State Street settles shareholder, employee lawsuits for $70 million
By Jonathan Stempel
(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. Continued...