Boston-based State Street Bank and Trust Co. has agreed to repay fund investors more than $300 million to settle Securities and Exchange Commission (SEC) charges that the firm misled the investors about their exposure to subprime investments while selectively disclosing more complete information to specific investors.
The SEC, the Massachusetts Securities Division and the Massachusetts Attorney General Martha Coakley's office launched an investigation into losses incurred by and disclosures made around certain active fixed-income strategies managed by State Street Global Advisors in 2007 and earlier periods. In reaching these settlements, State Street has not admitted or denied the allegations made by the regulators.
‘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,’ says Robert Khuzami, director of the SEC's enforcement division.
Under the terms of the settlement, State Street 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.