State Street Corp. (STT), the Boston, MA-based major regional bank, is under probe for the methods it used for generating asset servicing business from public retirement plans.

In a regulatory filing, the bank disclosed that it has received subpoenas from both the Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) in this case. The bank further stated that it is conducting an internal review in this matter as well as extending co-operation to the government agencies.

State Street is engaged in managing investment for individuals and institutional clients. Moreover, as a custody bank, it is responsible for keeping records, tracking performance and lending securities to institutional clients which include pension funds, mutual funds and hedge funds.

The company’s asset servicing segment offers accounting and compliance services along with custody and foreign exchange servicing. In its third-quarter 2014 release, the bank reported a 7.5% year-over-year increase in its servicing fees to $1.3 billion, driven by new business and strong stock markets.

In recent times, regulators across the globe have become proactive in restraining all types of financial wrong doings. SEC recently disclosed its intention to make its enforcement actions in the municipal market more rigorous. Going forward, the SEC will likely be stricter on malpractices in pension fund, offering and broker-dealer misdeeds. Such alertness on part of regulators might have triggered the dispatch of subpoenas to State Street.

The company has been embroiled in legal issues on few occasions over the past few years. In 2009, the company was indicted by the attorney general’s office of California regarding two large pension funds for foreign exchange trades. In 2011, an Arkansas pension fund brought similar kind of charges against the bank. Again in Jul 2014, State Street paid $70 million to settle a case related to illicit inflation of share price and improper representation of investments in mortgage-backed securities.

The latest development does in no way add to the reputation of this financial institution. Rather, it lowers the confidence of investors in this stock.

Currently, State Street carries a Zacks Rank #2 (Buy). Other banks worth considering include Enterprise Financial Services Corp. (EFSC), Old Second Bancorp Inc. (OSBC) and Fidelity Southern Corp. (LION). All these stocks sport a Zacks Rank #1 (Strong Buy).

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