US - State Street Corp. has reached a settlement with the SEC and Massachusetts authorities that results in the firm ultimately paying US$663m to investors who lost money in active fixed income strategies run by State Street Global Advisors.
The firm said yesterday it settled without admitting or denying guilt.
In 2007, State Street came under fire from investors for allegedly misrepresenting the amount of risk in some of its bond funds - particularly the Limited Duration Bond Fund, run by SSgA.
As part of the agreement with the Securities and Exchange Commission, State Street agreed to establish a $313m fair fund, which includes a $50m fine and $8m in advisory fees.
"Combined with the approximately $350 million in prior client settlements, the total compensation to investors will be approximately $663 million," State Street said in a release.
The firm also agreed to pay $10m each to the Massachusetts Secretary of State and the Massachusetts Attorney General.
State Street chairman and chief executive Ronald Logue 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 SSgA's active fixed-income strategies in 2007."
The firm's legal woes, however, are not over.
In the past two months, Dutch pension funds Stichting Pensioenfonds Medewerkers Apotheken and Stichting Pensioenfonds British American Tobacco both filed suits for losses in the firm's long/short equity strategies.
The pension funds allege State Street breached its fiduciary duties by "transferring ownership of substantially all of the Fund's securities to Lehman Brothers, which were commingled with Lehman's assets, re-transferred to third parties, and ultimately lost when Lehman failed". (Global Pensions; February 2, 2010)
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The lifetime allowance should be scrapped and replaced with a lower annual allowance, last week's Pensions Buzz respondents said.
Action for Children Pension Fund has outsourced its pensions administration to Trafalgar House.