Bank of New York Mellon Corp., the world’s largest custody bank, asked a judge to dismiss a lawsuit brought by the New York attorney general that accused it of defrauding clients through foreign currency transactions.
The bank argued at a hearing today in New York State Supreme Court in Manhattan that the state’s securities fraud statute, known as the Martin Act, doesn’t apply to the transactions at issue in the case.
“What the AG is asking this court to do is something unprecedented,” Reid Figel, an attorney for the New York-based bank, told Justice Marcy Friedman.
Attorney General Eric Schneiderman sued BNY Mellon last year, saying the bank engaged in a “multipronged campaign of deception” in pricing practices for foreign currency trades on behalf of clients. The bank generated more than $2 billion in revenue from the fraud over a 10-year period, the state said.
BNY Mellon priced foreign currency trades for clients at the worst rates at which currencies traded rather than the market rates at the time of the trades, the state said. The bank promised the “best rate” and concealed its practice from clients, pocketing the difference between the rate it gave clients and the market price when it executed a transaction, according to the state.
“This is a case where they knew what they were saying was false,” Roger Waldman, an attorney for the state, said at the hearing.
BNY Mellon, which has also been sued the U.S. Attorney’s Office in Manhattan, argued in court papers that it accurately reported the actual rates it applied to the transactions and that clients could “easily determine” how the price the bank applied compared with other market rates.
The case is People v. the Bank of New York Mellon Corp., 114735-2009, New York State Supreme Court (Manhattan).