A unit of Prudential Financial Inc. sued State Street Corp. subsidiaries over $80 million in losses ascribed to "undisclosed, highly leveraged" investments by State Street that included subprime mortgages.

Prudential said the losses were suffered in accounts held by 28,000 individuals in 165 retirement plans that it markets. These accounts held funds that were managed by State Street, a Boston bank and money manager.

Although Prudential, a big insurer based in Newark, N.J., said it would reimburse its clients for the $80 million they lost, the lawsuit showed that individual investors may be facing some hidden risks from the subprime meltdown in the form of retirement funds that are supposed to be safe, conservative choices.

Prudential said it had placed its clients in two State Street funds -- the Intermediate Bond Fund and the Government Credit Bond Fund -- that the Boston money manager had marketed as investments that would provide "stable, predictable returns" in line with an index of U.S. government and corporate bonds.

Instead, it said State Street changed its investment strategy over the summer without notification and devoted a large portion of the funds' investments into financial instruments that included "asset-based securities that overwhelmingly derived their value" from home-equity loans, mortgage-backed securities swaps, derivatives and other exotic fare. The suit said the bank recently informed Prudential it held a position in "a synthetic index whose returns are linked to 20 subprime U.S. mortgage pools."