By Dale Kasler
dkasler@sacbee.com
Published: Thursday, Jul. 7, 2011 – 12:00 am | Page 6B

For the second time in three weeks, CalPERS has hired a company that’s been accused of defrauding the pension fund.

CalPERS confirmed Wednesday that it has re-hired Boston’s giant State Street Corp. to be its “master custodian,” which means it keeps custody of certain securities and other financial assets. CalPERS agreed to a three-year contract with State Street.

The decision came about two years after then-Attorney General Jerry Brown sued State Street, claiming it had defrauded CalPERS and CalSTRS while acting as custodian. Brown’s lawsuit claims State Street defrauded the pension funds out of $56 million by overcharging them on foreign currency trades.

State Street, based in Boston, denied any wrongdoing; the suit is pending in Sacramento Superior Court.

CalPERS’ decision to rehire State Street was first reported by Bloomberg news.

The California Public Employees’ Retirement System said the new contract with State Street contains transparency provisions to make sure currency trades are performed properly.

The contract “specifies pricing, timing and exact currency rates that we monitor every day,” said CalPERS spokesman Clark McKinley in an email. “We know what we’re getting now.”

Also, he said State Street’s $5.7 million-a-year bid “was far less” than competitors Bank of New York/Mellon and JP Morgan.

CalPERS rehired State Street once before – in February 2010, just four months after the suit was filed. That was a short extension that CalPERS said was necessary because of time constraints.

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