State Street’s Subprime Woes Continue


Reuters reports that the State Street Corporation, a financial services holding company, may not have enough money to pay fees and penalties stemming from lawsuits centered on risky investments the firm made.

Regulators have alleged that State Street acted improperly by making aggressive bets on subprime mortgages. The company then marketed low-risk fixed-income products to investors, which were instead filled with subprime mortgages. State Street had set aside $625 million to cover costs associated with potential lawsuits. However, on August 10, the firm said in a regulatory filing that the fund was down to $193 million.

Further investigation into State Street’s practices with subprime mortgage products might be imminent, as the Securities and Exchange Commission previously told the company that it might face civil enforcement action over selling funds marketed as having low risk but in reality were filled with subprime mortgages. Furthermore, SEC staff members have alleged that State Street violated antifraud provisions of federal securities laws in selling subprime investments in such a fashion.