Did State Street Deceive Pension Fund Clients?
One of the world’s biggest institutional managers has found itself in the middle of an investigation by Massachusetts securities regulator William Galvin. The Wall Street Journal first reported that Boston-based State Street Corp. was being targeted by Galvin over whether the firm intentionally misled pension funds and institutional investors about the risks of certain bond funds.
Galvin’s probe apparently is zeroing in on State Street’s enhanced index bond funds, which include the State Street Limited Duration Bond Fund. According to the April 30 Journal article, the fund was marketed to pension funds, retirement plans and other investors as a safe, conservative bond fund when in actuality it held high-risk securities such as derivatives, swaps, and mortgage-backed assets.
This isn’t the first time State Street’s Limited Duration Bond has been at the center of state and federal investigations. Several investors previously sued State Street after suffering losses because of what they say was deception and gross negligence of State Street management to invest fixed-income funds in high-risk mortgage-backed securities.
In January 2008, State Street set aside more than $600 million to settle legal claims over losses and other issues associated with its bond funds. If Galvin’s investigation turns up evidence proving State Street deceived pension funds and institutional investors, that amount could be just the beginning.
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