Two Former State Street Execs Battle SEC Charges

The regulator is charging two former top State Street Corp. executives of misleading investors in a bond fund at the center of a $313 million settlement between parent State Street and the SEC earlier this year.

(October 1, 2010) — The US Securities and Exchange Commission (SEC) has charged two former employees of Boston-based State Street Bank & Trust Co., including John Flannery, the firm’s chief investment officer of the Americas until November 2007, with misleading investors about their exposures to subprime investments.

The SEC accused John Flannery and James Hopkins, a former product engineer, of marketing the company’s Limited Duration Bond Fund as a portfolio as safe as a money market fund. While the fund was almost wholly invested in subprime mortgage-backed securities and derivatives by 2007, the SEC said, State Street only told certain investors of the mounting risks in the fund amid the credit crisis. In the first three weeks of August 2007, the fund lost 37% of its value soon after credit conditions generally began to tighten.

“Hopkins and Flannery played an instrumental role in drafting the misrepresentations in these investors communications.” the SEC said. “At the same time, State Street provided certain investors with accurate and more complete information about the Fund’s subprime concentration.”

The civil charges come almost eight months after State Street, one of the world’s largest institutional investors with $1.9 trillion under management, agreed to pay more than $300 million to settle related charges by state and federal regulators. SSgA, the second-largest money manager for institutions, resolved related claims in February without admitting or denying the allegations.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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