Clients Sue Financial Firm For Losses In Mortgage-Backed Junk; May Be Part Of "First Wave" Of Subprime Litigation

The New York Times reports:

• The State Street Corporation, which manages $2 trillion for pension funds and other institutions, ousted a senior executive on Thursday and said it would set aside $618 million to cover legal claims stemming from investments tied to mortgage securities. State Street made the announcement after five clients sued it, claiming they had lost tens of millions of dollars in State Street funds that they were told would be largely invested in risk-free debt like Treasuries. One fund lost 28 percent of its value during the credit troubles in the summer after placing big bets on mortgage-related securities, according to the lawsuits.

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• Last month, a town in Australia sued a unit of Lehman Brothers for selling it collateralized debt obligations that lost 84 percent of their value, a charge refuted by the firm. In Norway, Terra Securities filed for bankruptcy protection in November after regulators revoked its license for selling risky American securities to a cluster of towns near the Arctic Circle. “This is the first wave of these securities fraud suits,” said Gregory J. Hindy, a securities lawyer and partner at McCarter & English in Newark. “There could be many, many more.”

For more, see State Street Corp. Is Sued Over Pension Fund Losses.

For a related story, see Tort Lawsuits Soar Over Subprime Lending (The New York Sun).