Noting that it was difficult for the court to determine whether Thomas U. Kenney’s claim of imprudence is viable because conduits are complex, non-transparent investment vehicles, still the U.S. District Court for the District of Massachusetts dismissed the claim, saying Kenney failed to allege sufficient facts to demonstrate that it was imprudent to invest in State Street stock because of the riskiness of these portfolio and conduit assets during the class period. “Conclusory allegations of riskiness will not suffice,” the court said.
The court also found State Street actually met optimistic statements of performance made in some Securities and Exchange Commission filings, and that its filings contained disclosures about the risks of the conduits, so it dismissed most of the negligent misrepresentation and non-disclosure claims. However, the court moved forward the claim that the company breached its fiduciary duties by issuing an October 2008 SEC filing and press release in which it indicated that its investment portfolio and conduit program “remained high.” The court said a plan beneficiary could reasonably have read this SEC filing and press release as assurance that the company did not foresee there would be significant losses in the future.
Because the remaining claims for mismanagement of plan assets, divided loyalty, and failure of State Street properly to appoint, monitor, and inform the remaining defendants contain conclusory claims and derive substantially from plaintiff’s imprudence claim, the court dismissed them.
Kenney alleged that State Street Corporation, the Benefits and Investment Committees of its Board of Directors, and the individual members thereof negligently misrepresented and failed to disclose critical aspects of State Street’s financial condition during a class period running from January 3, 2008, to January 20, 2009. During that time, defendants allegedly exposed the company to over $9 billion in potential losses through high-risk assets held in its investment portfolio and four asset-backed commercial paper conduits, which led to a massive decline in State Street’s stock value.The case is Kenney v. State Street Corp., D. Mass., No. 09-CV-10750-PBS, 3/15/10.