State Street is being sued by a family trust in North Carolina for allegedly mismanaging the trust’s $80 million investment portfolio.
The Szulik family filed a complaint in the Massechusetts federal court in which it said the custodian bank and its predecessors breached fiduciary duty by allowing TAG Virgin Islands, which managed the portfolio, to switch funds from stable investments to high risk securities.
The complaint said: “TAG began to liquidate the conservative investments in high-quality stocks and bonds held in the Szulik accounts, and placed much of those funds in suspect, high-risk, illiquid securities, as well as real estate and personal loan investments, that were incompatible with the Szuliks investment goals.”
The complaint says these actions cost the family millions of dollars.
The custody contract was signed in 1996 with Chemical Bank, and again in 2004 with Investors Bank & Trust and in 2008 with State Street.
The complaint said: “Despite State Streets limited authority under the custody agreements to disburse the Szuliks funds in exchange for the timely receipt of securities in good form, State Street made numerous disbursements to TAG in exchange for securities that not only were not in good form as a matter of law and accepted business usage, but had no value whatsoever.”
The complaint adds that State Street disbursed at least $18 million from an account to purchase stock in Conversion Services International, claims the family, but the custodian failed to take timely possession of the share certificates. By December 2008, $23 million worth of securities were not held by State Street. Rather, many of these securities were being held by TAG, says the complaint.
The family is also alleging that State Street misreported the value of the Szuliks assets in their monthly statements and collected excessive custodian fees based on overvalued worthless securities.
The family is alleging breach of contract, negligence, unjust enrichment and breach of fiduciary duty. An unspecified amount of damages as well as legal fees and costs are being sought.
Responding to the complaint, State Street said: “As a custodian, State Street does not exercise an oversight role in relation to the activity of investment managers appointed by our clients. State Street has and will continue to fulfill its obligations to its clients and act in their best interests at all times.
(JDC)