BNY Mellon, the beleaguered custody bank, has just become the defendant in another lawsuit over its alleged mishandling of foreign exchange (“forex”) trades for large pension funds. The Manhattan U.S. and New York attorney generals’ offices have each filed suits against the financial giant.
First came California. Then came Massachusetts, Ohio, Virginia, Florida, to name a few. BNY Mellon (and in some cases fellow custody bank State Street) stand accused by a host of states and corporations of exploiting pension funds and other large investors for which it acted as a custodian. Like the previous legal actions, the New York lawsuits charge that BNY Mellon’s “standing instruction” service promised the best available rate, but repeatedly delivered the worst or near-worst forex rate in order to profit from the price differential.
The suit filed by state Attorney General Eric Schneiderman is seeking $2 billion for BNY Mellon clients nationwide, while Manhattan U.S. Attorney General Preet Bharara is pursuing hundreds of millions on behalf of the government. Schneiderman’s suit primarily alleges that, from 2001 to the present, the bank waged a “multi-pronged campaign of deception” to convince clients both private and public that they were receiving the best forex rate possible. The state’s claim is made under New York’s Martin Act, a powerful law used to investigate and prosecute securities fraud since the 20s. Bharara’s case uses the Financial Institutional Reform, Recovery and Enforcement Act of 1989, which permits prosecutors to win civil penalties for criminal actions.
BNY Mellon, always quick to dispute such charges, criticized the legal reasoning of both suits. Of the state suit, a spokesman said the action was based on a “fundamental misunderstanding” of the foreign exchange market and the role of custodian banks, and “simply put, this is the kind of prosecutorial overreach that ill serves New York, New Yorkers and the pension funds that the Office of New York Attorney General purports to represent.” As for the U.S. Attorney’s suit, the spokesman claims “it 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.”
Read more about the New York lawsuits against BNY Mellon.
Read more from of our ongoing BNY/State Street coverage.
photo credit: cliff1066™
