TWO former top State Street executives were hit with securities fraud charges yesterday for misleading investors about a risky subprime mortgage-laden fund and tipping off favored clients.
The US Securities and Exchange Commission (SEC) said it charged John Flannery, a former member of State Street’s executive management group, and James Hopkins, the former head of product engineering for North America. The SEC alleged that Flannery and Hopkins marketed one of State Street’s bond funds as an “enhanced cash” investment strategy that was an alternative to a money-market fund. However, by 2007 the fund was “almost entirely invested” in subprime residential mortgage-backed securities and derivatives.
State Street said it “has resolved this matter, both in terms of addressing client concern and settling with the SEC.”