State Street, Accused of Cheating California Pension Giants, Is Sued

(October 29, 2009) – California Attorney General Jerry Brown is suing State Street on behalf of CalPERS (California Public Employees’ Retirement System) and CalSTRS (California State Teachers’ Retirement System), the state’s two largest pension funds.

The suit contends that the bank cheated the two funds out of at least $56 million, the result of overcharging for foreign exchange trades; the suit is seeking $200 million in remuneration.

“State Street bankers committed unconscionable fraud by misappropriating millions of dollars that rightfully belonged to California’s public pension funds,” Brown told The New York Times. “This is just the latest example of how clever financial traders violate laws and rip off the public trust.” The suit reportedly emerged from an inquiry by state investigators triggered by whistle-blowers claiming that the bank inflated prices secretly. According to The Times, the whistle-blowers claimed this practice cost the bank’s clients upward of $400 million over the past 11 years, and was conducted by using false exchange rates and reporting false prices in account statements, as well as failing to include time-stamp data.

State Street has executed $35 billion in currency trades for the two Californian giants since 2001.

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The bank has denied all of the allegations and has indicated that it will fight the suit.

To contact the <em>aiCIO</em> editor of this story: Application Administrator at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(October 22, 2009) – Dark pools, private and opaque electronic venues used to match trades anonymously, are the latest financial market to fall under the weary eye of the Securities and Exchange Commission (SEC), a development that could affect how institutional investors trade.

The SEC is proposing that these pools—the largest of which are Goldman Sachs’s Sigma X and Credit Suisse’s CrossFinder—lower the level at which they must report action in certain securities, from the current 5% of daily volume to somewhere between 1% and 0.25%. It also is calling for greater oversight of these traditionally murky markets that can make up 10% of daily trading volume in U.S. equities.

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The main concern of regulators has been that these pools favor professional traders over more regular ones. However, some concerns have been voiced that institutional investors such as pension funds, which use the market to trade massive quantities of shares quietly, will be unable to do so under new regulations. Bloomberg, however, is reporting that large share blocks might well be exempt from the new disclosure percentages.

If this block trade exemption is passed, there is likely to be an upheaval in the pecking order of dark pools currently in existence. New York-based Liquidnet Holdings and Pipeline Trading Systems are currently two of the most popular venues for large block trades of more than 50,000 shares, and thus likely will prosper. However, others—which can average as low as 450-share trades—likely will suffer.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>