01/10/2010
SEC charges two State Street employees
The Securities and Exchange Commission has charged a pair of employees at Boston-based State Street Bank and Trust Company with misleading investors about their exposure to subprime investments.The SEC’s Division of Enforcement alleges that John P. Flannery and James D. Hopkins marketed State Street’s Limited Duration Bond Fund as an “enhanced cash” investment strategy that was an alternative to a money market fund for certain types of investors. By 2007, however, the fund was almost entirely invested in subprime residential mortgage-backed securities and derivatives. Yet despite this exposure to subprime securities, the fund continued to be described as less risky than a typical money market fund and the extent of its concentration in subprime investments was not disclosed to investors.The SEC charged State Street in a related case earlier this year. The firm agreed to settle the charges by repaying fund investors more than USD300 million.Flannery was a chief investment officer who no longer works at State Street. Hopkins was a product engineer at the time, and is currently State Street’s head of product engineering for North America.
