BNY Mellon Sued by Florida, Virginia Over Retirement Fund Trading Charges
By Andrew Harris – Aug 12, 2011 12:01 AM ET
Bank of New York Mellon Corp. (BK) was accused by Florida and Virginia in a lawsuit of allegedly failing to give the states the best possible prices when making foreign currency trades for their state pension funds.
The bank overcharged the Florida Retirement System Trust Fund by millions of dollars, said Pam Bondi, the state’s attorney general, in a statement yesterday. Her Virginia counterpart, Kenneth T. Cuccinelli, said his state has lost about $40 million.
“BNY Mellon added hidden spreads, including markups and markdowns to those foreign exchange trades rather than pricing the trades at the exchange rate at which it actually executed the transactions,” Florida said in its complaint filed yesterday in state court in Tallahassee, the capital.
BNY Mellon, based in New York, served as custodian for the Florida fund, which had about $128.9 billion in assets at the end of June and for the Virginia Retirement System, which had about $54.3 billion as of March 31.
The two states are intervening in 2009 whistleblower lawsuits filed against BNY Mellon by FX Analytics, described in court papers as a Delaware general partnership.
The bank, in an e-mailed statement, called the cases “unwarranted” and said they “reflect a flawed understanding of foreign currency markets.” BNY Mellon said it would fight the lawsuits and was confident it would prevail.
“While our first choice is always an amicable resolution, we refuse to be coerced into paying for and admitting to wrongdoing where none exists,” the bank said.
Florida accuses BNY Mellon of violating the state’s false claims act by submitting fraudulent claims for payment and false records in support of those claims. The bank also used false records to avoid an obligation to pay money to the state, according to the complaint.
Florida seeks triple its damages plus $11,000 in penalties for each false claims law violation.
Virginia, in its complaint in state court in Fairfax, also is pursuing claims on behalf of the Arlington and Fairfax county retirement funds, Cuccinelli said in a statement yesterday.
“It appears that the bank charges the funds the most expensive price of the trading day — or very close to it — rather than the actual interbank rate at which the currencies were purchased,” Cuccinelli said.
That state seeks triple damages totaling about $120 million, plus $11,000 in fines for each of 73,784 falsely reported executed trades, or more than $811.6 million in penalties.
The Florida case is State of Florida v. The Bank of New York Mellon Corp., 2009CA4140, Circuit Court of the Second Judicial District, Leon County, Florida (Tallahassee). The Virginia case is Commonwealth of Virginia v. The Bank of New York Mellon Corp., CL-2009-15377, Fairfax County, Virginia, Circuit Court (Fairfax, Virginia).
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