State Street Sues Former Securities Lending Employees
July 6, 2010
By Chris Kentouris
State Street Corp. has sued three of its former executives for creating a new rival in securities lending.
The global custodian bank, headquartered in Boston, has sued Craig Starble, its former executive vice president and global head of securities finance, and two more former State Street executives, over their launch of Premier Global Securities Lending, based in Reading, Masss., where Starble lives.
State Street contends that the trio are using “confidential information [from State Street] and trading on its customer good will, potentially resulting in loss of significant business’’ to State Street.
State Street filed its lawsuit on June 23 in Superior Court for the Commonwealth of Massachusetts in Boston. The bank on June 28 also filed an emergency motion for “expedited delivery” asking Starble for documentation on his firm’s business strategy and his correspondence with customers to prevent further damage to State Street.
In a statement, Premier Global said, “We believe this lawsuit is meritless, and we categorically reject any allegation of wrongdoing.” Starble did not return calls left to his home in Reading. Jyotin Hamid, a partner in the New York law firm of Debevoise & Plimpton representing Starble and his firm, says he has filed a motion opposing State Street’s request for expedited discovery. He also says that Starble never signed a non-compete agreement with State Street.
The other two named executives in the case are Peter A. Economou and Paul F. Lynch. Economou was running securities finance at State Street after Starble resigned in March 2009. On June 16, State Street’s executive vice president Nick Bonn was named interim head of securities finance at State Street to replace Economou who left to join Starble. Lynch was the former senior director and head of global trading for State Street.
All told, eight executives from State Street’s securities lending unit resigned on June 15 to join Starble at Premier Global Securities Lending, according to State Street’s suit.
The other executives who left to join Starble were Michael Landolfi, former senior managing director and head of global operations; Michael McAuley, senior managing director and head of product development; Suzanne Lee, senior managing director and head of account management and sales; William Locke, managing director and trading desk manager; Oberon Knapp, managing director and client service manager; and Lawrence Albaugh, managing director and client service manager, according to State Street.
Securities lending – one of the key services performed by custodian banks such as State Street – involves the temporary exchange of securities for either other securities or cash. The principal lenders are institutional investors such as pension funds, insurance funds and mutual funds while the principal borrowers are securities dealers, banks and hedge funds. By offering securities lending services, custodians earn a fee while also generating additional income for their customers.
State Street’s securities lending business is part of its Global Markets division, which also includes portfolio solutions, e-exchange, foreign currency exchange and securities finance. In its first quarter 2010 earnings results, State Street said that revenue from securities finance, which includes the lending business, declined 60 percent to $72 million from $181 million in the year-earlier quarter.
