A federal judge in Boston has given preliminary approval to a $300 million settlement in lawsuits brought by a class of investors who said they were victims of fraudulent foreign exchange practices by State Street Corp. U.S. District Senior Judge Mark L. Wolf ruled from the bench last month that the settlement – which, if given final approval, will also allow the bank to settle for $155 million with the U.S. Department of Justice (DOJ) and $75 million with the U.S. Securities and Exchange Commission (SEC) – could move forward toward notifying a class of about 1,300 institutional investors.
The private suit brought by the investors alleges that from 1998 to 2009, State Street cheated its customers out of millions of dollars a year by manipulating its exchange rates on foreign trades that it carried out on investors’ behalf. State Street allegedly told its clients that it would get the best exchange rates possible when buying for them. In fact, State Street charged some of the highest rates in the market. It was alleged further that State Street sold the currency at a much more favorable rate and kept the difference. Judge Wolf said that he found that the proposed settlement “appears to be sufficiently fair, reasonable and adequate.”
Judge Wolf asked the opposing sides to provide more clarity on a few issues – first of all, more input from State Street about the settlement. Lawyers for the proposed class said that the $300 million settlement is only 20 percent of what they believed they could receive if they won at trial. The judge also asked the two sides for more clarity on how money was going to be allocated among the different types of investors.
Plans that operated under the Employee Retirement Income Security Act (ERISA), like pension funds, will receive more money and, depending on the percentage of attorneys’ fees that winds up being awarded, may have to pay less in fees. State Street and the investors told Judge Wolf that is due to the way that ERISA statutes and obligations are structured.
The settlement is based on trading volume, except that ERISA plans will receive 20 percent of the total settlement, or proportionally more than they otherwise would have. In addition, there is a cap on the amount that would have to come out of the ERISA plans’ allocation. Judge Wolf instructed the two sides to be more clear about it in further documents.
Separately, if the private class action gets final approval, State Street will pay the DOJ a $155 million penalty, and the SEC a $75 million penalty. Of the $300 million, a certain amount has been set aside for mutual fund investors to settle the SEC allegations. A potential settlement with the U.S. Department of Labor would require $60 million to go to ERISA plans. If enough people object to the settlement, State Street could opt out of it. The bank also has the option of backing out of its settlements with the government if the class action settlement doesn’t get final approval.
The Plaintiffs are represented by David J. Goldsmith, Lawrence A. Sucharow and Michael H. Rogers of Labaton Sucharow LLP, Garrett J. Bradley, Michael P. Thornton and Michael A. Lesser of Thornton Law Firm LLP, and Daniel P. Chiplock of Lieff Cabraser Heimann & Bernstein LLP. The case is Arkansas Teacher Retirement System v. State Street Bank & Trust Co. in the U.S. District Court for the District of Massachusetts.
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