Securities Law Blog

Massachusetts Secretary of the Commonwealth William Galvin confirmed last week that the Securities Division has opened a probe of State Street its funds. In a story appearing April 30, 2009 in Investment News, it was reported that the fund is among several fixed-income strategies managed by State Street’s investment unit, State Street Global Advisors, to lose substantial amounts of money because of exposure to the subprime mortgage market. In an interview, Secretary Galvin is looking at whether State Street made “ representations that were either flat-out untrue or potentially deceptive” to conservative investors.

According to published reports, pension funds and other institutional investors initially invested in the State Street Limited Duration Bond Fund as an “enhanced cash fund,” with the idea to generate better returns than ultra-safe, conservative money market funds with just slightly more risk. Investors now say the Limited Duration Bond Fund took on large positions of high-risk mortgage-related assets, a move that ultimately proved devastating for investors.

More than a year ago, several lawsuits were filed against State Street over charges the firm misrepresented the risks of various bond funds, including the Limited Duration Fund. A State Street spokeswoman declined to comment to the Wall Street Journal regarding the investigation.