Econintersect: After a lengthy investigation, Eric Schneiderman (New York State Attorney General) and the City of New York are suing Bank of New York Mellon for almost $2 billion. The charge is that the bank systematically defrauded clients in foreign currency exchanges over a ten-year period. The routine practice of the bank was to skim margins from trades between the exchange rate the clients paid and the actual exchange rate received by the bank at the time of the trade. The city filed on behalf of public pension funds that were defrauded. Presumably New York State filed for state public pension funds. The U.S. attorney and several other states have also filed suits.
From Bloomberg/Businessweek:
Bank of New York Mellon Corp. (BK), the largest custody bank, faces increased pressure to reach settlements on foreign-exchange cases following new lawsuits brought by New York and federal officials.
The New York attorney general and the U.S. Attorney’s Office in Manhattan, each of which filed complaints yesterday, bring deeper resources and more expertise on financial cases, Barry Barbash, head of the asset-management group at law firm Willkie Farr & Gallagher LLP, said in an interview from his Washington office. New York Attorney General Eric T. Schneiderman can also wield the state’s powerful Martin Act, he said.
“The Martin Act is a fairly significant sledgehammer of a statute” that makes it easier for prosecutors to prove fraud compared with many other states’ laws, said Barbash, a former director of the U.S. Securities and Exchange Commission’s division of investment management.
The New York suit, brought yesterday in the state’s Supreme Court, accuses BNY Mellon of defrauding public pension funds of $2 billion over 10 years. The U.S. Attorney’s Office filed a separate suit in federal court. Florida and Virginia have also filed claims against the bank and Massachusetts regulators are investigating similar claims.
BKNY Mellon has issued a statement. From The Street.com:
Bank of New York Mellon spokesperson Kevin Heine said in a statement that the lawsuit “fundamentally misunderstands and mischaracterizes the global foreign exchange market and the valuable services we provide to our clients as a principal in foreign exchange transactions.”
Sources: Bloomberg, Bloomberg/Businessweek and The Street.com
Hat tip to Russell Huntly.
