A federal appeals court yesterday overturned a U.S. Securities and Exchange Commission decision to hold two former State Street Corp. executives liable for misleading investors about a seemingly low-risk mutual fund's exposure to subprime bonds, Reuters reported yesterday. The U.S. Court of Appeals for the First Circuit said that the commission's findings against John Flannery and James Hopkins, respectively State Street's former chief investment officer and former head of North American product engineering, were "not supported by substantial evidence." The decision is a defeat for SEC Chair Mary Jo White, who last December joined a 3-2 majority in holding Flannery and Hopkins civilly liable. Flannery and Hopkins were accused in 2010 of having marketed State Street's Limited Duration bond fund three years earlier as safe, even though the fund had become invested almost entirely in risky securities. The fund, which once had $1.4 billion of assets, lost about 37 percent of its value over three weeks in August 2007, the SEC said.
