State Street Bank and Trust Co. has agreed to pay more than $300 million to investors who lost money during the subprime meltdown in 2007 under a settlement announced today by the Securities and Exchange Commission.
State Street was charged with misleading investors about their exposure to subprime investments while selectively disclosing more complete information to specific investors.
Under the terms of the settlement,
State Street has agreed to pay a $50 million penalty, more than $8.3 million in disgorgement and prejudgment interest and more than $255 million in additional payments to compensate investors. Combined with nearly $350 million that
State Street has already paid (or agreed to pay) some investors through settlements of private lawsuits, the total compensation to harmed
State Street investors is approximately $663 million, the SEC said.
“
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,” Robert Khuzami director of the SEC's Division of Enforcement, said in the release.
In reaching the settlements,
State Street neither admitted nor denied the allegations made by the regulators.
The enforcement action is the result of a joint effort by the SEC, the Massachusetts Securities Division and the Massachusetts attorney general's office, which also announced related charges against
State Street today.
While the company misled many investors about the subprime exposure in its Limited Duration Bond Fund, the company provided some investors with accurate and more complete information about the fund's subprime concentration, the SEC alleged in its complaint, which was filed in the U.S. District Court for the District of Massachusetts.
The investors who were given the more complete disclosures included clients of State Streets' internal advisory groups, which provided services to some of the investors in the fund, the complaint said.
“
State Street's internal advisory groups subsequently decided to redeem or recommend redemption from the fund and the related funds for the clients,” the complaint said.
State Street Corp.'s company pension plan was one of those clients.
