(December 18, 2011) — BNY Mellon, the world’s largest custody bank, has asked a court to dismiss New York’s currency-trading suit.
The custodial bank revealed in a court filing earlier this week that it accurately reported the exchange rates it applied to preauthorized foreign currency transactions. “A party that knows exactly what it is getting, and at what price, cannot, as a matter of law, have been defrauded,” the company said in papers filed in New York State Supreme Court in Manhattan, obtained by Reuters.
According to the court documents, if BNY Mellon omitted its profit margin on its trades along with how it came to specified exchange rates, the bank “had no duty to disclose it.”
The case against BNY Mellon is just one example of heightened scrutiny into custodial banks, as states and federal authorities increasingly allege that such banks cheated pension funds and private clients on currency transactions.
In early October, BNY Mellon was sued by the New York state attorney general and the United States attorney in Manhattan in separate lawsuits. The suits accused the bank of cheating state and other pension funds nationwide over the price of foreign exchange transactions over the last 10 years.
In the two separate lawsuits seeking more than $2 billion, the Manhattan US attorney and the New York attorney general alleged BNY Mellon misled clients about its method for determining what currency exchange rates it used for particular foreign exchange transactions. A news release from the office of Attorney General Eric T. Schneiderman alleged that over a 10-year period, BNY Mellon consistently misrepresented to customers the rates it would give foreign currency transactions. “Instead of providing the best interbank rates– as it promised – BNY Mellon gave the worst or nearly the worst rates of the trading day. The Bank made nearly $2 billion from these trades, accounting for over 65% of its foreign exchange revenues,” the statement said.
“This landmark case uncovered a fraud committed against both government and private pension funds,” Executive Deputy Attorney General Karla G. Sanchez said in a release. “This office will continue to commit its full resources to hold those responsible accountable, seek restitution for the victims, ensure that our markets are fair and transparent, and uphold one set of rules for all market participants.”
The case is People of the State of New York v. Bank of New York Mellon Corporation, 114735/2009, New York State Supreme Court (Manhattan).