The $27 billion Missouri Public School Retirement System has sued State Street Bank and Trust after the company demanded the system return $4.2 billion to the bank's securities lending program.
Between October 2008 and June 2009, the fund withdrew a total of $7 billion of securities from State Street's securities lending program, according to filings in Missouri Circuit Court. Those securities were moved from the State Street's Quality D commingled fund to separate accounts not participating in the lending program.
The system has about $1.5 billion remaining in the Quality D fund.
According to the system's lawsuit, State Street officials in a Sept. 16 phone call demanded that $4.2 billion in securities be redeposited to restore liquidity to the Quality D fund, claiming that other investors in the fund were harmed by the withdrawal.
Returning the securities would result in a loss of at least $125 million, system officials calculated.
The system's lawsuit alleges breach of fiduciary duty and breach of contract and seeks a temporary restraining order and a preliminary injunction to prevent the bank from taking action if the fund does not return the securities to the lending program.
State Street filed an application to the court opposing the temporary restraining order.
State Street spokeswoman Arlene Roberts said: “State Street takes its fiduciary duties very seriously, and our actions are governed by protecting the interests of all of our customers. In our role as trustee, we have taken action to protect interests of the other participants in the fund. This is a matter between us and the state of Missouri; therefore, we have no further comment.”