The Securities and Exchange Commission is considering whether to file civil charges against State Street Corp. over possible securities violations related to subprime mortgages. The Boston-based firm is the largest asset manager for institutions in the world.
In its regulatory filing that it submitted on Monday, State Street noted that the SEC had sent State Street Bank and Trust Co. a “Wells” notice related to a probe into disclosures and management of the bank’s fixed-income investments before 2008. The asset manager is cooperating with the SEC, as well as with Massachusetts’s attorney general. Massachusetts’s lead securities regulator, Secretary of the Commonwealth William F. Galvin, is looking at allegations that State Street misled pension funds over how much risk was involved in the investments.
Just before the housing market fell in 2007, State Street’s fixed-income investment unit began to increase its investments in bonds and securities related to subprime mortgages. Customers with poor credit records were even given loans. When the market collapsed and defaults on mortgages went sky high, the investments’ values dropped significantly, leading to investor losses.