MassPRIM: BNY Mellon Cheated Us Out of $10 Million More Than Originally Thought

(June 30, 2011) – Bank of New York Mellon allegedly overcharged Massachusetts Pension Reserves Investment Management (MassPRIM) more than $30 million on foreign exchange (FX) trading since 2000, State Treasurer Steven Grossman has claimed.

The new figure upwardly revises an original accusation of $20 million in overcharges announced at a June 13 press conference. The $50 billion pension fund had hired a consulting firm to review MassPRIM’s currency transactions after allegations surfaced that custody banks were actively overcharging public pension funds on their FX trades.

“Given our initial findings, we wanted to take as comprehensive a look as possible at past foreign currency exchanges done on our behalf,’’ Grossman, who is chairman of the state pension board, said in a statement. “It’s imperative that pension beneficiaries and taxpayers are treated fairly and that banks do not profit disproportionately at their expense.’’

MassPRIM allegedly uncovered the $10 million in additional overcharges by expanding their review of FX trading back until 2000. The initial $20 million in overcharges allegedly occurred from 2011 to 2007.

BNY Mellon denied the accusations. “We reject the notion that [MassPRIM] was ‘overcharged,’” the bank said in a statement. “We value our client relationships and are confident that we offer our clients and their investment managers competitive and attractive FX pricing.”

Custody banks are coming under increasing scrutiny from public pension funds over possible FX overcharges. On June 15, Ohio Treasurer Josh Mandel called for a state investigation into both BNY Mellon and State Street’s handling of the state’s public pension funds’ FX trades. Ohio’s investigation joins lawsuits and investigations by a number of states including California, Florida, and Virginia into possible FX overcharges.

Custody banks have been accused of preying on public pension funds that lack the resources to maintain proper oversight on FX trades, aiCIO has reported.

“Pension funds, which pay millions and millions of dollars in custodial fees, have been lazy. They decide to outsource to custodial banks, and they don’t understand FX issues. Pension funds’ chief financial officers or treasurers should look at the time and price of trades, but they don’t,” Chris Havener, Founder & Managing Director of Royal Oak Capital Management, told aiCIO in May.