F.W. Webb sues State Street Corp. over 401K losses
Industrial Distribution staff -- Industrial Distribution, 8/20/2008 7:03:00 AM
F.W. Webb Co. filed a lawsuit against State Street Corp., accusing the Boston-based investment bank of misrepresenting one of its fixed-income investment funds, the Quincy, Mass., Patriot Ledger reported.The Bedford, Mass.-based plumbing supplies distributor’s lawsuit alleges that State Street marketed its Yield Plus fund as being as safe as a money market fund, guaranteed to protect investors’ principal.
But the fund lost more than 13 percent of its value last year on the collapse of the mortgage-backed securities market.
F.W. Webb estimates that employees who participated in its 401(k) retirement plan collectively lost nearly $2.7 million of the $13 million invested in the fund.
“We want the money that was lost to be put back in the 401(k) plan,” CFO Robert Mucciarone told the newspaper. “We think they were extremely negligent in what they did.”
State Street spokeswoman Arlene Roberts said the firm will “vigorously defend” itself against the F.W. Webb suit and other pending lawsuits related to losses in other State Street fixed-income funds, according to the newspaper.
F.W. Webb hired State Street to manage its 401(k) plan in 1996. The investment bank presented its Global Advisors’ Yield Plus fund as a “money market type” investment, according to the lawsuit, in which the distributor said it chose that fund because participants could use it as a money market fund.
But in the intervening years, the lawsuit alleges, the fund evolved from a virtual money market fund to a bond fund and its managers risked investors’ money on low-quality, mortgage-backed investments.
“What they were doing was trying to make the fund look better in a time of down interest rates,” Mucciarone told the Patriot Ledger. “So they went out and invested in these subprime vehicles, which were simply not safe.”
“I could show you document after document, prospectus after prospectus, that said it was as safe as a money market fund,” he added. “The evidence is so astoundingly overwhelming, that it’s absolutely crazy that they could allow this to go on.”
F.W. Webb ranked 16th on INDUSTRIAL DISTRIBUTION's 2008 Big 50 list of distributors, with 2007 sales of $650 million.
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