SEC Charges Bank, Others In Pay-to-Play Scheme Over Ohio Public Pension Funds

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WASHINGTON – The Securities and Exchange Commission charged State Street Bank and Trust Co., the former head of its public funds group, and a lawyer-lobbyist with securities fraud for making illicit payments and campaign contributions to obtain Ohio pension fund business worth millions.

The Boston-based bank agreed to pay $12 million to settle the charges stemming from the pay-to-play scheme. That amount includes an $8 million penalty and $4 million of ill-gotten gains to be disgorged.

Vincent DeBaggis, who headed the group responsible for serving as custodian to the Ohio public retirement funds, also agreed to settle securities fraud charges by paying a $100,000 penalty and disgorging almost $174,203 in ill-gotten gains.

The SEC also filed a lawsuit against Robert Crowe, a fundraiser and lobbyist for the bank, in a federal district court in Ohio. Crowe is a partner at Nelson Mullins Riley & Scarborough in Boston.

"Pension fund contracts cannot be obtained on the basis of illicit political contributions and improper payoffs," said Andrew Ceresney, director of the SEC's enforcement division. "DeBaggis corruptly influenced the steering of pension fund custody contracts to State Street through bribes and campaign donations."

Arthur McMahon, 3rd, a lawyer with Taft Stettinius & Hollister representing Crowe, said, "The SEC's allegations regarding Mr. Crowe are patently untrue. Moreover, nothing the SEC has alleged would constitute securities fraud, a breach of the SEC's pay-to-play rules or a violation of any other rule the SEC has authority to enforce. While we are confident that Mr. Crowe will be vindicated in due course, we are disappointed that Mr. Crowe will be required to defend himself and his reputation in a case that the SEC has no basis for bringing."

The events in the case unfolded between February 2010 and April 2011 and included then-Ohio deputy state treasurer Amer Ahmad, who is now in federal prison after being criminally convicted for other misconduct during his tenure.

During this period, DeBaggis caused State Street to pay $160,000 to a hired lobbyist with ties to Ahmad named Mohamed Noure Alo, according to the SEC order. Alo, an immigration attorney who had no experience lobbying, drew on his relationship with Ahmad and funneled portions of those lobbying fees to the deputy treasurer in exchange for State Street's subcustodian business for three Ohio pension funds. DeBaggis and Crowe also arranged for at least $60,000 in political contributions to be made to Ahmad's election campaign.

Ohio law gives the treasurer's office the sole authority to select service providers that perform custody services for pension fund assets. The law also requires the office to only enter into contracts with banks located in Ohio. However, there is an option of having the Ohio custodian bank subcontract with another bank outside the state with the stipulation that the subcontracting bank is chosen by the treasurer's office.

In January 2010, under Ahmad's direction, the treasurer's office issued a request for information to get bids for subcustodian contracts for four separate pension funds. Shortly before State Street submitted a bid in response to the RFI, a State Street vice president of institutional sales and marketing met Alo at a fundraiser. When Alo called later proposing he work with State Street to secure the subcustodian roles, the vice president passed Alo off to DeBaggis.

DeBaggis, without telling State Street management about his plan, entered into a lobbying agreement with Alo allegedly on behalf of the bank. The agreement paid Alo $8,000 a month, with the pretext that Alo would not be lobbying and instead would share a portion of that money with Ahmad.

The payments would increase to $10,000 a month if State Street got two of the pension contracts. On March 29, 2010, the treasurer's office awarded State Street subcustodian contracts for the State Teachers Retirement System of Ohio, the Ohio Public Employees Retirement System, and the Ohio Police & Fire Pension Fund.

While the relationship with Alo was unfolding, DeBaggis was also directing the campaign contributions through Crowe. Soon after he was hired, Alo told the State Street vice president of institutional sales and marketing he had met at a campaign function for the former treasurer that the bank had a better chance of getting the contracts if it donated to the Ohio treasurer's election fund.

The vice president thought the idea was improper but told DeBaggis about his conversation with Alo. DeBaggis asked State Street's compliance department about whether such donations were allowed. However, without waiting to get a response and without getting the required approval from State Streets chief executive officer, he helped Crowe contribute to the campaign.

By March 11, 2010, the treasurer's campaign had received $20,395 from Crowe and people associated with Crowe and the amount included $16,000 DeBaggis had instructed Alo to send to Crowe.

DeBaggis heard from State Street's compliance department in April 2010 that no donations should be made to the treasurer's campaign because of concerns about pay-to-play.

The treasurer's campaign received at least an additional $11,595 from Crowe and people associated with him, despite the decision from the State Street compliance department that contributions should not be made.

The SEC said Crowe understood that State Street was winning and retaining the contracts with Ohio because of the campaign contributions and believed the donations were key to keeping State Street as a client.

The pay-to-play scheme eventually came apart after the treasurer lost in the November 2011 election and the Department of Justice subpoenaed State Street's documents related to the subcustodian bids.

State Street terminated its agreements with Alo and Crowe in 2011 and fired DeBaggis in September 2014 after he declined to be interviewed by the SEC.

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