US and NY Governments Enter BNY Mellon FX Lawsuits

(October 5, 2011) — BNY Mellon has been sued by the New York state attorney general and the United States attorney in Manhattan in separate lawsuits, accusing the bank of cheating state and other pension funds nationwide over the price of foreign exchange transactions over the last 10 years.

In two separate lawsuits seeking more than $2 billion, the Manhattan U.S. 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.

New York state and New York City claimed the financial institution defrauded the city’s pension funds and other city retirement plans in foreign-exchange transactions. Meanwhile, Preet S. Bharara, the United States attorney in Manhattan, filed a civil complaint in Federal District Court in Manhattan, which alleges that Bank of New York Mellon defrauded its customers in the foreign exchange markets. While New York’s civil suit is seeking redress on behalf of state pension funds, Bharara is seeking hundreds of millions of dollars in penalties on behalf of the United States, the New York Times reported.

A news release from the office of Attorney General Eric T. Schneiderman alleges 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 says.

“This landmark case uncovered a fraud committed against both government and private pension funds,” Executive Deputy Attorney General Karla G. Sanchez says 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.”

New York City pension funds have been the most severely impacted of BNY Mellon’s clients and lost tens of millions of dollars as a result of its rates, the lawsuit by the attorney general claims. In addition to the New York City Employee Retirement System (NYCERS), those funds impacted include the Teachers Retirement System of the City of New York, the New York City Police Pension Fund, Subchapter 2, and the New York City Fire Department Pension Fund, Subchapter 2.

“As we’ve demonstrated many times, we will use litigation to ensure that our pension funds are not shortchanged, now or in the future,” New York City Assistant Corporation Counsel John Low-Beer states. “We have therefore brought this suit to recover the damages we are entitled to under the law.”

The suit was filed in the State Supreme Court in Manhattan, following additional suits by attorneys general in Florida and Virginia, who sued BNY Mellon in August. Meanwhile, BNY Mellon has continued to fight the charges. “We value our client relationships and are confident that we offer our clients and their investment managers competitive and attractive FX pricing,” the bank has repeatedly said.

A full copy of the complaint is available here.