State Street in $300m settlement with Mass., feds

By Beth Healy, Globe Staff

State and federal regulators today announced a $313 million settlement with State Street Corp. over allegations that it misled customers about the risks of one of its bond funds in the summer of 2007, in the early days of the credit crisis.

Under the settlement, Boston-based State Street will reimburse 20 large Massachusetts customers for their losses in its Limited Duration Bond Fund.

Secretary of State William F. Galvin's office, one of the regulators involved in the case, said State Street failed to disclose to investors the fund's exposure to subprime mortgage investments.

It also alleged that State Street improperly informed some customers of the plunging value of the fund and allowed them to get out of the fund ahead of others.

State Street also agreed to pay a $10 million fine to Galvin's office, and $10 million to State Attorney General Martha Coakley. A $50 million fine to the US Securities and Exchange Commission is included in the total settlement amount.

State Street neither admitted nor denied the allegations.

The company's chief executive, Ronald E. Logue, said in a statement, "We value our reputation as a trusted fiduciary to institutions around the world and we recognize the critical importance of fulfilling our fiduciary obligations."

He said the company cooperated with regulators, and that its previously established legal reserves would cover the costs of the settlements.

David Bergers, head of the SEC's office in Boston, said, "Investors relied on State Street to manage their money during a time of great economic uncertainty and State street let those investors down."

The new payments are in addition to the nearly $350 million State Street has paid to some investors in private law suits over the matter. In total, investors will be reimbursed $663 million.