Oklahoma Joins States Looking Into 'Fraudulent' Transactions

Oklahoma's attorney general is launching an investigation into the state's pension investments based on fraud found in California, Virginia, and Florida.

(July 29, 2011) — Following cases of fraud found in California, Virginia, and Florida, Oklahoma Attorney General Scott Pruitt is set to launch an investigation into how a range of financial institutions are handling state pension investments.

In four studies this fall, a bi-partisan committee plans to investigate potential fraud, with the investigation being finalized in mid-October.

The ongoing investigations in California, Virginia, and Florida — and soon, perhaps, in Oklahoma — are part of an effort to recover more than $200 million that state pension funds claim to have lost through deceitful foreign currency exchanges. Pruitt’s office has reportedly sent letters to custodial banks on behalf of Oklahomans, seeking information on investment transactions, particularly those involving foreign currency exchanges, which have generated much attention among schemes nationwide. For example, Bank of New York Mellon allegedly overcharged Massachusetts Pension Reserves Investment Management (MassPRIM) more than $30 million on foreign exchange (FX) trading since 2000, State Treasurer Steven Grossman claimed late last month.

Pruitt said that roughly 80% of the state’s investments involve national companies. “It’s that 20% on the international investment side that seems to have caused some concern as to how those funds are managed as they come back in the portfolio upon liquidation. My office and the speaker, the representative, the legislature and the governor will make sure that we are made whole as it relates to the harm we have incurred if in fact we did,” Pruitt told a local TV station.

According to the state Pension Commission, the assets of Oklahoma’s major public pension systems total approximately $21.4 billion.

In recent months, the nation’s largest custodial banks have faced mounting scrutiny over its handling of foreign-exchange transactions. The Securities and Exchange Commission (SEC) is investigating State Street over its pricing of some foreign-exchange services, which has been a large source of revenue and profits at banks.

Regarding the pricing of its foreign-exchange transactions, State Street has already been sued by California and the Arkansas Teacher Retirement System for alleged fraud. Filed in early February in the US district court in Boston, the suit alleges that State Street, the custody bank for more than 40% of US public pension funds, violated state law by overcharging customers for currency trades. According to the suit, the bank generated as much as $500 million in profits annually — a rate of profit that accounts for about 50% of State Street’s foreign exchange profits over the last decade. In response, State Street says the Boston-based company is “firmly committed to providing its clients with quality service and transparency in meeting their FX needs. We will vigorously defend the allegations made in the complaint and we stand by our business practices,” State Street said.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742