BNY Mellon Counters Accusations That It Cheated Pensions Over Forex

(May 23, 2011) — BNY Mellon is accused of giving a large pension fund — the Los Angeles County Employees Retirement Association — unfavorable foreign exchange rates.

According to an analysis by the Wall Street Journal, which investigated more than 9,400 trades during the past decade, the bank priced more than half of the transactions, or a total of 58%, within the 10% of each day’s trading range that was least favorable to the fund. In a letter to BNY Mellon in January, the pension claimed that the bank should have maintained its fiduciary responsibility to the fund by offering it the best possible prices.

Nevertheless, while BNY Mellon confirmed the analysis, it told the newspaper that there was nothing wrong about its behavior, noting that clients like the Los Angeles pension fund either knew or should have known that the bank doesn’t act in their interests when pricing the trades, the WSJ reported.

Clamor around custody banks cheating public pension funds for trading in the $4 trillion-a-day the foreign-exchange market has heightened in recent months. In early March, in an effort to recover allegedly unlawfully obtained proceeds from foreign-exchange transactions, the Southeastern Pennsylvania Transit Authority (SEPTA) sued BNY Mellon. The lawsuit against BNY Mellon came on the heels of two whistle-blower cases filed against the bank in Florida and Virginia.

Similarly, Boston-based State Street, which has faced allegations of forex manipulation, revealed in a filing this month that the US Securities and Exchange Commission (SEC) was investigating the bank’s currency transactions for pensions.

In February, State Street was sued by the Arkansas Teacher Retirement System over an investigation into whether banks overcharged public pensions for foreign-exchange transactions. Filed in the US district court in Boston, the suit claimed that State Street, the custody bank for more than 40% of US public pension funds, violated state law by overcharging customers for currency trades. The suit alleged that 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, according to Reuters. In response, State Street said the 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.”