Minn. Firm Slaps State Street with Subprime Mortgage
Suit
January 29, 2009 (PLANSPONSOR.com) - State Street
has been hit with another federal court lawsuit alleging it
took positions in risky subprime mortgage-backed securities
in its Daily Bond Market fund without telling anyone it had
done so.
Apogee Enterprises, a Minneapolis-based glassware
manufacturer, charged that the investment decisions State
Street made regarding the bond fund represented breaches
of State Street's fiduciary duties under the Employee
Retirement Income Security Act (ERISA) that ended up
costing its 401(k) plan more than $5
million.
According to the suit, State Street touted the
Daily Bond Market Fund as a conservative, stable,
risk-controlled, well-diversified option for Apogee's
401(k) plan, but changed the fund's strategy during
2006 to take on significantly more risk. Apogee alleged
that State Street applied leverage in making the
investments in subprime mortgage-backed securities, which
had the effect of adding greater risk to the fund.
State Street misled Apogee about how long it would
take for Apogee's 401(k) to get out of the Daily Bond
Market Fund, the company charged. State Street allegedly
told Apogee that it would take 60 to 90 days when, in
fact, other plan sponsors were able to get out of the
fund with 48 hours notice.
The suit said Apogee hired State Street in 1999 as
trustee, administrative services provider, and investment
manager. Eventually, both State Street and CitiStreet
performed services for the Apogee plan.
According to the complaint, 27.29% of the Daily
Bond Market Fund's assets were invested in
mortgage-backed securities as of July 31, 2007.
From January 1, 2007, to August 24, 2007, the Daily Bond
Market Fund lost 20.86% of its value.
Apogee estimates that the fund lost approximately
12.5% of its value between August 9, 2007, when it asked
to withdraw from the fund, and August 30, 2007, when it
was finally allowed to exit the fund.
The case is Apogee Enterprises Inc. v. State Street
Bank and Trust Co.,
D. Minn., No. 09-cv-00170-DSD-FLN.
A Massachusetts plumbing and air conditioning
supply company sued State Street in August 2008 over
similar allegations (See
Bay State
Sponsor Sues State Street over Mortgage-Backed
Investments
).
Fred Schneyer
editors@plansponsor.com