According to the Wall Street Journal today, Massachusetts securities regulators have begun an investigation into whether State Street Corp. misled pension funds investors by falsely repesenting that some its bonds funds were low risk vehicles even though they were actually invested in volatile mortgage-backed securities.
State Street is one of the largest managers of index funds. It is currently facing several lawsuits about its “enhanced index” bond funds. Lawsuits filed by customers invested in those funds have alleged that State Street mispresented the risks associated with those funds. The products falsely marketed as low risk investments even though the underlying investments were in mortgage related securities.