State Street settles shareholder, employee lawsuits for $70 million
(Reuters) - State Street Corp has reached $70 million in settlements to end three lawsuits claiming it inflated its share price by overcharging clients on foreign exchange services and falsely representing that its investments in mortgage-backed securities were safe.
According to court filings on Tuesday, the Boston-based custodial bank settled shareholder class-action litigation for $60 million, and will pay another $10 million to resolve two lawsuits by employees who owned its stock in their retirement accounts.
The shareholder settlement requires approval by U.S. District Judge George O'Toole, and the employee settlements require approval by U.S. District Judge Denise Casper. Both judges work in Boston.
"We continue to deny the allegations made in these lawsuits," State Street said in a statement. "We agreed that the cases should be settled to eliminate the uncertainty, distraction, burden and expense of continued litigation."
Custodial banks such as State Street, Bank of New York Mellon Corp and JPMorgan Chase & Co typically provide back office and other services to clients.
Their currency services came under increased scrutiny after the 2008 financial crisis as state and federal regulators as well as pension funds began to question whether clients were being overcharged.
The State Street shareholders' lawsuit accused the bank of imposing an "undisclosed and unauthorized markup" on clients, potentially adding hundreds of millions of dollars in revenue.
It said State Street's shares tumbled 8.4 percent on Oct. 20, 2009, after California sued the bank over alleged overcharges to that state's largest public pension funds, CalPERS and CalSTRS. State Street also cut its full-year outlook that day.
The lawsuit also sought damages for a 59 percent plunge in State Street's share price on Jan. 20, 2009, when the bank reported $10 billion of unrealized losses in its investment portfolio and off-balance-sheet "conduits."
It said this occurred only a few months after State Street told investors its assets were "high-quality," and performing well, despite the financial crisis.
The $60 million settlement also resolves claims against State Street officials like former Chief Executive Ronald Logue as well as various underwriting banks.
"We are pleased to have achieved this significant settlement on behalf of investors in what was an extremely hard-fought litigation," said John Browne, a partner at Bernstein Litowitz Berger & Grossmann, which with the firm Motley Rice are co-lead counsel for the lead plaintiffs, the Public Employees' Retirement System of Mississippi and Germany's Union Asset Management Holding AG.
The cases are in the U.S. District Court, District of Massachusetts. They are Hill v. State Street Corp et al, No. 09-12146; Kenney v. State Street Corp et al, No. 09-10750; and Richard v State Street Corp et al, No. 10-10184.
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