The U.S. Securities and Exchange Commission settled a case against State Street Bank and Trust Co., alleging that it misled investors about their exposure to subprime investments, while selectively disclosing more complete information to certain investors, including clients of its internal advisory groups.

The enforcement action is the result of joint efforts by the SEC, the Massachusetts Securities Division, and the Massachusetts Attorney General’s office, both of which also announced related charges against State Street Thursday.

State Street has agreed to settle the SEC’s charges by paying more than US$300 million. Under the terms of the settlement, State Street agreed to pay a US$50 million penalty, more than US$8.3 million in disgorgement and prejudgment interest, and more than $255 million in additional payments to compensate investors. These payments are in addition to nearly US$350 million that State Street previously agreed to pay to investors in State Street funds to settle private claims, the commission noted.

The firm was also ordered to cease and desist from any further violations of certain securities laws. The SEC notes that its enforcement action took into account the company’s remediation and its cooperation. In reaching these settlements, State Street has not admitted or denied the allegations made by the regulators.

Ronald Logue, State Street’s chairman and chief executive officer said, “We value our reputation as a trusted fiduciary to institutions around the world and we recognize the critical importance of fulfilling our fiduciary obligations. As such, we were determined to work with our regulators and with our customers to resolve their concerns around investments in certain of SSgA’s active fixed-income strategies in 2007. We remain committed to building on SSgA’s comprehensive organizational and infrastructure changes implemented over the past 24 months to ensure that our practices not only meet but exceed industry standards.”

“State Street led investors to believe that their investments were more diversified than a typical money market portfolio, when instead they were invested almost entirely in subprime investments that ultimately caused hundreds of millions of dollars in losses,” said Robert Khuzami, director of the SEC’s Division of Enforcement.

IE