Schneiderman
NEW YORK (Legal Newsline) - New York Attorney General Eric Schneiderman has filed what his office says is a landmark lawsuit against Bank of New York Mellon, which is calling his claims "baseless."
Schneiderman announced the suit Monday, claiming BNY Mellon defrauded clients in foreign currency exchange transactions. Schneiderman filed the suit on behalf of public and private pension funds and seeks a nationwide recovery of $2 billion.
"This landmark case uncovered a fraud committed against both government and private pension funds," Executive Deputy Attorney General Karla G. Sanchez said.
"This office will continue to commit its full resources to hold those responsible accountable, seek restitution for the victims, ensure that our markets are fair and transparent, and uphold one set of rules for all market participants."
Over 10 years, BNY Mellon misrepresented to customers the rates it would give foreign currency transactions, Schneiderman alleges. He says BNY Mellon gave the worst interbank rates of the trading day instead of the best, accounting for more than 65 percent of its foreign exchange revenues.
BNY Mellon said it will vigorously defend itself from Schneiderman's allegations.
"The claims in this lawsuit are flat-out wrong, both on the law and on the facts," the company said in a statement. "They reflect a fundamental misunderstanding by the attorney general and his staff of the role of custodian banks and the operation of institutional FX (foreign exchange) markets."
BNY Mellon says Schneiderman expected the company to provide its FX services at cost - "something no rational commercial institutional would do."
"It is particularly disturbing that the attorney general deliberately ignores that BNY Mellon acts as principal in standing instruction transactions, which provide real value to our clients," the company says.
"In standing instruction transactions, BNY Mellon buys currencies from and sells currencies to institutional custody clients at 'wholesale' prices that are significantly better than they could obtain from other providers, particularly for transactions of a similar 'retail' size."
Schneiderman says he, along with the New York City Corporation Counsel and the New York City Comptroller, uncovered evidence and testimony that revealed an elaborate scheme. Employee testimony shows that BNY Mellon did not seek the best rates for the transactions and concealed its pricing practices, making its profit by pocketing the different between the worst price of the day and the actual market price, Schneiderman claims.
The investigation began when a whistleblower filed a complaint with Schneiderman's office. The lawsuit also seeks $12,000 per violation of the False Claims Act.
From Legal Newsline: Reach John O'Brien by e-mail at jobrienwv@gmail.com.