October 4, 2011
New York State Says Bank Cheated Pension Funds
By ERIC DASH
New York’s attorney general accused Bank of New York Mellon on Tuesday of cheating state and municipal pension funds nationwide out of nearly $2 billion in foreign exchange fees over the last decade, inserting himself in yet another high-profile battle against a major bank.
In a lawsuit filed in state court, the attorney general, Eric T. Schneiderman, alleged that Bank of New York Mellon consistently overcharged customers for processing foreign currency transactions. Among those affected were pension funds operated for the State University of New York and New York City retirees, as well as thousands of investment funds, including some run by Duke University and the Walt Disney Company. Mr. Schneiderman is seeking the recovery of any ill-gotten gains.
In a statement, Bank of New York Mellon vigorously denied any wrongdoing. It said the lawsuit was based on a “fundamental misunderstanding” of its role as a custodian of client assets and was an example of “prosecutorial overreach.” The bank said that it was confident that it provided competitive and attractive foreign exchange rates to its customers.
Still, Bank of New York Mellon officials recognize the impact that the drumbeat of bad publicity has on their brand and its newly installed chief executive, Gerald Hassell, has said he will be pragmatic about resolving any lawsuits.
The New York attorney general’s action follows similar moves by authorities in California, Florida, Massachusetts and three other states that are looking into the foreign exchange practices of Bank of New York Mellon and one of its main competitors, State Street Corporation. Officials at the Securities and Exchange Commission and Justice Department are also in the middle of investigations, according to corporate filings from the banks.
The inquiries began after a group of whistleblowers made up of plaintiffs’ lawyers and Harry Markopolos, the financial investigator who first sounded the alarm about Bernard L. Madoff’s Ponzi scheme, sought out state regulators to bring lawsuits against the bank