Last week we reported that Prudential Financial, Inc. and one of its subsidiaries, Prudential Retirement Insurance and Annuity Company, has sued State Street & Trust Corp. and State Street Global Advisors over losses allegedly suffered by Prudential clients in two bond funds managed by State Street (see here). The losses involved investments by those funds in mortgages. The Prudential suit accuses State Street of "radically" changing its investment strategies for the two funds without disclosing those changes to Prudential or its clients.
Now two states are reportedly investigating similar claims involving losses allegedly suffered by their state retirement funds. The Wall Street Journal has reported that the attorneys general for both Alaska and Idaho are now considering bringing their own actions against State Street on behalf of public pensions funds in their respective states. Those public pension funds allegedly lost money after investing in bond funds managed by State Street. Those losses also involved investments by the bond funds in mortgage-backed securities and derivatives, among other investments. As in the Prudential suit, the attorneys general for Alaska and Idaho are considering whether the information their pension funds were given about the investment strategies for the two bond funds was accurate.
Alaska and Idaho are not alone in their scrutiny of the mortgage industry or Wall Street's role in the current crisis. As we reported earlier this week, the Massachusetts Attorney General has filed a lawsuit against one of the nation's largest subprime lenders, Fremont Investment and Loan (see here). The Ohio Attorney General has also reportedly initiated his own industry wide investigation, including a review of Wall Street's bond rating practices in the wake of the mortgage crisis. As these efforts continue, more suits seem likely to follow.