Prudential Sues State Street over Risky Funds: WSJ

Prudential Financial sued State Street over losses worth $80 million because of what it called "undisclosed, highly leveraged" investments by State Street, which included subprime mortgages, the Wall Street Journal reported Tuesday.

Prudential said the losses were spread in accounts held by 28,000 individuals in 165 retirement plans that it markets.  It said it would reimburse its clients.

The Newark-based insurer said it had placed its clients in the Intermediate Bond Fund and the Government Credit Bond Fund belonging to State Street , which had marketed them as providing "stable, predictable returns."

But Prudential said State Street changed its investment strategy over the summer without notifying its clients and dedicated a large part of the funds' investments to financial instruments linked to the mortgage market.

State Street officials said the company intended to defend itself vigorously.

"The recent market conditions and lack of liquidity were unprecedented," Hannah Grove, a State Street spokeswoman, told the Journal. "An unfortunate result of such market events is that some funds lost value."