State Street has agreed to a $60 million settlement of a class-action lawsuit alleging that various actions taken by the bank caused investors to buy the company’s stock at inflated prices.
“Offering State Street stock as an investment option was imprudent because the stock was artificially inflated and overvalued by reason of State Street’s material misrepresentations and omissions concerning its FX trading practices and revenue,” the lawsuit claimed.
Alleged overcharging in FX and misrepresenting of commercial paper values caused State Street stock to be “artificially inflated” in the lead-up to the financial crisis, the now-settled class-action suit claimed. The 2011 suit was filed by shareholders and institutions—such as the Public Employees’ Retirement System of Mississippi—that owned State Street’s stock from October 2006 to October 2009.
The suit accused the bank of deceiving its investors by claiming its debt securities in commercial paper conduits were of high quality during the financial crisis, and of overcharging certain clients for FX services. This caused the plaintiffs to purchase the shares at an artificially high level.
The court filing said one plaintiff claimed that “offering State Street stock as an investment option was imprudent because the stock was artificially inflated and overvalued by reason of State Street’s material misrepresentations and omissions concerning its FX trading practices and revenue.”
The plaintiffs stated that between 2002 and 2008, State Street’s revenue grew from $4.4 billion to $10.7 billion, with a net income in excess of $1 billion each year between 2006 and 2008. In the first nine months of 2009, the bank’s stock priced rose by $35 per share, much higher than the growth rate of the S&P 500 during the same period, they said.
According to papers filed in Boston federal court, the custodial bank reached the settlement, bringing nearly four years of litigation to an end.
However, State Street maintained that it was not guilty of these allegations.
“State Street is pleased to put these matters behind us,” a State Street spokesperson said. “We continue to deny the allegations made in these lawsuits, and believe that they lacked merit. We agreed that the cases should be settled to eliminate the uncertainty, distraction, burden, and expense of continued litigation.”
The bank is also being sued by large US public pension plans—including the California Public Employees’ Retirement System and the California State Teachers’ Retirement System—for allegedly using deceptive practices in FX transactions to maximize its profits.
State Street is not the only bank to be accused of overcharging on FX transactions. In 2012, BNY Mellon agreed to settle with the Department of Justice over FX-related issues.
Related Content: Reluctant Voices: A look at transition management and FX overcharging accusations across the industry.