Arkansas Pension Sues State Street Over Currency Transactions

(February 11, 2011) — State Street has been sued by the Arkansas Teacher Retirement System over an investigation into whether banks overcharged public pensions for foreign-exchange transactions.

Filed on Thursday in the US district court in Boston, the suit alleges 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 alleges 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, Reuters reported. In response, State Street said the Boston-based 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.”

The case is Arkansas Teacher Retirement System v State Street Corp et al, U.S. District Court, District of Massachusetts.

State Street has already been scrutinized for it’s relationships with pension funds. In 2009, the nation’s two largest public pension systems — the $226.6 billion California Public Employees’ Retirement System (CalPERS) and the $146.4 billion California State Teachers’ Retirement System (CalSTRS) — launched a case, which is ongoing, against State Street over it’s foreign-exchange fees. In October, Washington state revealed it had recovered $11.7 million from State Street over foreign exchange trade costs during a 10-year period. Already, Bank of New York Mellon Corp. is in the midst of a lawsuit for overcharging the Virginia state pension fund for foreign exchange transactions, as US states are becoming more aggressive in foreign currency trade probes.

Both Bank of New York Mellon and State Street deny wrongdoing. In a statement, BNY Mellon said: “The allegations are without merit. We provide a broad range of valuable services including foreign exchange to large, sophisticated money managers representing pension funds and other institutional clients. The money managers transact with us at competitive FX prices and we provide reliable, low-risk service and execution. We will defend ourselves vigorously.”