State Street Bank and Trust Co. inappropriately invested in “subprime, mortgage-related financial derivatives,” according to a lawsuit filed in U.S. District Court for the Southern District of Texas by the Houston Police Officers Pension System.
According to the suit, the bank and its investment management company, State Street Global Advisors Inc., were supposed to invest $72 million of the company’s pension assets in a “conservative, low-risk mix of bonds and securities.” Instead, tens of millions of dollars were lost due to the bank’s “[failure] to disclose that the Limited Duration Bond Fund itself would be invested almost in a single, residential mortgage sector, much of which was subprime or that the Limited Duration Bond Fund would itself be highly leveraged and illiquid.”
The pension system further alleges that State Street’s strategy missed the target return on investment of 6.7%, which produced “catastrophic results.”