit political contributions to the Ohio Treasurer’s election campaign. Those payments were purportedly made to obtain and retain Ohio pension plan business for State Street.
On the same day that the SEC entered its Administrative Orders against State Street and DeBaggis, it filed a Complaint against Crowe in the U.S. District Court for the Southern District of Ohio for Crowe’s role in the pay to play scheme.
In a press release, the Director of the SECʼs Chicago Regional Office made the following statement regarding the court Complaint against Crowe:
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.
As A Result Of The Pay To Play Scheme, State Street Won 3 Ohio Pension Fund Contracts
The SEC explained that in exchange for the kickbacks and campaign contributions, Ahmad awarded sub-custody contracts to State Street for three of the four pension fund contracts that State Street bid on.
Those contracts were for The State Teachers Retirement System of Ohio, the Ohio Public Employees Retirement System, and the Ohio Police & Fire Pension Fund.
From 2010-2014, State Street earned over $30 million in direct fees from those three pension fund contracts. State Street also earned an additional $13.5 million in indirect revenue.
State Street Fined $12 Million
State Street and DeBaggis consented to the SEC’s Orders and agreed to settle the charges as follows:
- $4 million in disgorgement and prejudgment interest (State Street)
- $8 million penalty (State Street)
- $174,202.81 in disgorgement and prejudgment interest (DeBaggis)
- $100,000 penalty (DeBaggis)
Ahmad and Alo were criminally convicted of other crimes related to Ahmad’s tenure in office and were sentenced to federal prison.
Whistleblowers Can Report Pay To Play Frauds To The SEC
This case illustrates some types of misconduct that could give rise to SEC whistleblower cases if reported to the Commission through the SEC whistleblower program.
However, the SEC has not made any public statement as to whether this case was itself an actual SEC whistleblower case. The SEC Office of the Whistleblower posts Notices of Covered Action (“NoCA”) for Commission actions where a final judgment or order results in monetary sanctions exceeding $1 million. The NoCA list does not disclose if a particular Enforcement action was brought as the result of an SEC whistleblower case, tip, complaint, or referral being filed with the Commission.
For more information about public pension fund pay to play fraud, click on the links below:
- The SEC’s Order – State Street. (External link to the SEC’s website.)
- The SEC’s Order – DeBaggis. (External link to the SEC’s website.)
- The SEC’s court Complaint in SEC v. Crowe. (External link to the SEC’s website.)
- The SEC’s Press Release announcing the cases. (External link to the SEC’s website.)