State Street Corp. (NYSE:STT) was sued today by California’s Attorney General Jerry Brown for committing “unconscionable fraud” against California’s two largest pension funds — the California Public Employees’ Retirement System and the California State Teachers’ Retirement System.
According to the complaint, State Street illegally overcharged pension funds for the costs of executing foreign currency trades since 2001.
As the custodian bank for both funds, the Boston-based State Street routinely made false claims for payment from the pension fund’s accounts by entering fictional FX exchange rates into State Street’s systems. These false claims were then used for the purpose of obtaining payment of State Street’s withdrawal of funds from the pension funds. This type of practice subsequently allowed the bank to conceal millions of dollars in overcharges and underpayment to the pension funds.
“Over a period of eight years, State Street bankers committed unconscionable fraud by misappropriating millions of dollars that rightfully belonged to California’s public pension funds,” Brown said. Brown’s office estimated that the overcharges exceeded $56.6 million.
State Street categorically denied any allegations of wrongdoing and said it will defend itself against any litigation.
State Street shares were down $4.38, or 9.11%, at $47.45 in afternoon trading on the NYSE.