The State Street Corporation, which manages $2 trillion for pension
funds and other institutions, ousted a senior executive on Thursday
and said it would set aside $618 million to cover legal claims
stemming from investments tied to mortgage securities.
http://www.nytimes.com/2008/01/03/business/03cnd-state.html
State Street made the announcement after it was sued by five clients
asserting that they had lost tens of millions of dollars that they
were told would be largely invested in risk-free debt like
Treasuries. One fund lost 28 percent of its value during the credit
crisis in the summer after placing big bets on subprime mortgages,
according to the lawsuits.
The move by State Street highlights the legal challenges that lie
ahead for financial firms that were involved in the origination,
packaging and sale of complex mortgage securities. Last month, a town
in Australia announced that it would sue a unit of Lehman Brothers
for selling it collateralized debt obligations that lost more than 84
percent of their value. In Norway, Terra Securities filed for
bankruptcy protection in November after regulators revoked its
license for selling risky American securities to a cluster of towns
near the Arctic Circle.
“This is the first wave of these securities fraud suits,” said
Gregory J. Hindy, a securities lawyer at McCarter & English in
Newark. “There could be many, many more.”
