State Street Corporation agreed to pay more than $300 million to settle a lawsuit brought by the Securities and Exchange Commission which charged the company with misleading its investors about their exposure to subprime investments while selectively disclosing more complete information to specific investors.
State Street agreed to settle the SEC’s charges by paying more than $300 million that will be distributed to investors who lost money during the subprime market meltdown in 2007. This payment is in addition to nearly $350 million that State Street previously agreed to pay to investors in State Street funds to settle private claims, according to the SEC.
“State Street led investors to believe that their investments were more diversified than a typical money market portfolio, when instead they were invested almost entirely in subprime investments that ultimately caused hundreds of millions of dollars in losses,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
According to the SEC’s complaint and order, State Street sent investors a series of misleading communications beginning in July 2007 concerning the effect of the turmoil in the subprime market on the Limited Duration Bond Fund and other State Street funds that invested in it. At the same time, however, State Street provided particular investors with more complete information about the fund’s subprime concentration and other problems with the fund. These other investors included clients of State Street’s internal advisory groups, which provided advisory services to some investors in this fund and related funds.
Ronald E. Logue, State Street’s chairman and chief executive officer said, “We value our reputation as a trusted fiduciary to institutions around the world and we recognize the critical importance of fulfilling our fiduciary obligations. As such, we were determined to work with our regulators and with our customers to resolve their concerns around investments in certain of (our) active fixed-income strategies in 2007.”
State Street Corporation describes itself as the world’s leading provider of financial services to institutional investors, with $18.8 trillion in assets under custody and administration and $1.9 trillion under management.
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