Ohio AG sues bank for alleged improper trades
COLUMBUS, Ohio (Legal Newsline) - Ohio Attorney General Mike DeWine on Monday filed a lawsuit against the Bank of New York Mellon for allegedly making improper foreign exchange trades on behalf of the state's two retirement funds.
The suit, filed in Franklin County Common Pleas Court, accuses the bank of breach of contract, fraud, violating the Ohio Deceptive Trade Practices Act and "unjust enrichment" on behalf of the Ohio Police and Fire Pension Fund and the School Employees Retirement System.
The police and fire fund and SERS, both of which serve thousands of the state's first responders, school employees and families, had entered into individual custodial agreements with BNY Mellon to perform foreign currency exchanges, or FX trades, on their behalf.
The two funds require these exchange services from their custodian to convert U.S. dollars into the applicable foreign currency when purchasing stock sold on a non-U.S. exchange.
DeWine's office said it examined the trades completed by BNY Mellon and found "apparent discrepancies" between prevailing market rates on the days in which trades were completed, and the rates that the two funds were, on average, charged and credited.
The discrepancies resulted in millions of dollars in apparent overcharges to the funds, the attorney general said.
"As a result of my office's investigation into this matter, our complaint alleges that BNY Mellon violated the terms of their custodial agreements with the Ohio funds, and exploited the volatility of the foreign currency market to their advantage at the expense of Ohio pensioners and their families," DeWine said in a statement.
In the complaint, the plaintiffs allege that BNY Mellon defrauded the two retirement funds by "systematically" overcharging them on currency transactions.
More specifically at issue is the bank's so-called "standing instruction" service.
Under the service, the funds and other clients allow the bank to unilaterally handle their FX transactions.
According to the complaint, BNY Mellon collected the currency trades for their "standing instruction" clients and then, later in the day, set the price that was most favorable to the bank.
DeWine's office said the prices were often at or near the day's least-favorable exchange rates, with the bank profiting from the difference.
The two funds are seeking damages in excess of $16 million for losses incurred as a result of the bank's allegedly fraudulent practices.
A representative for the bank told The Columbus Dispatch Tuesday that the suit is recycling "baseless allegations" from other lawsuits brought by "the same plaintiffs' lawyers."
"We provide our clients with a valuable service at competitive prices, and any suggestion otherwise is simply wrong," spokesman Kevin Heine told the newspaper.
Indeed, Ohio isn't the first state to sue BNY Mellon over its handling of such funds.
Last January, South Carolina filed a lawsuit against the bank for allegedly making bad investments with the state's money.
Then in October, New York Attorney General Eric Schneiderman, along with the city of New York, sued the bank for defrauding clients.
Schneiderman alleges BNY Mellon over a 10-year period "consistently misrepresented" to customers the rates it would give foreign currency transactions.
Instead of providing the best interbank rates, as it promised, the bank gave the worst or nearly the worst rates of the trading day, the attorney general alleges.
Both public and private pension funds, including the New York City Employee Retirement System and the State University of New York, fell victim to the bank, Schneiderman says.
From Legal Newsline: Reach Jessica Karmasek by email at firstname.lastname@example.org.
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