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A federal judge granted preliminary approval to a $89.75 million settlement of claims by a group of pension plans against a State Street Corp. (STT) unit over allegedly risky, undisclosed investment strategies despite an objection by the company.

In an order Wednesday, U.S. District Judge Richard J. Howell in Manhattan gave initial approval to the settlement with State Street Bank and Trust Co. over claims related to its investment strategies for certain bond funds, including "highly leveraged positions in mortgage-backed securities."

The State Street unit signed a binding term sheet for the settlement with representatives for a class of pension plans in June.

However, State Street had opposed preliminary approval of the proposed settlement, saying its separate, ongoing settlement negotiations with the U.S. Securities & Exchange Commission make it currently impossible to determine whether the proposed settlement is fair, reasonable and adequate, the judge said.

"It argues that the class might do better if it awaits the outcome of the SEC discussions," the judge said. "Notwithstanding State Street's laudable efforts to protect the interests of the ERISA plans, however, the ongoing SEC negotiations provide no basis for the denial or postponement of preliminary approval."

The SEC had been probing the State Street unit since 2007 and issued a Wells notice in the matter on June 25, 2009, the day before the settlement of claims brought under the Employee Retirement Income Security Act was reached.

A Wells notice indicates the SEC's staff will recommend that the commission approve the filing of a lawsuit or an administrative proceeding.

The pension plans had argued that State Street's allegedly undisclosed investment strategies caused the class to lose more than $150 million during the third quarter of 2007.

The settlement figure represents about 58% of class members' capital losses, "a favorable recovery in light of the substantial time, expense, and risk that litigation to verdict would entail," the judge said.

State Street didn't immediately return a phone call seeking comment.

-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com