State Street says legal reserve may not be enough
BOSTON (Reuters) - State Street Corp said it may not have set aside enough money to cover fees and penalties linked to lawsuits and investigations by state and federal regulators into risky investments.
Two years ago State Street, one of the world's biggest institutional investors, set aside $625 million to cover costs stemming from lawsuits by investors charging that the company misrepresented its investment strategy.
At the end of June, the company, which also earns fees for keeping records for investment managers, said it had $193 million left in the reserve.
Federal and state regulators are investigating allegations that Boston-based State Street, which manages $1.6 trillion in assets, made inappropriately aggressive bets on subprime mortgages.
Disgruntled investors allege that while they thought they were buying low-risk fixed income funds, the funds may have been stocked with more aggressive instruments.
"Depending upon the resolution of these governmental proceedings, the remainder of the reserve established in 2007 may not be sufficient to address ongoing litigation, as well as any such penalties or remedies," State Street wrote in a regulatory filing released on Monday.
Earlier this year, the U.S. Securities and Exchange Commission alerted the company that it might face a civil enforcement action over selling these funds.
On Monday, the company said SEC staff members had asked the agency to authorize an action alleging State Street violated antifraud provisions of federal securities laws.
The company said it is holding discussions with the SEC, the Massachusetts attorney general's office and the Massachusetts secretary of state's office about the probes.
All three offices said they do not discuss ongoing investigations.
In the past, State Street said it would defend itself vigorously against the allegations.
The company shares were down 3 percent to $52.23 in afternoon trade on a day on when most asset managers were nursing losses.
(Reporting by Svea Herbst-Bayliss, editing by Gerald E. McCormick and John Wallace)