$600 Million Set Aside May Be Tip of Mortgage Litigation Iceburg

State Street Corp. announced it established a pre-tax reserve of $618 million billion “to address legal exposure and other costs associated with the under-performance of fixed-income strategies managed by the company’s investment management arm,” blaming exposure to subprime mortgages. The company referenced “customer concerns as to whether the execution of the strategies was consistent with the customers’ investment intent” without identifying any specific litigation.

However, the New York Times published an article stating that State Street created the reserve “after five clients sued it, claiming they had lost tens of millions of dollars in State Street funds they were told would be invested in risk-free debt like Treasuries.” The article added that State Street’s reserve “highlight the legal challenges that lie ahead for financial firms.”

The first of the five lawsuits referenced by the Times article was filed October 1, 2007, by Prudential Retirement Insurance and Annuity Co. The action “seeks, among other relief, restitution of certain losses attributable to certain investment funds” sold by State Street’s investment management arm, and alleges State Street “failed to exercise prudent investment management,” in violation of the Employee Retirement Income Security Act of 1974 (ERISA).

投诉称，被告“从根本上改变”了两项债券基金，中间债券基金和政府信贷债券基金的投资策略，并“在抵押贷款相关的金融衍生品中采取了未公开的，高度杠杆率的职位”，从而“暴露”了这些基金以使这些基金接触到这些基金2007年夏季，“不适当的风险”“产生了灾难性的结果”。投诉进一步声称，随着这些事件的展开，被告提供了“不合时宜，不完整和误导性的信息”，造成了“大约8000万美元”的损失，该资产由约165个退休计划所负责，影响了约28,000名计划参与者。

据报道导致抵押诉讼储备金指控ERISA违反行为的这项针对州街的诉讼和其他三起诉讼涉及。其中一项诉讼是由Unisystems和Unisystems员工的利润共享计划的受托人提起的。Nashua Corporation的综合养老金信托基金于10月24日提出了另一家。第三个是由计划管理员和雇员的储蓄和利润共享计划的受托人于10月31日提出的。

A fifth lawsuit (not specifically identified by the New York Times article) alleging only state law claims, and not Federal ERISA violations, was filed on November 5 in a Harris County, Texas, District Court by Memorial Hermann Healthcare System. On December 3, the defendants removed the Memorial Hermann case to Federal Court in the Southern District of Texas. The petition alleges that the State Street defendants breached an “Agreement of Trust” to serve as trustee of nearly $91 million in the plaintiff’s assets, claiming these assets were invested in the State Street Limited Duration Bond Fund which lost 37 percent of its value during three weeks in August 2007.

据报道，州街的诉讼表明了从去年开始的“抵押贷款崩溃”的各种金融机构所面临的法律问题，不仅包括抵押贷款工具中的发起人和市销商，而且还包括购买此类投资的人其他人，也许是对这些投资的高评级的公司。

Thelaw firmof Shepherd Smith and Edwards is dedicated to assisting investors who have sustained losses as a result of improper handling of their retirement or other assets. Please contactShepherd Smith and Edwards与我们的一位律师安排免费的机密咨询，以讨论您是否有可行的索赔来追回损失。