State Street and Bank of New York Mellon were catapulted back into the spotlight this week when Josh Mandel, Ohio’s treasurer, publically called for the state attorney-general to launch an investigation into the banks’ foreign exchange (forex) trade practices. This comes hot on the heels of an announcement by Steve Grossman, Massachusetts treasurer, that he intends to recoup the losses from so-called “excessive” forex transaction fees paid by pension funds to BNY Mellon.
The Ohio investigation will specifically inquire into the amount the two banks charged for forex transactions by four public pensions and the Ohio Bureau of Workers’ Compensation. “I am concerned that the banks may have manipulated foreign currency trade prices in order to maximise the banks’ profit, at the expense of Ohio public servants, businesses and taxpayers,” wrote Mandel in a public letter to the Ohio attorney-general.
In Massachusetts, Grossman held a press conference after receiving the results of an independent audit of BNY Mellon’s forex trading expenses. Said Grossman: “This has clearly been a rampant practice of bad behavior. I think there is a violation of the public trust that has taken place.’’ He did not make a definitive statement as to whether the state planned to sue. Earlier this year, the state also launched an investigation against State Street.
The two custody banks have been accused of defrauding pension funds by charging significantly higher forex rates than comparable trades executed by the bank. BNY Mellon has acknowledged the practices but denies any wrongdoing, claiming the were under no fiduciary obligation to give the pensions the InterBank forex rates. State Street has also denied the accusations. Both are cooperating with investigators.