State Street (STT) Denies Allegations of 'Unconscionable Fraud' In Dealings with CalSTRS, CalPERS

California Attorney General Edmund G. Brown Jr. has filed a $200 million suit against State Street Bank and Trust (NYSE: STT) alleging that the bank committed “unconscionable fraud” in its dealings with the state’s two largest pension funds, CalSTRS and CalPERS.

Brown alleges that State Street, over an eight year period, misappropriated millions of dollars that belonged to the pension funds of the state of California.

According to Brown, the bank and the state had agreed that State Street was required to charge the interbank rate at the time of the trade. Brown believes he has proof that State Street would actually buy at a lower price then that it was charging at or near the highest rate of the day, and then pocket the difference.

"This is just the latest example of how clever financial traders violate laws and rip off the public trust,” Brown said at a news conference earlier today.

Brown alleged that the money fraudulently charged to the State of California by State Street was approximately $56 million. Brown is attempting to get the money returned to the fund plus penalties.

“We categorically deny any allegation of wrongdoing and will defend ourselves against any litigation,” State Street spokeswoman Carolyn Cichon said in a telephone interview in regards to the California lawsuit.

State Street shares have fallen since the news broke. It is currently trading at $47.89, down $4.36, or about 8.40%.

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