State Street Bank & Trust has agreed to pay more than $300 million in restitution and a $10 million fine to settle allegations it misled some investors, Massachusetts regulators said Thursday.
State Street misled investors about the Limited Duration Bond Fund’s exposure to subprime investments which were listed under asset backed securities, not mortgage backed securities, according to state and federal regulators.
The fund, managed by State Street Global Advisors, and offered to large institutional investors starting in 2002, started to nosedive in value as the credit crisis first struck in 2007.
Boston-based State Street improperly provided internal advisers with information about the fund that allowed some investors to get out early, while others were not provided the same information about the dropping value of the fund, depriving them the opportunity to decide whether they wanted to remain invested, according to the offices of the state attorney general and secretary of state, as well as the Securities and Exchange Commission.
"State Street gave preferential treatment to some investors over others, leaving many investors … completely unaware of key facts about the funds," Attorney General Martha Coakley said.
Under terms of the settlement, about 270 investors, including nonprofits, religious institutions and retirement funds, will receive restitution.
State Street has also agreed to hire an independent consultant to review the firms policies and charge its company practices to avoid similar problems in the future.
Parent company, State Street Corp., said in a statement that agreeing to the settlement is neither an admission or denial of the allegations.
"We value our reputation as a trusted fiduciary to institutions around the world and we recognize the critical importance of fulfilling our fiduciary obligations," Chairman and Chief Executive Officer Ronald Logue said in the statement.
Combined with about $350 million in prior settlements to investors in private law suits, State Street has paid a total of about $663 million in compensation.
State Street had $18.8 trillion in assets under custody and administration and $1.9 trillion in assets under management as of Dec. 31.
The settlement is subject to the approval of a Suffolk Superior Court judge.
