Joining FX Scrutiny, Ohio Treasurer Seeks to Investigate State Street, BNY Mellon Charges

(June 15, 2011) — Ohio Treasurer Josh Mandel has asked for a state investigation into whether banks may have cheated on currency transactions in order to allegedly maximize their profit, manipulating foreign exchange rates charged to the state’s pension funds.

The inquiry would add to a list of investigations or lawsuits launched in a number of states — including California, Florida, and Virginia — where banks have been alleged to have cheated clients.

Mandel, who acts as custodian to Ohio’s public pension schemes including the Ohio Public Employee Retirement System, School Employees Retirement System of Ohio, State Teachers Retirement System of Ohio and the Ohio Police & Fire Pension Fund, said that he has asked the state’s attorney general, Mike DeWine, to look into whether pensioners “have been exploited by custodial banks when conducting foreign currency exchanges.” As of April 30 2011, the four funds had about $39 billion of their $170 billion in combined assets invested in international securities, according to Reuters.

“I am concerned that the banks may have manipulated foreign currency trade prices in order to maximize the banks’ profit, at the expense of Ohio public servants, businesses and taxpayers,” Mandel wrote in a letter dated June 14.

The investigation by the Ohio Treasurer comes as a burgeoning number of states are looking into investigations or lawsuits against State Street and BNY Mellon, which both offer foreign investment services to pensions and other types of funds. These custody banks have been accused of preying on public pension funds that lack the resources to maintain proper oversight on FX trades, aiCIO has reported. This week, Massachusetts State Treasurer Steven Grossman and Massachusetts Pension Reserves Investment Management (MassPRIM) Executive Director Michael Trotsky announced in a press conference that the state’s $50 billion pension fund had been overcharged $20 million on foreign exchange trading by BNY Mellon.

“These overcharges are unacceptable and we will take every step available to recover lost funds and prevent this from happening in the future,” Grossman said in a statement.

The Securities and Exchange Commission (SEC), along with several state attorney generals and other regulators, began investigations this spring into BNY Mellon and State Street Corporation.